Confession of Judgment Doctrine No Guarantee of Attorneys’ Fees Award In Sinkhole Case
Sep 11, 2014
By Silvia Maria Gonzalez, Esq.
Colodny Fass& Webb
On September 5, 2014, the Fifth District Court of Appeal expressly stated that the application of the confession of judgment doctrine as a basis to award fees under section 627.428, Florida Statutes is erroneous if there has been no wrongful or unreasonable denial of benefits that forced an insured to file suit to obtain policy benefits from an insurer. Omega Insurance Company v. Kathy Johnson, 2014 WL 4375189 (Fla. 5th DCA Sept. 5, 2014).
In Omega, the appellate panel considered whether a trial court could award attorneys’ fees pursuant to section 627.428, Florida Statutes (2009) based on the application of the confession of judgment doctrine in a sinkhole case, wherein the insurer complied with the statutory investigative requirements for the subject sinkhole claim, but did not learn of a dispute with its presumptively correct sinkhole report until suit was filed. The insurer invoked the neutral evaluation process pursuant to 627.7074 (2011), Florida Statutes, ultimately resulting in a payment of benefits upon the conclusion of the neutral evaluation, but prior to entry of judgment on the pending litigation case. The appellate court reversed the trial court’s award of attorneys’ fees, concluding that the application of the confession of judgment doctrine as a basis to award fees under section 627.428 was in error given the facts of this case, citing to the similarly situated case of State Farm Insurance Company v. Colella, 95 So.3d 891 (Fla. 2nd DCA 2012).
In Omega, the insured filed a sinkhole claim with the insurer, Omega Insurance Company (“Omega”). Upon the receipt of the claim, Omega commissioned a professional engineer to conduct a statutorily compliant investigation and report in accordance with the requirements found in Chapter 627 of the Florida Statutes to determine the cause of loss at Ms. Johnson’s home. The court reiterated that these reports have a presumption of correctness, stating:
“As previously indicated, such reports are presumed correct. Id. § 627.7073(1)(c). This presumption is not an evidentiary presumption, but a pre-trial “vanishing” presumption requiring the production of some countervailing evidence. Warfel v. Universal Ins. Co. of N. Am., 36 So.3d 136, 139 (Fla. 2d DCA 2010) (“Warfel I “). “[T]he presumption of correctness attached to the [professional engineer’s or geologist’s] report appears to be aimed at shielding the … insurance companies from claims of improper denials of claims.” Warfel II, 82 So.3d at 57. Although this presumption may not completely insulate an insurer from claims, compliance with the statutes governing the investigation process “goes a long way toward fulfilling [the insurer’s] obligations under its contract.” Colella, 95 So.3d at 895.”
Omega, 2014 WL at *5.
Upon receipt of the report, Omega sent a copy of it to Ms. Johnson, informing her that the company was denying her claim. Ms. Johnson subsequently hired her own expert to conduct a comparable investigation, generating a report that contradicted that of Omega’s. Ms. Johnson did not disclose the result of her report to Omega, and approximately a year later filed suit for breach of contract for failure to pay benefits pursuant to the insurance policy. Shortly thereafter, Omega invoked neutral evaluation. The neutral evaluator concluded that the damage at the Johnson residence was caused by sinkhole activity, whereafter Omega paid the claim. In a footnote discussing its own decision in State Farm Fla. Ins. Co. v. Lorenzo, 969 So.2d 393 (Fla. 5th DCA 2007), the appellate court pointed out that,
“[i]n 2011, the Legislature amended section 627.7074 to provide that if the insurer agrees to comply with the neutral evaluation recommendation, but the insured does not, ‘[t]he actions of the insurer are not a confession of judgment or admission of liability, and the insurer is not liable for attorney’s fees under s. 627.428 … unless the policyholder obtains a judgment that is more favorable than the recommendation of the neutral evaluator.’ Section 627.7074(15)(b), Florida Statute (2011).”
Omega, 2014 WL at *4.
In continuing its analysis of the facts of the case and of the confession of judgment doctrine, the court further stated, as have many of its fellow appellate courts, that the “doctrine turns on the policy underlying section 627.428” Lorenzo, 969 So.2d at 397. Multiple appellate courts have explained that, like the statute, the confession of judgment doctrine is “intended to penalize insurance companies for ‘wrongfully’ causing an insured to resort to litigation.” State Farm Fla. Inc. Co. v. Colella, 95 So.3d 891, 896 (citing Clifton v. United Cas. Ins. Co. of Am., 31 So.3d 826, 829 (Fla. 2d DCA), review denied, 49 So.3d 746 (Fla.2010)).” The Fifth District Court of Appeal has consistently held that the wrongful or unreasonable denial of benefits that forces the insured to file suit is required in order to apply the doctrine and award fees under the statute. Tampa Chiropractic Ctr., Inc. v. State Farm Mut. Ayto. Ins. Co., 141 So.3d 1256, 1258 (Fla. 5th DCA 2014). Omega, 2014 WL at *4.
The appellate court ultimately concluded that Omega, relying on the presumptively correct report it commissioned that served as the company’s basis to deny the claim, did not establish a wrongful or unreasonable denial of benefits by the insurer that subsequently forced Ms. Johnson to file suit to obtain her policy benefits. As such, the court concluded that the application of the confession of judgment doctrine as a basis to award fees under section 627.428 was error in this case.
The Omega opinion was unanimous, with Judge Thomas Sawaya delivering the opinion of the court and Judges Kerry Evander and Wendy Berger concurring.
To view the full text of the opinion, click here.
If you have any questions regarding this decision or how it may impact claims handling, please contact Silvia Maria Gonzalez at sgonzalez@cftlaw.com.
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