Bad Faith Claim Made Under Florida Law Excluded by Policy Choice of Law Provision | Butler Weihmuller Katz Craig LLP

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When contained in an insurance policy, a choice of law clause generally provides that the law of a certain state will apply to the policy and to the determination of rights and liabilities under the policy. Sometimes a policy may also contain a mandatory arbitration provision, requiring all disputes arising under the policy to be submitted to binding arbitration.

If a policy’s choice of law clause provides that the law of a state other than Florida law applies and an arbitration panel has determined that Florida bad faith law does not apply. therefore not enforce, a recent Florida federal court ruling states that the arbitration panel’s decision should be enforced, excluding plaintiff’s bad faith lawsuit under Florida law.

In Gomez c. Allied Professionals Insurance Company, 457 F. Supp. 3d 1351, 1354 (SD Fla. 2020), plaintiff was allegedly injured by a chiropractor insured by Allied Professionals Insurance Company. The plaintiff sued the insurer for common law bad faith under Florida law as a third party beneficiary. Identifier. at 1355. The policy had a binding arbitration agreement that also contained a choice of law provision that invoked California law. ID. at 1357.

Plaintiff argued that his bad faith claim was not arbitrable because the choice of law provision invoked California law and that common law cause of action for bad faith did not exist. under California law. ID. at 1363. The Federal Court disagreed, concluding that the matter was arbitrable because the third parties’ allegations of bad faith fell within the types of disputes to which the arbitration agreement applies. ID. at 1363-64.

At arbitration, the panel entered summary judgment in favor of the insurer on the bad faith claim, finding that Florida third party bad faith law did not apply due to the choice of provision of law that invokes California law and because no third party common law cause of action for bad faith existed under California law. Gomez c. Allied Professionals Insurance Company2022 WL 255342, at *2-3 (SD Fla. Jan. 27, 2022) (“Gomez II”).

Following this arbitral award, the plaintiff sought to reopen the federal litigation, arguing that he should be allowed to litigate his Florida common law bad faith claim against the insurer. ID. at 3. In denying plaintiff’s request to reopen the federal litigation, the court held that doing so would amount to reversing the arbitration panel’s ruling that California law applied to the third party’s bad faith claim at common law. Identifier. to *3-5. The tribunal noted that it could not review the legal merits or factual determinations of an arbitral award and that, so long as there was a rational basis for the arbitration panel’s decision, the arbitral award had to be confirmed. ID. to *5 (quotes and quotes omitted). Because the arbitration panel issued a “detailed” ruling explaining the application of California law to the arbitration proceeding, there was a rational basis for the arbitration panel’s decision. ID. The court therefore denied plaintiff’s request to reopen federal litigation to pursue a common law bad faith claim under Florida law.

Where a policy contains a choice of law clause applying the law of a state other than Florida and such policy also contains a binding arbitration clause, a plaintiff, under the principles established by Gomez IIshould not be able to bring a bad faith claim under Florida law in a Florida court where Florida law has not been applied by the arbitration panel.

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