The Florida Supreme Court recently decided Harvey v. GEICO Gen. Ins. Co., No. SC17-85, 2018 WL 4496566, at *1 (Fla. Sept. 20, 2018), an important case setting forth what many will try to argue has lessened the standard for bad faith law in Florida to one of negligence plus.
The case has a detailed but uncomplicated factual history. However, the factual summary contained in the majority’s opinion must be read along with that of Justice Canady’s dissent in order to understand the full picture factually.
On August 8, 2006, GEICO’s insured, James Harvey (“Insured” or “Mr. Harvey”), was in a motor vehicle accident. The accident resulted in the fatality of the other driver, and Mr. Harvey was at fault.
Mr. Harvey was insured by a GEICO auto policy with $100,000 liability limits. The claim was assigned to GEICO adjuster Fran Korkus, who promptly interviewed Mr. Harvey. On this same date, Mr. Harvey contacted a local attorney whom he did not actually hire (and, in fact, as noted in a footnote in Justice Canady’s dissent, worked for the same law firm who ultimately represented the estate).
On August 11, 2006, GEICO sent its Insured a letter explaining that the estate’s claim could exceed his policy limits and that he had the right to hire his own attorney, which he did. A paralegal employed by the estate’s attorney called Ms. Korkus on August 14, 2006, requesting a statement to determine the extent of Mr. Harvey’s assets. The paralegal did not give Ms. Korkus a deadline to provide the statement. It is disputed whether the request was communicated to Mr. Harvey. Ms. Korkus’s contemporaneous file notes indicate that she “updated [Mr. Harvey] on claim status” and advised him of the firm retained by the estate. Despite Ms. Korkus’s notes, Mr. Harvey testified that “to the best of his recollection,” Ms. Korkus did not mention that the paralegal had asked about other insurance coverage and Mr. Harvey’s assets.
On August 17, 2006, nine days after the accident, GEICO tendered the full amount of Harvey’s $100,000 policy limits to the estate’s attorney, along with a release. Multiple log entries indicate that GEICO had to first contact the estate’s law firm because it had not yet provided a letter of representation. On this same date, Mr. Harvey gathered all of his asset information and set up a meeting with his personal attorney to take place on August 23, 2006. Indeed, Mr. Harvey later testified that he gathered this information and set up the meeting because of GEICO’s August 11, 2006 letter.
On August 23, 2006, Mr. Harvey met with his personal attorney. Testimony revealed that Mr. Harvey owned certain liquid assets exceeding $900,000, plus four motor vehicles and two houses. The estate’s attorney testified that in his view, the only “collectible” asset was $85,000 in the operating account of Mr. Harvey’s business. The estate’s attorney testified that, had he been able to take a statement of Mr. Harvey, he would have recommended to his client that she accept the $100,000 tender of policy limits.
The attorney wrote back to Ms. Korkus in response to GEICO’s tender, acknowledging receipt of the check and Ms. Korkus’ apparent refusal to make Mr. Harvey available for a statement. Ms. Korkus received the letter on August 31, 2006 and faxed it to Mr. Harvey that same day. Further, on this same day, Ms. Korkus contacted the estate’s attorney, who faxed Ms. Korkus a letter memorializing their conversation, confirming that he wanted a statement to determine the extent of Mr. Harvey’s assets and that Ms. Korkus was “unable to confirm that [Mr. Harvey] would be available for a statement.” Ms. Korkus’s contemporaneous file notes, however, indicated that she advised the estate’s attorney that she would contact Mr. Harvey and pass the information along so he could decide whether to provide the statement.
The next day, on September 1, 2006, Mr. Harvey called Ms. Korkus to discuss the letter from the attorney. A log entry from Ms. Korkus reflected that the insured advised her that his attorney would not be available until after the holiday weekend on September 5, 2006 and requested that she contact the estate’s attorney to notify him of this. Despite Mr. Harvey’s request, and instructions from her supervisor to do so, Ms. Korkus did not relay this message to the estate’s attorney. At Mr. Harvey’s request, Ms. Korkus also faxed a copy of the letter to Mr. Harvey’s personal attorney.
On September 11, 2006, the estate’s attorney met with his client, explained bad faith law, and recommended that the estate file suit. On September 13, 2006, the estate returned the check to GEICO and filed a wrongful death suit against Mr. Harvey. A jury found Mr. Harvey 100% at fault and awarded the estate $8.47 million in damages.
