When an insurance company goes broke, its customers don’t simply lose everything they were owed. Florida created a safety net—the Florida Insurance Guaranty Association, or FIGA—to step in and pay certain claims that the failed insurer can no longer cover.
But that safety net has limits. FIGA does not simply inherit every promise the failed insurer made. The law defines what FIGA must pay, and that definition is narrower than many people expect—especially when a settlement had already been reached before the insurer collapsed.
This distinction can matter a great deal to homeowners and other policyholders who settled a claim, then watched their insurer become insolvent before the money changed hands. Which parts of that settlement survive, and which parts fall outside FIGA’s obligations?
A recent decision from Florida’s Sixth District Court of Appeal, FIGA v. Broome, addressed exactly that question.
Key Takeaway
When an insurer becomes insolvent, FIGA generally pays the portion of a settlement tied to the actual covered claim—but not the pre-insolvency attorney’s fees or interest that were bundled into that settlement.
The question is more specific:
- Are attorney’s fees that accrued before FIGA entered the case a “covered claim”?
- Can FIGA be made to pay interest?
What happened in this case?
A couple’s insurer became insolvent. Because of that, they amended their lawsuit to substitute FIGA in place of their former insurer as the defendant.
Before the insurer failed, the couple and the insurer had reached a settlement agreement. That agreement split the money into two buckets: a smaller amount for the covered claims themselves, and a larger amount allocated to the couple’s pre-insolvency attorney’s fees.
The trial court enforced the entire settlement against FIGA, including the attorney’s fees and an amount for pre-judgment interest. FIGA appealed.
What did the court decide?
The Sixth District reversed. It instructed the trial court to enter a new order requiring FIGA to pay only the amount allocated for the covered claims—$9,386.69—and to exclude the larger sum set aside for pre-insolvency attorney’s fees, as well as the amount for pre-judgment interest.
In short, FIGA was on the hook for the covered-claim portion, but not for the attorney’s fees or interest bundled into the settlement.
Why weren’t the attorney’s fees included?
The court gave two independent reasons for excluding the pre-insolvency attorney’s fees.
- First, those fees necessarily accrued before FIGA was ever substituted into the case. Under the fee provisions in sections 627.428 and 631.70, Florida Statutes, fees flow from FIGA denying a covered claim—something that could not have happened before FIGA was even in the lawsuit.
- Second, even setting those statutes aside, these fees arose from a post-loss settlement agreement rather than from coverage inside the insurance policy itself. Under section 631.54(4), that means they do not qualify as a “covered claim.”
Coverage vs. a settlement promise
The court drew a line between money owed because a policy covers something, and money owed only because of a later settlement agreement. FIGA’s obligation attaches to the former, not simply to whatever the parties agreed to before insolvency.
Why wasn’t FIGA required to pay interest?
The court pointed to the plain language of section 631.57(1)(b), Florida Statutes, which states that FIGA is not liable for interest. Because of that statutory language, the amount the trial court had allocated for pre-judgment interest had to be excluded as well.
Why does this matter to policyholders?
For people whose insurer becomes insolvent, this decision illustrates that FIGA’s role is defined by statute, not by every term of a private settlement. The core covered-claim amount may be recoverable, while other components—like attorney’s fees generated before FIGA entered the picture, or interest—may fall outside what FIGA must pay.
The way a settlement is structured and labeled can affect which parts survive an insurer’s insolvency. This case is one court’s application of Florida’s guaranty-association statutes to a specific set of facts, and every situation turns on its own record and documents.
Disclaimer: This post is for general information only, is not legal advice, does not create an attorney-client relationship, and does not predict or guarantee any result. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before deciding, ask for free written information about the lawyer’s qualifications and experience.