Florida Insureds Can’t Force Interest on Late Claims Payments, Courts Say

Two back-to-back federal court decisions may have dealt a lethal blow to recent proposed class actions that sought interest on property insurers’ late claims payments. But the rulings have left some insureds and their attorneys feeling that they’re seeing another example of how Florida law seems to have stacked the deck against policyholders.

Even the judge in one of the cases noted that the law is clear, but wanting, giving him little choice but to dismiss the lawsuit while highlighting problems with the statute.

“For better or worse, plaintiffs are right to point out that (the statute) will, at times, create a violation without a remedy,” even when a major insurer has shown a pattern of avoiding interest payments, U.S. District Judge Michael Moore in Miami wrote in his April 14 decision in Barbato vs. State Farm Florida Insurance Co.

A week later, Moore’s colleague, U.S. District Judge Robert Scola, dismissed a similar, proposed class-action lawsuit against Heritage Property & Casualty Insurance Co. The defense counsel in the case, James Gillenwater, of the Greenberg Traurig law firm, said the ruling is correct and would likely curtail a tactic that plaintiffs have employed as Florida lawmakers have tightened options on insurance litigation.

“This case was representative of an insurance class-action trend we’ve been seeing in Florida,” Gillenwater said in an email. “Plaintiffs’ attorneys have been attempting an end-run around Section 627.70131(7)(a)’s bar on a private-cause-of-action by bringing breach-of-contract claims—rather than statutory claims…”

The statute Gillenwater refers to requires insurers to pay interest in most cases when payouts are made late, or “more than 15 days after there are no longer factors beyond the control of the insurer which reasonably prevented such payment.” In Riley vs. Heritage, the south Florida homeowners, hit by Hurricane Irma, said that they were awarded thousands by an appraisal panel, but Heritage did not pay until after the 15 days had passed.

But the law also explicitly notes that insureds cannot sue (bring a private cause of action) simply because the insurer failed to pay interest. Interest enforcement can only be part of another legal action, such as a suit over an insurer’s refusal to pay an appraisal award altogether, Gillenwater noted in his motion to dismiss the suit.

The Legislature’s reasoning, said Robert Jarvis, a law professor at Nova Southeastern University, was probably rooted in concerns that it’s best for the government to enforce the law. Many states bar private causes of action over statutory violations. In rare cases, some states, including Texas, have gone the opposite direction on hot-button issues, such as abortion, allowing citizens to bring suit over apparent violations.

Scola, in the Heritage decision, noted that the Florida interest statute can still be used to enforce regulatory actions or insurers’ bad-faith actions.

The insured plaintiffs were represented by the same three law firms: Levine, Kellogg, Lehman, Schneider and Grossman, of Miami; Francisco Rodriguez, of Coral Gables; and Michael Knecht, of Jupiter. They devised a somewhat novel argument – that the homeowners’ insurance policies implicitly incorporated the interest statute. Therefore, the lack of interest was a breach of the insurance policy contract, they said.

The judges in both decisions disagreed. “The court finds the plaintiffs’ attempt to dodge the private-cause-of-action bar unavailing,” Scola wrote.

The judges dismissed the cases with prejudice, meaning they cannot be revisited at the district court level. The plaintiffs’ lawyers are still analyzing if the decisions will be appealed to the 11^th Circuit Court of Appeals, said attorney Jason Kellogg.

“We are pursuing these cases because, as the court implies, consumers are getting the short end of the stick,” he said in an email Thursday.

Another attorney who represents policyholders, Chip Merlin, of Tampa, agreed that the suits seek to correct a wrong.

“Why it is good that insurers who pay late and are required by law to pay the interest do not do so?” Merlin asked. And, should it be left to the Florida Department of Financial Services and the Office of Insurance Regulation, not known for aggressively policing insurers, to issues fines?

He argued in a blog last week that policyholders should be able to enforce the laws because they have skin in the game. “Taxpayers should not have to pay money to support an unnecessary governmental entity to enforce laws better enforced by the people with the monies at stake,” he noted.

After Florida lawmakers passed six laws in the last four years designed to limit claims litigation and attorney fees, Merlin and other advocates have argued that injured policyholders have few other methods to bird-dog insurers’ compliance.

The amount of interest the insureds missed out on may range from only a few hundred dollars to several thousand dollars per plaintiff. Florida law requires the state’s chief financial officer to set the annual interest rate for judgments, based on the federal discount rate. The current rate is 6.58%.

For Joan Riley’s $97,546 claim paid by Heritage, that puts the interest at about $6,400 for one year, but much less if the payment was just a few days late. It’s unclear when Heritage paid the appraisal award.

For the Rabatos’ claim, the judge calculated that the interest would be about $30,000.

Kellogg pointed out that Judge Moore also said he was “troubled” by the fact that the statute expressly prohibits late payments by insurers but simultaneously gives that conduct a safe harbor. And State Farm has exhibited a clear pattern of facing allegations of failure to pay interest.

“We are not here to decide whether State Farm has been a good neighbor,” the judge wrote. “But rightfully or wrongfully, State Farm has been implicated in several similar cases.”

The remedy, however, is one for the legislative branch, not the courts, Moore said.

The amount of potential damages per claim makes little financial sense for a plaintiff’s attorney – outside of a class action. The proposed class in these cases could have included hundreds of policyholders, and total damages would have exceeded $5 million, the lawsuits said.

On the other hand, even if interest wasn’t paid, the insurance companies can argue that they have largely complied with the law and their policy requirements – at a time that many Florida insureds have complained about delayed or unpaid hurricane claims.

The insurer “had a dispute with its policyholders over the value of their loss; the dispute got submitted to an appraisal panel; the panel made a decision; and Heritage then paid the amount it was ordered to pay,” Jarvis noted. “That sounds to me like the system worked as intended.”

Topics Florida Claims