This is the third article in a series on bad faith insurance practices in Florida. The first article in the series can be found here and the second article can be found here.
Standard for Evaluating Bad Faith
In Florida, “[t]he standard for evaluating bad faith claims against insurers for first party as well as third party claims under the common law as well as under the statute is whether the insurer acted fairly and honestly toward its insured with due regard for the insured’s interests.” Gen. Star Indem. Co. v. Anheuser-Busch Cos., Inc., 741 So. 2d 1259, 1261 (Fla. 5th DCA 1999).
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. See State Farm Mut. Auto. Ins. Co. v. Laforet, 658 So. 2d 55, 62–63 (Fla. 1995). Trial court must consider all the circumstances involved in the denial of coverage. These factors may include, but are not limited to:
-
- The insurer’s effort to resolve the coverage issues promptly or otherwise limit potential prejudice to the insured;
- The substance of the coverage disputes or the weight of legal authority on the coverage issue; and
- The insurer’s diligence/thoroughness in investigating the claims.
Shannon R. Ginn Const. Co. v. Reliance Ins. Co., 51 F. Supp. 2d 1347, 1353 (S.D. Fla. 1999). The same standard applies to both first party and third party claims, as well as to both statutory and common law claims. State Farm Mut. Auto. Ins. Co. v. Laforet, 658 So. 2d 55, 63 (Fla.1995).
Factors in determining bad faith under Florida law:
- Efforts or measures taken by an insurer to resolve a coverage dispute promptly or in such a way as to limit any potential prejudice to the insured;
- Substance or coverage dispute or weight of legal authority on coverage issue;
- Insurer’s diligence and thoroughness in investigating facts specifically pertinent to coverage;
- Efforts made by insurer to settle liability claim in face of coverage dispute.
Pozzi Window Co. v. Auto-Owners Ins., 446 F.3d 1178, 188 (11th Cir. 2006).
Examples Where Courts Found Bad Faith
Where the insurer failed to make a proper investigation of the claim. See Gov’t Employees Ins. Co. v. Grounds, 311 So. 2d 164, 167 (Fla. 1st DCA 1975) (insurer did not do “anything during the five and a half month interim between the accident and the expiration of the settlement offer to diligently investigate the claim toward a possible settlement. The jury could properly weigh this evidence and conclude that had [it] properly investigated the case it would have known it was unquestionably liable and that the damages obviously exceeded the policy limits; that such failure by the insurer constituted bad faith toward its insured who as a result thereof was subjected to personal liability greatly in excess of the limits for which he was covered by the policy.”).
Where the insurer possesses information indicating a strong case against the insured. See Springer v. Citizens Cas. Co. Of N.Y., 246 F.2d 123, 127–29 (5th Cir. 1957).
Where the insurer failed to negotiate seriously. See Venn v. St. Paul Fire & Marine Ins. Co., 99 F.3d 1058, 1065 (11th Cir. 1996) (“[A]n insurer owes under Florida law a continuous duty to negotiate and settle in good faith a third party claim against its insured. This duty arises from the moment the insurer assumes the insured’s defense and matures into a cause of action when the third party obtains a final judgment in excess of policy limits.”).
Where the insurer failed to settle within a deadline set by the claimant’s attorney. See Kivi v. Nationwide Mut. Ins. Co., 695 F.2d 1285, 1287 (11th Cir. 1983) (“The primary insurer assumes the duty of negotiating to settle in good faith by virtue of its control of its insureds’ defense.”).
Where the insurer rejected all reasonable settlement offers. See Venn v. St. Paul Fire & Marine Ins. Co., 99 F.3d 1058, 1065 (11th Cir. 1996).
Where the insurer concealed from the insured or misrepresented the facts disclosed by its investigation. See Springer v. Citizens Cas. Co. of N.Y., 246 F.2d 123, 128 (5th Cir. 1957) (“it was the insurer’s duty to keep insured reasonably informed of the facts as disclosed by its investigation.”).
Where the insurer concealed from the insured the terms of settlement offers. See Campbell v. Gov’t Employees Ins. Co., 306 So. 2d 525, 531 (Fla. 1974) (“In this case the trial judge and jury agreed that the total failure of insurer to timely consider the interest of the insured while considering settlement offers and concealing from insured the offer made after trial and misrepresenting the gravity of the claim constituted elements of a reckless disregard of the rights of the insured.”).
