Florida’s high court has ruled that the state fund charged with paying claims from insolvent insurers is not responsible for paying a claimant’s legal fees on a pre-insolvent claim unless they are specifically covered under the terms of their policy.
The Florida Supreme Court in the case of Petty v. Florida Insurance Guaranty Association [No. SC10-2097, Jan. 19, 2012], resolved a conflict between two lower court rulings that addressed the guaranty association’s liability for paying claimant’s attorney fees based on the legal definition of a “covered claim.”
The case has its origins in 2004 when Diane Petty’s home sustained damage from Hurricane Charley.
At the time, her property was covered through Florida Preferred Property Insurance Co., which initially made a partial payment to Petty. Afterwards, Petty later demanded an appraisal to resolve a dispute over the monetary value of her loss. Although the insurer paid Petty more money, it went bankrupt before a court could decide whether the insurer owed her any legal fees.
Since Florida Preferred’s policies were assumed by FIGA, Petty sued the guaranty fund seeking to collect the legal fees.
Petty’s lawyers argued that under a Third District Court of Appeal case, [Florida Insurance Guaranty Association v. Soto, 979 So. 2d 64 2008], she was owed the legal fees based on a state law that grants policyholders’ legal fees when there is a disputed claim and the policyholder prevails.
Supreme Court Justice J. Polston, however, agreed with the decision by the Second District Court of Appeal in another case [Petty v. FIGA case [44 So. 3d 1191 Fla 2d DCA 2010]. In that case, the lower court ruled that even if the Third DCA is correct and that section applies to claims, it does not necessarily apply to FIGA covered claims as spelled-out in state law.
Under the FIGA statute, the guaranty fund obligation to pay a covered claim is limited to the terms of the policy and cannot be in excess of the policy’s financial limits.
“In order to recover from FIGA, Petty’s claim for fees must also be within the coverage of her underlying insurance policy,” wrote Polston. “Her underlying insurance policy does not expressly provide coverage for her fee award.”
By way of an example, Polston noted that the state’s workers’ compensation law includes a specific statutory provision that requires claimant attorneys to be paid if they prevail in court based on a contingency fee schedule.
FIGA Director of Operations Tom Streukens said that fund officials welcomed the high court’s ruling, which will clarify any ambiguity in the law. He noted that many companies as they head toward bankruptcy make poor decisions and that it could have cost the guaranty fund millions in legal fees for actions of which it had no part.
“The case had the potential of costing FIGA millions of dollars that would be passed through in the form of assessments,” Streukens said.
The guaranty fund has two accounts including auto and all other personal lines with the exception of workers’ compensation In order to cover any outstanding liability, FIGA has the authority to levy a 2 percent regular assessment and 2 percent emergency assessment per year. Currently, the fund has 5,900 open claims, representing $175 million.
The industry strongly supported FIGA’s position.
In an amicus brief to the court, Maria Elena Abate, with the law firm of Colodny, Fass, Talenfelf, Karlinsky & Abate, representing the Florida Property and Casualty Association, wrote that the Soto opinion handed down by the 3rd DCA is contrary to the legislative intent of the laws governing FIGA.
Abate said that if the high court were to uphold the Soto opinion over the ruling in the Petty case it could help destabilize an already stressed market.
“The Soto opinion’s effect on Florida’s insurance market would be widespread, sharply increasingly the frequency and amount on FIGA assessments, weakening our insurance market, and raising insurance costs,” Abate wrote.
Attorneys for the trial attorneys’ Florida Justice Association, however, argued that the Supreme Court by ruling FIGA is not responsible for paying attorney fees on pre-insolvency claims is rewarding insurers at the expense of policyholders.
“The prospective client, already having been victimized by the insurers denial of the claims, would either be unable to afford, or unwilling to pay the attorney, and would be forced to simply walk away from a meritorious claim under his policy,” stated attorney Jeffrey Liggio in an amicus brief filed with the court.
Streukens, however, said that in the end the high court got it right.
“FIGA is a safety net to protect consumers, not pay vendors,” Streukens said. “We don’t cover those expenses.”
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