Insurance Bad Faith Under Florida Law Part II

This is the second article in a series on bad faith insurance practices in Florida. The first article in the series can be found here.

Bad Faith at Common Law

The Injured Third Party—while bad faith occurs between an insurer and its insured, Florida law allows an injured third party to bring a bad faith cause of action directly against the insurer because the injured third party, as the beneficiary of any successful bad faith claim, is the real party in interest. Thompson v. Com. Union Ins. Co., 250 So. 2d 259, 261 (Fla. 1971).

The Person Insured under the Policy—at common law (i.e., the set of laws brought over from England to early America) a first party insured could only maintain a cause of action against an insurance company in the context of a breach of contract.

To prevail under this type of action, a first party insured would need to prove: a. Contractual obligation of the insurance company to pay the damages; b. Actual incurrence of the damages by the insured; c. Failure of the insurance company to pay the damages.

Generally, recovery under this type of action was limited to the actual amount due under the policy and did not include attorney’s fees and costs. A common law claim for bad faith for refusing to settle can only be maintained if the underlying tort action results in a judgment in excess of the policy limits because the action is deemed to accrue when the insured becomes obligated to pay the judgment in excess of the policy limits. Kelly v. Williams, 411 So. 2d 902, 904 (Fla. 5th DCA 1982). The excess judgment requirement may be waived by the parties. Cunningham v. Standard Guar. Ins. Co., 630 So. 2d 179, 181–82 (Fla. 1994).

Statutory Bad Faith

Modern statutes have replaced, added to, or altered many common law doctrines. In Florida, Fla. Stat. § 627.4136, establishes that a third party cannot bring action against a liability insurer under the terms of the liability insurance contract, including an action for bad faith, unless a settlement or verdict is obtained against the insured who is covered by the policy.

The Florida legislature extended the common law bad faith cause of action to first party insureds. Under Fla. Stat. § 624.155, any person may bring a civil action against an insurer when he is damaged by:

1. A violation by the insurer of certain provisions of the Unfair Insurance Trade Practices Act;
2. The insurer’s failure to return motor vehicle policy premiums upon cancellation; or
3. By the commission of the following acts by the insurer:
4. Not attempting in good faith to settle claims, when under all circumstances, the insurer could and should have done so, had it acted fairly and honestly toward its insured and with due regard for his interests;
5. Making claims payments to insureds or beneficiaries not accompanied by a statement setting forth the coverage under which payments are being made; or
6. Except as to liability coverages, failing to promptly settle claims, when the obligation to settle a claim has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage.

Under Fla. Stat. § 626.9541, any person may bring a cause of action under Fla. Stat. § 624.155, against an insurer if the insurer:

1. Attempts to settle claims on the basis of an application, when serving as a binder or intended to become a part of the policy, or any other material document which was altered without notice to, or knowledge or consent of, the insured;
2. Makes a material misrepresentation made to an insured or any other person having an interest in the proceeds payable under such contract or policy, for the purpose and with the intent of effecting settlement of such claims, loss, or damage under such contract or policy on less favorable terms than those provided in, and contemplated by, such contract or policy; or
3. Commits or performs any of the following:

• Failing to adopt and implement standards for the proper investigation of claims;
• Misrepresenting pertinent facts or insurance policy provisions relating to coverage at issue;
• Failing to acknowledge and act promptly upon communications with respect to claims;
• Denying claims without conducting reasonable investigations based upon available information;
• Failing to affirm or deny full or partial coverage of claims, and, as to partial coverage, the dollar amount or extent of coverage, or failing to provide a written statement that the claim is being investigated, upon the written request of the insured within 30 days after proof-of-loss statements have been completed;
• Failing to promptly provide a reasonable explanation in writing to the insured of the basis in the insurance policy, in relation to the facts or applicable law, for denial of a claim or for the offer of a compromise settlement
• Failing to promptly notify the insured of any additional information necessary for the processing of a claim; or
• Failing to clearly explain the nature of the requested information and the reasons why such information is necessary.

