Two Recent Rulings Spotlight Florida’s Third-Party Insurance Bad Faith Standards

Florida insurers should be aware of two new decisions that discuss their obligations when investigating claims, negotiating settlements and keeping insureds informed throughout their claims handling.

Judgment Reversed Over Failure to Provide Proper Jury Instructions on Failure to Advise Insured

The Eleventh Circuit Court of Appeals recently reversed a district court’s judgment in favor of an insurer in a bad faith lawsuit based on the district court’s failure to provide proper jury instructions. In Brink v. Direct General Insurance Co., the Eleventh Circuit addressed whether the district court abused its discretion by providing standard jury instructions regarding liability for failure to settle. The plaintiff/third-party beneficiary argued that his proposed jury instructions specifically addressed both theories of bad faith liability against the insurer: failure to settle and failure to advise. The Eleventh Circuit agreed that the district court abused its discretion by failing to provide jury instructions on a theory of liability grounded in state law.

The Eleventh Circuit noted three main requirements to find an abuse of discretion:

• • The requested instructions correctly stated the law.
  • The instructions dealt with an issue properly before the jury.
  • The failure to give the instructions resulted in prejudicial harm to the requesting party.

Although the provided jury instructions correctly advised on an insurer’s duty to settle based on a totality of the circumstances standard, the requested instructions fully addressed all of an insurer’s obligations set out in the seminal bad faith case Boston Old Colony Insurance Co. v. Gutierrez. Specifically, the requested instructions included: “The duty of good faith required [insurer] to advise its insureds of settlement opportunities, to advise as to the probable outcome of the litigation, to warn of the possibility of an excess judgment, and to advise the insureds of any steps they might take to avoid an excess judgment.”

The Eleventh Circuit also found that the provided instructions gave a misimpression to the jury that the only obligation at issue was the failure to settle, resulting in prejudice to the plaintiff/third-party beneficiary. Because all three requirements were met, the Eleventh Circuit held that the district court abused its discretion and reversed and remanded the case for a new trial.

Court Reiterates That Insurer Is Not Bound to Start Settlement Discussions When Liability Is Unclear

An insurer’s good faith obligations relating to initiating settlement discussions were also recently addressed in Kinsale Insurance Co. v. Pride of St. Lucie Lodge 1189, Inc.. In Kinsale, the insurer received notice of a shooting at an insured location eight months following the incident, then began investigating the shooting and the insured’s potential liability. Nothing in the police report or independent adjuster investigation revealed any liability on the part of the insured. Nonetheless, the insurer tendered its $50,000 limit after suit was filed. The claimant rejected the tender, and the case resulted in a $3.5 million verdict.

In the subsequent bad faith lawsuit, the court reiterated that an insurer has an affirmative duty to initiate settlement negotiations only where liability is clear. The court found that the insured’s liability was never clear, which the jury reinforced by only finding the insured 70% liable. Therefore, the court held that no reasonable jury could find that the insurer acted in bad faith because the insurer had no duty to initiate settlement discussions when it tendered its limit.

Please contact Mallory Thomas or any member of Phelps’ Insurance team if you have questions or need compliance advice or guidance.