Omega Ins. Co. v. Johnson

• Citation: 207 So.3d 245
• Decision Date: 05 September 2014
• Docket Number: No. 5D13–1701.,5D13–1701.
• Parties: OMEGA INSURANCE COMPANY, Appellant, v. Kathy JOHNSON, Appellee.
• Court: Court of Appeal of Florida (US)

207 So.3d 245

OMEGA INSURANCE COMPANY, Appellant,

v.Kathy JOHNSON, Appellee.

No. 5D13–1701.

District Court of Appeal of Florida, Fifth District.

Sept. 5, 2014.

Anthony J. Russo, Ezequiel Lugo, Jared M. Krukar, and Carol M. Rooney, of Butler, Pappas, Weihmuller, Katz, Craig, LLP, Tampa, for Appellant.

Timothy W. Weber, of Weber, Crabb & Wein, P.A., St. Petersburg, for Appellee.

SAWAYA, J.

Omega Insurance Company seeks review of an order awarding attorneys' fees pursuant to section 627.428, Florida Statutes (2009), based on application of the confession of judgment doctrine. Specifically, we must determine whether Omega wrongfully withheld policy benefits to its insured, Kathy Johnson, after she filed a claim for sinkhole damage under the policy Omega issued to her, thereby forcing her to file suit to collect her policy benefits. If that is what Omega did, then the order under review should be affirmed. If it did not, reversal of the order is required.

The policy Omega issued to Johnson is a homeowner's policy that contains a provision for sinkhole damage coverage.¹ Since it is undisputed that such coverage is provided under the policy, it is not necessary to burden this opinion with quotation of the specific provision. When Johnson noticed structural damage to her home, she filed a claim for policy benefits with Omega, contending that the damage was caused by sinkhole activity on the property. Receipt of this claim prompted Omega to investigate pursuant to a compilation of statutory provisions that requires insurers to meet certain standards in the investigation and handling of sinkhole claims. The statutes also make provision for a neutral evaluation procedure that offers an alternative to litigation. These provisions, found in chapter 627, are "designed to provide a framework for insurance companies to follow when encountering ... claims involving sinkhole damage." Universal Ins. Co. of N. Am. v. Warfel, 82 So.3d 47, 57 (Fla.2012) ("Warfel II "). It will be helpful to summarize these statutory provisions before proceeding further.

The standards for investigating a sinkhole claim are found in section 627.707, Florida Statutes (2009). They require the insurer to inspect the property for structural damage that may be the result of sinkhole activity. § 627.707(1), Fla. Stat. (2009). If structural damage is confirmed but the insurer is unable to identify a valid cause of the damage, or discovers the damage is consistent with sinkhole loss, or the policyholder demands testing, the insurer shall engage a professional engineer or geologist to conduct testing and render a report regarding the cause of the damage. Id. § 627.707(2). The report shall be in compliance with the requirements of section 627.7073, Florida Statutes, and shall be issued to the insurer and the insured. Id. § 627.7073(1). The findings, opinions, and recommendations contained in the report "shall be presumed correct." Id. § 627.7073(1)(c). If a report is issued pursuant to section 627.7073, an alternative procedure for resolution of disputed sinkhole claims is available. Id. § 627.7074. This procedure provides for "neutral evaluation" of the claim to be conducted "as an informal process in which formal rules of evidence and procedure need not be observed." Id. § 627.7074(5). A request for neutral evaluation is made with the Department of Financial Services. Id. § 627.7074(4) ; State Farm Fla. Ins. Co. v. Colella, 95 So.3d 891 (Fla. 2d DCA), review denied, 108 So.3d 654 (Fla.2012). "Neutral evaluation is nonbinding, but mandatory if requested by either party." Id. § 627.7074(4). Thus, once the request for neutral evaluation has been filed, participation in that process is "mandatory and guaranteed." Citizens Prop. Ins. Corp. v. Trapeo, 136 So.3d 670, 677 (Fla. 2d DCA 2014).

When Omega received Johnson's claim, it commissioned a professional engineering and geology firm to conduct testing and issue a report pursuant to section 627.707. The report concluded that sinkhole activity was not a cause of the damage to Johnson's property. Based on this report, Omega sent correspondence to Johnson stating that, in light of the findings in the report, sinkhole activity was eliminated as the cause of damage to her home and it was not able to honor her claim. Omega attached a copy of the report to the correspondence. The correspondence contained the required disclosure of Johnson's right to participate in the neutral evaluation program under section 627.7074(3) and notified Johnson that Omega was statutorily obligated to bear the expense associated with the neutral evaluation. The letter also advised Johnson to contact the claims adjuster at a specific telephone number if she had any questions regarding the claim or the content of the letter.

