Florida Bad Faith Insurance Law – Great Article Illustrates Importance of Strong Law

The newspaper article reproduced below, written in 2003, does an excellent job of illustrating the importance of having strong bad faith insurance laws designed to persuade insurance companies to settle cases for fair value rather force every case to trial.

Florida’s bad faith laws impose a duty on insurance companies to act in the best interests of their insureds (customers). If an insurance company can and should settle a case within its insured’s policy limits, it should. If the insurance company refuses and a final judgment in excess of the limits is then entered against the insured, the company may be forced to pay the full judgment, not just the policy limits.

Whether or not the carrier must pay the full judgment depends on the manner in which it handled the claim. If, based on all available information, the carrier could have and should have settled the case within the policy limits, it may very well be required to pay the full judgment … as it should for needlessly exposing its insured to a significant money judgment.

Without meaningful bad faith laws, insurance companies would never settle cases within policy limits. Knowing that the most they will ever have to pay is what they should pay anyway, i.e., the policy limits, they will force every case to trial. Their purpose in taking every case to trial will be to put plaintiffs’ lawyers on notice that to avoid trial, every case must be settled for less than policy limits, even cases worth much more than policy limits.

Without strong bad faith insurance laws, the only parties that will be exposed to excess judgments will be the insureds, those who purchase the insurance coverage to avoid such a scenario.

Under Governor Rick Scott, the Florida Legislature will attempt to gut Florida’s bad faith laws. From their point of view, insurance company profits are more important than protecting individuals.

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Bad faith in the law

By MARTIN DYCKMAN Published December 21, 2003
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TALLAHASSEE – The malpractice debate last summer was an emotional roller coaster ending in bitter disappointment for Florida physicians whose leaders had convinced them that there would be no relief from high insurance premiums without a flat $250,000 ceiling on pain and suffering awards. That line came straight from the insurance lobby, which actually wanted something else a lot more, and got it.

To the insurers, the more important goal was to erode Florida’s bad-faith law, which they blame for forcing them to settle cases they say they shouldn’t. That premise is partly true; the law is intended to encourage settlements and avoid costly trials. But legislators heard only opinion, not evidence, as to whether there are really too many before agreeing to make the doctors the guinea pigs in a dangerous experiment.

To illustrate what’s at stake, let’s look at the outcome of an important trial at Clearwater earlier this month. It involved an automobile accident, not medical malpractice, but the principles are the same. My colleague William R. Levesque reported the story in the Dec. 5 St. Petersburg Times.

The plaintiff was Xiao-Cao Sha, a 41-year-old violinist who suffered severe shoulder and neck injuries in a collision that the defense conceded to be the fault of the driver who had run a red light and hit the car in which Sha was a passenger. Sha, who had left the Florida Orchestra to seek opportunities in major orchestras, can no longer play without severe pain and can practice only 15 minutes a day. The defense didn’t question that either.

The other driver was unusually well insured – for $1.75-million, says Sha’s lawyer, Tom Carey – and Carey offered to settle for that. He might have settled for even less, I gathered, but not for as little as the defendant’s carrier, Liberty Mutual, was willing to pay.

According to Carey, “they never made it to $200,000.”

So the case went to trial, where Liberty Mutual’s lawyer contended that Sha should be awarded no more than $189,000 because there was no guarantee she could have fulfilled her dreams and might never have earned more than $30,000 a year, her former salary with the Florida Orchestra. She could still have earned that, the lawyer said, by teaching and performing solos.

Imagine for a moment that the victim had been a young doctor about to start practice as a neurosurgeon and an insurance company had proposed that he or she settle for pediatrics or some other specialty that earns much less. Any red-blooded jury would have socked that company at least as hard as Sha’s did.

The jury took less than hour to award her $5-million, which included some $1,375,000 for lost future wages and $3,456,000 for pain and suffering. More than twice, all told, the limits of the policy that the defendant and her husband had paid for and Sha would have accepted.

But because of the bad-faith law, Liberty Mutual would have to pay it all. The policyholders’ personal assets wouldn’t be at risk because of the company having gambled on taking the case to trial.

In fact, there was a side bet – called a high-low agreement – which Carey and the defense counsel had reached without the jury knowing it. The terms don’t permit Carey to say how much it was for, but he and his client were plainly pleased with it. The check was signed, the case is over.

“They never would have walked up to me proposing a high-low if it weren’t for the law of bad faith. They got a little frightened,” Carey said.

To do away with that law, he warned, is to tempt insurance companies to stiff every claim and say “So sue us.” In that event, he said, “our lawsuits would quadruple literally overnight.” Even the 84 new trial judges the Supreme Court says Florida needs wouldn’t be nearly enough.

Defendants, meanwhile, would be on the hook for all the excess verdicts. Their only protection would be to buy larger insurance policies, if they could get them.

The Legislature left the bad-faith law alone (but for how long?) with respect to everything but medical malpractice cases. Under the law as it has been changed for doctors and hospitals, an insurance company has 210 days – seven months – after a suit is filed to accept or propose a settlement for policy limits. After so much time, plaintiffs’ lawyers say, there’s little chance of avoiding a trial. But so long as the offer is made, even on the 209th day, the insurance company is no longer on the hook for a larger verdict. The doctor is.

“They’ve shifted the gambling losses from the insurance industry to the doctors,” says Richard Slawson, a Palm Beach Gardens attorney who specializes in bad-faith suits against insurance companies. His clients are doctors, motorists and other people whose insurance carriers gambled on going to trial, and lost. What the Legislature did to the doctors – with the eager encouragement of the Florida Medical Association – was, Slawson says, a “travesty.”

I sought Liberty Mutual’s side of the Sha story. It sent word that it doesn’t comment on cases in litigation. Not even, apparently, when they’re over.

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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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