When insureds are forced to sue their insurance company in order to receive benefits (not attorneys fees and costs), any payment of insurance policy proceeds by the insurance company should act as a confession of judgment, entitling the insured to properly pled attorney’s fees.

In Jerkins v. USF & G Specialty Ins. Co., 2008 WL 678667, 33 Fla. L. Weekly D763 (Fla. 5th DCA March 14, 2008), the insureds sustained damage to their home due to Hurricane Charlie.  The insurance company’s claims adjuster determined that the insureds sustained only $715.60 property damage due to the hurricane.  This claim was less than the insurance policy’s deductible, and the insurance company made no payment on the claim.

Six months later, the insureds filed a breach of contract action against the insurance company.  The insurance company filed a motion to dismiss or abate the insured’s suit in favor of appraisal, in accordance with the insurance policy, which provided, in pertinent part: “If you and we fail to agree on the amount of loss, either may … Demand an appraisal of the loss….”

After the motion to dismiss was filed, the parties actually went forward with the appraisal process.  The appraisers determined the insureds actual loss was $9,084.29.  The insurance company paid the entire appraisal amount, minus the deductible.

Following payment, the insureds filed a motion for attorney’s fee and costs pursuant to Section 627.428, Fla. Stat.  In their motion, the insureds maintained that the insurance company’s payment constituted a “confession of judgment,” entitling the insureds to attorney’s fees.   However, in its opposition to the motion for attorney’s fees, the insurance company argued that the insureds were not entitled to attorney’s fees because the parties’ dispute was resolved through appraisal, not litigation.  After a hearing, the trial court denied the motion for attorney’s fees, citing Federated National Insurance Co. v. Esposito, 937 So.2d 199 (Fla. 4th DCA 2006), in support of its decision.

The Fifth DCA determined that generally, payment made after a suit is filed operates as a confession of judgment.  The court claimed it was neither reasonable nor just to allow an insurance company to avoid statutory attorneys fees by simply paying insurance proceeds at some point after suit is filed but before final judgment is entered, likening voluntary payment of the insurer to the equivalent of a confession of judgment.  

The court cited its previous analysis of the confession of judgment doctrine as it relates to section 627.428, in State Farm Florida Insurance Co. v. Lorenzo, 969 So.2d 393, 397-98 (Fla. 5th DCA 2007), where the court determined the confession of judgment doctrine turned on the policy underlying section 627.428: discouraging insurers from contesting valid claims and reimbursing insureds for attorney’s fees when they must sue to receive the benefits owed to them.   The court also noted the doctrine is generally not applied where the insureds were not forced to sue the insurance company to receive benefits, because otherwise applying the doctrine would encourage unnecessary litigation by rewarding a race to the courthouse for attorney’s fees even where the insurer was complying with its obligations under the policy.

The court further reiterated that while Florida law does hold that payments are treated as confessions of judgment where an insurer first disputes the claim and then settles, “the existence of a bona fide dispute and not the mere possibility of a dispute, is a crucial condition precedent to such a holding.”

The court determined the sixth month time lapse between claim and lawsuit, combined with the significant difference in the value of the damages, met the confession of judgment doctrine’s standards.

Interestingly, the court commented that if the insurance company’s policy contained a mandatory arbitration or appraisal provision, the insureds would not be entitled to attorney’s fees under section 627.428.  Since the appraisal clause was permissive, the court did not see appraisal as a condition precedent to filing suit (and therefore recovering attorneys fees under the confession of judgment doctrine).  

Significantly, the court distinguished Federal National Insurance Company v. Esposito, 937 So.2d 199 (Fla. 4th DCA 2006), which the trial court relied upon to deny the insured’s motion for attorney’s fees and costs.  In Esposito, the insured invoked the appraisal process to settle a dispute she had with her insurance company over the value of hurricane damage to a structure.  Through the appraisal process, the parties agreed upon a value of the damage and the insurer paid the appraisal award in full.  Only after the appraisal process was well underway did the insured file an action seeking to confirm the appraisal award and attorney’s fees. The Esposito court held that the trial court erred in confirming the appraisal award and entering judgment in favor of the insured because the parties settled their dispute without litigation.  The court determined the Esposito lawsuit was solely filed to obtain fees, not to settle a dispute.