Independent Contractual Right to Interest Survives Statutory Bar—Barbato v. State Farm Florida Insurance Co.

Introduction

The Eleventh Circuit’s decision in Thomas Barbato v. State Farm Florida Insurance Company clarifies a critical point of Florida insurance law: an insurer’s express promise to pay interest in an insurance policy can stand as an independent contractual obligation and support a private cause of action, even where Florida Statute § 627.70131(5)(a) bars standalone statutory claims for interest. This ruling arose from a post‐Hurricane Irma dispute: after appraisal, State Farm paid the Barbatos’ claim but omitted interest, prompting a breach‐of‐contract suit. The District Court dismissed, citing the statutory prohibition against private suits for unpaid interest. On appeal, the Eleventh Circuit found that Florida’s Fifth District Court of Appeal had intervened mid‐appeal with a controlling precedent—Taylor v. State Farm Florida Insurance Co.—and thus vacated the dismissal and remanded for further proceedings.

Summary of the Judgment

The United States Court of Appeals for the Eleventh Circuit reviewed de novo the District Court’s 12(b)(6) dismissal. The District Court had held that Florida Statute § 627.70131(5)(a) “does not form the sole basis for a private cause of action,” thereby barring any suit seeking interest alone. During the appeal, however, the Florida Fifth District Court of Appeal issued Taylor, holding that when an insurance policy contains its own, standalone interest‐payment provision, an insured may sue for breach of that contractual promise even though the statute bars purely statutory causes of action. The Eleventh Circuit concluded that Taylor was directly on point, bound under Erie and McMahan v. Toto, and commanded vacatur of the District Court’s order. The panel also denied State Farm’s request to stay or remand the appeal pending further state proceedings.

Analysis

Precedents Cited

• Taylor v. State Farm Florida Insurance Co., 388 So. 3d 307 (Fla. 5th Dist. Ct. App. 2024) – Held that a policy’s independent interest clause creates a private cause of action not barred by § 627.70131(5)(a).
• Silber v. State Farm Florida Insurance Co., 72 So. 3d 286 (Fla. 4th Dist. Ct. App. 2011) – Distinguished by Taylor; concerned confirmation of an appraisal award already paid and did not address standalone interest obligations.
• McMahan v. Toto, 311 F.3d 1077 (11th Cir. 2002) – Mandates that a federal court applying state law must follow intervening decisions of a state’s highest court or intermediate appellate courts in the chain of authority.
• Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976) – Sets narrow grounds for federal abstention in concurrent proceedings; rejected here as inapplicable because the Barbatos are not parties in the Taylor state‐court case.

Legal Reasoning

The crux of the dispute centered on the last sentence of Florida Statute § 627.70131(5)(a): “Failure to comply with this subsection does not form the sole basis for a private cause of action.” State Farm and the District Court read this as a broad prohibition against any private suit seeking interest on late payments. The Eleventh Circuit, guided by Taylor, rejected that sweeping interpretation. Instead, it held:

1. Section 627.70131(5)(a) prohibits a private cause of action based solely on the statute’s interest mandate.
2. The Barbatos did not sue under the statute; they sued for breach of contract—specifically, breach of the policy’s Loss Payment provision, which separately promised interest “in accordance with” the statute.
3. An express contractual obligation to pay interest “renders § (5)(a)’s limitation inapplicable to the extent that the cause of action arises from contract, not statute.”
4. Federal courts in diversity must follow state appellate decisions that interpret state law, and when new on‐point precedents like Taylor are issued during an appeal, they govern the outcome.

Impact

This decision carries significant implications for Florida insurance litigation:

• Insurers will no longer be able to defeat an insured’s interest claim simply by pointing to § 627.70131(5)(a) if their policies contain standalone interest provisions.
• Policy drafters must carefully review interest clauses and may seek to limit or clarify them, but cannot rely solely on the statutory bar to avoid exposure.
• Insureds gain a clear path to enforce contractual interest rights—any delay beyond the statutory timeline can trigger a breach‐of‐contract cause of action.
• Federal courts in the Eleventh Circuit must vigilantly track changes in Florida appellate law, as intervening decisions—even at the intermediate‐court level—can alter the course of pending appeals.

Complex Concepts Simplified

1. Statutory vs. Contractual Cause of Action: A “statutory cause of action” means suing under a statute’s text, whereas a “contractual cause of action” means suing for breach of the contract’s own promises. Section 627.70131(5)(a) says you cannot sue just under the statute for interest. The Barbatos sued for breach of their policy, which itself promised interest.

2. Erie and McMahan Principles: In diversity cases, federal courts apply state law. When a state appellate court issues a new decision on that law—even during a federal appeal—federal courts must follow it if no clear signal suggests the state’s highest court would disagree.

3. Colorado River Abstention: Rarely, a federal court may decline to decide a case if an overlapping state case is ongoing. Here, however, the Barbatos were not parties in the state‐court proceeding that followed Taylor, so abstention was inappropriate.

Conclusion

The Eleventh Circuit’s ruling in Barbato v. State Farm Florida Insurance Co. establishes that an insurer’s independent contractual commitment to pay interest is enforceable through breach‐of‐contract litigation, despite statutory language barring standalone statutory interest claims. By adhering to the Florida Fifth DCA’s Taylor decision, the court reaffirmed core Erie principles and underscored the binding nature of intervening state appellate rulings. Insureds and insurers alike must now account for this clarified boundary between statutory limitations and contractual promises in Florida insurance policies.