Krista Elsasser, Samantha Epstein and Hope Zelinger | Bressler, Amery & Ross
On September 13, 2021, Judge Nicholas Lopane in Broward County dismissed a bad faith suit filed by McDonald and Barnhill against United Property and Casualty Insurance Company (“United”), finding that the Civil Remedy Notice (“CRN”) on which it was purportedly based to be legally insufficient to support such a claim. This is a huge victory for United and hopefully signals that courts will be diligent in reviewing CRNs before allowing insureds to proceed with these intrusive and expensive suits.
The case, Yuval Lugassy and Susan Lugassy v. United Property and Casualty Insurance Company, CACE-21-002746, arose out of a shower pan failure at the insured property. United investigated the claimed loss and issued a partial coverage letter. When the Insureds demanded additional amounts through a public adjuster, United re-investigated and issued additional payments. However, a large amount remained in dispute and the Insureds filed a CRN on March 6, 2020. The Insureds then demanded appraisal, pursuant to a unilateral provision in the policy. United cooperated with the appraisal, even though it could not be completed within the 60-day cure period for the CRN, and paid the appraisal award outside the cure period. The lawsuit for bad faith was filed shortly thereafter, alleging that the filing of the CRN had preserved the claim and that the payment of the appraisal award ripened the suit, based on Cammarata v. State Farm Fla. Ins. Co., 152 So. 3d 606 (Fla. 4th DCA 2014).
Background on Florida Law re: Civil Remedy Notices and Appraisal
Cammarata held that there are three conditions precedent for filing a bad faith suit: (1) coverage, (2) amount of damages, and (3) a CRN. See id. at 612. However, the Court in that case made a crucial determination that has plagued insurers ever since: “the parties’ settlement via the appraisal process, which determined the existence of liability and the extent of the insured’s damages, established the first two conditions precedent of a bad faith action.” Id. In other words, the Court handed insureds the very tool they needed to set a trap for any carrier who sought to amicably resolve a claim within the terms of the policy by demanding appraisal, because an insured need only file a CRN in response and hold the appraisal process hostage during the 60-day cure period. Following Cammarata, carriers were forced to negotiate unfavorable settlements in order to avoid ripening a bad faith suit by paying an appraisal award outside of the cure period and being exposed to invasive discovery.
The Florida Legislature recognized the fallout from Cammarata and made changes to Florida Statute § 624.155 in an attempt to protect carriers from bad faith suits where the carrier resolved the claim pursuant to the policy’s appraisal provision. Specifically, in 2019, the statute was changed to include subsection (2)(f), which stated: “A notice required under this subsection may not be filed within 60 days after appraisal is invoked by any party in a residential property insurance claim.” Unfortunately, this only solved half of the problem; insureds could no longer file a CRN in response to a carrier’s appraisal demand, but nothing prevented an insured from demanding appraisal and immediately filing a CRN to take advantage of Cammarata.
That is exactly the situation that took place in Lugassy. The CRN in this case was filed by the Insureds’ attorneys, who certainly knew of the consequences of paying an appraisal award outside the CRN cure period and the prohibition on filing a CRN after demanding appraisal. It is no coincidence that the CRN in this case was filed first. Certainly, the Insureds and their attorneys thought that they would have no challenge to pursuing a bad faith claim against United, even though United conducted the claim investigation and participated in appraisal according to the policy language and its duties under Florida law.
What Makes a Valid CRN?
Unfortunately for the Insureds, they still had to overcome the hurdle of having a legally sufficient CRN to support their bad faith claim. Over time, some favorable case law has developed that carriers can use to protect themselves by moving to dismiss a bad faith suit based on a legally insufficient CRN. For example, because Florida Statute § 624.155 creates a cause of action that does not exist at common law, it must be strictly construed. Talat Enters., Inc. v. Aetna Cas. and Sur. Co., 753 So. 2d 1278 (Fla. 2000). The requirements for a valid CRN are set forth in Florida Statute § 624.155(3), which states in pertinent part:
(3)(a) As a condition precedent to bringing an action under this section, the department and the authorized insurer must have been given 60 days’ written notice of the violation.
(b) The notice shall be on a form provided by the department and shall state with specificity the following information, and such other information as the department may require:
- The statutory provision, including the specific language of the statute, which the authorized insurer allegedly violated.
- The facts and circumstances giving rise to the violation.
- The name of any individual involved in the violation.
- Reference to specific policy language that is relevant to the violation, if any. If the person bringing the civil action is a third party claimant, she or he shall not be required to reference the specific policy language if the authorized insurer has not provided a copy of the policy to the third party claimant pursuant to written request.
- A statement that the notice is given in order to perfect the right to pursue the civil remedy authorized by this section.
Id. at (3)(a)-(b).
