Opinion ID: 797106
Heading Depth: 3
Heading Rank: 4

Heading: 2 Undertake to perform and complete the Construction Contract itself .; or

Text: 42 4.3 Obtain bids and negotiated proposals from qualified contractors acceptable to [Dadeland] for a contract performance and completion of the Construction Contract . . .; or 43 4.4 Waive its right to [take those steps] and with reasonable promptness under the circumstances: 44 .1 After investigation, determine the amount for which it may be liable to [Dadeland], and, as soon as practicable after the amount is determined, tender payment therefor to [Dadeland]; or 45 .2 Deny liability in whole or in part and notify [Dadeland] citing reasons therefor. 46 R2-71, Exh. A at 2 (emphasis added). Thus, under the terms of the bond, once Dadeland had declared a Contractor Default on the part of Walbridge, St. Paul was legally obligated either to arrange for the contractor to complete the project, to obtain a satisfactory substitute contractor to complete the project, or, with reasonable promptness, to investigate the matter and determine the extent of its liability to Dadeland, or to [d]eny liability in whole or in part and notify [Dadeland], citing reasons therefor. Id. The outstanding issue of fact pertains to whether, and to what extent, St. Paul acted reasonably and in good faith in light of these obligations. 47 The evidence in the record suggests that Dadeland discovered structural and design defects in connection with the project as early as 1997; Dadeland also discovered that the project, as completed, was in violation of a number of provisions of the South Florida Building Code. Although the facts show that St. Paul was made aware of these problems—and the dispute between Dadeland and the contractor as far as who bore responsibility for them—as early as 1997, the district court found, properly, we believe, that Dadeland did not formally declare a Contractor Default until 14 December 1998. Thus it was not until 14 December that St. Paul's obligations to act under the bond were officially triggered. 48 In its letter, dated 14 December 1998, Dadeland wrote to St. Paul, declaring that Walbridge had failed to perform the construction contract satisfactorily, and stating that Dadeland was hereby declar[ing] a Contractor Default and [was] formally terminat[ing] the Contractor's right to complete the contract and/or perform corrective work on the project. R2-71, Exh. 17. In that letter Dadeland demanded that St. Paul immediately take action in accordance with paragraph 4 of the Bond. Id. The letter also stated: if the Sureties [did] not take action within five (5) business days of this letter, the Sureties' failure to take action would be considered a failure to perform `with reasonable promptness' . . . . Id. (quotations added). 49 St. Paul responded to Dadeland on 18 December 1998, and indicated that it was in the process of conducting an investigation into Dadeland's allegations. R2-71, Exh. 18. The letter assured Dadeland that St. Paul would follow up with Dadeland on 21 December 1998, but there is no evidence that it did so. Thus, the following day, 22 December 1998, Dadeland again wrote to St. Paul, indicating that St. Paul [had] not taken action [nor] advised of the action they intend[ed] to take with respect to Walbridge's default on the project. R2-71, Exh. 19. In addition to demanding that St. Paul take action in accordance with paragraph 4 of the bond, the letter stated that if St. Paul failed to take steps to honor its obligations under the bond within fifteen (15) days of its letter, St. Paul would be deemed in default on the bond, pursuant to paragraph 5. 6 It is clear from the facts that St. Paul did not respond within fifteen days; in fact, its next correspondence with Dadeland did not arrive until 18 January 1999. 50 In that 18 January 1999 letter, St. Paul took the position that Walbridge [had] performed as required by the contract documents. R2-71, Exh. 20. In addition, St. Paul stated: [a]s to any defective work for which Walbridge and the subcontractors may have responsibility, Walbridge has either had the appropriate subcontractors correct the work, or remains willing to have them do so. Id. The letter also stated that Walbridge bore no responsibility for the design defects at the development. Id. St. Paul stated that it was not in a position to take over for Walbridge, and thus recommended that Dadeland cooperate with Walbridge to bring this matter to a final resolution. Id. 51 A month later, in February 1999, Dadeland filed notice of an insurer violation with the Florida Department of Insurance, alleging that its general contractor had failed to perform the construction contract, that Dadeland had repeatedly notified [St. Paul] of the problems and declared a contractor default, but that St. Paul, without any investigation, refused to perform any of [its] obligations under the Bond. R2-71, Exh. 21. Subsequent correspondence ensued between Dadeland and St. Paul. In July 1999 Dadeland advised that Walbridge [had] made only a token effort at completing the work under the permit that was issued to them. R2-67, Exh. B at 1. Dadeland's letter again stated that St. Paul had failed to honor its obligations under the bond, and that as a result it was in danger of losing the construction project. The letter listed a panoply of defects contained at the development, and it emphatically demanded St. Paul take steps to address these problems. In response to this letter, St. Paul indicated that the issue of liability for the defects remained an open question, that Walbridge continued to deny responsibility for the defects, and that these issues were being adequately and thorough addressed via the arbitration proceeding between the parties. 