USDC for the Middle District of Florida Holds That A Policyholder Must First Prove Breach of the Policy Before Pursuing a Claim for Bad Faith

In Grey Oaks Country Club v. Zurich American Insurance Company, the District Court for the Middle District of Florida examined whether a policyholder could sustain a cause of action for bad faith against an insurer simultaneously with a coverage action. Relying on well-settled Florida case law, the court held that plaintiff’s bad faith claim was premature because a bad faith cause of action does not accrue until there is a determination of both liability and damages in the coverage case. Accordingly, plaintiff’s bad faith count was dismissed without prejudice.

Grey Oaks Country Club brought suit against Zurich for damages to the country club property in Naples, Florida from Hurricane Irma. While Zurich made over $2 million in payments to Grey Oaks, plaintiff claimed it was owed additional funds and filed suit for breach of contract and bad faith. Zurich moved to dismiss plaintiff’s bad faith claim on the grounds that Florida law requires a finding of breach of contract and damages prior to a bad faith action being filed. Plaintiff argued that Florida courts have recognized that an insurer’s partial payment under a policy provides the liability and damages determination necessary to proceed with a statutory bad faith claim.

The court disagreed. After examining Florida case law, the court held that an insured’s “underlying first-party action for insurance benefits against the insurer … must be resolved favorably to the insured before the cause of action for bad faith in settlement negotiations can accrue.” Since there had been no determination from the court regarding breach of contract or the extent of damages suffered by plaintiff, the court dismissed the bad faith count without prejudice.