Insurance — Homeowners — Sinkhole claim — Attorney’s fees — Insured
prevailing in action against insurer — Confession of judgment — Where insured
filed claim for damage to home caused by sinkhole activity; insurer commissioned
professional engineer whose presumptively correct report found that damage was
not caused by sinkhole activity; insured commissioned her own engineer’s report
which disagreed with insurer’s report; insured filed breach of contract action
against insurer without disclosing her engineer’s report; insurer opted to
pursue neutral evaluation procedure; and insurer paid claim after neutral
evaluator rendered report concluding that damage was caused by sinkhole
activity, it was error to award attorney’s fees to insured on the basis that
insurer confessed judgment by paying claim — Insurer’s actions in investigating
and handling claim pursuant to pertinent statutory provisions, and in relying on
the presumptively correct report it commissioned to deny the claim, did not
establish a wrongful or unreasonable denial of benefits that forced insured to
file suit to obtain policy benefits

OMEGA INSURANCE COMPANY, Appellant, v. KATHY JOHNSON, Appellee. 5th District.
Case No. 5D13-1701. Opinion filed September 5, 2014. Appeal from the Circuit
Court for Marion County, Jack Singbush, Judge. Counsel: Anthony J. Russo,
Ezequiel Lugo, Jared M. Krukar, and Carol M. Rooney, of Butler, Pappas,
Weihmuller, Katz, Craig, LLP, Tampa, for Appellant. Timothy W. Weber, of Weber,
Crabb & Wein, P.A., St. Petersburg, for Appellee.

(SAWAYA, J.) Omega Insurance Company seeks review of an order awarding
attorneys’ fees pursuant to section 627.428, Florida Statutes (2009), based on
application of the confession of judgment doctrine. Specifically, we must
determine whether Omega wrongfully withheld policy benefits to its insured,
Kathy Johnson, after she filed a claim for sinkhole damage under the policy
Omega issued to her, thereby forcing her to file suit to collect her policy
benefits. If that is what Omega did, then the order under review should be
affirmed. If it did not, reversal of the order is required.

The policy Omega issued to Johnson is a homeowner’s policy that contains a
provision for sinkhole damage coverage.1
Since it is undisputed that such coverage is provided under the policy, it is
not necessary to burden this opinion with quotation of the specific provision.
When Johnson noticed structural damage to her home, she filed a claim for policy
benefits with Omega, contending that the damage was caused by sinkhole activity
on the property. Receipt of this claim prompted Omega to investigate pursuant to
a compilation of statutory provisions that requires insurers to meet certain
standards in the investigation and handling of sinkhole claims. The statutes
also make provision for a neutral evaluation procedure that offers an
alternative to litigation. These provisions, found in chapter 627, are “designed
to provide a framework for insurance companies to follow when encountering . . .
claims involving sinkhole damage.” Universal Ins. Co. of N. Am. v.
Warfel, 82 So. 3d 47, 57 (Fla. 2012) (“Warfel II”). It will be
helpful to summarize these statutory provisions before proceeding further.

The standards for investigating a sinkhole claim are found in section
627.707, Florida Statutes (2009). They require the insurer to inspect the
property for structural damage that may be the result of sinkhole activity. §
627.707(1), Fla. Stat. (2009). If structural damage is confirmed but the insurer
is unable to identify a valid cause of the damage, or discovers the damage is
consistent with sinkhole loss, or the policyholder demands testing, the insurer
shall engage a professional engineer or geologist to conduct testing and render
a report regarding the cause of the damage. Id. § 627.707(2). The report
shall be in compliance with the requirements of section 627.7073, Florida
Statutes, and shall be issued to the insurer and the insured. Id. §
627.7073(1). The findings, opinions, and recommendations contained in the report
“shall be presumed correct.” Id. § 627.7073(1)(c). If a report is issued
pursuant to section 627.7073, an alternative procedure for resolution of
disputed sinkhole claims is available. Id. § 627.7074. This procedure
provides for “neutral evaluation” of the claim to be conducted “as an informal
process in which formal rules of evidence and procedure need not be observed.”
Id. § 627.7074(5). A request for neutral evaluation is made with the
Department of Financial Services. Id. § 627.7074(4); State Farm Fla.
Ins. Co. v. Colella, 95 So. 3d 891 (Fla. 2d DCA), review denied, 108
So. 3d 654 (Fla. 2012). “Neutral evaluation is nonbinding, but mandatory if
requested by either party.” Id. § 627.7074(4). Thus, once the request for
neutral evaluation has been filed, participation in that process is “mandatory
and guaranteed.” Citizens Prop. Ins. Corp. v. Trapeo, 136 So. 3d 670, 677
(Fla. 2d DCA 2014).

