Insurers Beware: One Insurer’s Settlement Can Support a Bad Faith Failure-to-Settle Claim Against a Nonsettling Insurer

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An insurer defending a claim against an insured that could exceed policy limits has a good faith obligation to settle the claim if possible. Failure to do so puts a nonsettling insurer at grave risk.  An Eleventh Circuit Court of Appeals decision shows that one insurer’s response to a policy limits settlement opportunity can be introduced as evidence in a subsequent bad-faith action against a nonsettling insurer – and when admitted – can have dire consequences for the nonsettling insurer.

In Joshua Moore v. GEICO General Insurance Co., the Eleventh Circuit considered the admissibility of another insurer’s settlement of a catastrophic personal injury claim arising from a road rage incident. A highway altercation ensued when Richard Waters, intoxicated on alcohol and opioids, “cut off” college student Joshua Moore, who sped up and lost control of his truck, severely injuring a 10-year-old boy and killing the boy’s mother. The victims’ family sued both Waters and Moore.

Settlement Differences

Two insurance policies were available to respond to the lawsuit. Peak Insurance had issued a $10,000 property damage policy to Waters, the intoxicated driver. GEICO had issued a policy insuring Moore, the other driver. The GEICO policy provided $10,000 in property damage limits and $10,000 per person/$20,000 per occurrence in bodily injury limits. The family of the victims offered to release the claims against both Waters and Moore for the combined policy limits upon submission of an affidavit that the two defendants had no other insurance.

Peak Insurance settled for limits and provided the requested affidavit. But GEICO flailed by presenting plaintiffs’ counsel with a vaguely worded affidavit hedging on the availability of other insurance. The case against Moore proceeded to trial, and the Florida jury found Moore liable for more than $4 million in damages.

Bad Faith Litigation and a New Trial

In a subsequent bad-faith action against GEICO by Moore, GEICO sought to exclude evidence of Peak’s handling of the settlement offer. The federal district court allowed the evidence, finding it relevant and not unfairly prejudicial.

After a jury finding of bad faith, however, the court decided the evidence should not have been admitted and granted GEICO a new trial. Without that evidence, the second trial resulted in a defense verdict from which Moore appealed.

The Eleventh Circuit ultimately held that it was within the trial court’s discretion to decide whether the evidence was unfairly prejudicial and that the court had not abused that discretion.  But the court recognized the probative value of Peak’s settlement because Peak’s settlement contradicted GEICO’s argument that it did not understand the identical settlement offer, as well as GEICO’s argument that the plaintiffs never intended to settle the bodily injury claims. Peak’s settlement also supported the testimony of Moore’s expert about insurance industry custom and practice when handling catastrophic injury claims.

The Eleventh Circuit reasoned that the trial court did not abuse its discretion because the Peak insurance policy provided only property coverage, while the GEICO policy provided property damage and bodily injury coverage, a difference the court said diminished the settlement’s relevance. The court specifically noted that the property-damage claim was unlikely to exceed Peak’s policy limits, while the personal-injury claim against Moore could “far exceed” GEICO’s limits.

Potential Upshots

Although GEICO ultimately prevailed, the Eleventh Circuit’s recognition that the trial court could permit the evidence of another insurer’s policy limits settlement could affect other coverage disputes. It also provides additional leverage for policyholders facing an excess judgment to convince their carriers to settle.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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