Initially, a plaintiff needed to prove the insurer committed these actions with such frequency as to indicate a general business practice. However, this requirement was eliminated in Dadeland Depot, Inc. v. St. Paul Fire Ins. Co., 945 So. 2d 1216, 1232–33 (Fla. 2006).

Notice of Civil Action – A Prerequisite to a Claim for Statutory Bad Faith

Before a plaintiff can file a claim against an insurer under Fla. Stat. § 624.155, proper notice of the alleged violated must be filed at least sixty days with both the insurer and the Department of Financial Services. The notice must be on a form provided by the Department of Financial Services and include the following information:

1. The statutory provision, including the specific language of the statute, which the insurer allegedly violated.
2. The facts and circumstances giving rise to the violation.
3. The name of any individual involved in the violation.
4. Reference to specific policy language that is relevant to the violation, if any. However, if the person bringing the civil action is a third party claimant, he is not required to reference the specific policy language if the insurer has not provided a copy of the third party claimant pursuant to the claimant’s written request.
5. A statement that the notice is given in order to perfect the right to pursue the civil remedy.

The Department of Financial Services maintains a website where notices of civil action can be submitted online.

The purpose of the notice requirement is to give insurers one more opportunity to make things right before a lawsuit is filed. If the insurer pays the damages or corrects the circumstances giving rise to the violation within 60 days after the required notice is filed, the plaintiff cannot file a lawsuit under Fla. Stat. § 624.155.

For example, in Franklin v. Minnesota Mut. Life Ins. Co., 97 F. Supp. 2d 1324, 1327–28 (S.D. Fla. 2000), a disability insurer’s payment of the full contractual damage amount to the insured within 60 days of receiving notice of the insured’s bad faith action served as a cure and precluded the insured’s bad faith action under Florida law.

However, an insurance company cannot end a bad faith action against it simply by tendering to the insured the policy limits, where the insured claims the company, in bad faith, failed to accept the injured party’s offer to settle the claim within policy limits, exposing the insured to ultimate judgment in excess of the policy limit. Hollar v. Inter. Bankers Ins. Co., 572 So. 2d 937, 940 (Fla. 3rd DCA 1990).

Statutory Bad Faith (Fla. Stat. § 624.155)
did not Eliminate an Action for
Bad Faith under Common Law

In Macola v. Gov. Empls. Ins. Co., 953 So. 2d 451, 456–57 (Fla. 2006), the Florida Supreme Court held that a cure of the civil remedy does not preclude a common law cause of action for bad faith. The Court found that although an insurer is afforded an opportunity to “cure” an alleged violation of the bad faith statute under Fla. Stat. § 624.155(3)(d), the statute further provides that it does not “preempt any other remedy of cause of action provided for pursuant to … the common law of this state.”

Additionally, the Court noted that although a common law cause of action is not preempted by the bad faith statute, it does not permit a claimant to obtain a judgment under both remedies. Macola, 953 So. 2d at 457. The Court found that to allow a tender after the time period to settle has expired to cure any alleged bad faith would be inconsistent with the body of common law case law that permits the recovery of an excess judgment as damages in a common law third party bad faith case. Id.

In this case, the “cure” would not eliminate the underlying tort claim and the potential for an excess judgment would be inconsistent with Fla. Stat. § 624.155(8), which does not allow a preemption of any other remedy. Macola, 953 So. 2d at 457.

Because “the tender of the policy limits to the insured when the underlying tort action is still pending does not eliminate the underlying tort action or the insured’s exposure to an excess verdict,” the Court found that if the insurer’s tender of its policy limits after the time to settle expired were to preclude a common law cause of action for third party bad faith, the insured would be in a “worse position than he or she would have been in had the legislation not enacted [Fla. Stat. §] 624.155.” Macola, 953 So. 2d at 458.

The Court held: “[A]n insurer’s tender of the policy limits to an insured in response to the filing of a civil remedy notice under section 624.155 by the insured, after the initiation of a lawsuit against the insured but before entry of an excess judgment does not preclude a common law cause of action against the insurer for third-party bad faith.” Macola, 953 So. 2d at 458.