Mr. Harvey filed a bad faith suit against GEICO, which proceeded to trial. GEICO moved for directed verdict, which the court denied, and the jury found GEICO in bad faith. Judgment was entered against GEICO in the amount of $9.2 million. GEICO moved for judgment notwithstanding the verdict, which was also denied.
The 4th DCA Opinion
GEICO appealed the denial of its motion for directed verdict, and the 4th DCA reversed, finding in favor of GEICO. In doing so, the 4th DCA walked through seven factors enumerated in Florida’s seminal case on bad faith, Boston Old Colony Insurance Co. v. Gutierrez, 386 So.2d 783, 785 (Fla. 1980). In Boston Old Colony, the Florida Supreme Court held that an insurer is obligated to (1) “advise the insured of settlement opportunities”; (2) “advise as to the probable outcome of the litigation”; (3) “warn of the possibility of an excess judgment”; (4) “advise the insured of any steps he might take to avoid same”; (5) “investigate the facts”; (6) “give fair consideration to a settlement offer that is not unreasonable under the facts”; and (7) “settle, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so.”
The 4th DCA found that GEICO satisfied each of the Boston Colony factors:
With respect to the first, the 4th DCA acknowledged that while Ms. Korkus did not immediately notify Mr. Harvey of the estate’s request for a statement, she did so on August 31, 2006. Moreover, the estate never conveyed to Ms. Korkus that settlement was contingent on his providing a statement.
With respect to the second, third, and fourth factors, the 4th DCA found that GEICO’s August 11, 2006 letter, which notified Mr. Harvey of a possible excess judgment and advised him of his right to hire an attorney, satisfied each of these.
With respect to the fifth factor, the 4th DCA found that there was no evidence that GEICO was deficient in its investigation of the facts.
With respect to the sixth factor, the estate never provided GEICO with a settlement demand prior to filing suit, so GEICO could not have given consideration to an offer.
With respect to the seventh factor, the 4th DCA noted that GEICO tendered its policy limits nine days after the accident, without any demand from the estate.
The 4th DCA also relied on Novoa v. GEICO Indem. Co., 542 F. App’x 794 (11th Cir. 2013), analogizing the 11th Circuit’s findings in that case, namely, that although the evidence reflected that the insurer could have handled the claim better, this amounted to negligence, not bad faith. The 4th DCA further explained that while evidence of carelessness is relevant to proving bad faith, the standard for determining liability in an excess judgment case is bad faith rather than negligence.
Next, the 4th DCA, relying on Perera v. U.S. Fidelity & Guar. Co., 35 So.3d 893, 903–04 (Fla. 2010), noted that not only must there be actions demonstrating bad faith on the part of the insurer, but the insurer’s bad faith must also have caused the excess judgment. The 4th DCA explained that GEICO did not fail to meet any deadlines or other requirements established by the estate, as a requirement for settling the claim and avoiding the filing of a lawsuit against its insured.
Lastly, the 4th DCA noted that as the Eleventh Circuit explained in Novoa and Barnard v. Geico Gen. Ins. Co., 448 F. App’x 940 (11th Cir. 2011), where the insured’s own actions or inactions result, at least in part, in an excess judgment, the insurer cannot be liable for bad faith. However, the 4th DCA did not actually make any findings or comparisons on this final point.
The Supreme Court Opinion
In a 4-3 decision, the Florida Supreme Court quashed the 4th DCA’s opinion and directed that the jury verdict and final judgment be reinstated. The majority opinion was written by Justice Quince. Justices Canady and Polston each wrote lengthy dissents.
In essence, the Florida Supreme Court held that the Boston Old Colony factors are not the only factors involved in the bad faith inquiry. Instead, it found that because GEICO “completely dropped the ball” by failing to coordinate Mr. Harvey’s statement (a demand GEICO received before even receiving a letter of representation from the estate’s attorney), it was in bad faith. Harvey, 2018 WL 4496566 at *6.
The majority dedicated a significant portion of its analysis to discussion of the 4th DCA’s reliance on Novoa and Barnard for the idea that the insured’s conduct is relevant to the inquiry of bad faith. Indeed, as discussed above, the 4th DCA based its decision on the Boston Old Colony factors, not Mr. Harvey’s conduct, and simply made mention of Novoa and Barnard. Indeed, as Justice Polston explained in his dissent, “[t]he Fourth District’s comment in Harvey regarding the insured’s actions or inactions was dicta and only mentioned after Fourth District reached its holding that GEICO fulfilled its obligations of good faith to the insured.” Harvey, 2018 WL 4496566 at *18 (Polston, J., dissenting).
