Florida Court Ruling Impacts Insurance Settlements with Insolvent Carriers

A recent ruling by a Florida appeals court has reshaped the approach to handling insurance settlements involving insolvent carriers, specifically influencing the treatment of attorney fees and state guaranty fund obligations.

The Third District Court of Appeal in Florida overruled a previous decision from a Miami-Dade trial court, calling for a deeper examination of a $75,000 settlement related to a Hurricane Irma claim against the now-insolvent United Property & Casualty Insurance Company. The ruling underscores an essential aspect for insurance claims professionals and attorneys: state guaranty funds are not catch-alls for every financial obligation outlined in settlements involving bankrupt insurers.

Implications for Insurance Settlements

This case originated when a homeowner agreed to a $75,000 settlement with United Property & Casualty in November 2022 for damages caused by Hurricane Irma. The settlement distributed the funds into three parts: $37,500 for the homeowner, $22,500 for her attorneys, and $15,000 for a prior firm with a lien. However, when United Property & Casualty later declared insolvency before the funds were disbursed, the Florida Insurance Guaranty Association (FIGA) stepped in, only covering the amount designated for the homeowner. FIGA refused to pay $37,500 earmarked for legal and adjuster fees, arguing these did not meet the criteria as "covered claims" under their responsibilities.

The trial court originally found that legal fees should be included, critiquing the settlement for failing to segregate critical fees from the broader settlement package. Yet, the appeals court took a narrow view, asserting FIGA’s financial responsibilities pertain solely to direct policy liabilities, thus excluding attorney fees. The court emphasized the need for claimants to clearly delineate—and prove—any settlement components beyond covered claims.

Key Takeaways for Industry Professionals

The decision serves as a significant reminder for insurance professionals, from claims adjusters to legal teams, of the intricacies involved when dealing with insolvent insurers. These are the vital points to consider moving forward:

• State guaranty funds like FIGA primarily cover direct policy claims—not external fees or liens.
• Clear documentation separating different settlement components is crucial to ensure compliance and proper settlement processing.
• The burden of proof lies with the claimant to demonstrate exclusions or distinctions within a settlement for non-policy claims.

As the matter returns to the trial court for further review, it illustrates the importance of precise legal interpretations and strategic claims management in navigating settlements with insolvent carriers. Industry stakeholders should monitor this evolving situation closely, as it could set a precedent for handling similar cases in the future.