Background
Albert and Deborah Broome’s insurance company became insolvent. The Broomes had previously negotiated a settlement agreement with their insurer that allocated funds for both covered claims ($9,386.69) and pre-insolvency attorney’s fees ($35,613.31). When the insurer failed, the Broomes substituted the Florida Insurance Guaranty Association (FIGA) as defendant in their underlying litigation and moved to enforce the settlement agreement against FIGA. The trial court granted their motion.
FIGA appealed, arguing that it should not be bound by the pre-insolvency settlement agreement, particularly regarding the attorney’s fees component that accrued before FIGA was substituted into the case.
The Court’s Holding
The Sixth District Court of Appeal reversed the trial court’s order and remanded with instructions that FIGA pay only the $9,386.69 allocated for covered claims. The court excluded the $35,613.31 allocated for pre-insolvency attorney’s fees on two independent grounds.
First, the court held that pre-insolvency attorney’s fees do not result from “FIGA denying a covered claim” as required by sections 627.428 and 631.70, Florida Statutes. By definition, pre-insolvency attorney’s fees accrue before FIGA is ever substituted in the case. Second, the court concluded that attorney’s fees arising from a post-loss settlement agreement—as opposed to fees flowing from coverage within the insurance policy itself—do not constitute a “covered claim” under section 631.54(4), Florida Statutes. The court also held that FIGA is not liable for pre-judgment interest under section 631.57(1)(b).
Key Takeaways
- FIGA’s liability is strictly limited to amounts that constitute “covered claims” within the original insurance policy, not to broader settlement obligations negotiated post-loss.
- Pre-insolvency attorney’s fees cannot be recovered against FIGA because they do not arise from FIGA’s denial of coverage.
- Attorney’s fees included in settlement agreements are recoverable from FIGA only if they fall within the scope of the underlying insurance policy’s coverage.
- FIGA is statutorily prohibited from paying pre-judgment interest on covered claims.
Why It Matters
This decision clarifies the scope of FIGA’s liability and limits its exposure to pre-insolvency obligations. For policyholders, it means that settlement agreements negotiated with an insolvent insurer—particularly those including attorney’s fees—may not be enforceable against FIGA to the extent they exceed the policy’s actual coverage. Practitioners should be aware that FIGA’s statutory liability framework, while intended to protect policyholders, has meaningful limitations rooted in the scope of “covered claims.”
The decision also reflects a growing consensus across Florida’s appellate districts (Sixth, Third, and Fourth) that post-loss settlement obligations are distinct from policy coverage and do not automatically transfer to FIGA. This has significant implications for settlement strategy when an insurer is approaching or in insolvency proceedings.