The longstanding debate in Florida’s state courts as to whether bad faith allegations can remain in a pending breach of insurance contract case, or whether they must be dismissed pending the outcome of the coverage dispute, has now reached the federal courts.
In Aligned Bayshore Holdings, LLC v. Westchester Surplus Lines Ins. Co., 2018 WL 6448632, Case No. 18-21692-Civ-Scola (S.D. Fla. Dec. 10, 2018), the insured sustained losses due to Hurricane Irma and submitted a claim to its insurer, which did not promptly pay all covered losses. The insured served a Civil Remedy Notice, which the insurer did not cure within the required 60-day period under Fla. Stat. 624.155. The insured then filed a breach of contract action, which included a bad faith count. The insurer moved to dismiss the bad faith count, contending that the allegations were premature until a coverage decision was determined. The insured did not dispute that the bad faith count was premature, but argued instead that it should be abated (thus remaining in the complaint), rather than dismissed, “in the interests of judicial economy.”
The district court dismissed the bad faith count for two reasons. One, pursuant to the Federal Rules of Civil Procedure, federal courts cannot take jurisdiction of actions which are not ripe. Two, following the seminal Florida Supreme Court decision Blanchard v. State Farm Mut. Auto. Ins. Co., 575 So. 2d 1289 (Fla. 1991), an action for bad faith does not accrue until the insured’s underlying claim for policy benefits reaches final resolution.
Federal courts have discretion in whether to dismiss or abate bad faith actions in breach of contract disputes. In state courts, which are perceived to have fewer financial resources, courts more frequently address judicial economy considerations to err on the side of abatement. Until there is more guidance on this issue in Florida at the state court level, insurers should always move to dismiss or strike bad faith allegations in breach of contract actions; otherwise, the allegations may unduly influence a jury should the complaint become admissible.