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Insurers Must Settle When They Have The Chance

Fri Nov 10th, 2017 on     Bad Faith Insurance,    

In Florida, if an insurer does not settle a claim within the insured’s policy limits (whether the claim is first-party or third-party), the insurer may be exposed to liability in excess of the policy limits on the basis of having violated their duty of good faith.  This mechanism lies at the center of some controversy in the state of Florida, as legislators have actively debated whether allowing claimants to bring a bad faith action against the insurer and thus controvert the coverage limits of their insurance plan is beneficial as a matter of public policy.

Bad Faith Liability

Florida courts have generally held that, in the context of reaching a settlement, insurers must initiate settlement negotiations when the liability of the insured is clear and it is likely that there will be a judgment in excess of the policy limits.  In the event that settlement negotiations fall through, the insurer must prove that there was no reasonable prospect of settling within the policy limits.  The fact that an insurer does not reach a settlement (and that there is a later judgment in excess of the policy limits) is not itself proof of bad faith, however.  If the liability of the insured is unclear and if it is not reasonably certain that the judgment would be in excess of the policy limits, the insurer’s failure to reach a settlement cannot necessarily be deemed bad faith conduct.

What constitutes bad faith conduct?

In Florida, when negotiating a settlement, the insurer’s duty of good faith operates as a fiduciary obligation to protect the insured from a judgment in excess of the policy limits.  The imposition of this obligation on the insurer is a reasonable burden shift given the serious financial risk that the insured would otherwise have to accept.  When there is a judgment in excess of the policy limits, the insured could be exposed to significant personal liability.

For example, suppose that you are a policyholder involved in an auto accident.  Your liability insurance coverage is $300,000.  Your insurer steps in to defend you in the lawsuit but fails to settle the claim within the policy limits.  The plaintiff in the lawsuit then succeeds in obtaining a judgment of $500,000, in excess of your policy limits.  You could be personally liable for the excess ($200,000).  If you can show that the insurer acted in bad faith by failing to secure a settlement within the policy limits, however, then you can sue the insurer and recover for the excess amount.

Bad faith conduct in settlement negotiations is therefore subject to the high standard set by the fiduciary duty.  If — in light of the total circumstances during settlement negotiations — the insurer did not exercise the level of care typical of a reasonably prudent person managing their own business, then the insurer may be found liable for acting in bad faith.

If you are involved in a dispute with your insurer over a failed attempt to settlement that may have been conducted in bad faith, then Florida law may entitle you to recover damages in excess of your policy limits.  Litigating a bad faith claim against your insurer is not a simple matter, however, as an action brought on the basis of the insurer’s purported violation of their duty of good faith cannot lie in mere negligence — there must be something more.

Ver Ploeg & Lumpkin is an insurance litigation firm that has successfully represented policyholders for over two decades.  Call 305-577-3996 today to schedule a free consultation with an experienced Miami bad faith insurance attorney.

We look forward to speaking with you.

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