Florida Insurance Bad Faith Law: Protecting Businesses and You
This article is offered as a response to a troubling presentation on insurance bad faith by authors Young and Clark that appeared in the February Florida Bar Journal ( ” The Good Faith, Bad Faith, and Ugly Set-up of Insurance Claims Settlement “).1 I t is intended to address various misunderstandings that may have been created by that earlier discussion, and to provide a more balanced discussion of this most topical subject. To accomplish this goal, this article explains what insurance bad faith is, how it protects insureds, and why the statutory amendment suggested in that article is unfair, unworkable, and unwise.
Eight years ago, my article, “Insurance Bad Faith: The Set Up Myth” was published in The Florida Bar Journal.2 T he premise of the article was that “generally speaking…insurance companies set themselves up for the fall in a fashion that could easily be avoided or remedied.” That statement remains as true today as it was eight years ago. Florida law remains consistently and appropriately focused upon the conduct of insurers when determining whether they have acted reasonably in the discharge of the fiduciary duty they owe their policy holders. If insurers acted reasonably in the discharge of the fiduciary duty they owe their policy holders, we would not be spilling ink over a contrived notion that claimants and insureds can somehow control the conduct of insurers in adjusting losses, thereby “setting up” bad faith claims. This contrivance is advanced as a justification for the passage of legislation to protect the insurance industry from its own failures at the cost of Florida’s insured businesses and individuals.
Initially, it should be noted that the February article never mentions the common law duty of good faith, which the authors’ proposed statutory amendment would largely eliminate. Moreover, the article ignores the well-established principle, recognized by both the courts and the legislature, that insurers owe a fiduciary duty to their insureds. These long-established tenets of insurance law are the cornerstones that ensure that businesses and individuals receive the benefit of the protection for which they bargained and paid in their insurance contract. Otherwise, insurance companies are without accountability and Florida’s businesses, professionals, homeowners, and other insureds are left to pay the cost of careless and improper claims practices by insurers. The article makes absolutely no showing that the remedies crafted by the courts (common law) and by the legislature in F.S. §624.155 (statutory law) require the drastic revisions proposed.
The Florida Supreme Court recognized a common law action for third-party bad faith as early as 1938.3 I ts decision to do so grew out of the realization that insurance contracts had come to “occupy a unique institutional role” in modern society, as they became an economic necessity for businesses and individuals.4 A dditionally, as liability policies replaced indemnity policies, the insurer’s power over the insured’s situation became greater, requiring a remedy for when that power was abused.
Under a liability policy, the insured’s role is essentially limited to selecting the type and desired level of coverage and paying the corresponding premium. Insurance coverage, theoretically, offers security and peace of mind against unforeseeable losses. As part of the contract, the insured surrenders to the insurer all control over the negotiations and decisionmaking as to claims. The insured’s role is relegated to the obligation to cooperate with the insurer’s efforts to adjust the loss. The insurer makes all the decisions with regard to claims handling and thereby has the power to settle and foreclose an insured’s exposure to liability, or to refuse to settle and leave the insured exposed to liability in excess of the policy limits.5 A s a result, “the relationship between the parties arising from the bodily injury liability provisions of the policy is fiduciary in nature, much akin to that of attorney and client,” because the insurer owes a duty to refrain from acting solely on the basis of its own interests in the settlement of claims.6 A ccordingly, and because of this relationship, the insurer owes a duty to the insured to “exercise the utmost good faith and reasonable discretion in evaluating the claim” and negotiating for a settlement within the policy limits.7 W hen the insurer fails to act in the best interests of the insured in settling a claim, an injured insured is entitled to hold the insurer accountable for its “bad faith.”
