The Eleventh Circuit Court of Appeal’s opinion in Pelaez v. Government Employees Insurance Company, 2021 WL 4258821 (11th Cir. 2021) is a non-construction case that discusses the standard for pursuing a bad faith claim against an insurer.   This case dealt with an automobile accident. While the facts of the case are interesting and will be discussed, the takeaway is the Eleventh Circuit’s noteworthy discussion on the standard for bad faith claims and how they should be evaluated.  This discussion is included below–with citations–because while the term “bad faith” is oftentimes thrown around when it comes to insurance carriers, there is indeed an evaluative standard that is applied to determine whether an insurance carrier acted in bad faith.

In Pelaez, a high school student driving a car crashed with a motorcycle.  The motorcycle driver was seriously injured and airlifted to the hospital.  The accident was reported to the automobile liability insurer of the driver of the car.  The insurer through its investigation initially believed the motorcycle driver was contributory negligent.  Eleven days after the crash, after learning additional information, the insurer tendered its bodily injury policy limits of $50,00 to the motorcycle driver even though it never received a settlement demand. The insurer sent a tender package to the motorcycle driver’s lawyer that included a $50,000 check for the bodily injury claim and a proposed release.  The accompanying letter told the attorney to contact the insurer with any questions about the release and to edit the proposed release with suggested changes.  The insurer also wanted to inspect the motorcycle in furtherance of adjusting the property damage claim which also had a policy limit of $50,000.  A location of where the motorcycle could be inspected was never provided.

Shortly thereafter, counsel for the motorcycle driver rejected the policy limits tender offer claiming that the proposed release form included with the tender package was overbroad (and it was) since it did not specifically carve-out property damage claims.  The insurer again told the lawyer to edit the release and asked for the location of the motorcycle because its intent was to treat the bodily injury and property damage claims separate.  Instead of a response, the motorcycle driver sued the driver of the car.   Clearly, the objective was not the $50,000 policy limits, but the potential bad faith exposure.

The property damage claim for the motorcycle ultimately settled but the bodily injury claim continued to trial.  During trial, the parties consented to a judgment where a judgment was entered against the driver of the car for $14,900,000; the parties stipulated that the judgment shall not be recorded and cannot be collected against the car driver.  Instead, the motorcycle driver agreed to collect solely against the car driver’s insurance policy.  The car driver’s insurer was not a party to the judgment or stipulation.

Thereafter, both the car and motorcycle drivers sued the car driver’s automobile liability insurer for bad faith refusal to settle.  The trial court entered summary judgment in favor of the car driver’s insurer finding no reasonable jury could find the insurer acted in bad faith under the totality of the circumstances.  The Eleventh Circuit affirmed the trial court’s summary judgment in favor of the insurer based on the totality of circumstances including the insurer’s efforts to settle the bodily injury claim for policy limits. In doing so, the Eleventh Circuit includes the following noteworthy discussion on such bad faith insurance claims:

It has long been the law of [Florida] that an insurer owes a duty of good faith to its insured.” Berges v. Infinity Ins. Co., 896 So. 2d 665, 672 (Fla. 2004). The duty has been well-defined for more than 40 years, since the Florida Supreme Court described it in Boston Old Colony Ins. Co. v. Gutierrez, 386 So. 2d 783 (Fla. 1980):

An insurer, in handling the defense of claims against its insured, 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. For when 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. 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.

Id. at 785; see also, e.g.Harvey v. GEICO Gen. Ins. Co., 259 So. 3d 1, 6–7 (Fla. 2018) (quoting Boston Old Colony to define the duty); Kropilak v. 21st Century Ins. Co., 806 F.3d 1062, 1067–68 (11th Cir. 2015) (same). “Breach of this duty may give rise to a cause of action for bad faith against the insurer.” Perera v. U.S. Fid. & Guar. Co., 35 So. 3d 893, 898 (Fla. 2010). Florida’s bad faith law is “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.

Where “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.” Harvey, 259 So. 3d at 7 (quotation marks omitted). “In such a case, where the financial exposure to the insured is a ticking financial time bomb and suit can be filed at any time, any delay in making an offer … even where there was no assurance that the claim could be settled could be viewed by a fact finder as evidence of bad faith.” Id. (cleaned up).

In Florida, the 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.” Berges, 896 So. 2d at 680. Indeed “the critical inquiry” in a bad faith action is not whether an insurer met the obligations set out in Boston Old Colony but instead “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.” Harvey, 259 So. 3d at 7 (noting that the Boston Old Colony obligations “are not a mere checklist”).

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. For that reason, a claimant’s “actions can[not] let the insurer off the hook when the evidence clearly establishes that the insurer acted in bad faith in handling the insured’s claim.” See Harvey, 259 So. 3d at 11 (emphasis added) (rejecting the “conclusion that where the [claimant]’s own actions[ ] even in part cause the judgment, the insurer cannot be found liable for bad faith”) (quotation marks omitted); id. (noting that “an insurer can[not] escape liability merely because the [claimant]’s actions could have contributed to the excess judgment”) (emphasis added and footnote omitted); id. at 12 (rejecting the idea that, “regardless of what evidence may be presented in support of the [claimant]’s bad faith claim,” the “insurer could be absolved of bad faith” if it “can put forth any evidence that the [claimant] acted imperfectly during the claims process,” which “would essentially create a contributory negligence defense for insurers” that is “inconsistent with [Florida’s] well-established bad faith jurisprudence”).

 “[N]egligence is not the standard” for evaluating bad faith actionsHarvey, 259 So. 3d at 9, but “[b]ecause 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,” Boston Old Colony, 386 So. 2d at 785. And “[a]lthough bad faith is ordinarily a question for the jury, both this Court and Florida courts have granted summary judgment where there is no sufficient evidence from which any reasonable jury could have concluded that there was bad faith on the part of the insurer.” Eres, 998 F.3d at 1278 (cleaned up); see also State Farm Fire & Cas. Co. v. Zebrowski, 706 So. 2d 275, 277 (Fla. 1997) (concluding, in a statutory third-party bad faith action, that summary judgment was appropriate). “While an overbroad release can create a jury question about bad faith, it doesn’t necessarily do so.” Eres, 998 F.3d at 1279.

Palaez, supra, at *4-6.

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.