52 Dadeland wrote to St. Paul again in September 1999, stating that its position that it was both irresponsible and inappropriate for St. Paul to rely solely on information obtained from the contractor, Walbridge, thereby intimating that St. Paul was duty-bound to undertake an independent investigation into the defects contained in the development. The letter also made clear that, in light of the fact that Walbridge had allegedly violated both state and county regulations in building the development, at a minimum it was entitled to  at least a portion of [its] claims directly from [St. Paul] at this time.  R2-67, Exh. F. In St. Paul's response, the surety indicated that it strongly disagreed with [Dadeland]'s continued assertions regarding lack of investigation in this matter by [St. Paul]. R2-67, Exh. G. St. Paul stated that had conduct[ed] a good and proper investigation of [Dadeland]'s allegations, which St. Paul believed were subject to the arbitration. 53 In a final missive, sent 14 February 2000, Dadeland observed that the contractor had been conclusively found by the Miami-Dade County Board of Rules and Appeals to be in violation of applicable building codes, and that, meanwhile, St. Paul [had] not provided 1 ¢ as reimbursement toward the millions of dollars that have been spent correcting clearly deficient work performed by Walbridge. R2-67, Exh. J. The letter accused St. Paul of sit[ting] idly by and [] ignor[ing] [its] obligations under the performance bond, for which [Dadeland] paid [an] approximately $150,000 premium. Id. Over a year after this correspondence, Dadeland, having in the interim obtained a favorable judgment from the arbitration panel for Walbridge's defective construction, brought the present action against St. Paul, alleging that it acted in bad faith both in delaying the arbitration proceeding and in totally ignor[ing] their duties under the terms of the performance bond. R2-71, Exh.1 at 4. 54 In its motion for summary judgment, St. Paul contended that there was no evidence that it breached its obligations under the performance bond, and that therefore it was entitled to summary judgment on Dadeland's bad-faith claim. Specifically, St. Paul argued that paragraph 4 of the performance bond did not obligate St. Paul to correct the construction deficiencies, if, in lieu of doing so, it [denied] liability in whole or in part and, with reasonable promptness under the circumstances, notified Dadeland, citing reasons therefor. R2-71, Exh. A at 2. St. Paul contended that it had done so, with its response of 18 January 1999-wherein it stated that Walbridge [had] performed as required by the [construction] contract documents, R2-71, Exh. 20—and that therefore there was no outstanding factual issue as to whether it had acted with bad faith. The district court apparently agreed with this characterization, although it did not make an express finding on the point. In its summary judgment order, the court stated its view that the sureties performed all that they were required to do under the bond, R3-137 at 25, thereby implying that there were no remaining issues of fact as to whether St. Paul acted with bad faith. 55 We disagree. Florida's bad-faith statute obligates an insurer 7 to act in good faith and with due regard for the interests of the insured. Farinas v. Fla. Farm Bureau Gen. Ins. Co., 850 So.2d 555, 559 (Fla.Dist.Ct.App. 2003), pet. for review denied, 871 So.2d 872 (Fla. 2004) (citation and internal quotations omitted). See also Fla. Stat. § 624.155(1)(b)(1) (requiring an insurer to act fairly and honestly toward its insured, and with due regard for her or his interests). The statutory provision is grounded in the common law obligation of good faith that was traditionally imposed on insurers, which obligated insurers to refrain from acting solely on the basis of their own interests rather than those of the insured party. Farinas, 850 So.2d at 558 (citation and internal quotations omitted). The Florida Supreme Court has held that, at its essence, the duty of good faith requires an insurer to use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business. Boston Old Colony Ins. Co. v. Gutierrez, 386 So.2d 783, 785 (Fla. 1980). Although the typical bad-faith insurance case hinges on an allegation that the insurer breached its contractual duties, the Florida Supreme Court has also stated that [b]ecause the duty of good faith involves diligence and care in the investigation and evaluation of the claim . . . negligence is relevant to the question of good faith. Id. at 785 (citation omitted). 56 In Dadeland's case, we find that there remain questions of material fact as to whether St. Paul acted in good faith and with due regard for the interests of its insured, Dadeland, including: (1) whether St. Paul adequately investigated Dadeland's complaints of a default on the part of the contractor; and (2) whether St. Paul adhered to its obligations under the terms of the performance bond. These outstanding fact questions are sufficient for Dadeland to withstand a motion for summary judgment. 