Although Florida courts recognized a bad faith cause of action in the context of liability policies, they did not impose the same obligation in the context of first-party insurance contracts, when the injured party was also the insured under the insurance policy. At common law, first-party insurance policies were enforced solely through traditional contract remedies. However, in 1982, the legislature recognized that due to the same disparity in power between the insurer and the insured in first-party contracts, there was a need for a bad faith remedy in that context as well.8 A s a result, the legislature enacted F.S. §624.155, which established, inter alia, a first-party bad faith cause of action. It should be noted, however, that in F.S. §624.155(8), the legislature made it abundantly clear that the statute did not preempt the common law remedy. The standard for bad faith in settlement was the same as the common law standard: “Bad faith on the part of an insurance company is failing to settle a claim when, under all the circumstances, it could and should have done so, had it acted fairly and honestly towards its insured and with due regard for the insured’s interest.”9
The measure of whether an insurer has acted in good faith is, necessarily, determined by an assessment of the lengths to which the carrier went in an effort to provide the insured with the protection afforded by the insurance policy. It is for this reason that the focus in a bad faith case is upon the conduct of the insurer and not the person making the claims or presenting any opportunity for settlement. If the liability insurer undertakes a prompt investigation of the loss, timely evaluation of the legal liability of the insured, communicates to the insured the material events of the adjustment process, and acts reasonably with regard to opportunities to settle the loss and protect the assets of the insured, then it has no fear from Florida’s bad faith laws.
It is within this framework that common law bad faith actions have been allowed in Florida for over 70 years without substantial change in the governing principles, with statutory bad faith claims being allowed for almost 30 years. The previous Journal article proposes a dramatic and unwarranted change to bad faith law for which no empirical justification is offered, and its anecdotal reliance on cases it cites actually undermines its basic premise. That is, an analysis of the relevant case law demonstrates that the courts have properly and consistently defeated attempts to allow “set-up” bad faith claims which were premised on the two tactics the article identifies: 1) arbitrary and unrealistic time deadlines for acceptance imposed by claimants, and 2) settlement offers containing unreasonable terms that cannot be complied with (and will not be negotiated).
With respect to the arbitrary and unrealistic time deadlines, the authors look for support in DeLaune v. Liberty Mutual Insurance Co., 314 So. 2d 601 (Fla. 4th DCA 1975), where no support is to be found. There, the claimant made a demand for policy limits, but required payment in 10 days. Neither the court nor the jury was impressed by that unreasonable time limit, and the bad faith claim was lost at trial and affirmed on appeal. In affirming, the Fourth District specifically noted that the 10-day time limit was “totally unreasonable under these circumstances,” and that it was a charade designed to “set-up” a bad faith suit.10 S ubsequent cases have expanded on that and even determined that attempts to limit insurers to 30 days to verify a claim and pay limits cannot establish bad faith, as a matter of law, resulting in summary judgments against the claimants on their bad faith claims.11 T hus, it is clear that the legal system has properly responded to unreasonable time demands to establish bad faith, and clearly determined it to be an ineffective tactic. Thus, established case law again completely undermines the article’s premise that any amendment to Florida’s bad faith law is needed to address a contrived concern, much less the dramatic and unwarranted amendment proposed by the authors.
The second set-up tactic that the authors rely upon involves settlement demands incapable of an insurer’s reasonable acceptance. Examples advanced include demands that contain confusing or ambiguous terms that the claimant’s attorney refuses to clarify or to otherwise cooperate with the insurer’s efforts to negotiate a settlement. Again, existing Florida law completely undermines the authors’ assertion that any amendment in bad faith law is needed to address the ability of an insurer to defend its conduct by showing that it did not have a reasonable opportunity to settle the claims. The authors suggest that insurers are hamstrung by being prevented from even presenting evidence that such offers were not made in good faith.
The article states: “Imposing the duty of good faith during settlement on only the insurer, as some courts appear to have done in light of the narrow language of the bad faith statute, is inconsistent with Florida’s strong public policy encouraging settlement of claims.” However, the authors do not cite a single case for the proposition that any court has suggested that the totality of the circumstances bearing on the ability of the insurer to settle the claims are irrelevant in a failure to settle setting. In fact, the only cases cited in the footnote to that passage relate to public policy encouraging settlement of claims. Therefore, the authors have no support for the contention that any court has precluded an insurer from showing that despite its reasonable efforts, it could not settle the claims. In fact, the courts have consistently applied existing Florida law to allow for consideration of the facts surrounding the settlement negotiations that bear on whether the insurer “could” settle.
