FLORIDA SUPREME COURT’S APPLICATION OF INSURANCE BAD FAITH IN THIRD-PARTY CONTEXT

shutterstock_539752999What happens when an insured receives a judgment in excess of his/her insurance policy limits when the matter could have been resolved within the insured’s policy limits?  Think of a personal injury scenario where the insured received a claim by an injured party and tenders the claim to his/her insurer.  What if that matter could get resolved within policy limits but it does not and exposes the insured to a judgment in excess of the policy limits?  This could be where insurance bad faith comes into play in the third-party liability insurance context based on the totality of  circumstances—the insurer acted in bad faith in failing to settle this third-party claim and exposed the insured to a judgment in excess of the insured’s policy limits.

 

The Florida Supreme Court in Harvey v. Geico General Insurance Company, 43 Fla.L.Weekly S375a (Fla. 2018) just entered a fairly significant ruling in the insurance bad faith context with respect to third-party claims when it reversed the Fourth District Court of Appeal with direction to reinstate a substantial bad faith jury verdict against an insurer.  This case dealt with a car accident that resulted in death.  The driver that caused the accident had policy limits of $100,000 per occurrence.  The decedent’s estate was not going to accept that amount unless it had verification in a recorded statement as to other insurance and assets the driver had, which was never timely facilitated by the driver’s insurer.  As a result, the driver was sued and received an approximate $8 Million Dollar jury verdict against him.  This prompted the bad faith lawsuit (i.e., the driver was exposed to a judgment well in excess of his policy limits) where the jury found the insurer acted in bad faith (because, among other facts, had the insurer timely facilitated a recorded statement of the driver regarding other insurance and assets, the estate likely would have accepted the policy limits since the decedent did not have other insurance or significant assets).   The Fourth District, however, reversed the jury verdict and the issue on appeal became the application of bad faith law in the third-party liability context. 

 

It is this insurance bad faith application that is important and will be quoted below:

  

We have explained that “[b]ad faith law was designed to protect insureds who have paid their premiums and who have fulfilled their contractual obligations by cooperating fully with the insurer in the resolution of claims.” Berges, 896 So. 2d at 682. Thus, “[b]ad faith jurisprudence merely holds insurers accountable for failing to fulfill their obligations, and our decision does not change this basic premise.” Id. at 683.

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Almost four decades ago, we explained the law of bad faith and the good faith duty insurers owe to their insureds in handling their claims, which still holds true today. See Boston Old Colony, 386 So. 2d at 785. We explained that “in handling the defense of claims against its insured,” the insurer “has a duty 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.” Id. This duty arises from the nature of the insurer’s role in handling the claim on the insured’s behalf — because the insured “has surrendered to the insurer all control over the handling of the claim, including all decisions with regard to litigation and settlement, then the insurer must assume a duty to exercise such control and make such decisions in good faith and with due regard for the interests of the insured.” Id. We explained in great detail what this duty requires of insurers:

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This good faith duty obligates the insurer to advise the insured of settlement opportunities, to advise as to the probable outcome of the litigation, to warn of the possibility of an excess judgment, and to advise the insured of any steps he might take to avoid same. The insurer must investigate the facts, give fair consideration to a settlement offer that is not unreasonable under the facts, and settle, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so. Because the duty of good faith involves diligence and care in the investigation and evaluation of the claim against the insured, negligence is relevant to the question of good faith.

Id. (citations omitted).

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We reaffirmed this duty insurers owe to their insureds in Berges, stating that the insurer “owe[s] a fiduciary duty to act in [the insured's] best interests.” 896 So. 2d at 677. Indeed, “this is what the insured expects when paying premiums.” Id. at 683.

