Have you ever wondered why insurance companies settle claims? The answer is not because they are kind and generous. The reason is because it is often cheaper for them than the potential alternatives. In other words, carriers settle in order to save money.
What would happen if one of those alternatives, the one that is the most threatening of all to insurance companies, is watered down so as to lose much of its practical value? The answer is simple: carriers will be less likely to settle claims when they could and should do so.
There are two types of optional (i.e., non-mandatory) coverages available under every Florida-issued motor vehicle insurance policy that compensate those damaged by the negligence of others for economic (e.g., lost wages and medical expenses) and non-economic (e.g., pain & suffering) losses. One is BI or bodily injury insurance, the other is UM or uninsured/underinsured motorist coverage. (UM: Florida Statute 627.727.)
Through legislation and court opinions, a body of law has developed in Florida with the purpose of compelling insurance companies to act in good faith towards their insureds (i.e., their premium paying customers). In the context of BI and UM insurance, this means that carriers must settle claims when it could and should do so based on the circumstances. The punishment for failing to do so, i.e., acting in bad faith, is that the carriers may be responsible for paying court judgments in excess of policy limits. This can be an extremely compelling threat. Consider this UM example: the insured, who has contracted for a $100,000 UM policy, is severely injured in a rear end crash caused by an uninsured drunk driver. Past and anticipated future medical expenses and lost wages exceed $500,000, while the victim will experience a lifetime of daily pain and suffering from her severe injuries. In spite of knowing all this, the UM carrier refuses to tender the $100,000 to its insured. Unwilling to accept a lesser amount from the carrier, the insured sues and obtains a jury verdict (subsequently turned into a final judgment) in the amount of $1,500,000. In other words, after considering the same facts available to the UM carrier, a jury has decided that the insured's damages are 15 times greater than her UM policy limits.
Until recently, it was thought that the insured could then proceed to collect the $1,500,000 by proving bad faith against the carrier in a separate civil suit. Importantly, damages, already determined in the underlying civil suit, did not have to be established again. Unfortunately, this is where things may be changing for the worse for premium-paying insureds.
(While the concepts are much the same, the procedures for bringing bad faith claims against UM and BI carriers are somewhat different. From here forward, this blog will concentrate on UM bad faith claims. See Florida Statute 624.155 which is Florida's civil remedy statute for first-party insurer bad faith. See, also, Blanchard v. State Farm Mut. Auto. Ins. Co., 575 So.2d 1289 (Fla. 1991), for the authority that the bad faith claim is brought in a separate action after the existence of liability on the part of the uninsured tort-feasor and the extent of the plaintiff's damages are determined. Be careful not to misread Blanchard. First, Blanchard recognized that there can be recovery for the damages incurred from a violation of section 624.155(1)(b)1 which occurred before the determination of liability or extent of damages on the underlying insurance contract. Next, insureds may pursue UM benefits against the carrier before settling with the tort-feasor, just not bad faith damages. See Woodall v. Travelers Indemnity Co., 699 So.2d 1361 (Fla.1997), where the Florida Supreme Court stated that "it is well established that an injured party may directly pursue a claim against its underinsured motorist carrier, without having to first resolve the claim against the tortfeasor's liability carrier." Id. at 1363.)
In Geico Gen. Ins. Co. v. Bottini, 93 So.3d 476 (Fla. 2d DCA 2012), a jury awarded the Estate of the UM insured, who died in the crash, more than $30,000,000 in damages against the at-fault uninsured driver in a case involving clear fault. Shockingly, GEICO, the UM carrier, refused pay the policy's $50,000 limit. (GEICO was joined in the underlying lawsuit for breach of contract -- not the same cause of action as one sounding in bad faith. The carrier defended the case on liability and damages. As required by law, the judgment as to GEICO was limited to the $50,000 UM policy limit, meaning that, with regard to this judgment alone, the Estate was limited to recovering $50,000 from GEICO. However, the Estate will pursue a bad faith claim against GEICO for the excess (over the policy limit) judgment. This blog questions what the Estate must prove in the bad faith claim.)
GEICO conceded that the Estate's damages exceeded $50,000. However, knowing that a bad faith action was coming down the pike it asked the appellate court to reverse the judgment above $50,000 based on alleged trial level errors. The appellate court refused, treating such errors as harmless as they could not affect the $50,000 judgment entered against GEICO.
By failing to rule on the correctness of the damage award, the consequence of this opinion, when layered on top of prior opinions, such as Gov't Employees Ins. Co. v. King, 68 So.3d 267 (Fla. 2d DCA 2011), could be that the issue of damages must be tried again. This is not the way these things have happened in the past or should happen in the future, but it is a reasonable conclusion from a fair reading of Bottini. (Apparently, this thinking was followed in King v. Gov't Employees Ins. Co., 2012 WL4052271 (M.D. Fla. 9-13-2012). Plaintiff filed a separate suit against the UM carrier and obtained a verdict in excess of the UM policy limits. In the subsequent bad faith case, the District Judge entered an order ruling that the verdict from the underlying UM action would not be binding for the purpose of determining the amount of damages recoverable from GEICO for its bad faith.)
Here is how Florida Attorney Dale Swope assesses the situation:
Damages have to be litigated twice in every case, and the insurance company is given at least three chances to escape liability. The first trial is the carrier's long shot, go for broke, Hail Mary attempt for a zero verdict or a verdict below limits. If the carrier wins, then it pays the low verdict amount. If it loses, after appeal, then the carrier finally pays its limits, but the plaintiff has to literally start over to prove his damages for the bad faith trial. All new jury, all new expert fees, all new expenses to the judicial system. If the carrier gets a low verdict in this trial, after having seen the plaintiff's case once before, it still wins, and the first verdict means nothing.
Only if the plaintiff wins twice in a row, then you start the claims handling case. If the carrier wins that third trial, after losing the first two, then it pays nothing. If the plaintiff (and the judicial budget) survives this third trial in the same case (and the appeals arising from them) then the insurer has to pay money in excess of its limits for the bad faith it committed 10 years earlier.
The court system depends on fair settlements. In a system like this, where the UM insurer is guaranteed a free do-over for any unsatisfactory outcome, there will be fewer fair settlements reached, there will be much more bad faith committed, and there will therefore be many, many more bad faith trials.
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Jeffrey P. Gale, P.A. is a South Florida based law firm committed to the judicial system and to representing and obtaining justice for individuals - the poor, the injured, the forgotten, the voiceless, the defenseless and the damned, and to protecting the rights of such people from corporate and government oppression. We do not represent government, corporations or large business interests.
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