Florida’s “Totality of Circumstances” Bad Faith Analysis Should Consider Claimant’s Actions as a “Factor” but Not a “Focus”

Carlton Fields
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Carlton Fields

A recent decision of the Eleventh Circuit Court of Appeals limits the Florida Supreme Court’s approach to evaluating whether an insurer committed bad faith in handling a claim against its insured.

In Harvey v. Geico General Insurance Co., the Florida Supreme Court (in a 4–3 decision) stated, four times, that “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.” In the recent case of Pelaez v. Geico, the Eleventh Circuit refined that approach, stating:

[W]e don’t understand that principle to mean the actions of a claimant — or a claimant’s attorney — are irrelevant. In a bad faith action there’s a difference between focusing on a claimant’s actions, which would be improper, and factoring a claimant’s actions into the totality of the circumstances analysis, which is not improper.

In Harvey, the insurer’s claim handler concluded, three days after an automobile collision, that the liability and damage facts implicated a potential award in excess of the insured’s limits. She immediately notified the insured and suggested that he retain counsel. Three days later the claimant’s attorney contacted the claims handler and requested insurance information and a sworn statement from the insured regarding his personal assets and his employment at the time of the accident. The claims handler did not advise the insured of the request; however, three days later, she sent the claimant’s attorney a $50,000 policy limit check, an affidavit of coverage, and a proposed release. Three weeks later, the claimant’s attorney sent the claims handler an acknowledgment of Geico’s tender and confirmation that the insured had not been made available for the sworn statement. The claims handler faxed that letter to the insured who learned, for the first time, that his statement had been requested. The claimant’s attorney then sent another letter regarding the request for a sworn statement, but the claims handler did not respond. She did, however, speak to the insured who advised that his attorney was not immediately available and expressed concern that the claimant’s attorney would conclude that they were not responding quickly. The claims handler did not pass this message along to the claimant’s attorney. One month later, the claimant’s attorney returned Geico’s check, filed suit, and ultimately recovered an $8.5 million judgment.

The claimant’s bad faith suit was successful in the trial court but reversed in the Fourth District Court of Appeal, which concluded, inter alia, that an insurer cannot be found liable for bad faith where the excess judgment was caused in part by the insured (the insured did not provide the requested statement to the claimant despite having the assistance of counsel and time to do so before the claimant filed suit). The Florida Supreme Court, however, quashed the Fourth District’s opinion and reinstated the bad faith judgment. The Supreme Court noted that the duty of good faith involves diligence and care by the insurer; thus the insurer’s “negligence is relevant to the question of good faith.” The Florida Supreme Court explained that the question whether an insurer has acted in bad faith in handling claims against the insured is determined under the “totality of the circumstances” standard.

In Harvey, the court also held that the Fourth District misapplied precedent when it blamed the insured for not providing a statement to the claimant despite having the assistance of counsel and time to provide the requested statement before suit was filed. In Pelaez, the question of the impact of another party’s conduct on the bad faith inquiry was addressed toward the claimant — i.e., “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.” The Eleventh Circuit noted that the settlement failure in Harvey related to the actions of the “insured”; however, in Pelaez, the settlement attempts failed because of the conduct of the “claimant.” The Eleventh Circuit treated this as a distinction without a difference, i.e., “[a]ll of which is to say that the claimant and the insured are interchangeable for purposes of the principle that the focus in a Florida bad faith action is on the insurer, not on the insured or claimant.”

In Pelaez, Geico’s insured collided with a motorcyclist. Geico originally concluded that the motorcyclist, Pelaez, was at fault. However, 11 days after the crash, and without a demand, Geico called Pelaez’s attorney, offered its $50,000 policy limits, and requested permission to examine the motorcycle so that it could evaluate and pay the property damage. The next day, Geico hand-delivered a “tender package” containing a $50,000 check, a proposed “release of all claims,” and information regarding the policy coverage. The cover letter also advised that “not all release forms precisely fit the facts and circumstances of every claim” and “asked Pelaez’s attorney to call ‘immediately’ if he had ‘any questions about any aspect of the release.’” In fact, Pelaez’s attorney was invited to edit the release or prepare an entirely new release.

Pelaez’s attorney responded with a letter acknowledging Geico’s request to examine the motorcycle and again requested insurance information but did not mention the check or the release. Within the next week, Pelaez’s attorney rejected the tender package. The rejection letter stated that the tender was rejected “because Geico had tried to take advantage” by providing an overbroad release, i.e., it was a release of “all claims” instead of just a release of the bodily injury claim reserving the right to seek recovery for the property damage.

Suit was filed five months later, and Pelaez recovered a $14.9 million judgment against Geico’s insured. Pelaez sued Geico for bad faith in state court. Geico removed the action to federal court where the trial court entered summary judgment for Geico.

The Eleventh Circuit affirmed the judgment for Geico. The court acknowledged the Florida “totality of the circumstances” rule and confirmed that the “critical inquiry” in a bad faith action 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.”

The court, however, noted that an overly broad release can create a jury issue about bad faith but it “doesn’t necessarily do so.” The “totality of the circumstances” analysis requires consideration of what came before the release and what came after the release. In this case, the tender package, as well as the settlement check, indicated that it was for the per-person liability limit for “bodily injury coverage.” Moreover, the tender package emphasized that the release language was “proposed,” and Pelaez’s attorney was invited to submit changes or draft an entirely new release. When Pelaez’s attorney rejected the tender, Geico again advised him to send any additional language or changes to the release. He never responded to that invitation although “[i]t would have been a simple thing for the attorney to do, but it is also the last thing he wanted to do.”

The court observed that “[i]n a bad faith action there’s a difference between focusing on a claimant’s actions, which would be improper, and factoring a claimant’s actions into the totality of the circumstances analysis, which is not improper.” The court noted that it was not allowing Geico to escape liability because of the actions of the claimant and his attorney, but in consideration of the totality of circumstances, the failure to settle within policy limits did not result from Geico’s bad faith. In short, Pelaez v. Geico stands for the proposition that Florida’s totality of circumstances bad faith rule requires consideration of the claimant’s conduct or the insured’s conduct as a factor in the failure to settle analysis.

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