In Barry v. Geico General Insurance Co. , 938 So. 2d 613 (Fla. 4th DCA 2006), the jury ruled in favor of the insurance company on a third-party bad faith claim. On appeal, the claimant argued, inter alia, that the insurance company was improperly permitted to present evidence as to the claimant’s motives and her attorney’s conduct in declining to settle. That argument was rejected, with the court clearly holding that such evidence was relevant and admissible, even though the focus of an insurance bad faith case is primarily on whether the insurer fulfilled its duty to the insured.12 T he court stated that inquiries into the prior conduct and motives of the claimant were relevant and admissible because the insurer can defend on the ground that there was no realistic possibility of settlement within the policy limits, based on the claimant’s intransigence. The Barry court stated:
The jury could have concluded that the failure of [the claimant’s] attorney to notify GEICO of his representation coupled with her refusal to meet with Stone on the settlement, among other incidents, showed that she did not want to settle with GEICO for the policy limits. Thus, GEICO did not inject irrelevant information into the case.13
Additionally, in a published federal decision, it was specifically noted that a claimant’s unwillingness to settle was “not completely ignored under Florida law,” but was a relevant factor when the insurer is attempting to prove the defense that the claimant was actually unwilling to settle for the policy limits.14
In accordance with those cases, decisions have consistently addressed the likelihood that intransigence or a failure to cooperate by a claimant in settlement negotiations will fatally undermine a bad faith claim. When a claimant failed to provide medical information to the insurer regarding his injuries, a court has ruled that there was no bad faith, as a matter of law, arising from the insurer’s failure to settle.15 A dditionally, when claimants have failed to respond to insurer’s attempts to settle claims within the policy limits, courts have determined that there was no bad faith claim, as a matter of law.16
Thus, the courts have properly, effectively, and firmly rejected attempts to justify bad faith claims based on either arbitrary or unrealistic time deadlines, or in response to settlement offers, with which compliance is impossible, or which were not made in a good faith attempt to reach a resolution of the claim.
The article does not cite a single case in which the tactics of unreasonable deadlines or intransigence in negotiations has resulted in a successful bad faith recovery. Instead, the authors rely on statements contained in the dissenting opinions in Berges v. Infinity Insurance Co., 896 So. 2d 665 (Fla. 2004), but the facts of that case do not support its contention that the decision encourages or allows insureds or claimants to set up bad faith claims.
In Berges, James Taylor’s wife was killed and his daughter seriously injured by a drunk driver. The insurance policy providing coverage to the drunk driver had limits of $10,000 per claimant. Mr. Taylor did not impose unreasonable deadlines in his offer and, in fact, did not even make an offer to settle until more than two months after the accident, when he hand-delivered an offer to settle for the $20,000 policy limits. At that time, the insurer had already conducted an investigation and issued a report concluding that its insured was completely at fault, and confirmed that Mrs. Taylor had died and that the daughter’s medical bills already exceeded $30,000. Although initially there was a coverage issue, six days after Mr. Taylor’s offer, the insurer concluded its coverage investigation and decided to extend coverage.
Mr. Taylor’s offer contained simple terms: The insurer should pay the $10,000 for the death of his wife within 25 days, and the $10,000 limit for his injured daughter in 30 days. In his letter, Mr. Taylor informed the insurer that he needed the money because he had missed a great deal of work due to the accident and because he was getting doctor bills almost daily for the injuries to his daughter. Mr. Taylor did not even request immediate payment of the $20,000; he alternatively proposed that the company deposit the $20,000 into an interest-bearing account, with the interest payable to the Taylor family when ultimately paid. Mr. Taylor acknowledged that court approval might be necessary to settle his daughter’s claim, and promised to cooperate with the company to obtain that approval.