57 As to the first issue, in construing the insurer's duty of good faith in other contexts, the Florida Supreme Court has stated that an insurer has a duty to use diligence and care in the investigation and evaluation of an insured's case. Id. at 785. See also Farinas, 850 So.2d at 559 (stating that the insurer must investigate the facts underlying a claim in the interests of reaching a final settlement). Here, this duty to investigate the insured's case arises not necessarily by virtue of a contractual provision, but rather by virtue of the insurer's duty of good faith and fair dealing. 58 We find that there remain issues of material fact as to whether St. Paul conducted a sufficient investigation in response to Dadeland's formal declaration of a default on the part of Walbridge. Dadeland has proffered evidence that St. Paul neither had any direct conversations with Dadeland in response to its Default letter, nor did it hire any consultants, engineers, or experts to determine the responsibilities of the parties with respect to the deficiencies. See R2-67 at 16, 19. Although Dadeland repeatedly protested that St. Paul's denials of liability were based on the self-serving reliances of the contractor—rather than any independent investigation on the part of St. Paul—in response St. Paul stated only that it strongly disagreed with [Dadeland]'s continued assertions regarding lack of investigation in this matter by [St. Paul]. R2-67, Exh. G. St. Paul never elaborated in the parties' correspondence as to what investigation (if any) it was conducting in connection with the dispute. 59 In light of this evidence, we agree that factual issues remain as to whether St. Paul acted with good or bad faith, or whether its conduct was reasonable under all of the circumstances. Although the terms of the performance bond may not, by its express terms, have necessarily required St. Paul to conduct an investigation into the defects at the construction site, Dadeland's proffered evidence—which suggests a failure on the part of St. Paul to conduct a thorough investigation into the contractor's default—is sufficient to give rise to fact questions as to whether St. Paul acted reasonably, with due care, and with regard to the interests of its insured, Dadeland. 60 Second, the evidence raises questions of fact as to whether St. Paul did in fact adhere to its obligations under the bond. Specifically, the evidence suggests that St. Paul failed to act in a timely manner with respect to Dadeland's allegation of a Contractor Default, as it was required to do. Under the terms of the bond, after being initially advised of Walbridge's default, St. Paul was obligated either to commence rectifying the matter, or, with reasonable promptness, to: (1) determine the amount for which it was liable; or (2) [d]eny liability in whole or in part and notify Dadeland of same. R2-71, Exh. A at 2. After being advised of Walbridge's default on 14 December 1998—and being asked to honor its obligations under the bond within five (5) days—St. Paul failed to take any of these steps. Rather, on 18 December 1998 it responded and stated only that it was in the process of conducting an investigation into the dispute. R2-71, Exh. 18. Its formal denial of liability pursuant to paragraph 4.4 did not come until a month later, on 18 January 1999—thereby raising a jury question as to whether Dadeland acted with reasonable promptness, 8 as it was required to do. 61 Additionally, the evidence suggests that St. Paul did not adhere to paragraph 5 of the bond, which obligated St. Paul to act within fifteen days of receiving an additional written demand from Dadeland, or to be deemed in default of its commitments. The record establishes that St. Paul failed to do so; Dadeland served its additional written letter on St. Paul on 22 December 1998, demanding that St. Paul honor its obligations under the bond, but St. Paul's response (in which it finally invoked its right to deny liability under paragraph 4.4) did not arrive until 18 January 1999—plainly beyond the fifteen-day period required by the bond's terms. 9 Not only does this evidence suggest that St. Paul's belated response arguably placed it in default of its commitments under the bond, but, viewed in context with all of the factual circumstances, it creates triable issues of material fact as to whether St. Paul acted in a timely manner and with reasonable care towards its insured, Dadeland, or whether it engaged in a concerted attempt to avoid its commitments under the bond by engaging in bad-faith dilatory tactics. 62 Viewed in a light most favorable to Dadeland, the nonmoving party, and resolving all reasonable doubts in its favor, see Johnson, 263 F.3d at 1242, we find there are outstanding fact issues as to whether St. Paul acted in good faith and in accordance the terms of bond, or whether its conduct constituted an effort to engage in a pattern of bad-faith delay and denial. Accordingly, the district court's summary judgment in favor of St. Paul was improper. See, e.g., Berges v. Infinity Ins. Co., 896 So.2d 665, 680 (Fla. 2004) ([W]here material issues of fact which would support a jury finding of bad faith remain in dispute, summary judgment is improper.). 10 Because [t]he evidence presents a sufficient disagreement on the question of St. Paul's conduct and whether it constituted bad faith, and because it is not so one-sided that one party must prevail as a matter of law, Jeffery, 64 F.3d at 594 (citation and internal quotations omitted), we conclude that it would be inappropriate to grant summary judgment for St. Paul on the question of whether it acted with good or bad faith in handling the dispute between Dadeland, St. Paul, and Walbridge. 11 63