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The obligations set forth in Boston Old Colony are not a mere checklist. An insurer is not absolved of liability simply because it advises its insured of settlement opportunities, the probable outcome of the litigation, and the possibility of an excess judgment. Rather, the critical inquiry in a bad faith is whether the insurer diligently, and with the same haste and precision as if it were in the insured’s shoes, worked on the insured’s behalf to avoid an excess judgment. “[T]he question of whether an insurer has acted in bad faith in handling claims against the insured is determined under the ‘totality of the circumstances’ standard.” Id. at 680. Further, it is for the jury to decide whether the insurer failed to “act in good faith with due regard for the interests of the insured.” Boston Old Colony, 386 So. 2d at 785. This Court will not reverse a jury’s finding of bad faith where it is supported by competent, substantial evidence, as “it is not the function of [the appellate court] to substitute its judgment for the trier of fact.” Berges, 896 So. 2d at 680.

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In a case “[w]here liability is clear, and injuries so serious that a judgment in excess of the policy limits is likely, an insurer has an affirmative duty to initiate settlement negotiations.” Powell v. Prudential Prop. & Cas. Ins. Co., 584 So. 2d 12, 14 (Fla. 3d DCA 1991). In such a case, where “[t]he financial exposure to [the insured] [i]s a ticking financial time bomb” and “[s]uit c[an] be filed at any time,” any “delay in making an offer under the circumstances of this case even where there was no assurance that the claim could be settled could be viewed by a fact finder as evidence of bad faith.” Goheagan v. Am. Vehicle Ins. Co., 107 So. 3d 433, 439 (Fla. 4th DCA 2012) (citing Boston Old Colony, 386 So. 2d at 785).

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The damages claimed by an insured in a bad faith case “must be caused by the insurer’s bad faith.” Perera v. U.S. Fidelity & Guar. Co., 35 So. 3d 893, 902 (Fla. 2010). However, “the focus in a bad faith case is not on the actions of the claimant but rather on those of the insurer in fulfilling its obligations to the insured.” Berges, 896 So. 2d at 677.*

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In the decision below, the Fourth District stated that “where the insured’s own actions or inactions result, at least in part, in an excess judgment, the insurer cannot be liable for bad faith.” Harvey, 208 So. 3d at 816. We conclude that this statement misapplies our precedent in Berges, where we stated that “the focus in a bad faith case is not on the actions of the claimant but rather on those of the insurer in fulfilling its obligations to the insured.” Berges, 896 So. 2d at 677.

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While this Court has stated that “there must be a causal connection between the damages claimed and the insurer’s bad faith,” Perera, 35 So. 3d at 902, this Court has never held or even suggested that an insured’s actions can let the insurer off the hook when the evidence clearly establishes that the insurer acted in bad faith in handling the insured’s claim. In fact, the standard jury instructions on legal cause in a bad faith case belies the Fourth District’s conclusion that where the insured’s own actions, even “in part” cause the judgment, the insurer cannot be found liable for bad faith. Indeed, the standard legal cause instruction states:

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Bad faith conduct is a legal cause of [loss] [damage] [or] [harm] if it directly and in natural and continuous sequence produces or contributes substantially to producing such [loss] [damage] [or] [harm], so that it can reasonably be said that, but for the bad faith conduct, the [loss] [damage] [or] [harm]would not have occurred.

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Fla. Std. Jury Instr. (Civ.) 404.6(a). Nowhere in this instruction does it state that an insurer can escape liability merely because the insured’s actions could have contributed to the excess judgment.

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To take the Fourth District’s reasoning to its logical conclusion, an insurer could argue that regardless of what evidence may be presented in support of the insured’s bad faith claim against the insurer, so long as the insurer can put forth any evidence that the insured acted imperfectly during the claims process, the insurer could be absolved of bad faith. As Harvey argues, this would essentially create a contributory negligence defense for insurers in bad faith cases where concurring and intervening causes are not at issue. We decline to create such a defense that is so inconsistent with our well-established bad faith jurisprudence which places the focus on the actions on the insurer — not the insured. Berges, 896 So. 2d at 677.

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

ASSIGNMENT OF BENEFITS PROVISION IN HOMEOWNER’S POLICY IS ENFORCEABLE

shutterstock_1005703702When it comes to property insurance claims, particularly those under a homeowner’s insurance policy, an insured will oftentimes assign its benefits under the policy to a restoration contractor.  The request for the assignment may likely be prompted by the contractor that does not want to perform the work without the assignment of benefits.  The assignment of benefits (also known by the acronym “AOB”) allows the third-party contractor (as the assignee of the insured) to sue the insurer directly for benefits under the policy associated with the restoration work.  

