Douglas Scott MacGregor on State Sponsored Homeowner's Insurance, Bad Faith and Sovereign Immunity

Douglas Scott MacGregor on State Sponsored Homeowner's Insurance, Bad Faith and Sovereign Immunity

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. He writes:

     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.

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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.

A. Citizens 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.

(footnotes omitted)

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