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The Fourth District Court of Appeal ruled in favor of homeowners Wednesday in their bad-faith insurance case but cautioned the new interpretation may result in an abuse that the Legislature should review.

In a 12-page anonymous opinion from the full court, the Fourth District said an insurance company’s liability for coverage and the extent of damages must be determined before a bad-faith action becomes ripe. However, it is not necessary to determine whether an insurance company was liable for breach of contract.

In reaching this conclusion, the court receded from its 2012 opinion in Lime Bay Condominium v. State Farm Florida Insurance.

“We are compelled to recede from Lime Bay to the extent it held that an insurer’s liability for breach of contract must be determined before a bad-faith action becomes ripe even though the insurer’s liability for coverage and the extent of the insured’s damages already have been determined by an appraisal award favoring the insured,” the en banc court said.

Fourth District Judge Jonathan Gerber agreed with the majority but wrote separately to warn this position would allow policyholders to sue their insurer for bad faith any time the insurer disputes a claim but then pays the insured a penny more than the insurer’s initial offer to settle without determining if the insurer breached the contract.

Gerber said this “slippery slope” may be avoided if an insured is required either to establish an insurer’s liability for breach of contract as a condition of suing for bad faith or to obtain a settlement amount that is at least some percentage above the insurer’s initial offer.

“However, any such requirement is one which the Legislature must impose,” Gerber said.

This opinion came in the case of Joseph Cammarata and Judy Cammarata v. State Farm. The Cammaratas sustained hurricane damage to their home in 2005 and filed a claim in 2007.

State Farm claimed the damage was lower than the policy deductible. The Cammaratas asked for an appraisal, and each side’s appraiser came up with a damage estimate—one above and the other below the deductible. A neutral umpire was requested.

Broward Circuit Judge Eileen O’Connor appointed the umpire, and State Farm ultimately paid the umpire’s estimate minus the deductible. The Cammaratas then tried to sue State Farm for not attempting in good faith to settle the claim.

O’Connor dismissed that case, reasoning the bad-faith action was not ripe. The Fourth District reversed her ruling.

The case provides a good example of why the Legislature may want to add new requirements, Gerber said.

“After the insured took two years to file their Hurricane Wilma claim, the insurer took only one month to inspect their home and estimate the amount of their damages. Then, after the insured took six more months to request the insurer to participate in the policy’s appraisal process, the insurer took only one month to agree to the appraisal process,” Gerber said.

“When the parties’ appraisers did not agree on a damage estimate, it was the insurer and not the insureds which first filed a petition requesting the circuit court to appoint a neutral umpire. Within two months of the neutral umpire issuing its own damage estimate, the insurer paid the insureds the neutral umpire’s damage estimate.

“In sum, the record here provides no basis indicating the that insurer breached the contract, much less failed to act in good faith,” he said.

The majority explained it was compelled to recede from Lime Bay because of its reading of a 2000 Florida Supreme Court opinion, Vest v. Travelers Insurance.

“To paraphrase Vest, the determination of the existence of liability and the extent of the insured’s damages are the conditions precedent to a bad-faith action along with the notice requirement,” the majority said.

Fourth District Judge Martha Warner recused herself.

George Vaka and Nancy Lauten of the Vaka Law Group in Tampa represented the Cammaratas.

Paul Nettleton of Carlton Fields Jorden Burt in Miami represented State Farm.

Neither side responded to requests for comment by deadline.