Eleventh Circuit: Excess Insurer, Like All Florida Bad Faith Claimants, Must Prove Causation to Succeed on Bad Faith Claim Against Primary Insurer

by Saul Ewing Arnstein & Lehr LLP

[author: Gina Russoniello*]

Westchester Fire Insurance Co. v. Mid-Continent Casualty Co., No. 13-12932, 2014 WL 2766764 (11th Cir. Jun. 19, 2014)

The Eleventh Circuit finds that a primary insurer did not act in bad faith by failing to inform excess insurer of a post-verdict settlement offer when the excess insurer could not prove that it would have accepted the settlement offer.

Jesus Pillado sued Continental Manufacturing Inc.  for products liability claiming that he suffered several injuries, including brain damage and fractured vertebrae, while operating one of Continental’s concrete mixer trucks.  Continental tendered the suit to its insurers, Mid-Continent Casualty Co. (the primary insurer) and Westchester Fire Insurance Co. (the excess insurer).

Mid-Continent agreed to provide a defense to Continental.   From the beginning of the litigation, Westchester demanded that Mid-Continent settle Pillado’s suit. Despite several attempts to settle, Mid-Continent was unable to settle the suit because Pillado’s lowest settlement demand of $1 million was significantly above Mid-Continent’s settlement range of $150,000 to $350,000.

The case proceeded to trial and, on June 30, 2010, the jury returned a $1.7 million verdict in favor of Pillado.  About two weeks later, Pillado offered to settle for $1.6 million. Mid-Continent, believing that the net award would not exceed $1.6 million due to a setoff from a workers’ compensation lien, declined to settle.  Mid-Continent did not inform Westchester of Pillado’s offer before declining.

Contrary to Mid-Continent’s prediction, the trial court declined to permit a setoff for the workers’ compensation lien and also awarded Pillado $285,000 in costs.  The final judgment in the case was $1.9 million.  Westchester ultimately incurred an excess exposure of $705,173.

On May 9, 2012, Westchester sued Mid-Continent alleging that Mid-Continent acted in bad faith when it refused to settle Pillado’s claim both before and after the verdict was entered.  After a two-day bench trial, the district court found that Mid-Continent’s pre-verdict actions did not constitute bad faith, but that its failure to notify Westchester of the post-verdict settlement offer did constitute bad faith. The district court awarded Westchester damages of $390,173, representing the difference between what Westchester would have paid under the $1.6 million settlement and the final judgment.

Mid-Continent and Westchester both appealed. Mid-Continent contended that the trial court erred by: (1) allowing Westchester to amend the pleadings to conform to evidence of post-verdict bad faith presented at trial; (2) finding that Mid-Continent acted in bad faith post-verdict; and (3) awarding damages without finding causation. On cross appeal, Westchester contended that the district court erred in finding that Mid-Continent did not act in bad faith before and during the trial.

The Eleventh Circuit Court of Appeals first found that the district court did not err by finding that Mid-Continent did not act in bad faith before and during the trial. Westchester had argued that Mid-Continent should have offered more money to settle the case and should have made offers earlier in the proceedings.  The court rejected Westchester’s arguments and upheld the district court’s holding, explaining that Mid-Continent did not act in bad faith because it had reasonably calculated and offered settlement amounts based on the results of two mock trials and defense counsel’s estimations.

In support of its appeal, Mid-Continent argued that Westchester presented no evidence that it would have accepted the post-verdict settlement even if it had been informed of the offer.  The Eleventh Circuit, recognizing the lack of proof, held that the district court erred by awarding Westchester damages without any proof of causation and reversed the judgment against Mid-Continent.  The court explained that under Florida law, a valid bad faith claim must show a “causal connection between the damages claimed and the insurer’s bad faith.” The court rejected Westchester’s argument that its pre-verdict requests for settlement were sufficient proof that it would have accepted the post-verdict settlement.  Because the court reversed on this basis, it did not address Mid-Continent’s other arguments.

*Gina Russoniello is a summer associate at Saul Ewing.

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Saul Ewing Arnstein & Lehr LLP

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