How to Respond?
ANSWER: Prudence, Not "Perfection," Is Called For.
In recent years, there seems to have been an uptick, especially in first party pre-suit assignments, involving the filing of a Civil Remedies Notice (“CRN”). The CRNs frequently involve an injured party’s (policy holder’s) claim for UM/UIM benefits following an auto accident.
Earlier this year, after such an assignment and request to secure a sworn statement from the UM claimant, one file handler remarked “all these CRNs look the same…and they read the same...” He continued: “. . . all the notices say ‘insurer has failed to promptly settle the claim…failed to properly evaluate the claim…failed to implement standards of proper investigation'…"
Then he stated, “Sometimes I’m tempted to just not even respond…”
I counseled him against a complete failure to respond. At the same time, I started thinking about the various types of accurate, appropriate, and - if ever needed - defensible responses.
I. First Party Bad Faith Claims
A. General – A “Primer” and Refresher
A first party bad faith claim arises in Florida when an insured sues its own insurance company for an improper denial or refusal of benefits. Wojciechowski v. Allstate Property and Casualty Ins., 2016 WL 10732584, *8 (M.D. Fla. Dec. 27, 2016). See Townhouses of Highland Beach Condo. Assoc., Inc. v. QBE Ins. Corp., 504 F. Supp. 2d 1307, 1310 (S.D. Fla. 2007)(“[A]n action for first party bad faith consists of an insurer’s wrongful refusal to settle a claim accruing directly to its own insured”).
While common law third party bad faith actions were recognized in Florida as early as 1938, first party bad faith actions are not recognized at common law. State Farm Mutual Auto. Ins. Co. v. Laforet, 658 So. 2d 55, 58-59 (Fla. 1995).
In 1982, Florida’s Legislature enacted Florida Statute §624.155, creating a statutory first party bad faith cause of action. Florida Statute § 624.155 provides a private cause of action against an insurer for “not attempting in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly towards its insured and with due regard for her or his interests.”
The Florida Supreme Court has held “a claim for bad faith pursuant to §624.155(1)(b)(1) is founded upon the obligation of the insurer to pay when all conditions under the policy would require an insurer exercising good faith and fair dealing towards its insured to pay.” Cadle v. GEICO General Ins. Co., 838 F.3d 1113, 1124 (11th Cir. (Fla.) 2016)(quoting Vest v. Travelers Ins. Co., 753 So. 2d 1270, 1275 (Fla. 2000)).
To determine whether an insurer has acted in good faith, courts are to consider the totality of the circumstances which, among other things, involves:
- whether the insurer investigated the facts surrounding the event;
- gave fair consideration to reasonable settlement offers under the circumstances; and
- settled where possible if a reasonably prudent person would settle.
Daniels v. GEICO General Ins. Co., 740 Fed. Appx. 665, 668 (11th Cir. (Fla.) 2018); Wojciechowski v. Allstate Property and Casualty Ins., 2016 WL 10732584, *8 (M.D. Fla. Dec. 27, 2016).
B. Recoverable Damages in Statutory First Party Bad Faith Action
With respect to recoverable damages in a bad faith action, Florida Statute §624.155 provides:
The damages recoverable pursuant to this section shall include those damages which are a reasonably foreseeable result of a specified violation of this section by the authorized insurer and may include an award or judgment in an amount that exceeds the policy limits.
- 624.155(8), Fla. Stat. (emphasis supplied).
The Florida UM statute goes further and states the damages recoverable from a UM carrier, pursuant to a bad faith action brought under Florida Statute §624.155, shall include the following:
The damages recoverable from an uninsured motorist carrier in an action brought under s. 624.155 shall include the total amount of the claimant’s damages, including the amount in excess of the policy limits, any interest on unpaid benefits, reasonable attorneys’ fees and costs, and any damages caused by a violation of a law of this state. The total amount of the claimant’s damages is recoverable whether caused by an insurer or by a third party tortfeasor.
- 627.727(10), Fla. Stat. (emphasis added). See also State Farm Mutual Auto. Ins. Co. v. Laforet, 658 So. 2d 55 (Fla. 1995).
