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Florida Supreme Court: Insurer Required to Pay Legal Fees

November 14, 2016 | Posted in : Coverage of Fees, Expenses / Costs, Fee Entitlement / Recoverability, Fee Issues on Appeal, Fees as Sanctions

A recent Daily Business Review story, “Florida Supreme Court Says Insurer Required to Foot Legal Fees,” reports that the Florida Supreme Court said a property insurer must pay the attorney fees of a homeowner who successfully challenged the company's contention that her home was not damaged by a sinkhole.

The court, in a 6-1 ruling in a Marion County case, sided with homeowner Kathy Johnson, who filed a claim in 2010 with Omega Insurance Co. because of extensive damage that included cracks in walls and separations between walls and ceilings.  The justices pointed to a need for policyholders to be able to recoup legal fees if they successfully fight insurance companies over claims.

"The need for fee and cost reimbursement in the realm of insurance litigation is deeply rooted in public policy.  Namely, the Legislature recognized that it was essential to 'level the playing field' between the economically advantaged and sophisticated insurance companies and the individual citizen," said the majority opinion, written by Justice R. Fred Lewis and joined fully by Chief Justice Jorge Labarga and Justices Barbara Pariente, Peggy Quince and James E.C. Perry.

"Most assuredly, the average policyholder has neither the finances nor the expertise to single-handedly take on an insurance carrier," Lewis said.  "Without the funds necessary to compete with an insurance carrier, often a concerned policyholder's only means to take protective action is to hire that expertise in the form of legal counsel.  Counsel then have the ability and knowledge to hire an independent engineer or other expert to prepare a report that either confirms or denies the policyholder's view of the cause of damages.  For this reason, the Legislature recognized that an insured is not made whole when an insurer simply grants the previously denied benefits without fees."

The legal dispute began after Omega Insurance hired a consulting firm that said the damage to Johnson's home was not caused by a sinkhole.  Johnson retained a law firm, which in turn hired a consultant who concluded a sinkhole was responsible.

Johnson filed a breach-of-contract lawsuit against Omega.  After another consulting firm said the damage was caused by a sinkhole, Omega agreed to pay for repairs, which totaled $213,465, according to the Supreme Court ruling.  Johnson then sought to require the insurer to pay her attorney fees.

A circuit judge ruled that the insurer should pay the legal fees, but the Fifth District Court of Appeal disagreed.  It said the insurer could only be forced to pay the fees if it initially denied the claim in "bad faith."

The Supreme Court's 27-page majority opinion overturned that ruling.  "We cannot, as the [appeals] court below held and Omega requests here, discourage insureds from seeking to correct the incorrect denials of valid claims and allow insurers to deny benefits to which insureds are entitled without ramifications," the opinion said.  "Johnson proceeded with the only action that a non-expert claimant in conflict with a major insurance company could take: She retained counsel and thus obtained access to an independent expert."