When Omega received Johnson’s claim, it commissioned a professional
engineering and geology firm to conduct testing and issue a report pursuant to
section 627.707. The report concluded that sinkhole activity was not a cause of
the damage to Johnson’s property. Based on this report, Omega sent
correspondence to Johnson stating that, in light of the findings in the report,
sinkhole activity was eliminated as the cause of damage to her home and it was
not able to honor her claim. Omega attached a copy of the report to the
correspondence. The correspondence contained the required disclosure of
Johnson’s right to participate in the neutral evaluation program under section
627.7074(3) and notified Johnson that Omega was statutorily obligated to bear
the expense associated with the neutral evaluation. The letter also advised
Johnson to contact the claims adjuster at a specific telephone number if she had
any questions regarding the claim or the content of the letter.

Johnson never responded to Omega’s letter. Instead, Johnson sought her own
independent opinion and commissioned a civil engineering firm to evaluate the
cause of damage to her home. The report issued by Johnson’s engineering firm
disagreed with Omega’s report and stated that “sinkhole activity is a cause of
structural distress at the Johnson residence within a reasonable, professional
probability.”

With this report in hand, Johnson filed the underlying lawsuit (almost a year
after Omega sent the denial letter), alleging that Omega breached Johnson’s
homeowner’s insurance policy by failing to pay the benefits due Johnson. Neither
the report listing sinkhole activity as a cause of damage nor the findings
contained therein were relayed to Omega prior to the institution of the lawsuit.
Omega obtained a copy of the report for the first time during the course of
discovery.

Omega filed a motion for neutral evaluation and to stay litigation pursuant
to section 627.7074. The trial court stayed the litigation, and Omega filed a
request for neutral evaluation of a sinkhole insurance claim with Florida’s
Department of Financial Services. A neutral evaluator was appointed, and he
visited Johnson’s home. Thereafter, he issued a report concurring with the
result of the report issued by Johnson’s engineering firm. Specifically, the
neutral evaluator found that there was a sinkhole loss that required
remediation.

Upon receipt of the report, Omega wrote to inform Johnson that it intended to
comply with the neutral evaluator’s recommendations and pay the claim. Omega
tendered the policy benefits, and Johnson filed a Motion for Confession of
Judgment and Motion for Attorneys’ Fees, Costs and Interest. The motion for fees
alleged entitlement pursuant to section 627.428, which provides that “[u]pon the
rendition of a judgment or decree by any of the courts of this state against an
insurer and in favor of any named . . . insured . . . under a policy or contract
executed by the insurer, the trial court . . . shall adjudge or decree against
the insurer and in favor of the insured . . . a reasonable sum as fees or
compensation for the insured’s . . . attorney . . . .”2 The trial court granted the motion based on the
confession of judgment doctrine, concluding that when Omega agreed to pay the
claim and tendered the policy benefits, it confessed judgment, thus rendering it
liable for fees under the statute.

Omega appeals, contending that it did not wrongfully withhold policy benefits
from Johnson because it investigated according to the statutory directives and
justifiably relied on the report issued by its engineering firm that sinkhole
activity was not the cause of the damage to Johnson’s home. Johnson claims that
it does not matter whether Omega wrongfully withheld the policy benefits and
forced her to file suit. The simple facts asserted by Johnson are that Omega
denied her claim, she filed suit, and Omega paid the policy benefits thereafter.
Johnson argues that is all she must show to entitle her to fees under the
statute. The trial court was persuaded by Johnson’s argument and rendered the
order awarding fees that we now review. Analyses of section 627.428 and the
confession of judgment doctrine reveal that Omega is correct, not Johnson.

