Shareholder
In Florida Insurance Guaranty Association v. Water Fire Restoration, LLC, 50 Fla. L. Weekly D2550 (Fla. 2d DCA 2025), the Second District addressed a recurring problem in post-insolvency insurance litigation: what happens to a settlement when the carrier becomes insolvent before payment is made—and, more specifically, whether FIGA must honor attorney’s fee components of that settlement.
The homeowner hired Water Fire Restoration to perform emergency water remediation services. The homeowner’s insurer, Southern Fidelity Insurance Company, later disputed the amount owed. The homeowner had executed an assignment of benefits (AOB) in favor of Water Fire, which then sued Southern Fidelity for breach of contract. The parties eventually settled the case for $7,000—$4,000 allocated to policy benefits and $3,000 allocated to attorney’s fees and costs.
Before any settlement funds were paid, Southern Fidelity became insolvent. Water Fire substituted the Florida Insurance Guaranty Association (FIGA) in place of the insurer and moved to enforce the settlement in full.
FIGA objected, arguing that while it may be responsible for covered policy benefits, it was not statutorily obligated to pay attorney’s fees or costs, even if those amounts were included in a pre-insolvency settlement agreement.
The trial court disagreed and ordered FIGA to pay the entire $7,000. FIGA appealed—and won.
The Second DCA reversed, holding that FIGA’s obligations are strictly limited by statute. Under the FIGA Act, FIGA is responsible only for “covered claims,” which are amounts payable under the insurance policy itself. Attorney’s fees and costs—even when negotiated as part of a settlement—are not policy benefits and therefore fall outside FIGA’s statutory responsibility.
Practice pointers
FIGA’s liability is statutory, not contractual. FIGA does not “step into the shoes” of the insolvent insurer for all purposes—only for covered policy claims defined by statute.
Settlement allocation matters. Labeling a portion of a settlement as “fees” or “costs” can become outcome-determinative if insolvency intervenes before payment.
AOB plaintiffs should factor insolvency risk into settlement strategy. If the carrier’s financial health is questionable, fee recovery may evaporate even after a settlement is reached.
Courts will not expand FIGA’s obligations for equity reasons. Even small-dollar fee allocations will be rejected if they fall outside the statutory definition of covered claims.
Takeaway: When an insurer becomes insolvent, FIGA pays what the policy covers—nothing more. Attorney’s fees and costs included in a settlement agreement do not convert into covered claims simply because the insurer agreed to pay them before insolvency.
Insurance insolvency can upend otherwise clean settlements. We help contractors, insurers, and litigants evaluate FIGA exposure early and structure claims and resolutions with statutory limits firmly in mind.
* * * * * * * * * *
THIS BLOG IS INTENDED FOR GENERAL INFORMATION PURPOSES ONLY. IT DOES NOT CONSTITUTE LEGAL ADVICE. THE READER SHOULD CONSULT WITH KNOWLEDGEABLE LEGAL COUNSEL TO DETERMINE HOW APPLICABLE LAWS APPLY TO SPECIFIC FACTS AND SITUATIONS. BLOG POSTS ARE BASED ON THE MOST CURRENT INFORMATION AT THE TIME THEY ARE WRITTEN. SINCE IT IS POSSIBLE THAT THE LAWS OR OTHER CIRCUMSTANCES MAY HAVE CHANGED SINCE PUBLICATION, PLEASE CALL US TO DISCUSS ANY ACTION YOU MAY BE CONSIDERING AS A RESULT OF READING THIS BLOG.