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Category: Practice Area: Insurance Litigation

Article: New Attorney Fee Law May Be Boon To Florida Property Insurers

September 1, 2021

A recent article by Christine Renella and William Zieden-Weber, “New Fla. Atty Fee Law May Be Boon To Property Insurers,” reports a new law in Florida that amends Florida's attorney fees statutes, Sections 626.9373 and 627.428 of the Florida Statutes, as they apply to property insurance disputes.  This article was posted with permission.  The article reads:

Florida S.B. 76, designed to curb first-party property insurance litigation in Florida, took effect on July 1.  While the bill addresses several critical property insurance topics including roof-surface reimbursement schedules, regulation of contractors, proper notice, the right to inspect, and determination of whether abatement is applicable, the crown jewel of the bill amends Florida's infamous attorney fees statutes, Sections 626.9373 and 627.428 of the Florida Statutes, as they apply to property insurance disputes.

Background to Florida Attorney Fees Statutes

In most jurisdictions in the U.S., each party to insurance litigation pays its own attorney, regardless of the outcome of the litigation.  In fact, a court may only award attorney fees to the prevailing side if authorized by statute or agreement of the parties to the litigation.

Florida, however, is one of the minority jurisdictions that has allowed an insured to recover his or her own attorney fees if the insured prosecutes a lawsuit to enforce an insurance policy for more than a hundred years.  Florida has kept some version of this law on the books since 1893, and it reads in pertinent part as follows, with the underlined text added by S.B. 76:

Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured's or beneficiary's attorney prosecuting the suit in which the recovery is had.  In a suit arising under a residential or commercial property insurance policy not brought by an assignee, the amount of reasonable attorney fees shall be awarded only as provided in s. 57.105 or s. 627.70152.

The Florida Supreme Court has historically supported the need for fee and cost reimbursement in the realm of insurance litigation as being deeply rooted in public policy.  The court has given the Legislature deference in this area of the law, recognizing its sentiment on how essential it is to level the playing field between the economically advantaged insurance companies and the individual citizen.  However, practicing Florida attorneys have seen a perversion of this intent play out in recent years.  In first-party coverage disputes specifically, an insured would often file a lawsuit in instances in which the dispute was simply over the scope of damages.

This created a situation in which, as long as an insured prevailed in its lawsuit with a judgment greater than any amount of the insurance proceeds originally paid by the insurer — even $1 — the insured would be entitled to attorney fees.  As such, insureds were often able to leverage larger settlements using the attorney fees statutes.

Section 627.70152 Notice Requirement

Florida's new legislation effectively puts an end to the attorney fees statutes as they pertain to property insurance, which historically established a strong presumption that using a "lodestar fee" to compensate attorneys for property insurance claims was considered sufficient and reasonable.  This presumption is only rebutted in rare and exceptional circumstances with evidence that competent counsel could not have been retained in a reasonable manner.

Instead, S.B. 76 creates a new statute, Section 627.70152, which establishes a scheme for attorney fees structured around a presuit notice requirement.  Now that S.B. 76 has passed, the path to attorney fees for an insured is less certain, and insurers are hopeful that the vast number of suits filed against insurers in Florida every year will decrease.  Specifically, the burden has essentially shifted to an insured to prove entitlement through the imposition of a judgment between 20%-50% higher than the presuit settlement offer in order to obtain fees.

Additionally, the notice requirement provides an additional hurdle for insureds in that a suit may not be filed prior to the issuance of a written notice of intent.  Specifically, the notice statute imposes a notice requirement on claimants, stating that as a condition precedent to filing suit under a property insurance policy, a claimant must provide the insurer with written notice of intent to initiate litigation.  Under the notice statute, this notice must be served by certified mail, return receipt requested, or electronic delivery at least 10 days before filing suit, but may not be served before the insurer has made a coverage determination under Section 627.70131.