 

Recently, the Fourth District Court of Appeal found enforceable a provision in a homeowner’s insurance policy that stated, “[n]o assignment of claim benefits, regardless of whether made before a loss or after a loss, shall be valid without the written consent of all ‘insureds,’ all additional insureds, and all mortgagee(s) named in this policy.”   Restoration 1 of Port St. Lucie v. Ark Royal Ins. Co., 43 Fla.L.Weekly D2056a (Fla. 4th DCA 2018).  This meant that for the assignment of benefits to be valid, all insureds and the insured’s mortgagee had to sign off on the assignment.

 

In this case, the restoration contractor got the assignment of benefits signed by the wife-insured, but the assignment was not signed by the husband-insured or the mortgagee.  Based on this, the insurer denied payment to the restoration contractor.  The restoration contractor sued the insured based on the assignment and the Fourth District affirmed the trial court in dismissing the complaint holding that the language of the assignment of benefits provision in the policy is enforceable (meaning the contractor needed the written consent of all insureds and the mortgagee in order to effectuate a valid assignment). 

 

Regardless of your feelings about assignment of benefits, the language in the homeowner’s policy must be reviewed to ensure compliance with any assignment of benefits language in the policy. 

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

LIABILITY INSURER PRECLUDED FROM INTERVENING IN INSURED’S LAWSUIT

shutterstock_368505233There are cases where I honestly do no fully understand the insurer’s position because it cannot have its cake and eat it too.  The recent opinion in Houston Specialty Insurance Company v. Vaughn, 43 Fla. L. Weekly D1828a (Fla. 2d DCA 2018) is one of those cases because on one hand it tried hard to disclaim coverage and on the other hand tried to intervene in the underlying suit where it was not a named party.

 

This case dealt with a personal injury dispute where a laborer for a pressure washing company fell off of a roof and became a paraplegic.  The injured person sued the pressure washing company and its representatives.  The company and representatives tendered the case to its general liability insurer and the insurer–although it provided a defense under a reservation of rights—filed a separate action for declaratory relief based on an exclusion in the general liability policy that excluded coverage for the pressure washing company’s employees (because the general liability policy is not a workers compensation policy).   This is known as the employer’s liability exclusion that excludes coverage for bodily injury to an employee.  The insurer’s declaratory relief action sought a declaration that there was no coverage because the injured laborer was an employee of the pressure washing company.  The pressure washing company claimed he was an independent contractor, in which the policy did provide limited coverage pursuant to an endorsement.

 

The insurer also moved to intervene in the underlying action for the purpose of getting special interrogatories on the verdict form relative to the injured plaintiff’s employment status.  The pressure washing company objected because they did NOT want to inflate the damages by having the jury learn that insurance was involved, thereby prejudicing it, particularly if it was determined that there was no insurance coverage.  You cannot blame the insured in this instance, particularly because the injured plaintiff was probably all for having the insurer intervene so that the jury learned about the insured’s insurance. 

 

While the trial court granted the motion to intervene, after a number of events occurred (not discussed here), the trial court ultimately dismissed the intervention. The insurer appealed.

 

The appellate court affirmed the denial / dismissal of the insurer’s intervention in the underlying action.  The bottom line is that the insurer was not sued in the underlying action. It could not be sued by the injured plaintiff based on Florida’s non-joinder statute (Florida Statute 627.4136) that would prevent the injured plaintiff from suing the liability insurer directly until it gets a judgment against the insured.  Thus, the insurer had no direct and immediate interest in the dispute. Any judgment entered in the case would not be against the insurer—it would be entered against its insured.  Further, if the insured obtained a judgment and then sued the insurer, the insurer would not be deprived of appropriate legal defenses. 

