Diary of a Third Party Bad Faith Trial (This Will Be Boring)

We recently went to trial in a common law third party bad faith case in Hillsborough County, Tampa, Florida. It was a rare occurence because the risk involved with a bad faith trial usually pushes the insurer to settlement. A brief primer on insurance bad faith and the difference between third and first party cases would be helpful for understanding this post, luckily I already wrote one. In the first party context there are often issues at play which can inflate the value of a case against an insurer which are not present in a third party case. Furthermore, damages are usually limited in a third party bad faith case to the extent of the excess judgment in the underlying case. For example, if you have an insurance policy with $10,000.00 in bodily injury coverage (like most auto policies in Florida) and your insurance company misses an opportunity to settle a case against you within that $10,000.00, the excess judgment of the Plaintiff from that underlying case is the most that can be recovered in a bad faith case against the insurer; e.g., if the Plaintiff was awarded $110,000.00 at the underlying trial of the injury claim then the total exposure for the insurer in a common law third party bad faith case would be $100,000.00. Generally, (there may be some exceptions), the jury does not determine the amount of the award in the common law third party bad faith case because the jury from the underlying case has already set the value of the damages; the common law third party bad faith jury is only charged with determining whether an insurer acted in bad faith, yes or no.

This is a tremendous advantage over a first party situation where a bad faith jury could be determining values for additional damages related to an insurer's failure to treat it's own insured fairly. Because there is no opportunity for a jury to negotiate a value among its members, I believe that the third party scenario presents a problem for jurors resulting in a hung jury, assuming that you can convince a single stalwart juror that the insurer has acted reasonably. Alternatively, the third party bad faith case presents a problem for the Plaintiff because a single factor in favor of the insurer may prevent a Plaintiff's verdict. I've digressed, back to the case at hand.

Our recent trial mirrored a specific kind of common law third party bad faith scenario wherein there are multiple claimants against in insureds limited policy proceeds. Florida courts have dealt with the situation previously and one case in particular has laid out an insurer's specific duties in a multiple claimant situation, Farinas v. Florida Farm Bureau. Generally, an insurer has to attempt to resolve as much exposure for their insured as possible and must act to achieve that goal by reasonably investigating the claim and keeping their insured advised throughout. The Farinas case also mentions that a good way to try and resolve all the claims might be to schedule a mediation inviting all the claimants, presumably to have them reach an amicable split of the insurance proceeds.

In our case there had been four serious injuries. The three potential claimants in the insured's vehicle, plus one potential claimant from the other car in the accident. The three potential claimants from the insured's vehicle all had serious injuries, broken bones, hospital stays, and astronomical medical bills; the claimant from the other vehicle had some knee pain and a surgical recommendation for an ACL repair. Predictably, there was not enough money to go around as the insured had $50,000.00 in aggregate liability limits (considerably more than most people but woefully insufficient to fully compensate any of the claimants for their injuries). The carrier in our case conducted an investigation, reviewed the accident report, interviewed the participants, sent correspondence to all the parties, and considered who was at fault. They hired defense counsel for their insured, kept the insured informed, and scheduled a mediation where they attempted to settle all of the claims within the $50,000.00 limit.

The single claimant (with the least serious injuries) walked away from mediation without a settlement and pursued her claim against the insured. She ultimate received a judgment against the insured approaching $90,000.00. The other three claimants allowed the insurance company to retain a few thousand dollars from the 50k to try and settle with the one claimant who would not settle at mediation. This is where the greatest problem in a Farinas style bad faith case arises, how do you prove what occurred at mediation, specifically, that an offer and attempt to settle all the claims actually took place. Florida Courts like those in many states have been loathe to invade any mediation privilege (an earlier statute in Florida only kept mediation which was conducted during litigation confidential); so an insurer is seemingly without recourse to prove that reasonable attmepts to settle all claims took place at a mediation. As the insurer did in our case, all of the correspondence prior to mediation and afterwards should indicate that it is the purpose of the mediation to settle "all of the claims." This is also the province of a "bad faith expert" who can explain the purpose of the mediation as well as the reasonableness standard for investigation and communication with the client. The jury must/should conclude that the insurer would not have invited the claimant to the mediation if they did not intend to settle with the individual. A jury of laypeople unfamiliar with the process may not take that step.

In our case, all three claimants who did settle had sent demands stating that they would pursue bad faith damages if the carrier did not tender its limits by a date certain. The carrier was able to then arrange the mediation before that date passed. The majority of the jury did not understand the complexity of the Farinas fact pattern. Additionally, despite diligent questioning during voir dire, two jurors revealed after the trial that two others would never side with the carrier regardless of the facts. We ended with a hung jury after hours of deliberation and an instruction in response to juror questions that they should look at the "totality" of the circumstances. I should also note that this case did not involve an assignment of rights to file the suit from the insured to the claimant/judgment creditor which would have increased the risks involved by allowing the Plaintiff to collect attorney's fees in the event of a verdict in their favor. From the defense perspective I consider it a win based on the two predisposed jurors and we came away with some important lessons.

1. There is a great advantage in the third party format because of the jurors inability to negotiate the value of the claim among themselves, it's an up or down vote.
2. Time must be taken to explain to the jurors the limitations of a carrier when investigating the claim, i.e., they cna only get records a claimant is willing to provide them and whether an investigation is reasonable or not can be determined by the end result for the insured. (Nobody argued that the exposure for the insured wasn't appropriately reduced by the settlements).
3. A hung jury may be the best possible result at any bad faith trial.

Insurance Bad Faith in Florida, A Simple Understanding

The creator of the Pringles can has died. Actually he died a few months ago without much fanfare. By far the best part is where they placed his ashes, insert horrible joke about new Pringles flavor here. Soylent Green is people. With that out of the way I thought I would give everyone an insurance primer regarding a carrier's duties to its customers. This is not legal advice and you should in no way rely on this or sue me if you think I am wrong.