Johnson never responded to Omega's letter. Instead, Johnson sought her own independent opinion and commissioned a civil engineering firm to evaluate the cause of damage to her home. The report issued by Johnson's engineering firm disagreed with Omega's report and stated that "sinkhole activity is a cause of structural distress at the Johnson residence within a reasonable, professional probability."

With this report in hand, Johnson filed the underlying lawsuit (almost a year after Omega sent the denial letter), alleging that Omega breached Johnson's homeowner's insurance policy by failing to pay the benefits due Johnson. Neither the report listing sinkhole activity as a cause of damage nor the findings contained therein were relayed to Omega prior to the institution of the lawsuit. Omega obtained a copy of the report for the first time during the course of discovery.

Omega filed a motion for neutral evaluation and to stay litigation pursuant to section 627.7074. The trial court stayed the litigation, and Omega filed a request for neutral evaluation of a sinkhole insurance claim with Florida's Department of Financial Services. A neutral evaluator was appointed, and he visited Johnson's home. Thereafter, he issued a report concurring with the result of the report issued by Johnson's engineering firm. Specifically, the neutral evaluator found that there was a sinkhole loss that required remediation.

Upon receipt of the report, Omega wrote to inform Johnson that it intended to comply with the neutral evaluator's recommendations and pay the claim. Omega tendered the policy benefits, and Johnson filed a Motion for Confession of Judgment and Motion for Attorneys' Fees, Costs and Interest. The motion for fees alleged entitlement pursuant to section 627.428, which provides that "[u]pon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named ... insured ... under a policy or contract executed by the insurer, the trial court ... shall adjudge or decree against the insurer and in favor of the insured ... a reasonable sum as fees or compensation for the insured's ... attorney...."² The trial court granted the motion based on the confession of judgment doctrine, concluding that when Omega agreed to pay the claim and tendered the policy benefits, it confessed judgment, thus rendering it liable for fees under the statute.

Omega appeals, contending that it did not wrongfully withhold policy benefits from Johnson because it investigated according to the statutory directives and justifiably relied on the report issued by its engineering firm that sinkhole activity was not the cause of the damage to Johnson's home. Johnson claims that it does not matter whether Omega wrongfully withheld the policy benefits and forced her to file suit. The simple facts asserted by Johnson are that Omega denied her claim, she filed suit, and Omega paid the policy benefits thereafter. Johnson argues that is all she must show to entitle her to fees under the statute. The trial court was persuaded by Johnson's argument and rendered the order awarding fees that we now review. Analyses of section 627.428 and the confession of judgment doctrine reveal that Omega is correct, not Johnson.

The courts have consistently held that "[t]he purpose of section 627.428 is to penalize a carrier for wrongfully causing its insured to resort to litigation to resolve a conflict when it was reasonably within the carrier's power to do so." Gov't Emps. Ins. Co. v. Battaglia, 503 So.2d 358, 360 (Fla. 5th DCA 1987) ; see also Pawtucket Mut. Ins. Co. v. Manganelli, 3 So.3d 421, 423 (Fla. 4th DCA), review denied, 23 So.3d 712 (Fla.2009) ; Liberty Nat'l Life Ins. Co. v. Bailey ex rel. Bailey, 944 So.2d 1028, 1030 (Fla. 2d DCA 2006) (holding that the statute is a penalty in derogation of the common law and stating that "the denial of an insurance claim based on erroneous information provided by the insured does not rise to the level of wrongful conduct necessary to impose a fee award against the insurer"); Bassette v. Standard Fire Ins. Co., 803 So.2d 744, 746 (Fla. 2d DCA 2001) (stating that the purpose of section 627.428"is to penalize an insurance company for wrongfully causing its insured to resort to litigation in order to resolve a conflict with its insurer when it was within the company's power to resolve"); Leaf v. State Farm Mut. Auto. Ins. Co., 544 So.2d 1049 (Fla. 4th DCA 1989) ; Time Ins. Co. v. Arnold, 319 So.2d 638, 640 (Fla. 1st DCA 1975) (holding that refusal to pay was not wrongful; Time had no obligation to doubt erroneous information contained in the notice of claim, so it was error to award attorney's fees against it). Thus, the statute was enacted "to discourage the contesting of valid claims against insurance companies and to reimburse successful insureds for their attorney's fees when they are compelled to defend or sue to enforce their insurance contracts." Ins. Co. of N. Am. v. Lexow, 602 So.2d 528, 531 (Fla.1992) ; see also Underwood Anderson & Assocs., Inc. v. Lillo's Italian Rest., Inc., 36 So.3d 885, 888 (Fla. 1st DCA 2010) (holding that the statute encourages the payment of valid claims and, "failing that, to...