23 Fla. L. Weekly Supp. 896a
Online Reference: FLWSUPP 2309SPARInsurance — Med pay — Subrogation — Attorney’s fees — Where insurer that had claim of subrogation for med pay benefits against insured who had recovered payment from tortfeasor indicated that it would accept payment of med pay lien minus pro rata reduction for attorney’s fees and costs incurred by insured in obtaining settlement with tortfeasor, but insured filed declaratory action seeking declaration that he was not made whole in settlement, rather than revealing percentage by which settlement was reduced by payment of attorney’s fees and costs, lawsuit was not necessary catalyst to resolve dispute and trial court erred in awarding attorney’s fees to insured
SOUTHERN-OWNERS INSURANCE COMPANY, Appellant, v. STEVEN SPARKMAN, Appellee. Circuit Court, 7th Judicial Circuit (Appellate) in and for Flagler County. Case No. 2015-AP-000003. L.C. Case No. 2014-CC-000157. February 29, 2016. Appeal from the County Court in and for Flagler County, D. Melissa Moore-Stens, Judge. Counsel: Michael Manning, Law Offices of McFarlane & Dolan, Coral Springs, for Appellant. Philip J. Chanfrau, Palm Coast, for Appellee.
(ORFINGER, Judge.) Appellant Southern-Owners Insurance Company (“Southern-Owners”) appeals a final order of the Flagler County Court. Southern-Owners contends that the trial court committed reversible error when it awarded attorney’s fees to Appellee Steven Sparkman (“Sparkman”) pursuant to section 627.428, Florida Statutes (2014) following the trial court’s disposition of the parties’ cross-motions for summary judgment. This Court has jurisdiction. See Fla. R. App. P. 9.030(c)(1)(A).
Sparkman was injured in an automobile accident on February 4, 2011 while insured by Southern-Owners. In accordance with the provisions of the insurance policy, Southern-Owners paid to Sparkman (or on his behalf) $8,972.14 in Medical Payments (“medpay”) benefits. Sparkman settled his lawsuit with the tortfeasor (the driver of the other vehicle) for $25,000 on April 7, 2014. Record on Appeal (“ROA”) at 140-43. On various occasions between 2011 and 2014, Southern-Owners, through its agent Latitude Subrogation Services (“Latitude”), sent notice to Sparkman regarding its right to subrogation to recover the medpay payments. See ROA at 73-133.
In negotiations over Southern-Owners’ entitlement to subrogation, Sparkman asserted that his medical bills were more than $25,000, and he was not “made whole” under the equitable doctrine that an insured must be made whole before the insurer may exercise its subrogation rights. ROA at 86, 100, 101-03. On March 13, 2014, Sparkman offered to settle the subrogation claim for $1,000. ROA at 101-02, 116. Southern-Owners reviewed the documentation produced by Sparkman and offered to accept 75 percent of the medpay lien in settlement, “per our written correspondence regarding Collateral Source Law.” ROA at 112-14. On March 18, 2014, Sparkman again reiterated his $1,000 offer. ROA at 116.
On April 3, 2014, Sparkman filed a declaratory judgment action against Southern-Owners in Flagler County Court, seeking a declaration that he was not made whole in his settlement with the tortfeasor, and as a result, Southern-Owners was not entitled to recover any monies in subrogation. In the alternative, Sparkman alleged that Southern-Owners’ right to subrogation should be reduced by the pro rata share of attorney’s fees and costs he incurred in obtaining the settlement, pursuant to section 768.76(4), Florida Statutes (2014), part of Florida’s statutory collateral source rule. The parties filed cross motions for summary judgment on October 29 and November 19, 2014.
After a hearing on December 3, 2014, the trial court entered a written order granting in part Sparkman’s Motion for Summary Judgment and denying Southern-Owners’ motion. ROA at 356-57. The trial court determined that the medpay lien should be reduced by 48 percent, the pro rata percentage by which Sparkman’s settlement was reduced because of his attorney’s fees and costs. In addition, the trial court awarded attorney’s fees to Sparkman under section 627.428, Florida Statutes (2014). Southern-Owners moved for reconsideration of the attorney’s fees, which was denied. The trial court entered a Final Declaratory Judgment on February 23, 2015, and awarded Sparkman attorney’s fees in the amount of $38,325.00. ROA at 394-96. This appeal followed.
