Florida’s Bad Faith Laws Need Reform

It’s a new year, a new legislative session, and a chance to cure the cost contagion from runaway bad faith lawsuits.

When automobiles crash, there is damage and often times injuries, but there are processes in place that address these occurrences to make the injured parties whole. However, some attorneys have found ways to magnifying the settlement into a seven-digit cost extravaganza. Surely the tort bar can find something constructive and socially redeeming for attorneys to do.

The rampage of bad faith claims has grown beyond legitimate proportions. Originally created to serve victims who were too impoverished to afford legal counsel, the third-party bad faith phenomenon has become an untethered gold rush with claims founded on nearly meaningless “injuries.” In some cases, the defendant offers a settlement of full insurance policy limits but does so a day later than the plaintiff deemed convenient.

In Florida, a “win” in a third-party bad faith lawsuit falls within woefully anemic standards. The standards used are called “totality of circumstances.” That allows the plaintiff’s attorney to include all minor nitpicking and major oversights by the insurer, from the time of the accident to the present day. This ill-defined standard makes it possible to pump up jury emotions to a fever pitch and that can make for outrageous awards from the jury.

By law, insurers are not permitted to post bad faith settlements into the “losses” that become the foundation for next year’s insurance premiums. However, the specter of excessive settlement awards nevertheless has an influence on ratemaking. Plaintiffs pressure defendants to settle and pay out claims quickly, quicker than may allow for prudent investigation. Hasty investigation can miss points that can trim settlement amounts.

The intimidation of a hideously expensive court room fight and settlement will convince the defendant to settle at an amount somewhat higher than if there were no such pressure. The terror of a multi-million bad faith settlement can convince the defendant to settle in the initial case for an amount higher than fair if only to avert the risk of becoming engaged in a multi-million-dollar catastrophe.

Higher payouts, even when not directly the result of a bad faith settlement, flow into the costs that insurers have to consider in future rates. Of course, those rates become the burden that Floridians must carry in successive years’ insurance policies. Tragically, Floridians carry a $4,000 annual burden for Florida’s malignant lawsuit climate.

A more rational set of bad faith standards for Florida would right-size the scale of settlements. People who were severely injured would still receive the compensation they needed, but there would be no frivolous awards for “injuries” such as a day’s delay in a full payout.

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