Bad Faith Claim Brought Under Florida Law Foreclosed by the Insurance Policy’s Choice of Law Provision

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When contained in an insurance policy, a choice of law provision generally provides that the law of a certain state will apply to the policy and the determination of rights and responsibilities under the policy. Sometimes, a policy can also contain a mandatory arbitration provision, requiring all disputes arising pursuant to the policy be submitted to a binding arbitration.

If the choice of law provision of a policy provides that a state’s law other than the law of Florida applies, and an arbitration panel decided Florida bad faith law therefore did not apply, a recent Florida federal court decision holds that the arbitration panel’s decision should be enforced, precluding the claimant’s bad faith suit under Florida law.

In Gomez v. Allied Professionals Insurance Company, 457 F. Supp. 3d 1351, 1354 (S.D. Fla. 2020), the plaintiff was allegedly injured by a chiropractor insured by Allied Professionals Insurance Company. The plaintiff sued the insurer for common law bad faith under Florida law as a third-party beneficiary. Id. at 1355. The policy had a mandatory arbitration agreement that also contained a choice of law provision that invoked California law. Id. at 1357.

The plaintiff argued that its bad faith claim was not arbitrable because the choice of law provision invoked California law and this common law bad faith cause of action did not exist under California law. Id. at 1363. The federal court disagreed, finding that the issue was arbitrable because the third-party bad faith allegations fell within the types of disputes to which the arbitration agreement applies. Id. at 1363-64.

At the arbitration, the panel issued summary judgment in the insurer’s favor on the bad faith claim, holding that Florida third-party bad faith law did not apply because of the choice of law provision that invokes California law and because no common law third-party bad faith cause of action existed under California law. Gomez v. Allied Professionals Insurance Company, 2022 WL 255342, at *2-3 (S.D. Fla. January 27, 2022) (“Gomez II”).

Following this arbitration decision, the plaintiff sought to re-open the federal litigation, arguing it should be permitted to litigate its Florida common law bad faith claim against the insurer. Id. at *3. In denying plaintiff’s request to reopen the federal litigation, the court reasoned that doing so would be tantamount to vacating the arbitration panel’s ruling that California law applied to the common law third-party bad faith claim. Id. at *3-5. The court noted that it could not revisit the legal merits or factual determinations of an arbitration award and that, so long as there was a rational ground for the arbitration panel’s decision, the arbitration award should be confirmed. Id. at *5 (citations and quotations omitted). As the arbitration panel issued a “detailed” ruling explaining the application of California law to the arbitration proceedings, there was a rational ground for the arbitration panel’s decision. Id. The court therefore denied plaintiff’s request to reopen the federal litigation to proceed with a common law bad faith claim under Florida law.

Where a policy contains a choice of law provision applying the law of a state other than Florida and where that policy also contains a mandatory arbitration provision, a plaintiff, under the principles established by Gomez II, should not be able to litigate in a Florida court a bad faith claim under Florida law where Florida law was not applied by the arbitration panel.

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