This is the fourth article in a series on bad faith insurance practices in Florida. The first article in the series can be found here. The second article can be found here. The third article can be found here.
Time Limited
Demands / Settlement Offers
When injured parties make a demand to settle a claim they often impose a time limit on when the insurance company can accept their settlement offer. The focus on any time demand case will be the reasonableness of the insurer’s failure to settle. Where the insurer does not settle the case in the time period prescribed by the plaintiff in good faith and on reasonable grounds, the insurer should not be found to have acted in bad faith.
However, courts are wary that time-limited demands may be used in an attempt to “set-up” the insurer for bad faith. For example, when faced with a ten-day time-demand letter on a $10,000 policy of liability insurance, the court held that the limited time within which to accept the offer was totally unreasonable under the circumstances and implied that there might have been a “set-up.” DeLaune v. Liberty Mut. Ins. Co., 314 So. 2d 601, 603 (Fla. 4th DCA 1975).
In another case, the court held that an insurer had not violated its common law duty of good faith after only a lapse of one month from the initial demand for policy limits, during which time the insurer verified the claim, and the tender of the policy limits a day after the time demand period expired. Clauss v. Fortune Ins. Co., 523 So. 2d 1177, 1179 (Fla. 5th DCA 1988).
In short, when confronted with a time-limited demand, an insurer should take all reasonable and necessary steps to investigate the claim. After such an investigation, the insurer should determine whether payment of the policy limits is warranted within the time period prescribed by the plaintiff.
In the event such an investigation and determination cannot take place within the time limit, the insurer should ask for an extension of time. A plaintiff’s failure to allow such additional time may indicate the plaintiff’s “true motives.”
Bad Faith and Multiple Claimants
Under a Single Policy
Frequently there will be multiple injured parties making a claim against the same insured under the same insurance policy. Issues arise when the policy limits are not enough to satisfy each of the individual claims.
An insurer is required to investigate fully all claims at hand to best limit the insured’s liability and settle as many of those claims as possible within the policy limits. Additionally, an insurer has the duty to avoid indiscriminately settling selected claims and leaving the insured at risk of excess judgments that could have been minimized by wiser settlement practices. Farinas v. Florida Farm Bureau Gen. Ins. Co., 850 So. 2d 555, 560 (Fla. 4th DCA 2003).
However, an insurer can enter into reasonable settlements with some claimants to the exclusion of others based on an exercise of its discretion. Farinas, 850 So. 2d at 560. Instead the reasonableness of the insurer’s actions are determined based on whether there was a full investigation of claims, communication with the insured, and an attempt to minimizing the magnitude of excess judgments against the insured. Id. at 561.
Insurers have been provided with specific guidelines in keeping with its good faith duty where multiple claims arise out of one accident. An insurer may exercise its discretion in how it elects to settle claims, however, the insurer must:
- Fully investigate all claims arising from a multiple claim accident;
- Seek to settle as many claims as possible within the policy limits;
- Minimize the magnitude of possible excess judgments against the insured by a reasoned claim settlement; and
- Keep the insured informed of the claims resolution process.
Gen. Sec. Nat. Ins. Co. v. Marsh, 303 F. Supp. 2d 1321, 1325 (M.D. Fla. 2004).
Bad Faith and Multiple Insureds
Under a Single Policy
Frequently there will be more than one person who is insured under an insurance policy. Sometimes the injured party is willing to settle with one of the insured but not the others.
In Contreras v. U.S. Sec. Ins. Co., 927 So. 2d 16 (Fla. 4th DCA 2006), a personal representative of a deceased pedestrian offered to settle for the policy limits and release the owner of vehicle that killed the pedestrian. However, the personal representative refused to release the driver of vehicle. The insurer claimed that securing release for only one of its insured would necessarily provoke bad faith. However, the Court disagreed.
“The gravamen of what constitutes bad faith is whether under all the circumstances an insurer failed to settle a claim against an insured when it had a reasonable opportunity to do so” Contreras, 927 So. 2d at 20. “The issue of whether an insurance company can be held liable for bad faith where there was a demand to settle with one insured but not release all insureds is a question of first impression in this state.” Id. at 21.
“Nevertheless, the standard for what constitutes bad faith in light of the circumstances in the instant case can be judged based upon the principles set forth in Boston Old Colony.” Contreras, 927 So. 2d at 21. The Florida Supreme Court’s decision in Boston Old Colony was discussed in the first article in this series.
In Contreras, the Court held that an insurer can be held liable for bad faith arising out of its refusal to accept an offer to settle with the owner of the vehicle but not the driver. Contreras, 927 So. 2d at 21. If an insurer is given a reasonable period of time in which to settle, and it is entirely clear that within that time the plaintiff is not going to release the driver, the insurer as a matter of law cannot have breached a duty of good faith to the driver. Id.
However, having now fulfilled its obligation to the driver, the insurer was obligated to take the necessary steps to protect the owner from what was certain to be a judgment far in excess of the policy limits. Contreras, 927 So. 2d at 21. If an insurer is unable to obtain a release for all defendants, they can still settle with one without being in bad faith. Id.
Damages for Insurance Bad Faith
Absent a finding of bad faith, an injured party’s recover is ordinarily limited to the coverage under the policy. Gov’t Employees Ins. Co. v. Robinson, 581 So. 2d 230, 231 (Fla. 3rd DCA 1991). This is true even if the injured party’s damages exceed the policy limits.
Initially, the Florida Supreme Court held that “an insured could not recover the amount of the excess judgment as an element of damages in a first-party bad faith claim, and instead could recover only those damages that were the ‘natural, proximate, probable, or direct consequence of the insurer’s bad faith actions.” Fridman v. Safeco Ins. Co. of Ill., 185 So. 3d 1214, 1221 (Fla. 2016).
In other words, a claimant who had successfully proved the insurer acted in bad faith could not recover more than the policy limits of the insurance policy at issue. However, in response to that decision, the Florida Legislature amended the bad faith statue to provide that damages bad faith actions shall include any amount in excess of the policy limits. Fridman, 185 So. 3d at 1221. Currently, in both first-party and third-party bad faith actions, damages may exceed the policy limits. Id.
Emotional damages / emotional distress are recoverable in bad faith actions if it is causally related to bad faith violation. Time Ins. Co. v. Burger, 712 So. 2d 389, 392 (Fla. 1998). Punitive damages can also be recovered in bad faith actions. However, they are limited by statute.
Punitive damages will not be awarded unless the acts giving rise to that violation occur with such frequency as to indicate a general business practice, and those acts are:
- Willful, wanton, and malicious;
- In reckless disregard for the rights of any insured; or
- In reckless disregard for the rights of a beneficiary under a life insurance contract.
Fla. Stat. § 624.155(5).
Finally, if a plaintiff prevails in a bad faith action, Florida law provides that the insurer is liable for damages, together with court costs and reasonable attorney’s fees incurred by the plaintiff. Fla. Stat. § 624.155(4). Regardless of whether or not an insurer acted in good faith, it is responsible for attorney’s fees where the claimant proves a wrongful denial of his claim. Travelers Ins. Co. v. Rodriguez, 387 So. 2d 341, 343 (Fla. 1980).