The immediate effect of the statute is the prohibition of suit prior to a coverage determination being issued.  This alone will lead to less litigation as insurer's often file suit before the conclusion of the investigation of a claim and issuance of a coverage determination.  Additionally, the statute requires that each notice include the following information: (1) that the notice is being provided pursuant to this section; (2) the alleged acts or omissions of the insurer giving rise to the action;and (3) that the notice has been provided to the insured if represented by an attorney.

In cases in which the notice is provided following a denial of coverage, the notice must include an estimate of damages.  In cases in which the notice is provided following something other than a denial of coverage, the notice must include the disputed amount of damages and a presuit settlement demand itemizing damages, attorneys fees and costs.  The online form used to submit the notice can be found on the civil remedy and required legal notices webpage of Florida's Division of Consumer Services.

The additional information required per the statute including the disputed amount of damage and presuit settlement demand in cases other than a denial of coverage will provide insurers with the requisite information necessary to evaluate the claim prior to suit being filed.  Prior to the imposition of the statute, insureds were able to file suit at anytime without having ever provided insurers with supporting documentation that in many cases would obviate the need for suit altogether. However, after July 1, insurers are in a position to address disputed damages in an attempt to avoid lawsuits.

In response to the notice, an insurer is now required to respond in writing within 10 days.  Specifically, in the response to a notice regarding denial of coverage, the insurer must either (1) accept coverage, (2) deny coverage, or (3) assert the right to reinspect the property within 14 business days.  Conversely, in the response to a notice regarding something other than denial of coverage, the insurer must respond by making a settlement offer or requiring the insured to participate in an appraisal process.

As a check and balance on the presuit process, the notice statute allows a court to dismiss without prejudice any suit in which the claimant failed to provide notice or the presuit period did not properly conclude, again reducing the amount of frivolous lawsuits that insurers are forced to defend.  If a claimant commences an action in a Florida court based upon or including the same claim against the same adverse party that such insured has previously voluntarily dismissed, then the court may order the insured to pay the attorney fees and costs of the adverse party resulting from the action that had previously been voluntarily dismissed.

Finally, the notice statute states that the notice and other documentation is admissible as evidence in a civil action or an alternative dispute resolution proceeding.  The notice and submissions requirements do not limit the evidence of attorney fees, damages or loss that may be offered at trial.  They also do not relieve any obligation that an insured or assignee has to give notice under any other provision of law.  While the notice statute imposes more stringent requirements on policyholders, the effect in practice will likely be a dramatic reduction in the amount of suits filed.  Accordingly, litigation costs for insurers will decrease, while meritorious suits are likely take less time to filter through the courts.

Section 627.70152 Attorney Fees Scheme

Most importantly, the notice statute sets a forth a new scheme for calculating the amount of attorney fees allowed to be awarded, which is based on the difference between the amount ultimately obtained by an insured compared to the amount originally in dispute.  That difference can then result in three distinct scenarios:

  1. The claimant does not recover attorney fees — when the difference between the amount obtained by the insured and the presuit settlement offer by the insurer is less than 20% of the amount in dispute during the presuit notice period, a claimant may not be awarded attorney fees under Sections 626.9373 and 627.428.
  2. The claimant recovers 20%-50% in attorney fees — when the difference between the amount obtained by the insured and the presuit settlement offer by the insurer is between 20%-50% of the amount in dispute during the presuit notice period, a claimant may recover the same percentage of attorneys fees under Sections 626.9373 and 627.428.
  3. The claimant recovers all attorney fees — when the difference between the amount obtained by the insured and the presuit settlement offer is greater than 50% of the amount in dispute at the presuit during the presuit notice period, a claimant the full amount of attorney fees under Sections 626.9373 and 627.428.

With the applicability of fees now based on this mathematical formula, courts will have considerably less discretion to order payment of attorney fees and costs, and insureds will be less inclined to race to the courthouse.  Many Florida practitioners hope that the notice statute will tip the scales in favor of a more balanced scheme for the imposition of attorney fees and costs.  While previously insureds were able to recover fees upon the rendition of a judgment alone, now insureds will be forced to show entitlement through the imposition of a judgment at least 20% higher than the amount in dispute during the notice period.