The majority acknowledged that “it is true that negligence is not the standard.” Id. at *7. At the same time, the majority found that the Florida Supreme Court “made clear in Boston Old Colony that because the duty of good faith involves diligence and care in the investigation and evaluation of the claim against the insured, negligence is relevant to the question of good faith.” Id. It continued on to explain that by relying on [the Eleventh Circuit’s opinion in Novoa] in lieu of this Court’s binding precedent in Boston Old Colony, the Fourth District minimized the seriousness of the insurer’s duty to act in good faith with due regard for the interests of its insured.” Id.
Justice Canady took the opposite view in his dissent, explaining:
Rather than take issue with the Fourth District’s analysis of the specific Boston Old Colony obligations, the majority points to the Fourth District’s purported failure to focus on the more general language in Boston Old Colony regarding an insurer’s 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.” E.g., majority op. at –––– (quoting Boston Old Colony, 386 So.2d at 785). In doing so, the majority completely divorces that general language from the specifically enumerated obligations and effectively adopts a negligence standard for bad faith actions, even though negligent claims handling does not amount to bad faith failure to settle. See Campbell, 306 So.2d at 530 (noting that the “standard[ ] for determining liability in an excess judgment case is bad faith rather than negligence”); see also Auto Mut. Indem. Co. v. Shaw, 134 Fla. 815, 184 So. 852, 858 (Fla. 1938) (noting that bad faith involves “a heavier burden upon the insured” than does negligence).
Id. at *15 (Canady, J., dissenting)
Notably absent from the majority’s opinion is any mention of the fact that on August 23, 2006, three weeks before suit was filed, Mr. Harvey had gathered all of his financial documents and met with his attorney to discuss his assets. There was also no mention of the fact that Mr. Harvey in fact had $1 million in assets, independent of his insurance, that at no point since August 2006 did Mr. Harvey ever offer to provide a statement, and that at no point since August 2006 did the estate ever attempt to collect from Mr. Harvey. Further, the majority failed to acknowledge that the estate never provided a settlement demand, advise GEICO of any deadline for providing the statement, or even provide GEICO with a letter of representation until August 17, 2006, the day GEICO tendered its policy limits to the estate.
The effect of the majority’s opinion is that, in Florida, the standard for proving bad faith is essentially whether the insurer “dropped the ball,” which while the court acknowledged bad faith takes more than negligence, still sounds a lot like negligence.
Moreover, the majority’s opinion brings into question whether the insured’s actions—or the claimant’s actions—are a part of the inquiry. This is indisputably in conflict with the fourth Boston Old Colony factor, in which the Florida Supreme Court explained that one of the bad faith factors requires the insurer to advise the insured of any steps he might take to avoid an excess judgment. This, arguably, means that while an insurer has a duty to advise, the insured’s failure to act on that advise will not be held against the insured. As Justice Canady explained in dissent, it is also in conflict with the Florida Supreme Court’s ruling in Berges v. Infinity Ins. Co., 896 So. 2d 665 (Fla. 2004), where the court conducted significant analysis of the insured’s conduct in that case, in that the insured at all times contested liability, requested the insurer not to settle, and executed a hold harmless agreement assuming responsibility for any excess judgment. In other words, Florida Supreme Court precedent clearly requires analysis of the insured’s actions as well as the insurer’s.
As Justice Canady aptly explained:
The result of the majority’s decision is that an insured who caused damages that exceeded his policy limits by over 8,000 percent, who had assets that greatly exceeded his policy limits, and who at no time ever offered to provide his financial information to the third-party claimant despite knowing that the information was being requested even after the policy limits were tendered, has his $100,000 policy converted into an $8.47 million policy, while other insurance customers eventually foot the bill.
Harvey, 2018 WL 4496566 at *12 (Canady, J., dissenting).
Insurers must be aware of what this decision inevitably encourages: “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 (Canady, J., dissenting). In light of the current climate in Florida, it is especially important for insurers to communicate and act promptly and ensure that claim files are specifically documented, especially in cases of high value with low policy limits.