The courts have consistently held that “[t]he purpose of section 627.428 is
to penalize a carrier for wrongfully causing its insured to resort to litigation
to resolve a conflict when it was reasonably within the carrier’s power to do
so.” Gov’t Emps. Ins. Co. v. Battaglia, 503 So. 2d 358, 360 (Fla. 5th DCA
1987); see also Pawtucket Mut. Ins. Co. v. Manganelli, 3 So. 3d
421, 423 (Fla. 4th DCA), review denied, 23 So. 3d 712 (Fla. 2009);
Liberty Nat’l Life Ins. Co. v. Bailey ex rel. Bailey, 944 So. 2d 1028,
1030 (Fla. 2d DCA 2006) (holding that the statute is a penalty in derogation of
the common law and stating that “the denial of an insurance claim based on
erroneous information provided by the insured does not rise to the level of
wrongful conduct necessary to impose a fee award against the insurer”);
Bassette v. Standard Fire Ins. Co., 803 So. 2d 744, 746 (Fla. 2d DCA
2001) (stating that the purpose of section 627.428 “is to penalize an insurance
company for wrongfully causing its insured to resort to litigation in order to
resolve a conflict with its insurer when it was within the company’s power to
resolve”); Leaf v. State Farm Mut. Auto. Ins. Co., 544 So. 2d 1049 (Fla.
4th DCA 1989); Time Ins. Co. v. Arnold, 319 So. 2d 638, 640 (Fla. 1st DCA
1975) (holding that refusal to pay was not wrongful; Time had no obligation to
doubt erroneous information contained in the notice of claim, so it was error to
award attorney’s fees against it). Thus, the statute was enacted “to discourage
the contesting of valid claims against insurance companies and to reimburse
successful insureds for their attorney’s fees when they are compelled to defend
or sue to enforce their insurance contracts.” Ins. Co. of N. Am. v.
Lexow, 602 So. 2d 528, 531 (Fla. 1992); see also Underwood
Anderson & Assocs., Inc. v. Lillo’s Italian Rest., Inc., 36 So. 3d 885,
888 (Fla. 1st DCA 2010) (holding that the statute encourages the payment of
valid claims and, “failing that, to compensate insureds that are forced to
litigate their contracts with improperly recalcitrant insurance companies”);
Travelers Indem. Ins. Co. of Ill. v. Meadows MRI, LLP, 900 So. 2d 676,
679 (Fla. 4th DCA 2005).

But the statute requires that fees may be awarded “upon rendition of a
judgment or decree by any of the courts of this state,” and a tender of policy
benefits or a settlement agreement is not a judgment or decree rendered by a
court. See Wollard v. Lloyd’s & Cos. of Lloyd’s, 439 So. 2d
217, 218 (Fla. 1983) (explaining that fees are awarded under section 627.428 “
‘even though technically no judgment for the loss claimed is thereafter entered
favorable to the insured.’ ” (quoting Cincinnati Ins. Co. v. Palmer, 297
So. 2d 96, 99 (Fla. 4th DCA 1974))). In these instances, the courts apply the
confession of judgment doctrine, which provides that the tender of policy
benefits or a settlement agreement is “the functional equivalent of a confession
of judgment or a verdict in favor of the insured” that can be utilized as the
basis of an award under the statute. Id. at 218; see also Tampa
Chiropractic Ctr., Inc. v. State Farm Mut. Auto. Ins. Co., 141 So. 3d 1256
(Fla. 5th DCA 2014); Basik Exps. & Imps., Inc. v. Preferred Nat’l Ins.
Co., 911 So. 2d 291, 293 (Fla. 4th DCA 2005). As this court explained in
Tampa Chiropractic, “ ‘By using the legal fiction of a “confession of
judgment,” our supreme court extended the statute’s application’ to cases in
which the insurer settles or pays a disputed claim before rendition of
judgment.” Tampa Chiropractic, 141 So. 3d at 1258 (quoting Basik,
911 So. 2d at 293).

Because “[t]he confession of judgment doctrine turns on the policy underlying
section 627.428,” State Farm Fla. Ins. Co. v. Lorenzo, 969 So. 2d 393,
397 (Fla. 5th DCA 2007), the courts have explained that, like the statute, the
doctrine is “intended to penalize insurance companies for ‘wrongfully’ causing
an insured to resort to litigation.” Colella, 95 So. 3d at 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)). This court has consistently
held that wrongful or unreasonable denial of benefits that forces the insured to
file suit is necessary to apply the doctrine and award fees under the statute.
Tampa Chiropractic, 141 So. 3d at 1258. (“For the confession of judgment
doctrine to apply, the insurer must have unreasonably withheld payment under the
policy or engaged in some other wrongful behavior that forced the insured to
sue.” (citations omitted)); Lorenzo.3 In Lorenzo, this court specifically rejected
the rationale advanced by Johnson that filing suit and obtaining a settlement or
tender of policy benefits is all that is necessary, and explained:

Lorenzo, 969 So. 2d at 398 (footnote omitted) (citations omitted)
(quoting Tristar Lodging, Inc. v. Arch Speciality Ins. Co., 434 F. Supp.
2d 1286, 1297-98 (M.D. Fla. 2006)).