Conclusion

In conclusion, the notice statute is expected to bring much needed change to the landscape of property insurance litigation in Florida by adding some semblance of balance to a historically hostile environment for property insurers.

AIG Unit Denied Attorney Fees in $7.2M Coverage Win

August 6, 2021

A recent Law 360 story by Ben Zigterman, “AIG Unit Denied Fees Following $7.2M Coverage Win”, reports that an AIG subsidiary has lost its New York federal court bid to have its reinsurer pay more than $300,000 in attorney fees, following a ruling last year that the reinsurer must cover $7.2 million of a $20 million payment to Dole Food Co. to settle pollution claims.  The Insurance Co. of the State of Pennsylvania had sought the fees from London-based reinsurer Equitas Insurance Ltd. under English law, but U.S. District Judge Laura Taylor Swain adopted a magistrate judge's recommendation that the fees are not permitted by New York law.

On U.S. Magistrate Judge Sarah L. Cave's recommendation last month, ICSOP said it wouldn't object in an effort to speed up Equitas' appeal of the $7.2 million judgment, which is now up to $8.4 million with prejudgment interest.  After ICSOP covered the $20 million settlement of claims over lingering petrochemical pollution at a Dole subsidiary's housing development in California, it asked Equitas to pay $7.2 million of that under two reinsurance policies it had with Equitas.  Judge Swain upheld that request last year under English law.

Because the case was decided under English law, ICSOP asked the court to also apply it to the insurer's attorney fees of about $348,000, as British courts generally require the losing party to pay them, according to the insurer's motion.  ICSOP also said that its attorney fees were "eminently reasonable" compared to the total judgment and that it paid discounted hourly rates of $566.40 and $380 to the two attorneys working on the case.

But while the reinsurance policies were interpreted under English law, Judge Cave found that the question of attorney fees is a procedural matter that should be interpreted under the procedures of the court where the suit was filed.  Under New York law, losing parties in a lawsuit don't pay attorney fees unless a law or contract states otherwise, which was not the case with these reinsurance policies, she said.

"While it may have been predictable that, because the reinsurance policies were sold in the London market, English law would govern their interpretation, the reinsurance policies do not dictate that litigation be brought in an English court, contain a fee-shifting provision, or provide that the English Rule would apply in a United States court in which the parties chose to litigate," Judge Cave wrote.

Six Flags Wants Insurer to Cover $2.89M in Attorney Fees

May 19, 2021

A recent Texas Lawyer story by Angela Morris, “Six Flags Wants Insurer Travelers Casualty to Cover $2.89 Million in Attorney Fees, reports that the Texas-based theme park filed new litigation seeking to force its insurance company to reimburse millions of dollars in attorney fees that it paid to some of the nation’s largest law firms—like Kirkland & Ellis and Perkins Coie.  In the new federal court lawsuit in Dallas, Six Flags Entertainment Corp. has alleged that its insurer, Travelers Casualty and Surety Co. of America, has wrongfully denied the park its insurance coverage for attorney fees and legal expenses.

Six Flags spent the money to defend itself from a probe by the U.S. Securities and Exchange Commission into its business dealings in China, and from a class action and shareholder litigation related to the China dealings.  Six Flags operates 26 parks in the U.S., Mexico and Canada, including four parks each in California and Texas, and two parks each in Georgia, New Jersey and New York, according to its website.

But COVID-19 has hit Six Flags hard: $82 million revenue in the first quarter of 2021 represents a 38% drop compared to the same time period in 2019, according to the company’s most recent performance report.  The park’s legal troubles started in February 2020 with the SEC subpoena, according to the complaint in Six Flags Entertainment Corp v. Travelers Casualty and Surety Co. of America, filed in the U.S. District Court for the Northern District of Texas.

