Tag Archives: totality of circumstances

TWO WORTHY INSURANCE TOPICS: (1) BAD FAITH, AND (2) SETTLING WITHOUT INSURER’S CONSENT

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The recent Eleventh Circuit Court of Appeals’ decision, American Builders Insurance Company v. Southern-Owners Insurance Company, 56 F.4th 938 (11th Cir. 2023), is an insurer versus insurer case that touches on two important insurance topics: (1) common law bad faith against an insurance company, and (2) an insurer’s affirmative defense that an insured settled a claim without its consent.  The Eleventh Circuit provides invaluable legal discussion on these topics that any insured (and an insured’s counsel) need to know and appreciate.  While this article won’t go into the granular facts as referenced in the opinion, it will go into the law because it is the law the facts of a case MUST cater to and address.

In this case, a person performing subcontracting work fell from a roof without fall protection and became paralyzed from the waist down. The general contractor had a primary liability policy and an excess policy. The general contractor’s primary liability insurer investigated the accident and assessed the claim.  The subcontractor’s liability insurer, which was the primary insurance policy (the general contractor was an additional insured for work the subcontractor performed for the general contractor), did little to investigate and assess the claim and then refused to pay any amount to settle the underlying claim or honor its defense and indemnity obligation to the general contractor.

Both the general contractor’s primary insurer and excess insurer each tendered policy limits to settle the claim and avoid a bad faith claim by exposing the general contractor to more than policy limits, which was the determination had the matter proceeded to a trial.

The general contractor’s primary liability insurer then sued the subcontractor’s liability insurer for common law bad faith (based on equitable subrogation).  The subcontractor’s liability insurer, among other things, argued it should be absolved because its policy was breached when payment was made to the claimant without its consent. The case proceeded to trial and a jury found in favor of the general contractor’s primary liability insurer.  The subcontractor’s liability insurer appealed…and lost.

Common Law Bad Faith

[T]he critical inquiry in a bad faith [action] 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. Additionally, any damages claimed by an insured in a bad faith case must be caused by the insurer’s bad faith. That is, the bad faith conduct must directly and in natural and continuous sequence produce[] or contribute[] substantially to producing such [damage], so that it can reasonably be said that, but for the bad faith conduct, the [damage] would not have occurred.

The bad faith inquiry is determined under the ‘totality of circumstances’ standard, and we focus not on the actions of the claimant but rather on the insurer in fulfilling its obligations to the insured. That said, a claimant’s actions –such as a decision not to offer a settlement-remain relevant in assessing bad faith. Insurers have obligations to advise the insured of settlement opportunities, to advise 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 [the] same,” as well as to 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. These obligations … are not a mere checklist, however, and, as the Florida Supreme Court has explained, [a]n 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.

Moreover, insurance companies occasionally have an affirmative duty to offer settlements.  Bad faith may be inferred from a delay in settlement negotiations which is willful and without reasonable cause. Thus, [w]here  liability is clear, and injuries so serious that a judgment in excess of the policy limits is likely, the insurer must initiate settlement negotiations. In such a case, where [t]he financial exposure to [the insured] [i]s a ticking 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.

American Builders Insurance Company, supra, at 944-45 (internal quotation and citation omitted).

Here, the jury reasonably found that the subcontractor’s liability insurer “acted in bad faith because it delayed acting on its duty to investigate and settle [the claimant’s] claim.” American Builders Insurance Company, supra at 945.  The facts “could lead a reasonable jury to conclude that the [subcontractor’s liability insurer] delayed its investigation instead of attempting ‘to resolve the coverage dispute promptly’ or using ‘diligence and thoroughness.’” Id. at 946 (internal quotation and citation omitted).

Here, a reasonable jury could also find that the subcontractor’s liability insurer caused the general contractor’s liability insurer damages.  The subcontractor’s liability insurer wanted to focus on the claimant and his attorney’s action.  This was shot down. “Of course, there’s a difference between focusing on a claimant’s actions, which would be improper, and factoring a claimant’s actions into the totality of circumstances analysis, which is not improper. In this case, though, [the subcontractor’s liability insurer] flipped Florida law on its head and exclusively focused on [the claimant and his attorney’s] actions.”  American Builders Insurance Company, supra, at 947 (internal quotation and citation omitted).

Insurer “Consent” Affirmative Defense

The subcontractor’s liability insurer argued that the general contractor’s primary liability insurer breached the subcontractor’s liability insurance contract “by failing to receive its consent before settling with [the claimant].”  American Builders Insurance Company, supra, at 944.   This was also shot down.

Subcontractor’s liability insurance contract provided:

[N]o insured will, except at the insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent. [T]his language required the insured to obtain the insurer’s consent before settling. That is, while an insured is free to enter into a reasonable settlement when its insurer has wrongfully refused to provide it with a defense to a suit, … the insured is not similarly free to independently engage in such settlements where, as here, the insurer had not declined a defense to suit.

The Florida Supreme Court requires an insurer to establish three things in order to succeed on this affirmative defense: (1) a lack of consent; (2) substantial prejudice to the insurer; and (3) diligence and good faith by the insurer in attempting to receive consent. The first element has a few exceptions. The insured may settle without obtaining consent if the insurer wrongfully refused to provide [the insured] with a defense to a suit, or offers a conditional defense that the parties cannot agree upon.  Moreover, even if the insured was obliged to obtain consent, the failure to do so is not an affirmative defense unless the insurer also establishes substantial prejudice and evinces good faith in bringing about the cooperation of the insured.

American Builders insurance Company, supra, at *947-48.

Here, the issue of whether the general contractor’s primary liability insurer needed consent was not at-issue.  It did.  But the subcontractor’s liability insurer still needed to establish substantial prejudice and good faith, and the jury could find it proved neither, which it did.  American Builders Insurance Company, supra, at *948.

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.

ELEVENTH CIRCUIT’S NOTEWORTHY DISCUSSION ON BAD FAITH INSURANCE CLAIMS

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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 actions, Harvey, 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.

 

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

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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.

–

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:

–

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).

–

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.

–

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.

–

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).

–

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.*

***

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.

***

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:

–

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.

–

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.

–

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.