How Does Bankruptcy Affect a Personal Injury Case And Any Bad Faith Claims
I am frequently asked by clients what effect a defendant filing bankruptcy will have on their personal injury case against that person or entity. Bankruptcy is frequently used to escape responsibility for negligent actions. Uninsured doctors are the worst at doing this! But what happens to the obligation of that person’s insurance carrier (if there is one) to provide a defense and ultimately resolve claims against their insured? After filing bankruptcy, can it be successfully argued that there is no right to pursue a bad faith claim?
These issues were presented in the recent Florida 2nd DCA appellate court decision of Whritenour v. Thompson. The underlying personal injury lawsuit came about as a result of a motor vehicle accident that occurred in July 2011. When a personal injury lawsuit was filed the following year, the insurance defense attorney hired by the defendant’s insurance carrier recommended that the insured file for bankruptcy. After Chapter 7 bankruptcy was filed by the insured, the defendants bankruptcy lawyer moved for summary judgment in the personal injury claim and successfully argued that because bankruptcy cuts off a person’s liability or exposure over and above insurance limits, that the injured party was only left with the insurance limits and could not pursue a bad faith claim against the insurance company. Never mind the several procedural mistakes that the judge made leading up to the hearing; the trial judge actually bought the argument, which resulted in the injured party being forced to accept policy limits in lieu of proceeding to trial and then seeking a bad faith claim against the insurance carrier for not having handled the claim correctly. However, the injured party’s attorneys wisely reserved the right to appeal the decision so that their client could receive justice.
The 2nd DCA made short work of the judge’s granting of summary judgment. The opinion indicates that a bad faith action is a separate cause of action that does not arise until an insured is legally obligated to pay an excess judgment. The only difference between pursuing such a cause of action is that in a bankruptcy context, it is the bankruptcy trustee that would bring the bad faith action against the insurance company. Of interest, the opinion mentions that the bankruptcy court order granting relief from the bankruptcy stay allowed the injured party to pursue the insurance company in order to prosecute the negligence action through final judgment. There was no express language in the order limiting the injured party’s recovery to the policy limits. This is very important language and instructional to anyone practicing personal injury litigation who is faced with this type of situation. Under no circumstances should an order be allowed to be entered that would limit an injured party to only recovering policy limits. Having bankruptcy counsel in those situations is absolutely vital.
The good news is that the 2nd DCA reversed the summary judgment and allowed the injured party to continue her case in hopes of seeking more than $1 million in damages. Given the insured only had $300,000 limits and the amount of effort undertaken in this case, I have no doubt that she will be successful.
LaBovick Law Group frequently has clients with damages well in excess of available limits. This opinion does a lot to illustrate and explain the various land mines that can exist when handling personal injury claims faced with bankruptcy filings. Having experienced personal injury litigators who are aware of these pitfalls is of utmost importance.
Image courtesy of freedigitalphotos.net by Stuart Miles