C. Requirements For Pursuing Claim For First Party Bad Faith – Where the CRN Comes In
As a condition precedent to filing a first party bad faith civil action under §624.155, the insured must give the Florida Department of Financial Services and the authorized insurer sixty (60) days written notice of the violation. §624.155(3)(a), Fla. Stat. This notice is commonly referred to as the Civil Remedy Notice, or “CRN.” The CRN must contain the following specific information:
- The statutory provision, including the specific language of the statute, which the authorized insurer allegedly violated;
- The facts and circumstances giving rise to the violation;
- The name of any individual involved in the violation;
- Reference to specific policy language that is relevant to the violation, if any. . . .
- A statement that the notice is given in order to perfect the right to pursue the civil remedy authorized by this section.
See §624.155(3)(b), Fla. Stat. See also The Heritage Corporation of South Florida v. National Union Fire Ins. Co. of Pittsburgh, Pa., 580 F. Supp. 2d 1294, 1299-1300 (S.D. Fla. 2008)(CRN was not sufficiently specific to allow insurer opportunity to cure alleged violations giving rise to statutory bad faith claim, where CRN did not invoke specific fidelity bonds or policies, it did not explain amounts of damage at issue caused by insurer’s alleged statutory violations, and it did not specify what sort of action it wanted insurer to take in response, such as pay out on certain policies, investigate certain claims, or take some other type of action) (emphasis added). Note - Another approach to, and view of, a CRN is it provides a carrier an opportunity to “cure” a claim analysis oversight or payment deficiency.
Pursuant to the statute, “no action shall lie if, within 60 days after filing notice, the damages are paid or the circumstances giving rise to the violation are corrected.” §624.155(3)(d), Fla. Stat. See generally, Paz v. Fidelity Nat’l Ins. Co., 712 So. 2d 807 (Fla. 3d DCA 1998) (insurance company’s agreement to pay the damages due within sixty days of civil remedy notice does not prohibit a bad faith lawsuit – the statute prohibits bad faith lawsuits if the damages are paid or the circumstances giving rise to the violation are corrected within sixty days – treating an agreement to pay as a correction of the circumstances would render the first portion of the statute meaningless).
The sixty (60) day window provides insurers with a final opportunity “to comply with their claim handling obligations when a good faith decision by the insurer…indicate(s) the contractual benefits are owed.” Fridman v. Safeco Ins. Co. of Illinois, 185 So. 3d 1214, 1220 (Fla. 2016); Talat Enterprises, Inc. v. Aetna Cas. & Surety Co., 753 So. 2d 1278, 1284 (Fla. 2000) (emphasis provided).
Florida Statute §624.155(1)(b) “is correctly read to authorize a civil remedy for extra-contractual damages if a first party insurer does not pay the contractual amount due the insured after all the policy conditions have been fulfilled within sixty days after a valid notice has been filed under §624.155(2)(a).” Talat Enterprises, Inc., 753 So. 2d at 1283. The statute “cannot reasonably be construed to require payment of extra-contractual damages to avoid bad faith litigation until the conditions for payment under the policy have been fulfilled and the insurer has failed to cure within the sixty day statutory period for cure.” Id. “Extra-contractual damages that can be recovered solely by reason of this civil remedy statute cannot be recovered when the remedy itself does not ripen (because)…the insurer pays what is owed on the insurance policy during the cure period.” Id. at 1284.
D. Effect Of Failure To Respond - Presumption And Burden Shifts To Insurer To Show Why It Did Not Respond
If the insurer fails to respond to a Civil Remedy Notice within the sixty (60) day window, then “there is a presumption of bad faith sufficient to shift the burden to the insurer to show why it did not respond.” Fridman, 185 So. 3d at 1220 (quoting Imhof v. Nationwide Mut. Ins. Co., 643 So. 2d 617, 619 (Fla. 1994), receded from on other grounds, State Farm Mut. Auto. Ins. Co. v. Laforet, 658 So. 2d 55, 63 (Fla. 1995)). According to the Florida Supreme Court in Fridman, “sixty days after [the insured] filed his civil remedy notice without action on Safeco's part, a presumption of bad faith arose.” Fridman, 185 So.3d at 1228. See also Cadle v. GEICO General Insurance Co., 838 F.3d 1113, 1124 (11tn Cir. (Fla.) 2016)(“if an insurer fails to respond to a civil remedy notice within the sixty day window, there is a presumption of bad faith sufficient to shift the burden to the insurer to show why it did not respond”).