By way of background, we have essentially two kinds of insurance coverage in this universe, first party coverages and third party coverages. First party coverages encompass situations when you are making a claim against your own carrier for damages. In the auto insurance context, this would encompass your collision coverage, uninsured/underinsured motorist coverage, and no-fault coverage. It might be simpler to think of home owner's coverage as being primarily first party, e.g., a pipe leaks and destroys your house, you make a claim against your own policy to repair the damage. The essence of the first party situation is that there is no one else involved, just you making a claim against your own insurance carrier.

Third party coverage is simply liability coverage, it is the insurance purchased to pay claims against you that could be brought by third parties for accidental harm you cause. In the automobile context, if you have 100k of bodily injury coverage, your insurance company would pay up to 100k of injuries you caused to third parties arising from your use of an auto. The great value of third party coverage is the defense usually embodied in the coverage. Even if you maintained only a $10,000.00 bodily injury auto policy (the minimum), if you were sued by a third party for negligence involving your insured auto, your insurance carrier would be responsible for the attorney's fees and expenses involved in the defense of your case. Those expenses could easily exceed the actual amount of your liability policy within a few months of litigation.

One quirk, the dreaded "wasting" policy. Usually reserved for professional malpractice policies, the wasting policy wastes away with each defense cost. In these policies, the total amount of coverage is applied to defense costs and liability payments creating an unavoidable conflict for defense counsel hired by an insurance carrier. Imagine reducing the funds your client has available to settle a claim each time you speak or write to that client. It's a bad idea, but it persists.

So what is insurance bad faith as it applies to both first and third party situations. Generally, insurance bad faith occurs when an insurance carrier fails to treat its policy holder with the same consideration it would bestow on its own corporate executives. This is obviously a very general standard and usually whether or not bad faith has occurred is a question of fact for a jury to decide. However, there are some factual scenarios where the Florida courts and legislature have provided some guidance. I'll deal first with the third part party context.

Imagine that you cause a car accident seriously injuring another individual. Also imagine that like most individuals in the state, you only maintain 10k in bodily injury insurance coverage. What are your insurance company's responsibilities? They have an affirmative responsibility to protect you from a judgment in excess of your 10k policy limits, i.e., they have to try and settle the case on your behalf. They may not be successful but as soon as they are notified of the accident they must begin steps to protect the policy holder's interests. The injured party may demand that you contribute funds, that you provide proof that you cannot contribute to a settlement in excess of your limits, they may demand that you sit in front of a court reporter to answer questions about your assets, they may demand that you stand on one leg, hop up and down and sing O' Canada; they can demand whatever they like, what is important is that insurance carrier communicates all of the demands to you in a timely manner providing you with every opportunity to settle the claim.

Bad faith arises in the third party context when your carrier fails to actively attempt to protect you from a judgment in excess of your policy limits. The simplest example would be a situation where you accidentally kill someone with your car, your insurance carrier then receives a letter saying that the estate of the deceased is willing to settle their claim for your 10k policy limits at which point your insurance company does anything except send them a check for 10k. Thirty days go by, the estate files a lawsuit against you and the resulting judgment is 1 million dollars. Clearly, the carrier should have settled the case, clearly they acted in bad faith by not settling the claim when the opportunity arose, and clearly a potential bad faith claim exists for the 990k not covered by the 10k bodily injury policy.

If you have not figured it out, a necessary precursor to bad faith in the third party setting is the determination of value for the underlying case in excess of the policy limit, e.g., the million dollar judgment in the previous paragraph. In the first party setting a judgment in excess of limits is unnecessary but the legislature has provided insurers with a procedure by which they can avoid charges of bad faith, the civil remedy notice. When jerked around in the first party context, let's say your home owner's carrier will not pay for damage an appraisal umpire has said they owe, you have only one option if you intend to file a bad faith suit. You must file a Civil Remedy Notice with the State of Florida's Department of Financial Services, the Notice must indicate which statutory provisions you think your carrier is violating. After the notice is received by the carrier and accepted by the state, the carrier then has sixty days to resolve the dispute. They can do that by simply paying what is owed under the policy. If they make the appropriate payment within sixty days of the civil remedy notice, there cannot be a bad faith claim.

Of course, there are wrinkles, complexities in both the third party and first party context which raise questions about what constitutes insurance bad faith. We cannot address them all but two issues in the third party scenario arise often and have received some guidance from the courts. First, what is the appropriate course of action when there are multiple claims being made, the total value of which would exceed your policy limits. Though there is no clear practice for a carrier to avoid bad faith allegations in the multiple claimant situation, there is an indication that in Florida one claim cannot be paid diminishing the total funds available for other claims, if that first payment is not in the insured's best interests. Inevitably a court would decide if a carrier's actions in the multiple claimant framework were reasonable attempts to protect their insured. (It should be noted that several other states allow insurance carriers to settle claims on a first come, first serve basis).

The second scenario to consider involves multiple insureds rather than claimants. Often there are multiple insureds liable for a loss, e.g., the owner of a car and the driver. It's conceivable that an injured party might accept a settlement for one insured but refuse to release the other. Florida courts have approved of insurance companies obtaining releases for some insureds while leaving others without funds under the policy to settle, but, the circumstances must show that there were no other viable options to settle the claim(s) against all of the insureds.

The mandate for an insurance carrier in the third party context is clear, protect as many insureds as possible from excess judgments.

Hope you enjoyed this boring introduction to first and third party insurance bad faith, stay tuned for the primer on reinsurance. I can feel you shivering with anticipation.