Florida liability insurance policies often provide coverage to many individuals, including those not named in the policy. For example, the standard Florida motor vehicle policy will insure vehicle owners and unlisted permissive users. This was the scenario in Contreras v. U.S. Sec. Ins. Co., 927 So.2d 16 (Fla. 4th DCA 2006).
Insurance companies are obligated under Florida law to act in good faith and with due regard for every insured’s interests. Boston Old Colony Insurance Company v. Gutierrez, 386 So.2d 783 (Fla. 1980). Under this duty, carriers must give fair consideration of any settlement opportunity and settle the claim when it can and should do so. Powell v. Prudential Property & Casualty Ins. Co., 584 So. 2d 12, 13 (Fla. 3rd DCA 1991).
In Contreras, a permissive user struck and killed a pedestrian while driving at a high rate of speed after consuming alcohol. Both the owner of the vehicle and the permissive user were covered under a U.S. Security motor vehicle liability insurance policy. Coverage under the policy for wrongful death was limited to $10,000.
The lawyer for the decedent’s estate offered to settle the case for $10,000. U.S. Security sent a letter tendering the policy limit along with a general release form discharging both the vehicle owner and driver. The estate’s lawyer offered to accept the release for the vehicle owner, but not the driver.
After U.S. Security rejected the offer, the estate filed suit against both the owner and the driver. A jury trial resulted in a judgment for compensatory damages against the owner and driver for $1,000,000, as well as a punitive damage judgment against the driver in the amount of $110,000. Thereafter, because neither the owner nor the driver had the financial resources to satisfy the judgment, the estate filed a bad faith claim against U.S. Security and proceeded to trial. The purpose of the action was to collect the excess judgment from the carrier.
At the end of Plaintiff’s case, U.S. Security moved for and was granted a directed verdict. The judge stated as follows:
It [the offer to settle with Dessanti [owner] but not Dale [driver]] immediately places the insurance company then in the Hobson’s choice. If they don’t agree to that, they’re sued for bad faith, and if they do agree to it, they’re sued for bad faith. If they agree to it and cut Dale loose, the Plaintiff simply takes an assignment from Dale. If they don’t agree to it and leave Dessanti in, the Plaintiff simply takes an assignment from Dessanti. The Plaintiff’s protected either way and the insurance company loses either way, and I don’t think that’s the state of the law. By creating it that way, what, in essence, the Court is permitting is it’s letting the Plaintiff dictate whether a bad faith claim arises as opposed to looking at the conduct of the insurance company. It creates an automatic bad faith. Either Dessanti should have been protected and wasn’t, in which case she has a bad faith claim, or Dale is cut loose and the insurance company had a duty to defend him, in which case he has a bad faith claim, and the insurance company is sitting squarely in the middle with no way to turn.
The trial court’s reasoning was reversed on appeal and the case was remanded for a new trial.
The appellate court framed the issue on appeal as, “whether an insurer acts in bad faith in refusing to pay a reasonable settlement demand in order to obtain a release of one of its two insureds, where the claimant refuses to settle with the other insured.” It acknowledged that the issue was one of first impression in the state.
The court analyzed the issue in the context of the common law standard that 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. It relied on the principles set forth in Boston Old Colony to reach its conclusion.
The court agreed that U.S. Security had an obligation to act in good faith towards both of the insureds. However, it concluded that this duty was fulfilled when it attempted, without success, to secure, in exchange for the policy limits, a release for both the owner and the driver. Once its obligation to the driver was met, “U.S. Security thereafter was obligated to take the necessary steps before [the estate’s] offer expired to protect Dessanti [the owner] from what was certain to be a judgment far in excess of her policy limits. Under the terms of its policy, had U.S. Security paid out its limits, its duty to settle or defend would have ceased. See Underwriters Guarantee Ins. Co. v. Nationwide Mut. Fire Ins. Co., 578 So.2d 34 (Fla. 4th DCA 1991).”
Since U.S. Security acted in good faith toward the driver, its exposure in the bad faith case arose solely from its failure to protect the vehicle owner from an excess judgment. This exposure could have been avoided by the simple payment early on of the $10,000 policy limit on behalf of the vehicle owner.
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