Six Flags had to pay more than $2.5 million in fees to law firms Kirkland & Ellis, Lionbridge, Parker Lynch and Fayer Gipson to defend itself against the subpoena, which asked for information about a partnership with a Chinese real estate developer regarding Six Flags parks in China, and a negative $15 million revenue adjustment.  Insurance coverages for directors and officers and for organizational liability should have covered the company’s legal expenses, the complaint said.

Also in February 2020, two securities class-action complaints were filed against the company and two former executives over the same partnership and negative revenue adjustment.  Substantively the same allegations arose in shareholder derivative lawsuits in federal and state courts against the company, executives and board members, said the complaint.  Six Flags had to spend more than $290,000 in fees for lawyers at Perkins Coie to represent two company executives who were defendants in a class action, since there could be a conflict if the same attorneys represented the company and those individuals.

According to a search of federal court records on PACER, plaintiffs filed three shareholder derivative lawsuits that were consolidated into one case, and U.S. District Judge Mark Pittman on April 28 granted a motion to dismiss by Six Flags in the case, In Re Six Flags Entertainment Corp. Derivative Litigation. The defendants—Six Flags’ executives and board members—were represented by Kirkland & Ellis lawyers Jeremy Fielding of Dallas, and New York-based Daniel Cellucci, Sandra Goldstein and Stefan Atkinson.  Pittman on March 3 granted Six Flags’ motion to dismiss in a consolidated class action matter, according to an opinion and order in that case, Electrical Workers Pension Fund v. Six Flags Entertainment Corp.  Those defendants–Six Flags and two executives–had the same Kirkland & Ellis attorneys, said PACER.

In a different case—unrelated to the Chinese Six Flags parks–Six Flags had told its insurance company about a “crucial event matter” dealing with a potential proxy fight with a shareholder. Six Flags tapped Kirkland & Ellis to represent it, and the matter eventually reached an amicable agreement, said the complaint.  Six Flags incurred more than $100,000 in legal fees for this outcome, and the complaint alleged that Travelers has refused coverage.

Aside from these legal actions, the complaint alleged that at other times, Travelers has tried to recharacterize and reallocate legal fees and expenses, that should have been covered by insurance. It alleged the insurer looked to lessen exposure and to decrease policy benefits paid to Six Flags.

The theme park company is suing its insurer for breach of contract, violation of a Texas insurance law that requires prompt and fair payment of claims, and breach of the duty of good faith and fair dealing.  Six Flags has asked the court for a declaratory judgment that finds the Travelers policy should cover attorney fees and legal expenses.  In addition to recovering those amounts from Travelers, it wants to be paid back for the legal fees it is spending to sue the insurance company, said the complaint.

Wyoming Supreme Court: Sinclair Can Seek Attorney Fees From Insurer

May 10, 2021

A recent Reuters story by Debra Cassens Weiss, “Wyoming Top Court Sides With Sinclair Refinery On Fee Award Question” reports that a Sinclair refinery can seek attorneys’ fees from Swiss insurer Infrassure under Wyoming law even though the policy was not issued in Wyoming or physically delivered in the state, the Wyoming Supreme Court held in answer to a certified question from the 10th U.S. Circuit Court of Appeals.

In its first interpretation of a fee award statute that applies only to insurance policies “delivered” or “issued for delivery in” Wyoming, the high court found the law “clearly and unambiguously provides that an insurance contract is issued for delivery in Wyoming if the policy issued is intended to protect an insured in Wyoming against risks in Wyoming.”

The decision paves the way for Sinclair Wyoming Refining Company’s second appellate win following a 2013 fire and explosion that slowed production for seven months.  The 10th Circuit last year affirmed that Infrassure must pay its contractual share of the business-interruption loss, but asked the Wyoming Supreme Court for input on the fee-award statute.  According to the Wyoming Supreme Court’s order, the refinery was an additional named insured under coverage obtained its parent company, The Sinclair Companies, and underwritten by 18 insurers on the London market.