In Vaughn v. Producers Agriculture Ins. Co., 111 F. Supp. 3d 1251, 1254-1255 (N.D. Fla. 2015), the court considered a first party bad faith claim by an insured against its crop insurer. The court addressed the insurer's response to the insured’s Civil Remedy Notice and whether that response was sufficient to preclude a presumption of bad faith:
A civil remedy notice is a condition precedent to bringing a bad faith claim under §624.155. A claimant must file a notice with the Florida Department of Financial Services on a form provided by the Department at least sixty days before filing a bad faith lawsuit. §624.155(3)(a)-(b), Fla. Stat. The insurer can avoid an action for bad faith if, within sixty days of a claimant filing notice, ‘the damages are paid or the circumstances giving rise to the violation are corrected.’ §624.155(3)(d), Fla. Stat. The statutory scheme, in other words, requires putative claimants to file notice to ‘give the insurer a final opportunity to settle an insured’s claim and avoid unnecessary bad faith litigation.’. . .
The genesis of the timely response requirement is Imhof v. Nationwide Mutual Insurance Company, where the Florida Supreme Court, addressing a different issue on review, first held that an insurer’s failure to respond to a valid CRN within sixty days creates a ‘presumption of bad faith.’ 643 So. 2d 617, 619 (Fla. 1994). This presumption shifts to the insurer the burden of showing why it did not respond. Id.
In Imhof, the defendant – as the court highlighted – had not “responded in any way” to the claimant’s notice. 643 So. 2d at 619 (emphasis added). The court, troubled by the possibility that a defendant could insulate itself from liability ‘simply by refusing to respond to a notice of violation,’ developed the presumption of bad faith. Id.
It is clear that a desire to effectuate the policy behind §624.155, which the Imhof court characterized as ‘promot[ing] quick resolution of insurance claims,’ underlies the court’s decision. Id. The court explained, for example, that ‘when an insurer does not respond within sixty days, the insurer flouts the very purposes of §624.155.’ Id. The bad faith presumption, then, was forged to incentivize prompt responses that in turn further the quick resolution of insurance claims.
The same concern that led to the presumption should serve as the touchstone for deciding what constitutes a ‘response’ to a civil remedy notice under §624.155. Information asymmetry, above all else, hinders pretrial settlement. Unveiling each side’s position illuminates potential compromises. The earlier this occurs, the more time to strike a compromise.
This can be achieved so long as the parties engage in candid exchanges. Importantly, these candid exchanges are not exclusive to a specific medium, such as the Florida Department of Financial Services’ portal. The sixty day period in this case ticked over the course of a full blown arbitration proceeding. Within that period, the parties exchanged numerous documents and presented wide-ranging evidence supporting their respective positions. Plaintiffs unquestionably learned of [the insurer’s] position as to the underlying insurance claim. Thus, [the insurer’s] responses to Plaintiff’s allegations during the arbitration process had the same information revealing effect – probably even greater – of a formal portal response.
This is not to say that all presuit proceedings constitute a ‘response’ under §624.155. This court, however, need not delineate the precise boundaries of an adequate response because in this case [the insurer’s] exchanges with Plaintiffs suffice. Accordingly, Plaintiffs are not entitled to summary judgment on the presumption of bad faith because [the insurer] timely responded to Plaintiff’s CRN.
Id. at 1254-1255 (emphasis supplied).
