The United States District Court for the Middle District of Florida recently held that an insured’s bad faith claim must be abated because the insured had not yet prevailed on its underlying breach of contract claim.  See Stewart Title Guar. Co. v. Machado Family Ltd. P’ship No. 1, 2017 WL 3622006 (M.D. Fla. Aug. 23, 2017).  In the case, the insured was the assignee of a title insurance policy and a mortgage on a 1,300-acre property in Central Florida.  The insured’s borrowers defaulted on the mortgage and filed for bankruptcy protection.  As part of the settlement in the bankruptcy action, the borrowers agreed to convey the property to the insured, however, the insured then discovered errors in the legal description of the property, which prevented the transfer of the property.  The insured filed a claim with the title insurance company, but the company allegedly responded only with a “handful of emails and a few telephone calls” and nothing more.  Almost two years later, the insured prevailed in the bankruptcy action and obtained the property.  The title insurance company then agreed to pay the insured’s attorneys’ fees for the bankruptcy action, but the parties could not reach an agreement as to any additional damages the insured may have suffered “such as diminution of value of the Property resulting from timber taken by the [borrowers].”  The title insurance company filed this action, seeking a declaratory judgment that it had no further obligations under the title insurance policy.  The insured filed a counterclaim alleging breach of contract and bad faith.

The title insurance company moved to dismiss the bad faith claim as premature because there had not been a determination as to liability.  The insured opposed, arguing that the title insurance company was estopped from asserting coverage defenses because it had already made a payment under the policy.  The Court agreed with the title insurance company and held that a bad faith claim cannot accrue until the insured prevails on its underlying liability argument.  However, the Court held that the bad faith claims should be abated rather than dismissed.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.