Insurance Bad Faith

Insurance Bad Faith

ORIGIN OF BAD FAITH CLAIMS IN FLORIDA

Insurance companies have a fiduciary duty to an insured party in Florida, similar to the obligations of a trustee of a fund, or the administrator of an estate to act prudently to preserve property or money. Bad faith liability comes from violating this duty. Insurance claim representatives have had this duty since Auto Mutual v. Shaw (1938) because an insurance contract typically allows "control over the defense of the case" and "control over the method of negotiation and the amount of settlement." The current Florida jury instructions describe this duty as "acting fairly and honestly toward the insured, with due regard for his interests."

SOME TYPES OF BAD FAITH DEALING TOWARD AN INSURED PARTY:

A. Failing to settle claims within policy limits when under all circumstances you could have and should have done so (Florida Standard Jury Instruction).

B. Failing to offer to pay up to policy limits, when offering limits would have resulted in settlement at or below policy limits (Florida Standard Jury Instruction).

C. Failure to properly investigate the claim (Boston Old Colony Ins. Co. v. Gutierrez, 382nd So. 2d 783 {Fla. 1980}), resulting in harm to the insured party.

D. Failure to advise an insured party of an opportunity to settle (Boston Old Colony case) the case within policy limits.

E. Failure to advise the insured of the probable outcome of a case, of the probability of excess liability; failure to advise the insured of steps to avoid exposure beyond policy limits. (Boston Old Colony case).

F. Failure to advise the insured of “conditions” placed upon the offer or counteroffer to settle, even if the conditions placed on the offer by the insurer were reasonable, but caused the rejection of limits (Odom v. Canal Insurance, 582 So. 2d 1203 {Fla. Appellate, First District 1991}).

G. Rejecting the advice of a claim supervisor or defense attorney to settle a case within policy limits.

H. Placing unreasonable requirements on the acceptance of policy limits to the benefit of the insured.

I. Failing to pay the insured party on a first party claim up to the limits of the policy.

THINGS FOR YOU TO BE AWARE OF:

A. In Florida, the injured party is considered to be similar to a “third-party beneficiary” of the insurance contract between the defendant and the insurance company. If a judgment in excess of policy limits occurs, the injured party plaintiff may solicit and get an assignment of the insured party's right to sue the insurance company and bring the suit in the name of the insured party, or may simply bring the claim directly in his or her own name against the insurance company for the amount of a judgment in excess of policy limits. The Civil Remedy statute in Florida (Section 624.155) allows bad faith suits directly against the insurance company by the injured party as well, after proper notice and failure of the insurance company to honor a proper claim. The insured need not suffer actual financial loss through post-judgment collection proceedings to enforce the excess judgment directly against the insurance company. The existence of the unsatisfied judgment against him or her is enough to establish the right to a bad faith claim.

B. Courts disagree as to whether an “offer to settle” the case by the claimant without coverage limits is even necessary. Under certain circumstances, if early in the claim adjustment process the damages are well in excess of policy limits and the share of liability is sufficient, failure of the insurance company to offer the limits may be enough to establish liability, even if they are never demanded. The claimant would still have to prove that the offer would have been accepted, if made, a much harder case to prove.

C. Liability for bad faith is not “automatic” just because a judgment in excess of policy limits occurs. Circumstances such as a surprise “run-away” verdict, a demand by the insured party that limits not be paid, changed circumstances regarding the potential for liability during the discovery or trial process, withholding of information by claimant's counsel, and any other matter which constitutes a reasonable basis for not offering the limits of the coverage, when demanded, may be taken into consideration by a jury, when the carrier is later defending a bad faith claim. The test, however, is not whether the likelihood of an excess verdict was “fairly debatable.” That standard for the defense was rejected by the Florida Supreme Court in State Farm v. Laforet, 658 So. 2d 55 (Fla. 1995) wherein the Court adopted the views that the “totality of the circumstances” could be considered by the jury in determining if the insurance company attempted to settle in good faith, acted fairly and honestly toward the insured, and acted with due regard for the insured's interest.

D. A claimant may make a written demand to settle within policy limits. An oral offer to settle within policy limits can be a basis for a valid bad faith claim later.

E. There is no “comparative bad faith.” Misconduct or negligence by the claimant or the claimant's attorney may be a total defense to a bad faith claim. The jury in a bad faith lawsuit will not, however, consider the fault of the claimant versus the fault of the claim representative of the insurance company and render a verdict based on percentage of fault.

F. CIVIL REMEDY STATUTE (SECTION 624.155, FLORIDA STATUTES) Although the Civil Remedy statute allows suits against insurers under a variety of circumstances, for the layman, the basis will be the same as bad faith claims under common law. You should be aware that an insurance company “settling cases without disclosing the coverages involved” or “holding up settlement under one portion of a policy to gain advantage on another portion of the policy” is strictly prohibited (a good example of this would be trying to hold up the settlement on a person's vehicle to gain advantage in settlement amount under the Bodily Injury coverage, or vice versa. There is no common law first-party of bad faith action, so any uninsured motorist “bad faith” claim would have to be brought pursuant to the Civil Remedy Statute. Damages under the Civil Remedy Statute are those which are a foreseeable result of the violation, including the judgment amount in excess of policy limits. Damages in uninsured motorist bad faith suits under the Civil Remedy Statute now include any excess judgment amount, costs, and attorneys fees and interest under an amendment to the U.M. Statute (Now codified in Section 627.727(10), Florida Statutes 1997).

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