The case of Lumpuy v. Scottsdale Insurance Co., 2013WL 2249288 (M.D. Fla. May 22, 2013) presents interesting issues of law and of conduct.
The case did not involve insurance bad faith claims. It was a first-party case based on Elieser Lumpuy's efforts to repair commercial property that was damaged by a sinkhole. Scottsdale insured the property with $150,000.00 in sinkhole coverage.
Scottsdale had the right under the policy to select or repair the professional engineer who would recommend the way in which the property would be repaired. Lumpuy retained one FTE, an engineering company, to make repair recommendations. Based on FTE's recommendations, Lumpuy next obtained a "proposed contract" with one Champion to perform the repairs recommended by FTE. Scottsdale rejected the FTE recommendation and refused to pay for Champion to proceed with the contract for repairs. Scottsdale instead demanded a neutral evaluation, which it was permitted to demand by the terms of the insurance policy.
The neutral evaluator, one Thomas Miller, recommended repairs which, like the repairs recommended by FTE, would cost in excess of the $150,000.00 policy limit on sinkhole coverage.
Faced at this point with competing recommendations for repairs both of which were in excess of the policy limit, Lumpuy rejected Miller's repair recommendation and elected to insist on FTE's repair recommendation. Scottsdale refused.
Scottsdale refused to pay for the repairs as recommended by FTE since it, Scottsdale, had not approved or selected FTE to perform the repairs under the policy. Further, Scottsdale refused to pay because no repairs recommended by an engineer selected or approved by Scottsdale had begun on the property.
Lumpuy filed a breach of contract action. To say again, Lumpuy did not allege a bad faith claim.
Lumpuy alleged breach of the insurance contract on two grounds: First, Scottsdale's "failure to tender the policy limits, even after the neutral evaluator estimated the repair costs to exceed the $150,000 policy limit;" and, second, Scottsdale's conduct in exercising its contract discretion to approve or select the engineer who would recommend repairs, was allegedly exercised unreasonably. "The case went to trial, and the jury concluded that Defendant did breach the insurance policy." Lumpuy v. Scottsdale Insurance Co., 2013WL 2249288 *1 (M.D. Fla. May 22, 2013).
The District Court consistently held that "[t]he insurance policy gave Defendant discretion over the selection and approval of the engineer whose subsurface repair recommendation would be followed." Lumpuy v. Scottsdale Insurance Co., 2013WL 2249288 *2 (M.D. Fla. May 22, 2013). The Court instructed the jury accordingly, including an instruction that Florida law requires the contract party with a discretionary power to exercise that discretion "'in a reasonable manner.'" Lumpuy v. Scottsdale Insurance Co., 2013WL 2249288 *2 (M.D. Fla. May 22, 2013).
The Court rejected Scottsdale's repeated arguments that this breach of contract claim in Florida was really governed by Florida's law of first-party bad faith. The Court rejected this argument on Scottsdale's Motion for Reconsideration.
"Since Defendant has made the argument contained within this motion several times throughout this case, the Court denies this motion without requiring Plaintiff to file a response." Lumpuy v. Scottsdale Insurance Co., 2013WL 2249288 *1 (M.D. Fla. May 22, 2013).
Concisely stated, Scottsdale refused to pay for repairs under the proposed contract because the proposed contract with Champion was not enforceable, but the Champion proposed contract "was not enforceable, because it was contingent on Defendant's approval, which Defendant refused to give." Lumpuy v. Scottsdale Insurance Co., 2013WL 2249288 *2 n.1 (M.D. Fla. May 22, 2013).
There you have it: A case of breach of contract where a jury determined that the first-party insurance carrier's conduct under a commercial insurance policy was unreasonable and thereby breached the contract, so that the jury awarded damages to the plaintiff-policyholder without any claim of insurance bad faith being filed in the case.
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