Bad Faith Law Takes Another Turn
Daniel published an article on Harvey v. GEICO Ins. Co., a critical decision in bad faith insurance law, in the 2018-2019 winter edition of the Advocate, the official publication of the South Palm Beach County Bar Association. It is reprinted here:
On September 20, the Florida Supreme Court issued its 4-3 decision in Harvey v. GEICO Ins. Co., Case No. SC17-85, 2018 WL 4496566, and again addressed the scope of bad faith insurance law in Florida.
The case emanated from a fatal automobile accident caused by GEICO’s insured, Harvey. Nine days after the accident, GECO sent the estate of the decedent, Potts, the limits of the policy, $100,000.00. Pott’s estate returned the check, sued Harvey, obtained a judgment for more than $8 million, obtained a special verdict which determined that GEICO had acted in bad faith, and obtained a judgment against GEICO for more than $9 million. The bad faith judgment against GEICO was premised on GEICO’s failure to cooperate with Potts’ estate’s lawyers and tender to them information the estate had requested before the lawsuit was commenced. That information concerned Harvey’s personal and business assets and whether he was acting in the course of his business at the time of the accident (i.e., whether there were other assets, including insurance assets, for the estate to pursue).
On appeal of the judgment, the Fourth District Court of Appeal held that as a matter of law, there could have been no bad faith under the facts. The Fourth DCA reasoned that regardless whether GEICO’s claims personnel had made mistakes in handling the claim, GEICO could not be in bad faith where GEICO had informed Harvey three days after the accident that the claim could exceed his policy limits and that he had the right to retain his own attorney, where GEICO had tendered policy limits so quickly, and where GEICO’s acts and omissions had not caused the excess judgment.
The Florida Supreme Court reversed, in an opinion that examined the long history of bad faith law in Florida. The Court announced the standard, from Berges v. Infinity Ins. Co., 896 So. 2d 665, 683 (Fla. 1994), that “bad faith jurisprudence merely holds insurers accountable for failing to fulfill their obligations, and our decision does not change this basic premise.” Harvey at *4. In carrying out its duties to its insured, the insurer “has a duty to use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business.” Id., citing Boston Old Colony Ins. Co. v. Gutierrez, 386 So. 2d 783, 85 (Fla. 1980). The insurer’s duty of good faith requires the insurer to advise of settlement opportunities, to advise of the probable outcome of litigation, to warn of an excess judgment, and to advise the insured of any steps he might take to avoid the same. Id. The Harvey court refused to examine the insurer’s obligations as a simple checklist. Id. at **4, 7. Instead, “the critical inquiry in bad faith is whether the insurer diligently, and with the same haste and precision as if it were in the insured’s shoes, worked on the insured’s behalf to avoid an excess judgment.” Id. at *4.
The Supreme Court faulted the Fourth DCA for relying on federal case law for the proposition that the critical inquiry is whether the insurer refrained from acting solely on the basis of its own interests, as an overly restrictive understanding of bad faith. Id. at *5. Instead, an insurer must make such decisions in good faith and with regard to the interests of the insured. The Supreme Court also found that the Fourth DCA misstated the law in holding that there could be no bad faith finding where the insured’s own actions or inactions result, at least in part, in an excess judgment. It is up to the insurer to exercise control over the case to make the decisions that are most beneficial for the insured. Id.
Here, the Supreme Court determined that GEICO failed to act as if the financial exposure to Harvey was a “ticking financial time bomb.” Id. at 6. Potts’ lawyer requested at the outset that the company make arvey available for a statement to determine what other coverage pr assets might have been available to cover the incidentHarvey available for a statement to determine what other assets or coverage might have been available to cover the incident, and GEICO had not done so. Moreover, Harvey himself had been extremely eager to cooperate and make himself available to respond to Pott’s counsel, as reflected in the Insurer’s claims notes. GEICO “completely dropped the ball” and failed to fulfill its obligation to Harvey to use the same degree of care and diligence as a person of ordinary care and prudence. Id.
In a decision that will send shivers down insurers’ spines, the Harvey court held that “nothing in either Boston Old Colony or Berges can be read to suggest that an insurer’s obligations end by tendering the policy limits.” Id. at *7. The Court repeatedly iterated that the focus on a bad faith case is on the actions of the insurer in fulfilling its obligations to the insured. See id. at *8. Here, the insurer was not allowed to evade liability in arguing that its acts or omissions had not actually caused the excess judgment. The Court credited Pott’s lawyer’s testimony that had he known Harvey planned to give a statement, he would have recommended delaying filing the wrongful death suit, and he known that the only other available asset was a $85,000 business account, he would have recommended accepting the policy limits. Id. at **2, 6. Since the insurer’s own acts caused or contributed to the loss of an early settlement opportunity, it would be held liable for bad faith.