Responding to the offer, the insurer neither paid the money nor deposited it in an interest-bearing account during the time specified in the offer. After his offer, Mr. Taylor received one phone call in which the insurer’s attorney represented that his client was willing to pay the policy limits, but it never materialized. No extension was requested by the insurer, yet Mr. Taylor did not hear anything further until after the deadline had passed. All along, the insurer never advised its insured that there was an opportunity to settle the claim within the policy limits; it only told him that it had a valid legal reason to deny coverage, and then it handled the claims against him without any input from him.
As pointed out by the Supreme Court in Berges, there was no evidence that Mr. Taylor failed to
cooperate or do anything he was asked by the insurer or its attorneys. He had already begun the process of being appointed personal representative and indicated his willingness to work with the insurer regarding the proceedings necessary to settle his daughter’s claim. Only after receiving absolutely no action by the insurer within the deadline, nor any requests for an extension, did Mr. Taylor revoke the offer to settle. Ultimately, Mr. Taylor was successful at trial on his bad faith claim, and the Supreme Court upheld that verdict.
Thus, Berges was not a situation where the insurer did not have an adequate opportunity to investigate the claim, or was denied any information requested from the claimant, nor was there any evidence the claimant was not negotiating in good faith. Therefore, despite the authors’ heavy reliance on the dissenting opinion, the facts of that case do not support its premise that the Supreme Court somehow authorized unfair tactics which could set-up bad faith claims. Moreover, the court did not rely solely on the insurer’s failure to respond to Mr. Taylor’s settlement offer as a basis for the jury’s findings of bad faith, but applied the totality of circumstances test. Additional facts supportive of the jury’s verdict included the insurer’s failure to notify the insured of the possibility of settlement, that the insurer incorrectly took the position that Mr. Taylor’s offer was invalid without prior court approval, and other acts and omissions that resulted in the failure to ensure payment of the policy limits within the time demands.
Infinity took the position that court approval of the settlement was required before the offer to settle could be valid. Even Justice Cantero in his dissent agreed that the plaintiff had the authority to make the offer to settle despite the absence of prior court approval. As related by the majority, “the question of bad faith” in this case extends to Infinity’s entire conduct in the handling of the claim, including the acts or omissions of Infinity in failing to ensure payment of the policy limits within the time demands — stated succinctly, the “totality of the circumstances.”17
Despite the absence of either empirical or precedential support for its contention that there is a crisis in bad faith litigation, the authors propose a complete and dramatic overhaul of F.S. §624.155. This would drastically alter the law and contains glaring ambiguities that insurance companies will be able to exploit to minimize their duties to their insureds to properly engage in claims administration and good faith negotiations. Essentially, the amendment places the entire burden upon an insured or a claimant to formulate the settlement demand and provide all information requested by the insurer, without imposing any duty on the insurer to investigate or to provide information regarding the insurance coverage provisions or policy limits. This flies in the face of the duties imposed by Powell v. Prudential, 584 So. 2d 12 (Fla. 3d DCA 1991). The complexity of the conditions precedent imposed on insureds and claimants would effectively eliminate the ability of a businessman, professional, homeowner, or other individual to resolve any insurance claims without the participation of a bank of attorneys, with no assurance that would even be of benefit.
First of all, the proposed amendment ignores the statutory duty historically imposed by the legislature on insurers to provide, upon request, sworn affidavits and certified copies of insurance policies so that insureds and claimants can make appropriate settlement decisions.18 T hat provision was specifically enacted based on the legislature’s recognition that such information was critical to a claimant’s ability to properly make a prudent settlement offer.19 C ase law also shows that claimants have been materially prejudiced by the failure of insurance companies to timely and accurately provide that information.20 D espite the unambiguous provisions of that statute, case law is replete with circumstances in which insurance companies failed to comply with its terms, thereby preventing reasonable settlement negotiations.21 N onetheless, the proposed amendment does not consider the insurer’s duty to provide that information, but places the entire duty upon the insureds and claimants to make a settlement offer and provide information to the insurer, as a prerequisite for any obligation on the part of the insurer to engage in negotiations.
