Category: Insurance Bad Faith

The U.S. Court of Appeals for the Eleventh Circuit (which covers Florida) recently reversed an important lower Florida court’s decision which awarded an insurance bad faith plaintiff (Bottini) $30 million in a case involving uninsured/underinsured motorist breach of contract claims.

The vehicle involved in the accident at the heart of the claim had been underinsured under the requirements of Florida law; still the plaintiff’s estate demanded that Geico, from which the plaintiff had purchased $50,000 of uninsured motorist coverage, render the maximum payment under the policy. Geico refused, indicating that it was still conducting its own investigation to determine whether the insured had been at fault in the accident. As a result, the motorist’s estate filed a civil remedy notice of insurer violation with the Florida Department of Financial Services (a prerequisite to filing a bad faith claim against an insurer). 

While there are frequently insurance disputes over coverage, damages, or liability – sometimes claims alleging insurance bad faith or plaintiffs seeking extra-contractual liability – there is no comprehensive definition of “good faith” in Florida; therefore, the full extent of what a “showing of good faith” means remains unresolved when it comes to liability insurers declining to cover the insured against whom a third party has asserted a claim.

The Eleventh Circuit has perhaps provided the most comprehensive definition, in stating that “Coblentz” agreements (settlement devices that can be used only when an insurer refuses to defend an insured) must be free from bad faith, collusion, and fraud, and entered with efforts to minimize liability. Still, those who defend insurers—and insurers themselves—are still left wondering what type of evidence specifically demonstrates that a Coblentz agreement should not be enforced for a lack of good faith.

The Difference Between an Insurer’s Contractual and Statutory Duties Under Florida Law

Insurance companies have two independent duties when it comes to paying a claim filed by a policyholder. The first duty is contractual, i.e., the insurer’s responsibilities under the policy itself. This contractual duty extends to any requirements regarding the evaluation and payment of benefits.

The second legal duty is that imposed by statute, i.e., by the Florida legislature. State law requires all insurers to “act reasonably and in good faith” when evaluating a policyholder’s claim. Even if the insurer ultimately pays the claim–that is, fulfills its contractual duty–it can still be held liable for acting in bad faith with respect to its statutory duty.

Insurer Still Faces Bad Faith Claim Despite Paying Appraisal Award to Homeowner

The Florida Second District Court of Appeals recently addressed the interaction of these two duties in a first-party bad faith insurance lawsuit. In Williams v. State Farm Florida Insurance Company, a homeowner filed a claim with his insurer over lightning damage to his property.

Insurance disputes often involve complex questions of law and contract interpretation. Yet many cases boil down to a single question: Does the insurance policy actually cover the claim at issue? Sometimes this question proves relatively easy to answer.

For example, there is this recent decision from a federal judge in Tampa, Ditech Financial LLC v. AIG Specialty Insurance Company. The plaintiff in this case was a mortgage loan servicing company. The plaintiff ran into trouble with regulators in 2014 over purported “deficiencies” in its business practices. As relevant to this case, the plaintiff had failed to conduct annual escrow analysis for borrowers involved in Chapter 13 bankruptcy cases.

Basically, Ditech was supposed to analyze any changes to a borrowers’ property tax and insurance payments while they were in bankruptcy. The failure to conduct this analysis meant that there were shortages in the borrowers’ escrow accounts, which they remained liable for under their mortgages. Ditech made up for these shortfalls and then tried to get its money back from the borrowers after they exited bankruptcy.

Insurance companies have a duty to act in good faith when handling an insured party’s claims. This often includes defending the insured against lawsuits that are within the scope of a policy. If an insurer wrongfully refuses to provide such a defense, the insured can settle the case themselves in exchange for the plaintiff promising to only seek collection from the insurance company. This is known as a Coblentz agreement based on a 1969 federal appeals court decision.

The problem with Coblentz agreements is they are susceptible to collusion between the insured party and the person suing them. For this reason, courts will only enforce such agreements if the plaintiff–the party seeking to collect against the insurer–can show that coverage existed, the insurer wrongfully refused to defend the insured defendant, and that the terms of the ultimate settlement were reasonable and made in good faith.

If you carry homeowners’ insurance, you probably expect your insurer to pay for any covered damages to your property, including fire, theft, wind, flood, and others. However, you may be surprised to find out that your homeowners’ insurance claim has been denied.