Where the insurer continued to deny a claim in spite of advice of their own counsel that the case ought to be settled. See Am. Fire & Cas. Co. v. Davis, 146 So. 2d 615, 617–18 (Fla. 1st DCA 1962) (emphasis added) (“[I]n our opinion, [the record] discloses a callous, stubborn, inflexible attitude upon the part of the insurer who determined in the face of uncontroverted proof of a valid claim against their insured, that the insurance company had no responsibility to attempt to effectuate a settlement. The insurance company, in complete control of the case, adopted this attitude notwithstanding their insured’s continuous request to settle, without regard to their own attorney’s advice that ‘this is a case that should be settled’ ….”).
Where the insurer refused to settle even though it was reinsured for a major part of its liability and be reimbursed for any payments it made. See Am. Fid. & Cas. Co. v. Greyhound Corp., 258 F.2d 709, 712 (5th Cir. 1958).
Where the insurer wrongfully denies coverage that actually exists. See Gallagher v. Dupont, 918 So. 2d 342, 347–48 (Fla. 5th DCA 2005).
Denial of Insurance Claim Without More is Not Bad Faith
Simply because an insurer denies a claim or declines to pay an amount demanded does not result in an automatic finding of bad faith. The insured must demonstrate that the actions of the insurer were actually in bad faith, as defined by the relevant statutory provisions. Dadeland Depot, Inc. v. St. Paul Fire Ins. Co., 945 So. 2d 1216, 1231 n.2 (Fla. 2006).
“The insurer has a right to deny claims that it in good faith believes are not owed on a policy. Even when it is later determined by a court or arbitration that the insurer’s denial was mistaken, there is no cause of action if the denial was in good faith. Good-faith or bad-faith decisions depend upon various attendant circumstances and usually are issues of fact to be determined by a fact-finder.” Vest v. Travelers Ins. Co., 753 So. 2d 1270, 1275 (Fla. 2000).
The circumstances involved in the denial of a claim should be taken into account in determining bad faith. An insurer faced with coverage issues will be evaluated on:
- Whether the insurer was able to obtain a reservation of the right to deny coverage;
- Efforts taken by the insurer to resolve the coverage dispute promptly or in such a way as to limit any potential prejudice to the insureds;
- The substance of the coverage dispute or the weight of legal authority on the coverage issues;
- The insurer’s diligence and thoroughness in investigating the facts specifically pertinent to coverage;
- The efforts made by the insurer to settle the liability claim in the face of the coverage dispute.
Robinson v. State Farm Fire & Casualty Co., 583 So. 2d 1063, 1068 (Fla. 5th DCA 1991).
In this regard, under Florida law, an insurer has a limited time period to do one of four things:
- Acknowledge coverage and assume the defense of a suit without reservation of rights;
- Give written notice to the insured of its refusal to defend the insured;
- Obtain a non-waiver agreement following a full disclosure of the coverage defenses sought to be preserved; or
- Send a reservation of rights letter and appoint mutually agreeable defense counsel.
Reservation of Rights Letter
An insurer can defend a claim under a reservation of rights letter, which is a letter written by an insurance company offering to defend its insured while still maintaining the right to deny coverage at a later date. The letter should reserve the insurers rights to (1) seek a judicial declaration of coverage and (2) recoup defense costs should a declaratory action determine no coverage exists.
The letter should be written in context, including applicable policy language and a discussion of potential coverage issues. However, where the insurance company reserves its right to deny coverage, it loses the option of controlling both the defense and settlement opportunities. Taylor v. Safeco Ins. Co., 361 So. 2d 743, 746 (Fla. 1st DCA 1978) (insured free to reject defense by insurance company under reservation of rights); Nationwide Mut. Fire Ins. Co. v. Keen, 658 So. 2d 1101, 1103 (Fla. 4th DCA 1995).
Pursuant to Fla. Stat. § 627.426(2), a liability insurer is not permitted to deny coverage based on a particular coverage defense unless:
- Within 30 days after the liability insurer should have known of the coverage defense, written notice of the reservation of rights to assert that coverage defense is given to the named insured by certified or registered mail sent to the last known address of the insured or by hand delivery; and
- Within 60 days of sending the reservation of rights or receipt of a summons and complaint naming the insured as a defendant (whichever is later), the insurer: (a) Gives written notice to the named insured of its refusal to defend the insured; (b) Obtains from the insured a nonwaiver agreement following full disclosure of the specific facts and policy provisions upon which the coverage defense is asserted and the duties, obligations and liabilities of the insurer during and following the pendency of the subject litigation; or (c) Retains independent counsel which is mutually agreeable to the parties.