The proposed amendment also places the burden on the insureds and claimants to cooperate fully and submit medical bills, accident reports, and “other information needed by the insurer to investigate the claim,” thereby essentially eliminating any duty to investigate on the part of the insurer. Additionally, that blatant ambiguity requiring insureds to provide “other information needed” is one which insurers can exploit to avoid or delay any obligation on their part to engage in good faith negotiations. The amendment also contains a provision that “the insurer shall be given 30 days to cure any deficiencies in its acceptance of a good faith settlement demand,” which does not appear to limit the insurer to only one 30-day period, but rather could extend the time seriatim, allowing an insurer to continue to retain its money and coerce the insured or claimant to compromise simply in an effort to obtain a resolution.
Additionally, there is a provision in the proposed amendment that “a minimum of 60 days shall be afforded” for the parties to reach a settlement. However, that provision fails to identify what triggers the 60-day period, creating another ambiguity that would enable insurers to stonewall settlement negotiations, all to the detriment of its insured in third-party cases, and directly harming the insured in first-party negotiations.
As U.S. District Judge Paul recognized, the attempt to place the burden on the claimant or insured to establish a good faith offer to settle (especially with all of the conditions suggested by the proposed amendment) “would make it virtually impossible for plaintiffs to succeed in cases where the insurance company simply chooses to ignore the injured party after an accident.”22 A dditionally, Judge Paul noted that the attempt to set an arbitrary minimum time for an insurer’s response to a settlement offer as a prerequisite to bad faith “runs counter to the analysis of ordinary care and prudent business practice.”23 J udge Paul noted that the time period must be variable because “the greater the amount by which the anticipated claims exceeds the policy limits, the shorter the time before a prudent insurer should be expected to tender policy limits.”24 A dditionally, under both common law bad faith and the statutory cause of action, the bad faith claims are evaluated based on the totality of the circumstances, and arbitrary deadlines are inconsistent with that fundamental principle.
Therefore, there is absolutely no need for the proposed amendment to F.S. §624.155, which is designed to drastically and dramatically alter the balance of power of the parties in insurance negotiations. It essentially eliminates the obligation of an insurer to initiate settlement negotiations, eliminates the insurer’s duty to investigate on behalf of its insured, unreasonably shifts the burden to the insured and the claimant in the negotiations, and creates multiple possibilities for indeterminate delay in the insurance company’s duty to attempt a good faith settlement. In sum, the proposed amendment dispenses with the long-standing and honored fiduciary relationship.
I would like to emphasize the need to be practical and realistic. In any area of law or business, there are practitioners who will attempt to “game the system,” and thereby harm those who seek to employ the system in good faith for its proper purpose. This is true in insurance matters, on both sides of the negotiations. However, the solution is not to enact an amendment to the common law and statutory bad faith remedies that drastically and dramatically alters the balance of power and creates complexities and ambiguities that would render it virtually impossible for an individual insured to attempt to resolve insurance claims on his or her own behalf. This is especially true considering the complete absence of any showing that either the courts or the legislature have failed to address attempts to “game the system.” As discussed above, case law has repeatedly rejected such attempts, and done so as a matter of law, so as to establish clear precedent to prevent such conduct in the future. The February article is an attempt by insurers to manufacture a crisis and utilize it to gain favorable legislative changes to the detriment of business and individual insureds. The law of bad faith is not broken and need not be fixed to create an unlevel playing field. The citizens of Florida will recognize this for what it is: An attempt by a powerful lobby to trample the rights of businesses and individuals who pay a premium for insurance coverage they desperately need in today’s environment and expect fair treatment in return.
1 G wynne A. Young and Johanna W. Clark, The Good Faith, Bad Faith, and Ugly Set-up of Insurance Claims Settlement, 85
Fla. B.J. 8 (Feb. 2011).
2 R utledge R. Liles, Insurance Bad Faith: The Setup Myth, 78
Fla. B.J. 18 (June 2003).
