Florida Has Changed Their Bad Faith Laws, Insurers Beware
October 1, 2018
Florida Supreme Court justices have ruled in a hotly contested and high stakes 3-4 decision, that GEICO was guilty of bad faith when they failed to diligently, and with the same haste and precision as if it was in the insured's shoes, work on the insured's behalf to avoid an excess judgment. The case is Harvey v. GEICO Gen. Ins. Co., No. SC17-85, 2018 Fla. LEXIS 1705 (Sep. 20, 2018).
On August 8, 2006, James Harvey, the insured, was at-fault in a car accident with John Potts. Potts was 51 at the time of the accident and died from the injuries he sustained in the crash. Potts left behind a wife and three children. The vehicle Harvey was driving was insured in his name and his business's name, and had $100,000 in liability coverage. He reported the accident to his insurer, GEICO, and the claim was assigned to a claims adjuster named Fran Korkus. Two days after the accident GEICO resolved the liability against Harvey. GEICO knew there was a significant financial exposure to Harvey because Potts had passed away leaving four survivors and Harvey only had $100,000 in coverage. Korkus, the adjuster, sent a letter to Harvey explaining that the claim could potentially exceed his policy limits and that he had the right to hire an attorney. The attorneys for Potts' estate requested a recorded statement from Harvey to determine his assets, additional insurance, and whether or not he was functioning within the scope and course of employment when the accident occurred. Korkus did not inform Harvey of the request and denied the request. Soon after, GEICO paid the full $100,000 to the estate's attorney. The estate eventually returned the check and filed a wrongful-death lawsuit against Harvey resulting in an $8.47 million verdict against him.
Harvey filed a bad-faith lawsuit against GEICO for handling the claim improperly. The lawsuit resulted in a $9.2 million judgment against the insurer, which was overturned by the 4th District Court of Appeal, which concluded that there was insufficient evidence that GEICO had acted in bad faith.
The case reached the Supreme Court of Florida where Harvey argued that the 4th District's decision was erroneous because he presented sufficient evidence to support bad faith, and that the court erred in concluding that an insurer cannot be found liable when the insured's own conduct results in an excess judgment. The majority disputed the appeals courts conclusion, and found that the appeals court had not properly applied legal precedents in its decision, noting that an insured pays premiums expecting that their insurer will act in good faith in investigating, handling, and settling claims brought against the insured. The dissenting judges found that in Florida law, mere negligence has morphed into bad faith, which they found was an unjustified change in the law.
GEICO is now on the hook for the $8.4 million settlement to Potts' estate, and Florida's Bad Faith laws have drastically changed.
Editor's Note:
This was a contentious and expensive decision that sharply divided the Florida Supreme Court, 3-4. The bad faith law was designed to protect insureds who have paid premiums and fulfilled their contractual obligations to the insurers by cooperating fully in the investigation and resolution of claims. Quoting a case decided almost 40 years ago, in Florida, 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.” An insurer is not absolved of liability just because it advises the insured of settlement opportunities, the probable outcome of litigation, and the potential of an excess judgment. The true question in a bad faith inquiry 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. Something that GEICO failed to do in this case.
The case quoted above is Boston Old Colony Ins. Co. v. Gutierrez, 386 So. 2d 783.