 

As the appellate court explained, the insurer’s argument, if accepted, would be to eviscerate Florida’s non-joinder statute:

 

If the possibility of owing up to the policy limits based upon entry of an adverse judgment [against an insured] was itself a sufficient basis to allow intervention, insurers would be permitted the unhindered and unfettered opportunity to intervene in innumerable tort cases. That is exactly what Houston [insurer] wants; it seeks to interject itself directly into Mr. Vaughn’s [injured plaintiff’s] tort lawsuit. We cannot countenance such a result in light of the legislature’s intent [in Florida’s non-joinder statute] to prevent the introduction of such prejudicial information from being introduced to the jury.  After all, courts must continually be concerned that insurance coverage not be introduced to the jury because of its potential to adversely impact the issues of liability and damages. 

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

MEASURE OF DAMAGES IN NEGLIGENT PROCUREMENT OF SURETY BONDS / INSURANCE

shutterstock_675053740My broker procured the wrong insurance and I am exposed to a loss.  My broker failed to procure proper insurance and I am exposed to a loss.  “Where the parties enter into an agreement to procure insurance and there is a negligent failure to do so, an insurance broker may be liable for damages.”  The Lexington Club Community Association, Inc. v. Love Madison, Inc., 43 Fla.L.Weekly D1860a (Fla. 4th DCA 2018).  The proper measure of damages in a negligent procurement of insurance claim is “what would have been covered had the insurance been properly obtained.”   Id. quoting Gelsomino v. ACE Am. Ins. Co., 207 So.3d 288, 292 (Fla. 4th DCA 2016).  This measure of damages  in a negligent procurement of insurance claim is important because it is the measure of damages that dictates recoverable damages under this claim.

 

In Lexington Club Community Association, Inc., condominium associations hired a contractor to perform post-hurricane repairs.  The contractor was required to obtain a performance and payment bond.  The contractor obtained bonds from a non-Florida surety (insurance) company that was not authorized to do business in Florida.  In doing so, the association paid the contractor’s surety agent $327,915 in premium, of which 10% of this amount went to the agent as commission.  The associations thereafter learned the surety was located in Barbados and not licensed in Florida, which raised a red flag, as it should.  The associations then sued, among others, the surety agent that procured the bonds and received the commission for negligent procurement of insurance, a declaration that the bond was unenforceable, and unjust enrichment.  (Notably, although the surety was sued, it did not respond to the complaint and a default was entered against it.). Ultimately, the associations paid a huge premium for a valueless product, i.e., surety bonds backed by a foreign entity that had no incentive to honor the bonds, particularly since it was not licensed to do business in Florida.

 

Of importance, the association had no cause to rely on the bonds because it did not incur any damage or issue to actually trigger the application of the bonds, other than wanting a refund in its premium.  This meant it was suing the surety agent for the $327,915 in premium that was paid to the surety not licensed to do business in Florida.  But, the lack of an actual loss under the bonds is an important consideration when it comes to proving damages.  A jury found that any negligence of the surety agent was not a cause of damage to the associations, presumably because the associations had no proven damage under the bonds.  Instead, the jury awarded the associations the 10% commission the agent received in procuring the bonds, approximately $32,000, through an unjust enrichment claim.  (An analogy would be procuring insurance from a non-Florida entity but not actually having a claim to trigger the insurance coverage.  The same rationale would apply.). 

 

Florida Statute s. 626.901 applies when dealing with an unauthorized insurer, which is an insurer not authorized to transact insurance in Florida, such as the surety in this case.  Section 626.901(2) provides:

 

If an unauthorized insurer fails to pay in full or in part any claim or loss within the provisions of any insurance contract which is entered into in violation of this section, any person who knew or reasonably should have known that such contract was entered into in violation of this section and who solicited, negotiated, took application for, or effectuated such insurance contract is liable to the insured for the full amount of the claim or loss not paid.

 

However, even under s. 626.901, an insurer’s unauthorized policy would still be deemed enforceable in Florida; however, the insurance broker could still be liable for amounts or loss not paid by the insurer.  Fla. Stat. s. 626.901.  Applied here, the bonds would still be enforceable (irrespective of the surety that actually issued the bonds).  But, again, the associations here did not actually incur a loss that would trigger the application of the bonds.

 

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.