Legal Theatrics and Florida’s Bad Faith Laws

Florida’s “Bad Faith” laws applying to Insurance companies have created a shameful mockery of justice. Bad Faith laws were originally intended to make legal representation available to people with limited funds. There are two kinds of bad faith claims. Insured people may have a first-party bad faith claim if the insurer conducts an improper investigation and valuation of the damaged property, or wrongfully refuses to acknowledge the claim as arising under the insurance policy or fails to defend the insured when defense is part of the insured’s coverage agreement.

A third-party claim involves someone who is not the insured party but who is making a claim against the insurer. Typically, the third-party is an attorney who might contend that he suffers some damage due to the behavior of the defendant or the insurer. These third-party bad faith claims produce the legal theatrics that result in headline grabbing monetary settlements.

A horrific example of how third-party bad faith operates is Novoa v. Geico Indemnity Co. In that case, a man was on the roadside helping fix a flat tire. A drunk driver swerved and killed the man. Geico, the driver’s insurer, immediately attempted to settle the third-party victim’s claim and offered the insured’s full policy limits of $20,000. The victim’s widow refused Geico’s settlement offers. When the case went to trial, the jury voted a $16.6 million verdict against the insured driver. The victim’s attorney tried to collect this amount from Geico by bringing a third-party bad faith claim.

The case went to Federal court, which found Geico acted quickly to investigate and to offer the full coverage available for bodily injury. The court said there was no evidence that Geico acted in bad faith. The decision was affirmed by the U.S. Court of Appeals for the Eleventh Circuit, noting that Geico “diligently sought to settle the case.” The court also stated that the claimant and her attorney engaged in bad faith conduct, and declined every settlement offer that Geico made. The Appeals court also noted that Florida’s law “perversely encourages claimants to reject reasonable settlement offers.” Eventually, the claimant admitted that she would have settled for $1.7 million.

There is nothing socially redeeming in this story. The drunk driver walked away unscathed, the good Samaritan died, his wife and her attorney were almost able to split an excessive judgement, and despite its righteous behavior, Geico was caught in the gears of a bad Florida law.

There is a bill in the Florida Senate (SB 924) that would establish standards of behavior which when followed could insulate defendants and insurers from flimsy claims of damage that are the core of too many of Florida’s third-party bad faith awards. That approach seems to create a workable public policy solution that will limit the “sue and settle” theatrics, and keep insurance costs lower in the state.