3 See Auto Mutual Indemnity Co. v. Shaw, 184 So. 852 (Fla. 1938).
4 State Farm v. Laforet,
658 So. 2d 55 (Fla. 1995), citing The Tort of Bad Faith in First-party Insurance Transactions ; Refining the Standard of Culpability and Reformulating the Remedies by Statute, 26 U.
Mich. J. L. Ref. 1, 8 (Fall 1992).
5 Laforet, 658 So. 2d at 58.
6 Baxter v. Royal Indem. Co., 285 So. 2d 652, 655 (Fla. 1st D.C.A. 1973), cert. discharged, 317 So. 2d 725 (Fla. 1975).
7 Id. at 655.
8 Allstate Indemnity Co. v. Ruiz, 899 So. 2d 1121, 1126 (Fla. 2005). See also Opperman v. Nationwide Mut. Fire Ins.
Co., 515 So. 2d 263, 266 (Fla. 5th D.C.A. 1987) (quoting legislative history).
9 F la. Standard Jury Instr. 404.4 (Civil).
10 DeLaune, 314 So. 2d at 603.
11 Johnson v. Geico General Ins. Co., 318 Fed. Appx. 847 (11th Cir. 2009) (insurers offer to settle for policy limits within 33 days of the accident could not be bad faith, as a matter of law, resulting in summary judgment against the claimant on the bad faith claim); Clauss v. Fortune Ins. Co., 523 So. 2d 1177 (Fla. 5th D.C.A. 1988) (“a one-month period to verify the claim was not excessive, and certainly does not rise to the level of bad faith…”); see also Valle v. State Farm Mut. Auto. Ins. Co., 2010 WL 5475608 (S.D. Fla. Jan. 15, 2010) (no bad faith as a matter of law where inter alia insurer initiated settlement negotiations within 30 days of learning of accident.
12 Barry, 938 So. 2d at 618.
14 Snowden v. Lumberman’s Mut. Casualty Co., 358 F. Supp. 2d 1125, 1129 (N.D. Fla. 2003).
15 See Aboy v. State Farm Mut. Auto. Ins. Co., 394 Fed. Appx. 655 (11th Cir. 2010).
16 See Cardenas v. Geico Cas. Co., 2011 WL 111588 (M.D. Fla. 2011); Boateng v. Geico Gen. Ins. Co., 2010 WL 4822601 (S.D. Fla. Nov. 22, 2010) (unpublished); see also Contreras v. U.S. Sec. Ins. Co., 927 So. 2d 16 (Fla. 4th D.C.A. 2006) (where claimant would only agree to release one of two insureds in return for payment of policy limits, no bad faith as a matter of law in insurer’s failure to accept that offer).
17 Berges, 896 So. 2d at 672 (emphasis added.)
18 F la. Stat. §627.4137 (2010).
19 Schlosser v. Perez, 832 So. 2d 179 (Fla. 2d D.C.A. 2002); Cheverie v. Geisser, 783 So. 2d 1115, 1119 (Fla. 4th D.C.A. 2001).
20 See Leff v. Eckler, 972 So. 2d 965 (Fla. 3d D.C.A. 2007) (settlement for less than insurance policy limits enforced, despite the fact that insured had not obtained information required by
Fla. Stat. §627.4137): Allstate Ins. Co. v. Singletary, 540 So. 2d 938 (Fla. 2d D.C.A. 1989) (insured waived arbitration by failure to wait receipt of information requested under
Fla. Stat. §627.4137).
21 See Porcelli, 635 F.Supp. 2d 1312 (M.D. Fla. 2008); United Auto v. Rousseau, 682 So. 2d 1229 (Fla. 4th D.C.A. 1996).
22 Snowden, 58 F. Supp. 2d at 1129.
Rutledge R. Liles is a shareholder at Liles, Gavin, Costantino, George & Dearing in Jacksonville. His practice includes all areas of civil litigation. He is a 1966 graduate of the University of Florida College of Law, where he served as an executive editor of the law review. He has been board certified by The Florida Bar in civil trial since 1983 and is a fellow in both the American College of Trial Lawyers and the International Society of Barristers. He served as president of The Florida Bar in 1988-89.