After the 2013 explosion, the refinery sought $100 million from its insurers but agreed to a $60 million settlement.  By 2015, all the insurers had paid their shares except for Infrassure, which demanded arbitration.  The arbitration panel independently concluded that the loss was $60 million and ordered Infrassure to pay its $4.5 million share. U.S. District Judge Nancy Freudenthal confirmed the arbitration award in 2018.

However, Freudenthal dismissed the refinery’s claim for attorneys’ fees for wrongful denial under Wyoming’s insurance code.  She concluded that the statute did not apply because Infrassure had “issued” its policy in London or Zurich and there was no evidence the policy had ever been physically “delivered.”  Although both The Sinclair Companies and Sinclair Wyoming Refining Co are Wyoming corporations, Freudenthal found it more significant that the only address mentioned in the policy was for the parent company’s risk-management offices in Utah.

Like Freudenthal, the Wyoming Supreme Court acknowledged that courts “are split on whether statutory language referencing an insurance policy be ‘delivered’ or ‘issued for delivery’ should be construed strictly or liberally.”  The justices, however, adopted the more liberal view of the New York Appellate Division, which considers two factors – the location of the insured, and the location of the risk to be insured – to determine whether a policy was “issued for delivery” in New York.

That reading is consistent with the Wyoming law’s purpose “to protect public welfare and Wyoming residents from being taken advantage of by sophisticated insurance companies,” the opinion says.  “(A)bsent an insurance contract unambiguously stating otherwise, if the location of the insured and the location of the risk to be insured are both in Wyoming, an insurance policy is intended to be delivered and is ‘issued for delivery’ in Wyoming, the court concluded.

Safeco Tells Eleventh Circuit Attorney Fees Aren’t Damages

May 3, 2021

A recent Law 360 story by Brett Barrauquere, “Safeco Tells 11th Circ. Atty Fees Aren’t Damages,” reports that Safeco Insurance wants the Eleventh Circuit to affirm a lower court ruling that another insurer is time-barred from seeking attorney fees on a $1.6 million judgment stemming from a fatal motorcycle accident.  Safeco Insurance of Illinois and Safeco Insurance Co. of America said in a brief said that Endurance American Specialty Insurance Co. waited eight months too long to request attorney fees.

Endurance should have either sought attorney fees within 14 days of the judgment as the prevailing party or presented evidence at trial to claim them as damages, Safeco argued.  Because it did neither, Endurance isn't entitled to anything, Safeco said.  "Endurance cannot circumvent the time requirement of the federal and local rules by arguing its fees were damages, either," Safeco said.

Endurance asked the federal appeals court in April to overturn a lower court decision that the insurer says improperly adopted recommendations by a magistrate judge that said Endurance had waited too long to argue it was due attorney fees.  A federal jury that had sided with Endurance decided that another insurer had violated an agency agreement, which included an indemnity provision that forces it to pay attorney fees to Endurance, according to the company's brief.  That jury finding supports Endurance's fee request, it says.

Safeco argues that under the controlling Florida law, attorney fees aren't recoverable as damages and that they are an ancillary claim based on a contractual provision.  And Endurance has no legal way of beating the 14-day deadline for claiming attorney fees, Safeco said.

Endurance didn't present evidence to back up its claim for attorney fees at trial, and it failed to move to appeal the final judgment and claim that the fees were wrongly excluded, Safeco said.  "Because Endurance never argued it's attorney's fees were damages to the magistrate judge, the district court was within its discretion to decline to consider the argument," Safeco said.

U.S. Magistrate Judge Christopher P. Tuite had issued a report and recommendation saying that Endurance filed its motion for fees almost a year after judgment was entered. The judge said the company "provides no rationale for its belated filings."  Judge Tuite's first denial was based on Florida statute.  The second one at issue is for recovery of fees "expended in enforcing the agency agreement's indemnification provision."  Judge Tuite said it looked like Endurance filed the second motion "after it gleaned from the [first report and recommendation] that it might not prevail on its first motion."