Authored by Eric R. Elms, Esquire, an associate with the Fisher Rushmer firm in Orlando. He focuses his practice in insurance, civil litigation, collections, commercial and business litigation, employment and professional liability matters. Eric can be reached at (407) 843-2111 or via email at eelms@fisherlawfirm.com.
Your insured just called. She was in a car accident five months ago. She thought you may want to know considering you are the keeper of $100,000 in Uninsured/Underinsured Motorists coverage. She tells you the at-fault driver had $10,000 in Bodily Injury coverage, she received and cashed the $10,000 check, and now wants you to pay her $100,000 Underinsured Motorists benefits since she will be going tomorrow to get a cervical percutaneous discectomy.
What do you do? First, look for coverage for the insured. Second, ascertain whether the insured’s post-loss behavior violates the terms of her policy.
Upon review of the policy, you will note the insured is likely in violation of at least two standard provisions, the duty to promptly notify the insurer of a loss, and the duty to seek permission to settle a Bodily Injury claim when the insured intends to pursue an Underinsured Motorists claim. Now, a reservation of rights letter needs to be sent to the insured.
Florida’s Claims Administration Statute, §627.426
Since the reservation of rights is based on the insured’s post-loss behavior, you must be aware of, and strictly comply with, the Florida Claims Administration Statute (“FCAS”), found in Florida Statutes § 627.426, when asserting a coverage defense potentially taking away existing coverage. Note, the FCAS does not apply to situations where a policy has lapsed, an exclusion applies, or where a statute of limitations applies.
To comply with the FCAS, a liability insurer, within 30 days of when it knew or should have known of the coverage defense(s), must issue a reservation of rights by certified mail, or hand mail, to the named insured. Once the insurer complies with this 30 day requirement, the insurer has an additional 60 days to (1) deny coverage; (2) obtain from the insured a nonwaiver agreement executed by the insured after full disclosure to the insured of the facts and policy provisions upon which the coverage defense is asserted and the rights and responsibilities of the insured and insurer; or (3) notify the insured of the insured’s right to retain mutually agreeable counsel to defend the insured. Each of these three options comes with practical pitfalls, so consulting defense counsel before implementing one of the options is recommended.
Depending on the Jurisdiction of the Claim, the FCAS May Not Apply to a UM/UIM Claim
The FCAS clearly denotes it applies to liability claims. But, does it apply to Uninsured/Underinsured Motorists claims? If you read the FCAS closely, you will note subsection (2) explicitly states “[a] liability insurer shall” comply with the FCAS, but leaves out any language regarding a Uninsured/Underinsured Motorists insurer. In the above example, should you adhere to the FCAS? The answer depends on the jurisdiction of the claim. Only one Florida appellate district has addressed this issue, thus leaving this issue open to litigation in other appellate districts. In a case decided by the Fifth District Court of Appeals, the court stated the express terms of the FCAS, specifically § 627.426(2), state the statute applies to cases involving liability insurance, not claims for uninsured motorists benefits. However, the Florida Supreme Court, First District and Second District have not opined on the issue, and the Third District and Fourth District have refused to address the issue. More specifically, the Third District and Fourth District had the opportunity to affirm a summary judgment for an insurer on the basis the FCAS does not apply to Uninsured/Underinsured Motorists claims, but instead affirmed on the grounds the FCAS is inapplicable to a statute of limitations defense or defense of no coverage due to an exclusion, respectively.
Absent a clear ruling on this issue in Florida’s appellate courts, other than the Fifth District, insurers would be wise to adhere to the FCAS so as not to be penalized for non-compliance. Under the guise of Florida Statutes § 627.428, non-compliance could result in the insurer owing the insured’s attorney’s fees and costs if the insured’s attorney prosecutes the suit in which recovery of Uninsured/Underinsured Motorists benefits is had.
Bottom Line
In sum, when you have an insured whose post-loss behavior has potentially jeopardized the applicability of their Uninsured/Underinsured Motorists benefits, consider the jurisdiction of the claim, and then analyze whether the FCAS will apply. If it applies, the insurer must strictly comply with the FCAS. It is recommended to consult with defense counsel if you need assistance in complying with the FCAS, or if you need to determine the optimal way to defend the claim under a reservation of rights. After all, non-compliance could result in an insurer paying the insured’s attorney fees and costs.