What should you do when your insurance company denies your homeowners’ insurance claim in Florida? Should you dispute the denial yourself or contact a Tampa homeowners’ insurance attorney to appeal the insurer’s decision?

Insurance companies routinely deny homeowners’ insurance claims or attempt to undervalue claims filed by policyholders. If you have been paying your insurance premiums consistently and on time for many years, you probably expect your insurer to fulfill its obligations. However, you need to keep in mind that insurance companies are never on your side.

Often, insurers put their own profits ahead of their policyholders’ best interests. As a result, your homeowners’ insurance claim can be denied or severely undervalued simply because the insurer is trying to increase profits. When an insurance company fails to keep its promises, you may grounds for an insurance bad faith lawsuit.

The issue of the coronavirus potentially causing business losses and a number of U.S. companies thinking that their insurance policies cover this loss of revenue due to the outbreak will likely be a significant source of insurance bad faith litigation as we face more and more losses due to the virus. According to the Organisation for Economic Cooperation and Development, if the virus continues along its current path, it could cut the year’s global growth by half to 1.5 percent for the year, causing a $1.5 trillion loss due to the disease.

Business Interruption & Contingent Business Interruption Insurance Policies

Many are estimating that these losses will be greater than disasters such as Hurricane Katrina, but less likely to be insured. This is because while most-all companies have business interruption insurance as part of their insurance policies in order to cover operations losses when business has to halt unexpectedly, these policies are almost always linked to “direct physical loss or damage” as the definition of what constitutes loss that validates payment, and quarantines do not cause physical damage in the same way that a fire or earthquake does.

An important insurance bad faith decision out of a New York appellate court clarifies important Court of Appeals precedent regarding the bad faith pleading standard, while also clarifying a number of issues that the courts have never addressed, including consequential losses and attorney’s fees.

Even though decided in New York courts, this is an important decision to all insurance companies when it comes to setting precedent for bad faith claims, as we discuss in greater detail below.

The Case

The case started with property owners filing an insurance claim for direct damage and physical loss to their property as a result of construction work done in the adjoining building. According to reports, the property owners filed a claim with their insurance company, National Union Fire Insurance Company, which did not respond or pay the claim. According to them, National Union, instead “made unreasonable and increasingly burdensome information demands” with the hopes that the owners would drop the claim entirely. As a result, the owners filed claims alleging breach of contract and of the implied covenant of good faith and fair dealing.

The longstanding standard of what constitutes bad faith in Florida was determined by the Florida Supreme Court almost 40 years ago. The Court determined that an insurer has a duty to use the same degree of care and diligence as someone “of ordinary care and prudence.” Insurers must investigate the facts, give fair consideration to settlement offers and–where a reasonably prudent person would–pay total recovery.

However, two recent appellate decisions have made some important changes to what constitutes a bad faith insurance claim in the context of third-party liability claims, as we discuss below.

Eleventh Circuit Decision

The first of those decisions—by the Eleventh Circuit—upheld a lower court decision finding that Geico deciding to offer settlement limits twenty days from the first notice of the claim was not done in good faith as a matter of law. The court ultimately upheld the jury verdict in favor of plaintiffs, finding that the jury was reasonable and had enough evidence to conclude that Geico had acted in bad faith.

The U.S. Eleventh Circuit Court of Appeals (covering Florida) recently made a decision helpful to insurance companies fighting insurance bad faith claims. Specifically, the court held that no reasonable jury could find that an insurer’s failure to disclose information about additional insurance in its statutory insurance disclosure rose to the level of bad faith.

Florida Law: Contents of Policies

In this case, a driver struck a pedestrian, who was badly injured. When the driver’s insurer (Allstate) offered full policy limits to claimant, the claimant rejected the offer. Several months later, the claimant informed the insurer that they were willing to settle and requested that the insurer provide disclosure pursuant to Florida law, which lists what every insurance policy must specify. Specifically, every policy must specify:

Florida common law also recognizes that insurers must exercise good faith in handling claims against their insureds. If an insurer is found to have acted in bad faith, it is liable for the entire judgement against the insured in favor of the injured third party, including any amounts necessary beyond the policy limits.