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Proposals for Settlement in PIP Cases: Should U.S. Security Ins. Co. v. Cahuasqui be Overturned?

Trial Lawyers

In U.S. Security Ins. Co. v. Cahuasqui, 760 So. 2d 1101 (Fla. 3d DCA 2000), the Third District Court of Appeal held for the first time that a proposal for settlement served pursuant to F.S. §768.79 and Fla. R. Civ. P. 1.442 is applicable to personal injury protection (PIP) cases. Thus, for the first time in Florida, an insured bringing an action against his or her insurance company for denial of PIP benefits faces the unsettling prospect of having to pay substantial attorneys’ fees and costs if the claim is unsuccessful. This article will discuss the unique nature of the PIP statute in Florida, why Cahuasqui conflicts with the statute, and why the decision should be overturned on appeal.

History of the PIP Statute
The Florida Legislature enacted the no-fault insurance statute in 1973.1 Prior to the enactment of no-fault in Florida, injured parties could sue in tort regardless of the amount of the claim and the permanency of their injuries.The PIP statute provided immunity for certain tort claims in exchange for a different system of insurance coverage. When the constitutionality of the no-fault statute was challenged, the Florida Supreme Court upheld it and explained that, in exchange for the loss of the right to recover for pain and suffering in cases in which the statutory threshold is not met, the injured party is “assured a speedy payment of his medical bills and compensation for lost income from his own insurer, even when the injured party himself was at fault.”2 The Supreme Court reasoned that the legislature had provided an acceptable right in exchange for the rights taken away by the new statute. In subsequent decisions, Florida courts held that the purpose behind the PIP statute was to provide the injured party “swift and virtually automatic payment so that the injured insured may get on with his life without undue financial interruption.”3 Thus, if not for the “swift and virtually automatic payment” of a claimant’s medical bills, the no-fault statute would be unconstitutional.

Nature of PIP Litigation
PIP cases by their very definition involve disputes over small amounts, frequently in the hundreds of dollars. The damages in such cases do not generally justify hiring counsel to litigate with the insurance company, despite the merits of the issues involved. The PIP statute, however, provides that in any dispute brought against an insurer under its provisions, “the provisions of §627.428 shall apply.”4 Section 627.428(1) provides that:


    [U]pon the rendition of a judgment or decree in any courts of this state against an insurer and in favor of any named or omnibus insured. . . the trial 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 recovery is had.


Thus, the legislature gave the PIP claimant a powerful weapon with which to fight an insurer’s denial of benefits by requiring that the successful claimant’s attorneys’ fees be paid by the insurance company. However, the significance of the provision is realized in the fact that the reverse is not true. An unsuccessful claimant of PIP benefits is not required to pay the insurance company’s attorneys’ fees. The Florida Supreme Court recognized the uniqueness of the statutory scheme, terming it a “one way street offering the potential for attorneys’ fees only to the insured or beneficiary.”5

Recent Decisions
In 2000, the Florida Supreme Court decided two PIP cases which further solidified the strong policy behind the PIP statute. In Delta Casualty v. Pinnacle Medical, Inc., 753 So. 2d 55 (Fla. 2000), the court held that a mandatory arbitration provisionbetween insurers and medical providers who had accepted an assignment of PIP benefits was unconstitutional. The unanimous court stated:


    An objective of Florida’s Motor Vehicle No-Fault Law was to provide persons injured in an accident with prompt payment of benefits. Similarly, the legislative objective of section 627.42(1), Florida Statutes, which provides for an award of attorney fees against insurers who wrongfully deny benefits, was to discourage insurance companies from contesting valid claims and to reimburse successful insureds for their attorney fees when they are compelled to sue to enforce their insurance contracts. (Emphasis added.)6


The court also noted the “one way imposition of attorneys’ fees” enjoyed by insureds in PIP actions under §627.428 . The court found that a mandatory arbitration provision did nothing to further the prompt payment of benefits or to discourage an insurance company from denying valid claims.7

In Ivey v. Allstate Insurance Company, 25 Fla. L. Weekly S1103 (Fla. Dec. 7, 2000), the court reiterated that the purpose of the no-fault statutory scheme is to “provide swift and virtually automatic” payment of PIP benefits to the insured. The court found that §627.428 clearly provided that, if a dispute arises between an insurer and an insured, and judgment is entered in favor of the insured, he or she is entitled to attorneys’ fees. The court also pointed out that it was the incorrect denial of benefits, not some sinister concept of wrongfulness, that forms the basis for the award of attorneys’ fees if the denial is incorrect. The court further stated: “It is clear to us that the purpose of this provision is to level the playing field so that the economic power of insurance companies is not so overwhelming that injustice may be encouraged because people will not have the necessary means to seek redress in the courts.”8

Thus, it appears to be the strong opinion of the Florida Supreme Court that there continues to be a “one way street” for insureds to claim and obtain an award of attorneys’ fees if PIP benefits are wrongly denied.

