The Real Cost of a Fraud Count in a Florida Business Lawsuit
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A fraud count is rarely about fraud. When a plaintiff bolts one onto a contract case, the real pressure comes from three consequences that have nothing to do with proving intent: what your insurer will pay for, whether you can still use Florida’s fee-shifting offer statute, and whether a judgment against an owner can ever be discharged in bankruptcy. Most defendants handle the first two late and never think about the third until the judgment is final.
The elements and the early motions that test them are covered in how businesses defend fraud claims arising from commercial disputes and early defense strategies for business tort lawsuits. This post is about what the count does to everything around the case.
What Does a Fraud Count Actually Change?
A fraud count changes who pays for your defense, which settlement tools you can use, and how long the judgment lives. Those consequences attach the moment the complaint is filed, long before anyone decides whether the fraud theory has merit, and they run on deadlines measured in days.
Does a Fraud Count Change Your Insurance Coverage?
It can, and the answer often favors the defendant at the defense stage. Under settled Florida law, an insurer’s duty to defend is determined from the allegations of the complaint, and it is distinct from and broader than the duty to indemnify. If a complaint alleges facts partially within and partially outside coverage, the insurer is obligated to defend the entire suit. A fraud count sitting next to a covered count does not by itself relieve the carrier of the defense.
The corollary matters just as much. If every count falls within an exclusion, there is no duty to defend, because the duty to defend does not create coverage the policy never provided.
So tender the suit to every carrier that might respond, one of the early lawsuit defense moves that protect your business: general liability, professional liability, and any management liability or directors and officers policy, particularly where the complaint names officers, directors, or managers individually.
Why the Reservation of Rights Letter Has a Clock on It
Indemnity is a separate question, and that is where section 627.426, Florida Statutes becomes the document to calendar. Under subsection (2), a liability insurer “shall not be permitted to deny coverage based on a particular coverage defense” unless it does two things on a schedule:
- Within 30 days after the insurer “knew or should have known of the coverage defense,” it must send the named insured written notice of a reservation of rights, by a tracked mailing method or hand delivery.
- Within 60 days of that notice or of receiving the summons and complaint, whichever is later, but never later than 30 days before trial, it must refuse the defense in writing, obtain a nonwaiver agreement after full disclosure, or retain mutually agreeable independent counsel.
Date-stamp every reservation of rights letter the day it arrives, because the two clocks start in different places. Note the limit, too. Florida courts read “coverage defense” to mean a defense to coverage that otherwise exists. The statute does not manufacture coverage for a loss the policy never covered or expressly excluded, so a missed deadline is not a substitute for a covered claim. If the carrier disagrees, you have an insurance coverage dispute running alongside the underlying case.
How Can a Fraud Count Disable Your Proposal for Settlement?
By asking for rescission. Section 768.79, Florida Statutes applies “[i]n any civil action for damages filed in the courts of this state.” If a defendant’s offer goes unaccepted for 30 days and the plaintiff then takes a judgment of no liability, or a judgment “at least 25 percent less than such offer,” the defendant is entitled to reasonable costs and attorney’s fees, measured under subsection (1) from the date the offer was filed and under subsection (7)(a) from the date it was served. It is one of the few tools that puts real money at risk for a plaintiff, and a fraud count can switch it off.
In Diamond Aircraft Industries, Inc. v. Horowitch, 107 So. 3d 362 (Fla. 2013), the Florida Supreme Court held that “section 768.79 does not apply to an action in which a plaintiff seeks both damages and equitable relief, and in which the defendant has served a general offer of judgment that seeks release of all claims.” The court added that there is no exception “for instances in which the equitable claim lacks serious merit,” so a thin rescission demand is still a rescission demand.
That matters because fraud counts frequently plead rescission in the alternative. Fraud in the inducement, fraudulent misrepresentation, and constructive fraud routinely carry rescission as an alternative remedy, and rescission can also follow a negligent misrepresentation that induced a contract with the defendant. Standing alone, though, negligent misrepresentation is a pecuniary-loss tort whose ordinary remedy is damages, and a breach of contract count usually asks for nothing equitable at all. Read the prayer for relief, not the count heading.
What the plaintiff asks for therefore determines which off-ramps stay open, which shapes any plan for defending a business lawsuit without going to trial and for where the case sits in the stages of a business lawsuit. Even when the statute does apply, section 768.79(8)(a) lets a court find an offer was not made in good faith and disallow the award entirely.
Can a Fraud Judgment Follow an Owner Into Bankruptcy?
It can, and the exception is written around how the money was obtained rather than who is paying. Section 523(a) of the Bankruptcy Code provides that a discharge “does not discharge an individual debtor” from the debts the subsection describes. Subsection (a)(2)(A) reaches a debt for money, property, services, or an extension, renewal, or refinancing of credit “to the extent obtained by” false pretenses, a false representation, or actual fraud, “other than a statement respecting the debtor’s or an insider’s financial condition.”
That carve-out matters more than it looks. Representations about the company’s or an owner’s finances run instead through subsection (a)(2)(B), which requires a materially false statement in writing. Three other points shape the exposure:
- It is personal. The exception applies to an individual debtor, which is one more reason plaintiffs work to name owners and officers alongside the company.
- Settling does not necessarily launder it. In Archer v. Warner, 538 U.S. 314 (2003), the Supreme Court held that “[a] debt for money promised in a settlement agreement accompanied by the release of underlying tort claims can amount to a debt for money obtained by fraud, within the nondischargeability statute’s terms.” Replacing a fraud claim with a promissory note does not, by itself, put the debt beyond section 523(a)(2)(A).
- None of it is automatic. Section 523(c)(1) provides that the debtor “shall be discharged” from a debt of this kind “unless, on request of the creditor,” the bankruptcy court determines otherwise after notice and a hearing, and the bankruptcy rules give the creditor a short window after the first date set for the meeting of creditors to file that adversary proceeding. A state court fraud judgment does not answer the question by itself.
Settlement documents in a case with a fraud count therefore deserve as much attention as the pleadings, because how a settlement characterizes and releases the claims can matter years later if the paying party ends up in bankruptcy or restructuring. Our post on fraudulent transfer judgments and dischargeability covers a related corner of the same statute.
What Should a Florida Business Do First?
Work the collateral consequences in the first 30 days, while the deadlines are still ahead of you:
- Tender the complaint to every potentially responsive carrier, and put the tender in writing.
- Calendar both section 627.426(2) clocks: the 30-day reservation of rights deadline, and the 60-day deadline that follows it or the service of the complaint.
- Read the prayer for relief and identify every request for equitable relief before anyone drafts a proposal for settlement.
- Identify which counts name individuals, and treat those counts as the long-term exposure.
- Preserve documents and control internal messaging, since fraud counts turn ordinary email into intent evidence during discovery in business litigation.
- Check whether the plaintiff also pleaded a civil theft or FDUTPA count, each of which brings its own statutory remedies into the case.
Jimerson Birr Assists Florida Businesses Facing Fraud Allegations
Our business litigation and lawsuit defense attorneys work with Florida companies on the parts of a fraud case that outlast the pleadings: coverage tenders and reservation of rights correspondence, the settlement tools that remain available once the prayer for relief is read, and the terms of any resolution involving individually named owners. If your company has been served with a complaint containing a fraud count, contact us to discuss your situation.