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Insurers Beware: The Florida Supreme Court May Have Lowered the Bar for Bad Faith Claims Handling

September 28, 2018

HARVEY V. GEICO GEN. INS. CO., NO.S17-85 (FLA. SEPT. 20, 2018)

Summary of the Proceedings

In a 4-3 decision, authored by Justice Quince, the Florida Supreme Court reinstated a judgment for 9.2 million entered in favor of GEICO’s insured, John Harvey. It was based on a special jury verdict finding GEICO acted in bad faith in handling a wrongful death claim against Harvey. Harvey was involved in an auto accident on August 8, 2006 with 51 year-old John Potts who died as a result of the accident, leaving his wife and three children as survivors.

Plaintiff’s counsel rejected GEICO’s tender of Harvey’s $100,000 liability limits. A judgment in favor of the Estate was entered against GEICO’s insured, Harvey, for 8.7 million. Harvey subsequently pursued a bad faith action against GEICO. The bad faith action went to trial, and GEICO moved for directed verdict on the ground there was insufficient evidence to support the bad faith claim. The trial court denied the motion and entered a final judgment for 9.2 million in damages. On appeal, the Fourth District sided with GEICO and reversed the judgment, finding the trial court erred in denying GEICO’s Motion for Directed Verdict as there was insufficient evidence to support the bad faith claim. GEICO Gen. Ins. Co. v. Harvey, 208 So. 3d 810,812 (Fla. 4th DCA 2017).

The Supreme Court Opinion

On “conflict” discretionary review, the supreme court quashed the Fourth District decision on the ground that it failed to properly apply the directed verdict standard and misapplied the supreme court precedent in Boston Old Colony Insurance. Co. v. Gutierrez, 386 So. 2d 783 (Fla. 1980) and Berges v. Infinity Insurance Co., 896 So. 2d 665 (Fla. 2004) on fiduciary duties of insurance companies against their insureds. The Court also concluded that the Fourth District misapplied the supreme court’s precedent when it stated that an insurer is not liable for bad faith “where the insured’s own actions or inactions …at least in part” caused the excess judgment. The supreme court also found that the Fourth District “also relied, in part, on nonbinding federal cases that cannot be reconciled with our clear precedent.”

Summary of Opinion

A comprehensive description of the facts resulting in the 9.2 million dollar bad faith verdict reinstated by the supreme court outcome are extensively addressed below. However, in case you might want to cut to the chase, the major issue in many people’s minds is whether this case created a much lower “negligence standard” applicable to evaluate claims’ handling in bad faith claims.

The supreme court was very critical of the Fourth District’s reliance on a federal 11th Circuit Court of Appeals decision addressing Florida Bad Faith law and applied a much higher standard in proving an insurer acted in bad faith in failing to settle a claim against its insured. Specifically, the supreme court took issue with the Fourth District’s statement that “negligence alone is insufficient to prove bad faith.” In its defense of this statement the supreme court quoted from its Boston Old Colony case: “While it is true that negligence is not the standard, we made clear in Boston Old Colony that because the duty of good faith involves diligence and care in the investigation and evaluation of the claim against the insured, negligence is relevant to the question of good faith.” 386 So. 2d at 785.

Here GEICO tendered its policy limits without a demand within 9 days unconditionally. However, 4 days after the accident, an employee of the Estate, on behalf if its counsel, called the GEICO adjuster and advised that they needed a recorded statement of the insured to determine if he had any assets, if he was in the course and scope of his employment or had any other insurance. At that time, the inexperienced adjuster declined the statement without talking with the insured. After receiving the policy limits, the Estate’s attorney called the GEICO adjuster and explained what his employee already explained--that a recorded statement of the insured was needed and why. The lawyer for the Estate followed up with a letter received by the adjuster on August 31st which again contained the 3 reasons why a recorded statement was needed. The Estate’s lawyer’s letter also stated that the adjuster was unable to advise him whether the insured would give a recorded statement.

The adjuster faxed the letter that day to the insured who learned for the first time that his recorded statement had been requested. The insured was agitated because he could not meet with his accountant until August 5 and asked the adjuster how they could let the Estate’s attorney know that information. The insured wanted to make sure the Estate’s lawyer knew he was cooperating. The adjuster was instructed by his manager to let the estate’s lawyer know immediately the circumstances of the insured, but the adjuster failed to follow through. There was no additional contact with the Estate’s office. About a month after the Estate’s office first asked for a recorded statement, the Estate’s lawyer returned the check and filed the wrongful death action.

The Effect of the Opinion on Future Claims and Litigation

Technically, in our opinion, the decision did not change Florida state law on bad faith as the statements relating to negligence are quoted from the seminal Boston Old Colony case. But the opinion is definitely notice to insurers to move faster than the speed of light when they receive a serious case with low policy limits. The opinion contains significant facts showing the insurer’s failure to meet the good faith duty of handling a serious claim. In that respect the result is not surprising.

The opinion recognizes that the burden for the entry of a summary judgment in federal court is easier to meet than in state court. Nevertheless, the opinion could very well have a chilling effect and reduce the number of summary judgments entered for insurers in bad faith cases litigated in federal court. Under federal law, the federal courts apply Florida substantive law in diversity of citizenship cases. The decision makes it almost impossible to obtain a ruling as a matter of law in an insurer’s favor.

