Many states have created statutes that define unfair claim practices. Thus, there are those who contend that insurers can simply avoid "bad faith" by complying with the statutory requirements and good claim handling practices. This is a dangerous assumption. In states where the courts are allowed to determine an insurer's breach of duty, based on common law standards or vague legislative definitions, insurers are at great risk. For example, because of the existing legal standard in Florida, there is no way for an insurer to completely insulate itself against claims of third-party bad faith and extraordinary penalties. The current legal standard for third-party bad faith relies largely on common law and a loosely defined statute, Section 624.155 (1)(b)(1), Florida Statutes.
In Florida, a jury determines whether or not the insurer acted in bad faith, opening up the possibility for great financial rewards for plaintiffs. As a result, Florida plaintiffs attorneys are refusing to settle claims and are pursuing bad-faith actions over basic issues, like the disputed wording of a release, which could easily be resolved.
The existing standard also encourages some plaintiffs attorneys to contrive bad faith by making unclear and overly broad requests for information, submitting non-specific demands and even using the unfair tactic of delayed mailing of demands with short time limits. These attempts are made in an effort to cause a perceived error in the response from the insurer and create an allegation of bad faith. The current Florida standard for third-party bad faith and the enticement of large awards, including attorney fees, have caused a significant rise in bad-faith cases and settlements.
Furthermore, the claimant does not need to show that a specific demand or explicit conditions for settlement were given to the insurer prior to the insurer's offer. For example, in Berges v. Infinity Insurance Co., 896 So. 2d 665, the court stated, "The focus in a bad faith case is not the action of the claimant but rather on those of the insurer in fulfilling its obligations to the insured." The burden is then placed upon the insurer to convince a jury that the action it took, though it did not satisfy the claimant or settle the claim against their insured, was nonetheless a good-faith attempt to settle under the circumstances presented.
If the offer includes any conditions, even a release of the insured or protection of valid liens, the insurer risks a rejection by the claimant without discussion and a claim of bad faith. Evidence of this insurer dilemma is found in a recent case, United Auto. Ins. Co. v. Estate of Stephen D. Levine. In summary, United Auto's insured, while driving his vehicle under the influence of alcohol, struck Levine's vehicle, fatally injuring him. Within two days after receiving notice of the claim, United Auto offered their insured's bodily injury liability limit by sending a check in the amount of $10,000 accompanied by a letter, a release of all claims and a hold harmless and indemnification agreement. In the letter, United Auto requested disclosure of all medical liens and subrogation claims and written confirmation that all liens and subrogation claims would be satisfied out of the proceeds of the settlement. United Auto also requested copies of the letters of administration. The claimant never presented a demand. Two months later, United Auto's settlement check was returned to them without explanation, and a lawsuit was filed against United Auto's insured. The jury found United Auto's insured responsible for $5.2 million dollars to Levine's estate.
The estate then brought action against United Auto, claiming that United Auto failed to settle the estate's claim against their insured in a timely manner and asserting that, had the insurer tendered the policy limits in a timely manner, the estate would have accepted and released their insured. A jury found United Auto acted in bad faith, and the initial judgment against United Auto's insured for $5.2 million dollars was levied against the insurer, which appealed.
In the court's denial of United Auto's motion for directed verdict, the court stated, "UAIC's initial enthusiasm for tendering its policy limits to the Levine estate pales when set against the one-size-fits-all release required by UAIC, UAIC's failure to follow up in more than a superficial way (in a case plainly involving a catastrophic claim)…" In its majority opinion, the court concluded: "The essence of UAIC's claim in this case, though not directly articulated, is that it was set up for a bad faith claim as a strategy, by the Levine estate's failure to tell UAIC why UAIC's tender, release, and other requirements were unacceptable. The 'strategy' question was debated in the majority and dissenting opinions in Berges v. Infinity Insurance Co. ...and it is far from over. Until there is substantial change in the statutory scheme or the rationale explained in the majority opinion in Berges, however, juries will continue to render verdicts regarding bad faith when the pertinent facts are in dispute." The court affirmed the final judgment against United Auto.
In his dissenting opinion, Judge Wells stated, "Although United received no notice, claims or demands whatsoever from Levine's estate, it issued a check to the estate for its bodily injury limits within a day of learning of the incident. As a matter of law, this cannot be bad faith. The fact that this tender was accompanied by a general release also cannot for a number of reasons constitute bad faith. Instead of negotiating a settlement in good faith by making a counter offer to United's settlement tender, the estate brought suit for bad faith." Judge Wells further opined that "United did everything it could to maximize protection for its insured. While juries are responsible for determining bad faith claims, it is the responsibility of the courts to treat all litigants which or who come before them on a fair and equal basis. This, of course, applies to insurance companies. It is therefore incumbent on courts to view the facts objectively and, where appropriate, to preclude obviously collusive or contrived claims from moving forward. This action presents just such a case where counsel for an injured party refuses to communicate or negotiate following a good faith offer by an insurer and after dodging information requests via vague responses by office staff, brings an action for bad faith."
This is an excellent example of the court looking to the legislature for guidance. Insurers, with the support of many in the judicial community, are proposing changes to Section 624.155 (1)(b)(1), Florida Statutes that would require good faith from all parties in the settlement process, including the claimant, something that does not exist under the current law.
Not surprisingly, there are those who disagree with the need for changing the current standard. Opponents, primarily members of the Florida Trial Bar, contend that this effort by insurers to get favorable legislation will adversely impact Florida insurance consumers. So far, they offer no objective support for their position. In reality, their contention only serves the interest of trial attorneys who greatly benefit from the current law and these large awards.
Insurers in Florida continue to receive demands from plaintiffs attorneys that contain unilateral conditions for settlement and arbitrary time limits. Insurers are then forced to comply with these one-sided conditions or risk an action regarding bad faith, an uncertain outcome in the courts and the potential for immense penalties. Unfortunately, in spite of the intrinsic unfairness of the current law, to date the Florida legislature has failed to act. There is, however, indication that they may once again consider the issue in the upcoming legislative session.
Florida insurers must unite to gain further support from both the judicial community and consumer groups. It is essential that insurers demonstrate that these unnecessary claims have an unfavorable financial impact on consumers. We must develop a clear message on why it is good for consumers to have this law strengthened and make a unified effort to explain it to the public.
Sean Fowler is an assistant vice president of claims for the
IAT Insurance Group.
sfowler@ofc-wic.com