The trial court stated that it could not conclude as a matter of law that Sparkman was not “made whole” in his settlement with the tortfeasor, and predicated its judgment on the assumption that Sparkman had in fact been made whole. Neither party seeks to revisit that issue in this appeal.1 The sole issue on appeal is whether the trial court correctly determined that Sparkman was entitled to attorney’s fees under section 627.428 under the facts of this case. Resolution of this question requires the Court to consider not only section 627.428, but also section 768.76.Standard of Review
On appeal, the trial court’s interpretation of a statute is reviewed de novo. Brass & Singer, P.A. v. United Auto. Ins. Co., 944 So. 2d 252, 253 (Fla. 2006) [31 Fla. L. Weekly S762a]; Jerkins v. USF & G Specialty Ins. Co., 982 So. 2d 15, 16-17 (Fla. 5th DCA 2008) [33 Fla. L. Weekly D763a].Legal Analysis
In the instant case, the insurance policy between Southern-Owners and Sparkman gave Southern-Owners a right of subrogation to recover medpay benefits that the insured recovered from the tortfeasor.2 ROA at 188-90, 324-26. Pursuant to section 768.76(2)(a)2, Florida Statutes, Southern-Owners was a collateral source provider, as “automobile accident insurance that provides health benefits.” Osler v. Collins, 870 So. 2d 65, 68 (Fla. 2d DCA 2003) [28 Fla. L. Weekly D2609a]. When an insurer has a right of subrogation from an insured and the insured has recovered “all or part of such collateral sources from a tortfeasor,” section 768.76(4), Florida Statutes establishes a formula by which the amount otherwise due a subrogee is reduced by a percentage of the attorney’s fees and costs incurred by the insured in securing payment from the tortfeasor. Id.; Ingenix v. Ham, 35 So. 3d 949, 951 (Fla. 2d DCA 2010) [35 Fla. L. Weekly D993c]. Section 768.74(4) provides:
A provider of collateral sources that has a right of subrogation or reimbursement that has complied with this section shall have a right of reimbursement from a claimant to whom it has provided collateral sources if such claimant has recovered all or part of such collateral sources from a tortfeasor. Such provider’s right of reimbursement shall be limited to the actual amount of collateral sources recovered by the claimant from a tortfeasor, minus its pro rata share of costs and attorney’s fees incurred by the claimant in recovering such collateral sources from the tortfeasor. In determining the provider’s pro rata share of those costs and attorney’s fees, the provider shall have deducted from its recovery a percentage amount equal to the percentage of the judgment or settlement which is for costs and attorney’s fees.
§ 768.76(4), Fla. Stat. (2014) (emphasis added).
Under the plain language of the foregoing statute, Southern-Owners was entitled to assert its right of reimbursement and recover the amount of its payments to Sparkman, minus a pro rata share of Sparkman’s attorney’s fees and costs incurred in negotiating the settlement with the tortfeasor. See Magsipoc v. Larsen, 639 So. 2d 1038, 1041-42 (Fla. 5th DCA 1994).
In the parties’ negotiations over the medpay lien, Southern-Owners was missing one critical piece of information: the percentage by which Sparkman’s gross recovery from the tortfeasor was reduced by attorney’s fees and costs. Section 768.76(4) allows Sparkman to withhold that same percentage from the amount otherwise due Southern-Owners. Just as Southern-Owners could not demand a lesser reduction in the amount to which it was subrogated, Sparkman could not insist upon a greater reduction.
Instead of simply providing the correct percentage or furnishing information that would allow the percentage to be calculated, Sparkman filed the underlying action for a declaratory judgment, alleging two alternative theories and seeking attorney’s fees under section 627.428(1). That statute provides:
Upon the rendition of a judgment of decree by any of the courts of this state against an insurer and in favor of any [insured or beneficiary], the trial court or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit in which the recovery is had.
§ 627.428(1), Fla. Stat. (2014).
The purpose of this law is twofold: to discourage insurers from contesting valid claims and to allow the recovery of attorney’s fees where the insured is forced to sue or defend his rights under an insurance contract. Ins. Co. of N. Am. v. Lexow, 602 So. 2d 528, 531 (Fla. 1992); Jerkins, 982 So. 2d at 16-17; First Floridian Auto & Home Ins. Co. v. Myrick, 969 So. 2d 1121, 1124 (Fla. 2d DCA 2007) [32 Fla. L. Weekly D2672a]. Section 627.428 “discourage[s] litigation and encourage[s] prompt disposition of valid insurance claims without litigation.” Goff v. State Farm Florida Ins. Co., 999 So. 2d 684, 688 (Fla. 2d DCA 2008) [33 Fla. L. Weekly D2833a]. Unlike many attorney’s fees statutes, section 627.428(1) is a “one-way street,” meaning that while it provides a right to attorney’s fees for insureds, it provides no corresponding right for insurers. See, e.g., Danis Industries Corp. v. Ground Improvement Techniques, Inc., 645 So. 2d 420, 421 (Fla. 1994).