Two scathing dissents argued that the Supreme Court lacked jurisdiction to hear the case, and that the majority opinion essentially eviscerated the bad faith standard and substituted in its place a negligence standard for insurers.
As to jurisdiction, the dissents, of Justices Canady and Polston, argued that there was conflict jurisdiction because the Fourth DCA’s decision did not conflict with either Boston Old Colony or Berges, and instead relied upon and expressly applied them. The dissents attacked the majority as misstating or ignoring key facts which would require dismissing the bad faith claim as a matter of law. Those facts included the quick tender of policy limits; that Harvey had assets exceeding over $1 million; Harvey retained his own counsel at the suggestion of GEICO within days of the accident; Harvey knew of the demand for information shortly after it was made (even though not promptly); Harvey could have disclosed his assets to the claimant at any time but failed to do so at any time during the lawsuit; Potts’ estate never made any time-limited demand for information such that GEICO was unaware of deadline to provide it; and Potts’ estate did not present any settlement offer of its own. Id. at 10, 13. Moreover, Harvey provided the necessary financial information to his own personal lawyer three weeks before the trial was commenced, yet that information was not tendered to Potts’ estate’s lawyer. Id. at 16.
As a result, Justice Canady wrote that the “the majority’s decision . . . bolsters contrived bad faith claims.” Id. at 10. He faulted the court for failing to set forth “logical objective rules for bad faith” and creating an award of “limitless insurance.” Id. He also called attention to the language and holding of Boston Old Colony under which the insured’s own actions are relevant to the bad faith determination. Id. at 11. Justice Canady faulted the majority for its expansion of bad faith. “The point is, there must be a bad faith failure to settle within policy limits, not just a ‘dropping of the ball’ . . . at some point during the claims process.” Id. at 15. As such, the majority “adopt[ed] a negligence standard in all but name” and “incentivizes a rush to the courthouse steps by third-party claimants whenever they see what they think is an opportunity to convert an insured’s inadequate policy limits into a limitless policy.” Id. at 16.
Both dissents more than hint at their skepticism over claimants’ and plaintiff lawyers’ “contrived bad faith” claims. Justice Canady’s dissent highlighted the claimants lawyer’s testimony that GEICO was in bad faith a mere six days after the accident – at a time when Potts’ estate had not yet even provided GEICO with a letter of representation. Id. at 14. Justice Canady also pointed to the mischief resulting from putting the matter to a jury when it should have been decided on the law. The jury heard of Potts’ death, the $8.47 million judgment against Harvey; that Harvey only had $100,000 of insurance coverage and only $85,000 of liquid assets against which a recovery could be made against him personally; and that if the jury awarded bad faith, the estate would get all of that money. Id. And Justice Canady discounted the claimant’s lawyer’s testimony that he would have settled for policy limits had he known Harvey’s financial condition early on, finding that the lawyer had “never once demanded the information, imposed any deadline, or presented any conditions under which a settlement would be effectuated within policy the policy limits.” Id. at 16.
Justice Polston’s dissent focused on the jurisdictional query, highlighting that the Fourth DCA had carefully followed the approach of Boston Old Colony, which demonstrated that GEICO had fulfilled its obligations to its insured. Id. at 17-18. Finding that the Fourth DCA decision did not run afoul of either Boston Old Colony or Berges, Justice Polston stated that the Court lacked jurisdiction.
Plaintiff lawyers will look to Harvey as an example that insurers may be held liable in bad faith even where they have promptly tendered policy limits without any pending demand, so long as they have failed to comply with some other claimed request for information by a claimant. They also will cite to the dissenting opinions as evidence that the Florida Supreme Court’s majority essentially espouses a pseudo-negligence standard for cases of bad faith.
Defendants can focus on the fact that Boston Old Colony and Berges have been left intact, and the unusual facts of the Harvey case in which a statement of net worth was demanded and never tendered, limit its application.
Ultimately, however, the law of bad faith continues to suffer from a lack of clarity, impacting the insurance industry and ultimately, the universe of insureds it serves.