Proposals for Settlement
Proposals for settlement/offers of judgment are authorized by F.S. §768.79 and implemented by Fla. R. Civ. P. 1.442. Section 768.79(1) states that it applies “in any civil action for damages filed in the courts of this state” which, presumably, would mean claims for PIP benefits. The underlying purpose of the statute includes the early termination of litigation by encouraging realistic assessments of the claims made.9 An earlier section in part II of Ch. 768 states: “If a provision of this part is in conflict with any other provision of the Florida Statutes, such other provision shall apply. . . . ”10

Florida law has consistently held that a specific statute which covers a specific subject always prevails over a more general statute covering the subject.11 An apparent conflict between the two sections raises the issue of whether the “one way street” concept of the PIP statute prevails over §768.79. In other words, must a specific statute (attorneys’ fees in first party insurance claims) prevail over the more general offer of judgment statute (attorneys’ fees in all”civil actions”)?

The Cahuasqui Decision
In Cahuasqui, the Third District recognized that the issue of whether the offer of judgment statute applied to PIP cases was one of first impression in Florida. The court noted that, prior to 1990, the statute applied in “any action to which this part applies,” while a 1990 amendment changed the application to “any civil action for damages.” The court found the plain meaning of these words justified making a proposal for settlement applicable in PIP matters. The court reasoned that statutes should not be interpreted in a manner that would deem the legislative action useless.12 The court also noted that, while the PIP statute “streamlines” an insured’s claim for benefits, it does not deprive a PIP carrier from defending the claim entirely. For these reasons the court held that the purpose of the offer of judgment statute to encourage settlement was equally true in a PIP case and, therefore, could find no reason why that policy should not apply to PIP cases just as in any other civil actions for damages.13

The Problem with Cahuasqui
The application of the proposal for settlement statute to award fees to an insurance company from a PIP insured is contrary to both the express language and intent of the PIP statute. filing a proposal for settlement in a PIP action, an insurance company seeks to curtail and limit the effect of the statutorily mandated rights afforded under the PIP statute by destroying the “one way street” created by the legislature andaffirmed time and again by the Florida Supreme Court.

Because §627.736(8) specifically invokes the attorneys’ fees provision in insurance cases, the legislature must have intended more than to simply make §627.428 apply in PIP cases. Section 627.428 would already apply to a PIP case as it is an action between an insured and an insurer. The addition of §627.736(8) is not necessary to make the attorneys’ fees provision applicable to a PIP case. The legislature obviously intended that §627.428 be the only attorneys’ fees statute applicable to a PIP case. Otherwise, the statute is superfluous. The offer of judgment statute must be read in context with §768.71(3). Since the legislature did not repeal §768.71(3) when it enacted §768.79 in 1990, a fair interpretation of the two sections would be that the offer of judgment statute applies to all civil actions for damages where another statute does not conflict. Read together, if §768.79 conflicts with another statute, the other statute controls. Such is the case in PIP claims.

If the expressed purpose of the PIP statute is to provide “swift and virtually automatic payment” of benefits, that entire purpose is completely shattered by permitting the insurance company to serve a proposal for settlement in a PIP case. It places a frightening obstacle in the path of any insured seeking to enforce his or her policy. In fact, many insureds likely would give up their PIP claims rather than face the threatening prospect of financial disaster should they be unsuccessful in their claim. Few reasonable people would be willing to take that financial risk and the courts should not place them in that dilemma.

A PIP claimant should not be intimidated from pursuing the rights and alternative remedy that the legislature provided. Rather than furthering the purpose for which it was intended, namely the encouragement of settlement, permitting a proposal for settlement in a PIP case will have the opposite effect. It will either intimidate the injured insured and force them to abandon the claim altogether, or it will prolong the litigation and force more cases to trial to avoid the draconian implications upon the claimant. It denies the economically weak insured the power to contest the denial of a valid claim and ignores the great disparity in power and resources between the insured and the insurance company. This disparity has much greater impact upon the insured than on the insurance company.

In addition, permitting the insurance company to use §768.79 in PIP cases gives the company a weapon to use against the insured but not vice versa. A PIP claimant cannot effectively use §768.79 against the insurance company because the insurer’s liability for attorneys’ fees would be the same whether it accepted or rejected the proposal for settlement.