For those keenly interested in the case here is a lengthy discussion of the facts which resulted in the bad faith verdict.

  1. The accident and claim were reported to GEICO the day of the accident and was assigned to a claims adjuster.
  2. Two days later GEICO determined its insured was at fault and knew there was “significant financial exposure” to its insured because coverage was only $100,000 and Potts died with survivors. One day later the adjuster sent Harvey a letter which advised the claim could exceed his policy limits and also advised Harvey he had the right to hire his own attorney.
  3. Six days after the accident, Ms. Tejada, an employee of the attorney representing the Potts’ Estate, called the GEICO adjuster and requested a recorded statement from Harvey. Tejada explained the statement was necessary to determine “the extent of his assets, whether he had an insurance and whether he was in the scope of his employment at the time of the accident.” Importantly, the adjuster did not immediately convey the request to Harvey, and Tejada said the adjuster denied the request for a recorded statement.
  4. Nine days after the accident, GEICO tendered the full policy limits to the Estate’s attorney with a release and affidavit of coverage. The Estate’s attorney wrote the adjuster a letter in response acknowledging receipt of the check and the adjuster’s refusal to make Harvey available for a statement. The adjuster received the letter on August 31 and faxed it to Harvey who learned for the first time that his statement had been requested. The same day, the adjuster contacted the Estate’s attorney about the recorded statement. After the conversation, the Estate’s attorney confirmed the conversation and that the adjuster wanted to know why the statement was needed. The letter responded that it was for “ the same reason Ms. Tejada outlined previously as well as that referenced in my recent letter. We want to determine what other assets or coverage might be available to cover this incident.” The Estate’s attorney also noted that the adjuster was unable to confirm that Harvey would be available for at statement. The adjuster did not respond or communicate with the lawyer for the Estate about the letter.
  5. On Sept. 1, Harvey called the adjuster to discuss the letter and advised him he planned to meet with the attorney he had hired at the adjuster’s suggestion to discuss his financial affairs, but his attorney was not available until September 5. The adjuster documented the call which expressed the insured’s concern that the attorney for the Estate would not think they were acting fast enough and asked what we can do to let the claimant’s lawyer know we are working on this. The adjuster noted that he told the insured the matter would be discussed with management and he would get back to him. The insured requested that he be faxed any a copy of any response before it was sent by GEICO. The adjuster’s supervisor instructed the adjuster to relay Harvey’s message to the Estate’s counsel immediately, but the adjuster never did. The adjuster never got back to the insured.
  6. Approximately one month after Tejada’s first request for a statement, the Estate returned GEICO’s check and filed the wrongful death suit. After the final judgment was entered, the bad faith suit was pursued. The Estate’s lawyer testified he never received any communication from GEICO after his August 31st letter. GEICO’s adjuster testified that the request for the information was reasonable, and plaintiffs’ attorneys asked for that information “all the time.” GEICO’s expert testified the information was needed by the Estate’s attorney to properly advise the estate regarding the settlement. The Estate’s lawyer testified that if he knew that Harvey’s only asset was a business account worth about $85,000, he would have advised the Estate to accept the policy limits. The wife of Mr. Potts testified she would have accepted the policy limits if the Estate’s counsel recommended that she settle.
  7. A bad faith expert testified that a serious claim such as this one requires “a sense of urgency” by the insurer. He also testified the adjuster should have relayed to the estate’s counsel that Harvey had retained counsel, as this would have facilitated the recorded statement. Because GEICO was handling the claim Harvey could not contact the estate’s attorney directly.
  8. In addition, the evidence showed the adjuster had a history of struggling to manage her files, and, among other things, her personnel file also showed she had “communication failures.” Her performance review from the year before the accident stated that her “productivity numbers fell below average…there is now exposure to our insured and to GEICO for extra contractual damage…[and she ] could use help with her organizational skills, filtering her emails, along with organizing her desk.”

Additional Discussion by the Court in the Opinion

The supreme court stated GEICO knew “this was a case of catastrophic damages” but “failed to act as if the financial exposure to Harvey was a ‘ticking financial time bomb.’” Relying on Boston Old Colony, the Court stated the evidence shows “GEICO completely dropped the ball” in failing to fulfill its obligation to Harvey to “use the same degree of care and diligence as a person of ordinary care and prudence should exercise in management of his own business.” “[H]ad GEICO acted ‘with due regard’ for Harvey’s interests, the excess judgment could have been prevented.” The supreme court was critical of and rejected the Fourth District’s reliance on a federal 11th Circuit Court of Appeals opinion addressing Florida bad faith law which applied a much higher standard in proving an insurer acted in bad faith in failing to settle a claim against its insured. While reaffirming its Berges decision--“there must be a causal connection between the damages claimed and the insurer’s bad faith, the supreme court rejected the Fourth District’s statement that an insurer cannot be found liable for bad faith where the excess judgment was caused in part by the insured. In contrast, Berges held “the focus in a bad faith case is not on the actions of the claimant but rather on those of the insurer in fulfilling its obligations to the insured.”

Justice Pariente, Lewis and Labarga concurred (joined in with) Justice Quince’s opinion. Two dissenting opinions were authored by Chief Judge Chief Judge Canady and Judge Polston. Judge Lawson concurred with the two dissenting opinions. Justice Quince Pariente and Lewis retire from the supreme court in January.



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