E. Denial Of Payment By Insurer Does Not Mean Insurer Is Guilty Of Bad Faith
It is important to note a denial of payment does not mean the insurer is guilty of bad faith. According to the Florida Supreme Court:
We hasten to point out that the denial of payment does not mean an insurer is guilty of bad faith as a matter of law. The insurer has a right to deny claims that it in good faith believes are not owed on a policy. Even when it is later determined by a court or arbitration that the insurer’s denial is mistaken, there is no cause of action if the denial was in good faith.
Vest v. Travelers Ins. Co., 753 So. 2d 1270, 1275 (Fla. 2000) (emphasis supplied).
In a fairly recent case, the Florida Supreme Court also stated it wanted to “make clear” that:
the insurer has the full opportunity to defend its actions related to its handling of the insured’s UM insurance claim when litigating the bad faith action. In other words, just because the amount of the UM verdict is a binding element of damages under section 627.727(10) in the bad faith case, the insurer is not precluded from explaining its actions in failing to pay the policy limits when demanded and presenting its case for why it did not act in bad faith in the handling of the UM claim.
Fridman, 185 So. 3d at 1230.
Courts have denied bad faith claims based on the insurer’s failure to cure and pay a demand for noneconomic damages where the insured did not present medical evidence of permanency. For example, in Cadle v. GEICO General Ins. Co., the Eleventh Circuit Court of Appeals held a UM carrier does not act in bad faith by refusing to settle the insured’s UM claim where the uninsured motorist is not liable to the insured for damages arising from the accident. According to the Cadle court, an insured seeking non-economic benefits from her UM carrier must first meet the permanent injury requirement under the no-fault statute. Because the UM carrier is not required to provide coverage for pain, suffering, mental anguish, and inconvenience unless the threshold permanent injury requirement for non-economic damages has been met, the insured’s failure during the sixty (60) day cure period to provide the UM carrier with medical evidence of permanency of her injuries arising from the accident precluded her from recovering in her bad faith action against the carrier for failure to settle her claim. “If an uninsured motorist is not liable to the insured for damages arising from an accident, then the insurer has not acted in bad faith in refusing to settle the claim.” Id. at 1127 (quoting Blanchard v. State Farm Mut. Auto. Ins. Co., 575 So. 2d 1289, 1291 (Fla. 1991)). See also Duncan v. GEICO General Ins. Co., 729 Fed. Appx. 900 (11th Cir. (Fla.) 2018)(insurer did not act in bad faith in processing insured's UM claim where none of the medical records included in demand letter indicating insured suffered a permanent injury, X-rays and MRI taken after accident came back negative, insured did not provide any medical evidence regarding permanency, the only medical testimony suggesting permanency suggested a follow up appointment in five months along with stretch exercises, and where during 60 day cure period insurer's examiners concluded injuries were soft tissue in nature); Wojciechowski v. Allstate Property and Casualty Ins., 2016 WL 10732584, *8 (M.D. Fla. Dec. 27, 2016)(because insured did not demonstrate within the CRN cure period that he had suffered a permanent injury within a reasonable degree of medical probability, Allstate's refusal to tender the $100,000 UIM policy limits during the cure period, which was based on the medical records it possessed and the fact the insured incurred no out of pocket expenses, was not made in bad faith).
II. Take Homes for CRNs and Responses
To sum up:
- If an insurer fails to respond to a CRN within the sixty (60) day window, there is a presumption of bad faith sufficient to shift the burden to the insurer to show why it did not respond. This presumption was created to (a) incentivize prompt responses, (b) to encourage the parties to share relevant information, and (c) to foster the quick resolution of insurance claims.
- A sufficient “response” from the insurer does not require payment, or that the response be a “perfect” one. The response might amount to documents provided, or other evidence. Or it might mean setting up a process such as arbitration or voluntary mediation, which advises the insured of the insurer’s position.
- But when an insurer receives a CRN, we strongly recommend it respond in some written fashion, to avoid the negative presumption.
So . . .
Received a CRN? Being “threatened” with one? Or as a claimant are you contemplating filing one? If so, you may contact us to discuss the matter. We are available to assess your options, and can assist with formulating, and drafting a prudent, proper response.
-Joe Amos & Stephanie Preston