The statute also provides that “[n]o action shall lie,” absent a valid CRN and compliance with the 60-day safe harbor requirements. See § 624.155(3)(d), Fla. Stat. “The purpose of the civil remedy notice is to provide insurers one last opportunity to settle a claim with the insured to avoid unnecessary bad faith litigation. . . . However, the civil remedy notice must be specific enough to provide insurers notice of the wrongdoing so the insurer can cure the same within sixty days.” Valenti v. Unum Life Ins. Co. of America, 2006 WL 1627276, *2 (M.D. Fla. 2006) (citing Lane v. Westfield Ins. Co., 862 So. 2d 774, 779 (Fla. 5th DCA 2003)) (emphasis added). Thus, courts have held that if a CRN lacks sufficient specificity, it will be held invalid and cannot form the basis of a bad faith action against the carrier. See, e.g., Fenderson v. United Auto. Ins. Co., 31 So. 3d 915 (Fla. 4th DCA 2010). The Court in Lugassy, when faced with evaluating the CRN on which the Complaint was based, ultimately determined that the CRN was insufficient to provide notice to the carrier of what the alleged bad faith violations were and how to cure them, so that the CRN could not support the Insureds’ cause of action.
Court’s Considerations re: the Motion to Dismiss in Lugassy
One of the key issues in this particular case is that the Insureds attached not only their CRN, but the carrier’s response to their Complaint. This means that the Court could consider United’s version of the facts as well as the allegations made by the Insureds. Generally, in considering a motion to dismiss, all factual allegations are accepted as true, but “[i]f an exhibit facially negates a cause of action asserted, the document attached as an exhibit controls and must be considered in determining a motion to dismiss.” Fladell v. Palm Bch. Cty. Canvassing Bd., 772 So. 2d 1240, 1242 (Fla. 2000). Moreover, “conclusions of law are not deemed admitted[.]” Mills v. Mills, 339 So. 2d 681, 684 (Fla. 1st DCA 1976); See also Barrett v. City of Margate, 743 So. 2d 1160, 1163 (Fla. 4th DCA 1999). United pointed out to the Court that, while the Complaint and CRN did contain “ultimate facts,” they mostly concerned what the Insureds and their representatives did, rather than what United did or did not do. The few facts regarding United indicated that they were not exhaustive and expressly asserted that there may be other facts that were not included. For example, the CRN alleged that United’s estimate “failed to include the floors at all, and otherwise underscoped such items as drywall repairs and paint.” Therefore, at best, the CRN provided only partial specificity, which is contrary to the requirements under Florida Statute § 624.155.
Additionally, the CRN contained citations to various statutory provisions, such as Florida Statute § 626.9541(1)(i)(3)(b), regarding misrepresentation of pertinent facts and policy provisions, but included no allegations to indicate to United what facts or policy provisions may have been misrepresented at any time prior to the filing of the CRN. This was exacerbated by the Insureds’ failure to state the policy language at issue with the requisite specificity. See Julien v. United Prop. & Cas. Ins. Co., 311 So. 3d 875, 879 (Fla. 4th DCA 2021). Instead, the CRN included references to the Loss Settlement and Loss Payment provisions, and specifically stated that “[t]here may be additional policy language relevant to this violation that may be discovered.” United argued, and the Court agreed, that the Insureds were essentially reserving the right to ambush United later on with additional information, which is contrary to the obligations that they have under Florida Statute § 624.155 to provide specifics in support of their bad faith claim.
As if that were not enough, the CRN contained an insufficient cure demand, meaning that it did not provide an actual opportunity for the carrier to cure the alleged violations. Rousso v. Liberty Surplus Ins. Corp., 2010 WL 7367059, *3 (S.D. Fla. 2010). In this case, the proposed cure on the face of the CRN was insufficient for several reasons. First, although the CRN purports to set forth that the amount of loss exceeded $50,000, the CRN Response indicates that the Plaintiffs’ representatives actually demanded $277,800.28. This alone required speculation as to what amount could be paid within the 60-day cure period to satisfy the Insureds’ so-called claims of bad faith. See Rousso, 2010 WL 7367059 at *5. Further, because the appraisal was demanded after the CRN was filed and because of the contradictions between the amount in the CRN and the amounts demanded by the Insureds’ representatives, it was impossible for United to determine what was actually being sought by the Insureds in connection with their appraisal demand. Finally, the supposed cure included undefined actions, such as “[a]ct[ing] fairly and honestly towards the Insureds . . . [and] [c]eas[ing] and desist[ing] all present and future bad faith actions with regard to the Insureds’ claim . . . .” Given that the CRN did not put United on notice of specifically what it did or did not do that was problematic, any further action taken or omitted by United would have been entirely based on speculation.
“The civil remedy notice must reflect a good-faith effort to inform the insurer of how it has fallen short of its obligations under the policy and what it can do to fix its shortcomings. The civil remedy notice is not the place for posturing or advocacy, and an effort to overstate a claim in a civil remedy notice may end up undermining it.” Rousso, 2010 WL 7367059 at *5. Thus, the Court in this case correctly determined that the CRN was insufficient as a matter of law and dismissed the case with prejudice. We are hopeful in the future that we can continue to use these arguments to benefit all carriers by helping them avoid unnecessary bad faith litigation.