The refusal of an
increasing number of insurers to issue homeowner's insurance in hurricane prone
states has led to state sponsored property insurance programs. In this Analysis,
Douglas Scott MacGregor explores the issue of whether a bad faith claim against
such a program is barred by the doctrine of sovereign immunity. Mr. MacGregor
also examines the statutes and court decisions of eight hurricane prone states.
Eight coastal states in the
Southeastern United States are especially vulnerable to property damage from
hurricanes: North Carolina, South Carolina, Georgia, Florida, Alabama,
Mississippi, Louisiana, and Texas. The Florida peninsula is at most danger. Roughly
40% of all hurricanes strike the Sunshine State. Indeed, of the major
hurricanes that made landfall between 1851 and 2006, 37 hit Florida. Louisiana
suffered 20 major storms in that period, while Texas had 19, North Carolina 12,
Mississippi 9, Alabama and South Carolina 6, and Georgia, with its short
coastline, 3. For homeowners in these eight states, the continuing threat of
violent storms means homeowner's insurance is a costly necessity. Sharply
rising premiums, and the refusal of an increasing number of private insurers to
write policies in these states, have forced many coastal homeowners to rely on
government sponsored property insurance programs offered in some form in six of
the eight hurricane-prone states. The implications for policyholders when a
state sponsored program provides property coverage are far reaching. One issue
is the extent of the liability a state sponsored program has for mishandling a
claim. When a policyholder believes a private insurer has failed to show good
faith in settling a claim for property damage, a popular remedy available in
most states is an action for bad faith breach of contract. However, it is
unclear whether that claim is available against a state sponsored program or
whether a bad faith claim is barred by sovereign immunity.
. . . .
VI. Florida Cases
It has taken a surprising
five years or more for property insurance claim disputes involving Florida's
Citizens Property Insurance Corporation and arising out of the 2004 hurricane
onslaught to reach the Florida appellate courts. Between December 2009 and
October 2010, Florida appellate courts handed down three decisions in which
Citizens was sued for bad faith breach of an insurance contract. Unfortunately,
two different courts of appeal issued those decisions and they did not agree.
Prop. Ins. Corp. v. Garfinkel
In Citizens Prop. Ins.
Corp. v. Garfinkel [25 So. 3d 62 (Fla. Dist. Ct. App. 5th Dist. 2009) [enhanced version available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law]], Mr. Garfinkle
obtained a windstorm policy covering his residence from Citizens. That
residence was damaged by the hurricanes that struck the state in 2004. A
dispute arose between Garfinkle and the corporation over the extent of damage
to the residence. Initially, Mr. Garfinkel filed a complaint to enforce his
contract rights. However, he subsequently amended his complaint to add a bad
faith claim pursuant to Florida's statute providing a civil remedy for an
insured damaged when his or her insurer fails to settle a claim in good faith.
Citizens responded by seeking a writ of prohibition directed to the trial court
to prevent that court from taking any action respecting the first-party bad
faith claim, asserting sovereign immunity.
The Florida Fifth District
Court of Appeal noted that Garfinkle could not base a claim against Citizens on
the statute requiring good faith settlement of claims. Since Citizens was not
an authorized insurer under that statute, it cannot be subject to bad faith
claims pursuant to it. The more difficult issue, however, was whether Citizens
was immune under its governing statute.
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