Florida’s HB 837 brings significant changes to bad faith insurance framework
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On March 24, 2023, Florida Governor Ron DeSantis signed HB 837 into law. HB 837 has been a hot topic in the news and legal community because it is one of the most significant tort reform bills to make its way through the Florida legislature to date. Notably, HB 837 modifies the bad faith insurance framework, cut the longstanding statute of limitations for negligence claims in half (from four years to two years), changed Florida’s pure comparative negligence system to a modified comparative negligence system, among other significant changes. This blog discusses the changes to the bad faith insurance framework.
New Statutory Safe Harbor and Procedural Devices for Insurance Companies to Avoid a Claim for Bad Faith
One of the most significant changes caused by HB 837 to Florida’s bad faith insurance framework is an amendment to Section 624.155, Florida Statutes, which provides a safe harbor for insurance companies to correct any alleged bad faith by attempting to settle a claim in good faith, as well as two new procedural devices for insurance companies to avoid bad faith claims in a multi-claimant situation.
Notably, an insurance company can now avoid a claim for bad faith if it “tenders the lesser of the policy limits or the amount demanded by the claimant within 90 days after receiving actual notice of a claim which is accompanied by sufficient evidence to support the amount of the claim.” This new safe harbor provision applies regardless of whether the bad faith claim is brought under the statute or common law. If the insurance company fails to tender the lesser of the policy limits or the amount demanded by the claimant within the 90 day period, this fact is inadmissible in any action seeking to establish bad faith. Any applicable statute of limitations will also be extended for an additional 90 days.
In situations where there are two or more third-party claimants that have competing claims arising out of a single occurrence, which in total may exceed the available policy limits, an insurance company can also avoid a claim for bad faith if the insurance company does either of the following within 90 days after receiving notice of the competing claims:
- File an interpleader action, or
- Enter into a binding arbitration that has been agreed to by the parties, which makes the entire amount of the policy limits available for payment to the competing third-party claimants.
Overall, these new changes to Florida’s bad faith insurance framework are expected to reduce the likelihood that an insurance company will be liable for bad faith, and potentially reduce the number of bad faith insurance lawsuits. However, it is still prudent and expected that insurance companies handle and defend claims in good faith.
Confirms That Mere Negligence Alone is Insufficient to Constitute Bad Faith
HB 837 also modifies Section 624.155, Florida Statutes by adding that “[m]ere negligence alone is insufficient to constitute bad faith.” This is not necessarily a change to Florida’s bad faith insurance framework, but rather a codification of Florida case law. See Berges v. Infinity Ins. Co., 896 So. 2d 665, 687 (Fla. 2004) (Wells, J., dissenting) (“To establish a breach of this duty, claimants must demonstrate more than mere negligence; they must prove the insurer acted in bad faith.”); DeLaune v. Liberty Mut. Ins. Co., 314 So. 2d 601, 603 (Fla. 4th DCA 1975) (“Thus, while evidence of negligence may be considered by the jury as it may bear on the question of bad faith, a cause of action based solely on negligence which does not rise to the level of bad faith does not lie.”).
New Statutory Duties of Insureds, Claimants, and Representative
HB 837 also modifies Section 624.155, Florida Statutes by adding that “[t]he insured, claimant, and representative of the insured or claimant have a duty to act in good faith in furnishing information regarding the claim, in making demands of the insurer, in setting deadlines, and in attempting to settle the claim.” However, it is important to note that this may not be a significant change because insureds likely have a similar duty already in place pursuant to their insurance policies.
HB 837 also confirms that this new statutory duty does not create a separate cause of action, but may be considered in any action for bad faith against the insurance company. Specifically, in an action for bad faith against the insurance company, the trier of fact may consider whether the insured, claimant, or representative of the insured or claimant did not act in good faith in furnishing information regarding the claim, in making demands of the insurer, in setting deadlines, and in attempting to settle the claim, in which case, the trier of fact may reasonably reduce the amount of damages awarded against the insurance company.
When Do These Changes Apply?
HB 837 makes clear that these new changes do not impair any right under an insurance contract in effect on or before March 24, 2023 (the effective date on HB 837). To the extent that HB 837 affects a right under an insurance contract, these new changes will only apply to insurance contracts issued or renewed after March 24, 2023.
HB 837 created significant changes to the bad faith insurance framework in Florida. Insureds and claimants need to be aware of these changes as it may impact their ability to bring a bad faith claim against the insurance company or significantly reduce the amount of damages they may recover from the insurance company.