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Florida Bad Faith Law and Your Sinkhole Claim

By Michael V. Laurato, Esq. (1164 Words)

            Damages caused to a home by sinkhole activity in Florida can be expensive to repair or remediate, sometimes exceeding the value of the home itself.  In addition to the expensive nature of the sinkhole repair/remediation process, real property, which has been damaged by a sinkhole, in many instances, bears a certain stigma that affects its market value, regardless of the efficacy or quality of the repairs performed.  After all, the sinkhole law requires that confirmed sinkhole homes be recorded with the clerk of the court in the county where the home is located, much in the same way a deed or lien on the property is recorded.  In the event the home is sold, the purchasing public is put on notice of sinkhole activity on the property. 

            Polluted property provides a good analogy of the loss in value which occurs to a sinkhole home.  For example, the market value for polluted property, even after it has been cleaned up, is less than a comparable piece of property that was never polluted, in the first instance.  Much in the same way polluted property is stigmatized, a sinkhole home, even one that has been remediated, commands a lower market value than a comparable home without sinkhole activity.  Thus, in addition, to facing expensive sinkhole repairs, homeowners are faced with the prospect of loss of market value to the home, even after the repairs have been completed, attributable to the undesirability in the market and the stigma associated with a “sinkhole” home.

            Under current law, Florida insurance companies are required to offer sinkhole coverage, in exchange for the payment of an additional premium.  With few exceptions, every policy of homeowner’s insurance contains a policy limit, which represents the maximum which the insurance company will be liable for in the event of a covered loss, regardless of whether the actual loss suffered exceeds the dollar limits of the policy.  In other words, no matter how large the monetary loss, the insurance company’s liability will be capped at a certain dollar figure listed in the policy’s declarations page, and no more.  The vast majority of policies issued in Florida do not expressly reimburse the homeowner for “stigma” or loss of value damages.  In any event, it has been questioned as to whether “stigma” damages are recoverable under any circumstances in an action on a policy of insurance. However that may be, most policies simply agree to pay the actual cash value of the cost of cosmetic repairs to the structure and remediation of the subsurface, up to the policy limits.  In addition to the actual cash value of repairs both above-surface and subsurface, many homeowner’s forms of policy contain separate policy limits for additional living expenses incurred as a result of having to find substitute housing during the period of repair, up to those separately listed limits.  Damage incurred outside of those two basic forms of coverage is often expressly excluded or not provided for at all in the policy.   

            Being that the entire purpose of insurance is to indemnify an insured for the loss actually sustained and to make that person “whole,” the question often arises in sinkhole claims–where the damages oftentimes surpass the policy limits and additional value is lost–as to whether Florida law permits the recovery of extra-contractual damages, or damages over the policy limits?   Under certain circumstances, Florida law does provide a statutory remedy, allowing for the recovery of extra-contractual damages in excess of the policy limits.

            That remedy is found in what is commonly referred to as the Florida Claims Practices Act or the Florida Bad Faith Statute.  Pursuant to the statute, an insured—or any person for that matter–aggrieved by certain enumerated insurer misconduct in the claims’ process is entitled to file a “Civil Remedy Notice of Insurer Violation” with the Florida Department of Financial Services.  After ensuring that certain statutory prerequisites are complied with and properly completing the required form, an insurer will have a set period of time in which to respond and, ultimately, “cure” the “bad faith,” by paying the claim or otherwise remedying the alleged wrongful claims’ conduct.  If the insurer pays the claim within the “cure” period, or statutory time frame, the claim is concluded and the insurer is immunized from further extra-contractual damages above the policy limits.  If the insurer does not pay the claim within the statutory time frame and the insured ultimately goes on to prevail on the claim by establishing coverage and damages, a second cause of action, or case, will legally be permitted against the insurance company.  Practitioners in the insurance field regularly refer to this “second case” as the “bad faith claim” or the “bad faith case.”  Depending upon the proof and circumstances, during this second case, an insured may be entitled to recover all extra-contractual damages or damages actually incurred, even those above the insurance company’s policy limits and regardless of any amounts listed in the declarations page.  Under Florida law, thispractice area is known as “first-party” bad faith and it is strictly statutory, meaning that the only way to successfully bring this type of action against your own insurance company in a sinkhole claim is to follow the requirements of the statute.  There is no common law right to such an action in Florida. 

            Bad faith claims may arise in sinkhole claims in the same manner as they arise in all other first-party insurance claims, but tend to be focused in two prominent areas.  The first is in the cost of repair.  Many times the cost of repairs exceeds the applicable policy limits.  The second is the expenses for additional living expenses.  Many times the cost associated with finding and then, moving a family to suitable substitute housing during the time necessary to complete the repair, exceeds the applicable policy limits for additional living expenses.  In both instances, a properly perfected bad faith claim will permit the insured to be made fully whole, so that the home can be properly remediated and the family can have an adequate place to live during the repair process, without consideration of the applicable policy limits.  

            Thus, in theory, a homeowner who has been unfairly treated in the claims’ process by the insurance company can be made whole for the entire loss through application of Florida’s Bad Faith statute. Essentially, through the statutory process, a policy of insurance, becomes one without limits, permitting the insured to recover for the entire value of the loss, even if not expressly provided for in the contract of insurance.  If the insurance company’s conduct is egregious enough that it can be shown to be in reckless disregard for the rights of an insured, the statute authorizes an award of punitive damages, in addition to the extra-contractual damages, aimed at punishing the insurance company for past conduct and discouraging the company from engaging in that same conduct in the future. 

            Under both Florida’s insurance code and most policies of insurance, an insurer has many obligations and duties in handling a claim that may trigger the application of Florida’s Bad Faith statute.  The insurance code is complex. The interplay between the provisions of the insurance code and the Bad Faith statute adds further complexity to an already intricate field.  The scientifically intense and statutorily regulated field of sinkhole law makes the process all the more difficult.  If you feel that your insurance company may have handled your sinkhole claim in bad faith or in violation of the statute, you should consult a lawyer that is experienced both in field of Florida First-Party Bad Faith Claims and Sinkhole law.