Consider the following example: An insured has a legitimate claim of $6,000 in medical expenses and files a PIP claim. The insurance company serves a proposal for settlement in the amount of $5,000, inclusive of attorneys’ fees. The insurance company argues that the insured is not really at risk because she need only recover $3,750.01 to avoid having to pay the attorneys’ fees for this insurer. However, if the claimant is out of work or makes only minimum wage, the risk of having to potentially pay thousands of dollars in attorneys’ fees, however small that risk might be, would be truly terrifying. She may not be able, or willing, to take such a risk. The claimant is, therefore, forced by the circumstances to settle her case for less than what is owed to avoid the risk. She is, therefore, saddled with a bill from her doctor for $1,000 in addition to her own attorneys’ fees. Her relationship with her doctor is undoubtedly compromised. This scenario is entirely possible if Cahuasqui remains the law and proposals for settlement are permitted in PIP cases. This is not why the legislature created the PIP statute.

Small Claims Cases
A large percentage of PIP cases involve disputes of less than $5,000 and, accordingly, are filed in small claims court. Claims pending in small claims present another issue concerning proposals for settlement. Rule 1.442 is not automatically applicable to small claims cases and, while the court may invoke other provisions of the Rules of Civil Procedure upon its own motion or stipulation of the parties,14 there is no counterpart in the Small Claims Rules. There are no reported appellate decisions which consider whether a proposal for settlement in a small claims case is appropriate. The informal nature of small claims proceedings—where matters are usually scheduled for trial at a much faster pace—certainly seems to mitigate against application of the rule. The Cahuasqui decision did not reach the issue because the case was heard in county court rather than small claims.

Conclusion
While the Third District did not have the advantage of the Florida Supreme Court’s opinion in Ivey when it decided Cahuasqui, the Delta Casualty case had already been published, yet the Cahuasqui majority failed to even mention it.15 Both Delta Casualty and Ivey show that the PIP statute was uniquely created to “level the playing field” for insureds. It is very difficult to reconcile the reasoning of the Third District in Cahuasqui with the Florida Supreme Court’s recent rulings in PIP cases. On February 7, 2001, the Florida Supreme Court accepted jurisdiction in Cahuasqui, and scheduled oral arguments in the case on August 27, 2001. Given the Florida Supreme Court’s clear opinions to date, it is the author’s belief that the Third District opinion will be, and should be, overturned.

1 Fla. Stat §627.730 et seq.
2 Lasky v. State Farm Ins. Co., 296 So. 2d 9 (Fla. 1974).
3 Government Employees Ins. Co. v. Gonzalez, 512 So. 2d 269 (Fla. 3d D.C.A. 1987); Comeau v. Safeco Ins. Co., 356 So. 2d 790 (Fla. 1978); Crooks v. State Farm Mutual Auto Ins. Co., 659 So. 2d 1266 (Fla. 3d D.C.A. 1995).
4 Fla. Stat. §627.736(8).
5 Danis Industries Corp. v. Ground Improvement Techniques, Inc., 645 So. 2d 420 (Fla. 1994).
6 Delta Casualty, 753 So. 2d at 59.
7 Id.
8 Ivey, 25 Fla. L. Weekly S1103 at p. 5.
9 Tucker v. Shelby Mutual Ins. Co. of Shelby, Ohio, 343 So. 2d 1357, 1359 (Fla. 1993).
10 Fla. Stat. §768.71(3).
11 McKendry v. State of Florida, 641 So. 2d 45 (Fla. 1994); Legal Environmental Assistance Foundation v. Department of Environmental Protection, 702 So. 2d 1352 (Fla. 1st D.C.A. 1997).
12 See Cahuasqui, 760 So. 2d at 1104. See also Ellis v. State, 622 So. 2d 991 (Fla. 1993).
13 Cahuasqui, 760 So. 2d at 1105.
14 See Fla. Sm. Cl. R. 7.020(a).
15 See Cahuasqui, 760 So. 2d at 1108. (“The Legislature has spoken clearly and emphatically through §627.736(8), Florida Statutes (1997) that a specific treatment will be given to attorneys’ fees in PIP cases. . . I find myself in disagreement with the majority opinion which labors long and hard to reach its result. . . . ” ) (dissenting opinion of Judge Fletcher).

Robert N. Heath, Jr., is board certified in civil trial law by The Florida Bar and the National Board of Trial Advocacy. He graduated from Auburn University and received his J.D. from Florida State University in 1981. His practice involves civil litigation with a particular emphasis on personal injury protection cases. He practices in Pensacola.
This column is submitted on behalf of the Trial Lawyers Section, Robert F. Spohrer, chair, and D. Keith Wickenden, editor.

Trial Lawyers