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.

 

 

STATUTORY BAD FAITH AND AN INSURED’S 60-DAY NOTICE TO CURE

shutterstock_262750391A recent case came out in favor of an insured and against a first-party property insurer in the triggering of a statutory bad faith action.   Florida’s Fifth District Court of Appeal in Demase v. State Farm Florida Insurance Company, 43 Fla. L. Weekly D679a (Fla. 5th DCA 2018) held that if an insurer pays a claim after the 60-day notice to cure period provided by Florida Statute s. 624.155(3), this “constitutes a determination of an insurer’s liability for coverage and extent of damages under section 624.155(1)(b) even when there is no underlying action.” 

 

Before a statutory bad faith claim is brought, an insured must file a Civil Remedy Notice giving the insurer written notice of the violation and 60 days to cure the claimed violation. 

 

There are three requirements to sue for a statutory bad faith claim: “1) a determination of the insurer’s liability for coverage; (2) a determination of the extent of the insured’s damages; and (3) the required notice is filed pursuant to section 624.155(3).”    The third requirement is the filing of the Civil Remedy Notice pursuant to s. 624.155 giving the insurer a safe harbor to cure the claimed violation.

 

The first and second requirement are oftentimes determined in litigation, arbitration, or settlement in a coverage lawsuit against an insurer.  However, as this court demonstrates, that does not always have to be the case.  If the insurer pays a claim outside of the 60-day cure period, this establishes (1) a determination of the insurer’s liability for coverage and (2) a determination of the extent of the insured’s damages.  In other words, if an insurer is going to pay a claim, they really need to think carefully about doing so within the 60-day statutory bad faith cure period. Paying afterwards supports the first two requirements of a statutory bad faith claim.

 

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.

 

QUICK NOTE: SUBMITTING CIVIL REMEDY NOTICE

imagesThere are steps an insured or claimant need to take in order to assert a statutory bad faith claim.  The first step is the obligatory Civil Remedy Notice.  This obligation is set forth in Florida Statute s. 624.155.   The Civil Remedy Notice is, in essence, written notice of the specific violation(s) that are being claimed against the insurer that give rise to potential bad faith and an opportunity for the insurer to cure the violation(s).   Florida Statute s. 624.155 would not be confused as a model of clarity, so it is important that a insured or claimant work with an attorney regarding any bad faith claim including filling out the Civil Remedy Notice.  

 

In Fox v. Starr Indemnity & Liability Co., 2017 WL 1541294 (M.D.Fla. 2017), an insured sued his property insurer for bad faith.  Prior to suing, the insured submitted the required Civil Remedy Notice.  However, the insurer moved to dismiss the lawsuit under the argument that the insured did not strictly comply with the statutory requirements based on how the insured filled out the Notice.   The insurer argued this because if the Civil Remedy Notice was deficient than the statutory bad faith claim would not be triggered.  The Middle District, reviewing this issue, maintained, that substantial compliance with the statutory requirements would suffice.  The Middle District was not going to toss out a bad faith claim based on technicalities with how the Civil Remedy Notice was filled out when the insured substantially complied with the intent of the requirements.

 

Pursuing a bad faith claim against an insurer is not as easy as it may appear.  There are steps and requirements that must occur before the bad faith claim can even be pursued. The first step is submitting the Civil Remedy Notice pursuant to Florida Statute s. 624.155.  But, this is not the only step.  Check out this article for more information on bad faith.  

 

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.

 

BAD FAITH IN THE FIRST-PARTY INSURANCE CONTEXT

unknownIn a previous article I discussed bad faith when it comes to an insurance claim.  Recently, in Barton v. Capitol Preferred Insurance Co., Inc., 41 Fla. L. Weekly D2736b (Fla. 5th DCA 2016), the court discussed bad faith in the first-party insurance context (i.e., a property / homeowners insurance policy). 

 

 

In this case, homeowners, as the insured, sued their homeowners insurance carrier for sinkhole coverage. The homeowner filed a Civil Remedy Notice of Insurer Violation (also known as a Civil Remedy Notice) against their insurer with the Florida Department of Insurance in accordance with Florida Statute s. 624.155This Civil Remedy Notice is a prerequisite to initiating such a bad faith claim; the notice specifies the statutory violations committed by the insurer and gives the insurer 60 days to cure the violation.

 

The insurer denied the assertions in the Civil Remedy Notice. Thereafter, the homeowners served a proposal for settlement / offer of judgment trying to settle the claim for $65,000.  The insurer paid $65,000 and the lawsuit was dismissed.  But, the proposal for settlement did not require the homeowners to release the insurer.  In other words, there was no release of any bad faith insurance claim. So, naturally, the homeowners refiled a lawsuit against their homeowners insurance carrier for bad faith.

 

[A] bad-faith action is premature until there is a determination of liability [coverage] and extent of damages owed on the first-party insurance contract.” Barton, supra. citing Vest v. Travelers Ins. Co., 753 So.2d 1270, 1276 (Fla. 2000).  An insured can obtain a determination of liability through an agreed settlement, arbitration, or stipulation—the determination of liability / coverage does not have to be made through trialId. quoting Fridman v. Safeco Ins. Co. of Ill., 185 So.3d 1214, 1224 (Fla. 2016). 

 

Here, the court held that there was a determination of liability because the insurer paying the insured-homeowners $65,000 was a favorable resolution to the homeowners.  It did not matter that the $65,000 was less than the insured’s original demand or less than the policy limits for sinkhole coverage.  Why?  Because the settlement operated as a determination of liability and extent of the homeowners’ damages, thereby satisfying the condition precedent to filing a bad faith claim.   

 

This was a clever move by the homeowners not to give the insurer a release in consideration of the $65,000 (and not to condition the proposal for settlement on giving the insurer a release).  From an insurer’s standpoint, after it receives a Civil Remedy Notice and, then, a proposal for settlement, it should try to obtain such a release.  Perhaps the insurer tried hard to get that release but the homeowners were unwilling to give such a release.  This may have forced the insurer to pay the $65,000 pursuant to the proposal for settlement to minimize its exposure in the underlying insurance coverage dispute.  The fact that accepting a proposal for settlement can satisfy the determination of liability and extent of damages requirement (even if the proposal for settlement amount is less than any original demand) before initiating a bad faith claim may motivate insurers to negotiate and pay for a release that protects them from such bad faith claims.

 

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.