Section 627.428 is a penalty provision against the insurer, and it must be strictly construed as being in derogation of common law. See Florida Ins. Guar. Ass’n v. Petty, 44 So. 3d 1191, 1193 (Fla. 2nd DCA 2010) [35 Fla. L. Weekly D2149a], approved 80 So. 3d 313 (Fla. 2012); Lumbermens Mut. Ins. Co. v. Am. Arb. Ass’n, 398 So. 2d 469, 470-71 (Fla. 4th DCA 1981). The statute should encourage out-of-court settlement, rather than a “rush to the courthouse to file a declaratory judgment action” to secure attorney’s fees under section 627.428. Basik Exports & Imports, Inc. v. Preferred Nat. Ins. Co., 911 So. 2d 291, 294 (Fla. 4th DCA 2005) [30 Fla. L. Weekly D2359a].
It is improper to award attorney’s fees under section 627.428 where the insured files suit solely for the purpose of obtaining attorney’s fees. To determine whether a lawsuit was filed for this purpose, a court should examine whether the suit was filed to resolve a legitimate dispute, i.e., whether “the filing of the suit acted as a necessary catalyst to resolve the dispute and force the insurer to satisfy its obligations under the insurance contract.” Lewis v. Universal Prop. & Cas. Ins. Co., 13 So. 3d 1079, 1081 (Fla. 4th DCA 2009) [34 Fla. L. Weekly D1104a] (emphasis added); Clifton v. United Cas. Ins. Co. of Am., 31 So. 3d 826, 829 (Fla. 2d DCA 2010) [35 Fla. L. Weekly D364e]; accord State Farm Fla. Ins. Co. v. Lorenzo, 969 So. 2d 393 (Fla. 5th DCA 2007) [32 Fla. L. Weekly D1791e].
The undisputed facts of the instant case show that this lawsuit was most emphatically not a “necessary catalyst” to resolve an actual dispute. Sparkman was aware of Southern-Owners’ claim of subrogation and was provided with the portion of the insurance policy that showed that Southern-Owners could exercise that right. ROA at 92-102. Yet Sparkman withheld the critical piece of information necessary to prevent any dispute from ever arising: the percentage by which Sparkman’s $25,000 settlement with the tortfeasor was reduced by payment of his attorney’s fees and costs. ROA at 50.
Prior to the filing of this action, Southern-Owners indicated that it would accept payment of the medpay lien, minus a pro rata reduction for attorney’s fees and costs, which it believed to be 25 percent of the medpay lien. ROA at 112-14. Sparkman’s counsel did not discuss the pro rata reduction with Southern-Owners’ agent Latitude, nor did he send a demand letter to Southern-Owners prior to filing the declaratory action. ROA at 50, 53. He offered to settle the subrogation claim for $1,000 on March 13, 2014. ROA at 101-02. Instead of providing the correct pro rata percentage, Sparkman’s counsel reiterated on March 18, 2014 that his offer to settle the lien was $1,000. ROA at 116. When he did not receive a response from Latitude by his deadline, he filed suit a mere sixteen days after his offer expired (and only twenty-one days after his initial offer to Latitude). ROA at 116, 235-36.
When questioned during his deposition on June 16, 2014 whether the $1,000 offer was reasonable, Sparkman’s counsel testified that he did not believe his client owed Southern-Owners anything, but nonetheless reasoned, “I’ll offer them something rather than nothing because that would get the file closed.” ROA at 49; see also, ROA at 116. Sparkman’s counsel stated he assumed that Latitude believed that his attorney’s fees and costs were about 25 percent. ROA at 49, 56. Sparkman’s disclosed revealed the correct pro rata percentage only during his deposition, through the production of the closing statement and contracts for legal service with his client. ROA at 2-3, 53-54, 59-60, 135-38.
At oral argument on the appeal, the Court asked Sparkman’s counsel why he simply did not provide Southern-Owners with the correct percentage before the suit was filed. Counsel’s response was that he did not reveal the percentage because he “was trying to create leverage” to obtain a more favorable settlement from Southern-Owners. To counsel’s credit, however, he conceded that in hindsight, he should have disclosed that information.
The Court finds that Sparkman did not undertake a good faith effort to settle this matter with Southern-Owners, and the lawsuit was not a necessary catalyst to resolve the dispute. To award Sparkman attorney’s fees and costs for filing the unnecessary suit would be contrary to public policy, and would encourage insureds to “rush to the courthouse” to secure attorney’s fees under section 627.428.
Accordingly, the judgment of the County Court is REVERSED. The Court denies Sparkman’s Motion for Attorney’s Fees on Appeal.
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1It bears mention that although Sparkman settled his claim with the tortfeasor for $25,000.00, the tortfeasor had liability insurance limits of $250,000.00, some ten times the amount of the settlement. ROA at 128, 140-42.
2The “Automobile Medical Payments Coverage” portion of the insurance policy states in paragraph 6: “Preserve Our Right to Recover Payments: If we make a payment under this endorsement and the person to or for whom payment is made has a right to recover damages from another, we will be entitled to that right. That person shall do everything necessary to transfer that right to us and shall do nothing to prejudice it.” ROA at 326.