After Omega received Johnson’s claim for policy benefits, it complied with
its statutory obligations by commissioning a professional engineer to identify
the cause of loss and issue a report. § 627.707(2), Fla. Stat. (2009). 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.

When Omega received the report, it sent a copy to Johnson stating that it was
denying her claim. At this point, Omega had the right to presume the report was
correct and to deny the claim based thereon. After Johnson received the report
that she had commissioned, rather than present her countervailing evidence to
Omega to rebut the presumption or at least notify Omega that she disagreed with
Omega’s report and attempt to further discuss her claim, Johnson kept her report
to herself and, approximately a year after receipt of Omega’s initial report and
denial letter, filed suit alleging that Omega breached the policy. Omega then
opted to pursue the neutral evaluation procedure, and when the neutral evaluator
rendered his report concluding that the damage was caused by sinkhole activity,
Omega paid the claim.4

We do not believe that, under the facts and circumstances of this case,
Omega’s actions in investigating and handling Johnson’s claim pursuant to the
pertinent statutory provisions contained in chapter 627, and in relying on the
presumptively correct report it commissioned to deny the claim, establish a
wrongful or unreasonable denial of benefits that forced Johnson to file suit to
obtain her policy benefits. We, therefore, conclude that application of the
confession of judgment doctrine as a basis to award fees under section 627.428
was error. In a case with strikingly similar facts, the court in Colella
similarly held that application of the confession of judgment doctrine was
inappropriate and that the summary judgment for the insured in her breach of
contract action against her insurer must be reversed because there was nothing
in the record to establish that the insurer, which had complied with the
statutory investigation procedures and subsequently paid the claim, wrongfully
caused the insured to resort to litigation. Accordingly, we reverse the order
under review.

REVERSED and REMANDED. (EVANDER and BERGER, JJ., concur.)

__________________

1The policy was issued on April 26, 2009.
This date is significant because “ ‘the statute in effect at the time an
insurance contract is executed governs substantive issues arising in connection
with that contract.’ ” Menendez v. Progressive Express Ins. Co., Inc., 35
So. 3d 873, 876 (Fla. 2010) (quoting Hassen v. State Farm Mut. Auto. Ins.
Co., 674 So. 2d 106, 108 (Fla. 1996)).

2Johnson also sought fees pursuant to
section 627.7074(14), Florida Statutes, but apparently withdrew that request.

3Other courts are in accord. See
Vivas v. State Farm Fla. Ins. Co., 138 So. 3d 479, 479 (Fla. 3d DCA 2014)
(“Because we agree with the trial court that the insurer did not wrongfully
cause the insureds to resort to litigation, we affirm the trial court’s denial
of attorney’s fees and costs.”); Sunshine State Ins. Co. v. Davide, 117
So. 3d 1142, 1145 n.4 (Fla. 3d DCA 2013) (“The first issue in such an award is
whether or not the insurer wrongfully caused its insured to have to resort to
litigation in order to resolve a conflict with the insurer, when it is within
the insurer’s power to resolve it. This is the first question that needs to be
addressed in any section 627.428 issue.” (citation omitted)); Beverly v.
State Farm Fla. Ins. Co., 50 So. 3d 628, 633 (Fla. 2d DCA 2010) (“This
trilogy establishes that an insurer’s post-suit payment of additional policy
proceeds entitles the insured to section 627.428 attorney’s fees where the
insurer ‘wrongfully caus[ed] its insured to resort to litigation in order
to resolve a conflict with its insurer when it was within the company’s power to
resolve it.’ ” (quoting Clifton, 31 So. 3d at 829)), review
denied, 68 So. 3d 235 (Fla. 2011).

4Although participation in the neutral
evaluation process is mandatory once a party elects that process, the
recommendation of the neutral evaluator is not binding on any party. See
§ 627.7074(13), Fla. Stat. (2009). In 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.” § 627.7074(15)(b), Fla. Stat. (2011).