Bad Faith Litigation Nets $22 Million Settlement
The good hands people recently took a $22 million hit when they voluntarily settled a bad faith insurance lawsuit filed in Pennsylvania. This was the largest bad faith settlement in the history of Pennsylvania! However, you can bet there are others out there in just about every state in this country.
What exactly is a bad faith lawsuit?
Bad faith is an area of law that has developed to address insurance carriers’ and their adjusters’ bad decisions in settling claims against their insureds or in failing to settle claims under underinsured or uninsured motorist cases. In this particular situation, Allstate had a policy limit of $250,000 and refused a demand to tender these limits to a gentleman who had his leg amputated as a result of an automobile crash. You would think that insurance carriers would spend more time and money training their adjusters to recognize the value of a case. Allstate uses computer programs that are claimed to have been developed to analyze claims and come up with a range for settlement. However, like all computer programs, if what goes in is garbage, what comes out is worse.
A jury subsequently awarded $19 million in damages against Allstate’s insured. The insured had a right under his contract to be protected from this lawsuit and mistakes like this. The adjuster failed to protect the insured and as a result, a $19 million verdict was entered against him.
Florida Procedure for Pursuing Bad Faith Claims
In Florida, the procedure for pursuing bad faith requires a trial in which damages in excess of the available coverage are awarded. Then, a second case begins to address the failure of the insurance carrier to settle in a timely fashion. That is the finesse in cases such as this. Insurance companies must be given an opportunity to settle a claim for within policy limits. However, there are circumstances where an insurance company must make an affirmative offer to settle for policy limits when they have sufficient information that a reasonable adjuster would tender the limits. In most cases, adjusters are gambling with insurance money and making decisions that will either work or not work, depending upon what a jury does.
Many of the law firms and lawyers that do this type of work have developed a strategy for suing insurance companies under these circumstances. Often times, including a count for bad faith in the original lawsuit is a good idea. However, this count gets put on hold while the underlying bodily injury UM claim proceeds. If the bodily injury claim results in a verdict or settlement in excess of limits, then the bad faith case can proceed. Several years ago, a lawyer buddy of mine (that defends Geico) was flown to Geico’s headquarters to analyze and advise the Board of Directors on a multimillion dollar verdict that had been entered against a Geico insured with very low limits. The net effect of that analysis was to tell the Board of Directors that the poorly trained adjuster had made significantly bad tactical decisions and that Geico was now on the hook for millions of dollars over the $10,000 limits that the adjuster failed to tender.
Does bad faith exist everywhere?
No! It is hard to believe that several states have caved into the insurance lobbying industry and passed litigation that does not allow these types of lawsuits. That puts the insured citizens of that state at substantial risk of losing everything and/or having to file bankruptcy in order to avoid the adjuster’s mistake. Florida is strong in its support of insureds and has substantial statutes and case law history addressing bad faith litigation. There are numerous examples of insurance carriers being held accountable for the mistakes of their adjusters. The above cases are but a few examples of the extreme end of the spectrum.
Filing Complaints Against Insurance Companies
Florida statute 624.155 deals with filing complaints against insurance companies when bad adjuster decisions can affect insureds. The statute makes a distinction between first-party claims and third-party claims, which is an important difference when pursuing such relief.
- Third-party claims arise when an injured party has a claim against an insured and the adjuster fails to recognize the extent of that claim and fails to settle the claim for within limits.
- First-party claims arise when the insured has a claim under the policy and is failed to be protected. The typical uninsured or underinsured claim is an example of such.
Florida statute 624.155 needs to be complied within situations where an offer to settle for within policy limits is rejected. In that situation if the lawyer is going to pursue a bad faith, then a complaint needs to be filed setting up the carrier for a subsequent claim of bad faith. The filing of a complaint under this statute triggers a review internally within the insurance carrier so that a fresh set of eyes looks at the case and makes a decision on settling the case. Be forewarned, filing a complaint under the statute gives the carrier a second shot at correcting the problem. However, most times the second chance doesn’t fix the problem, and the insurance company continues with its aberrant behavior of not settling the case.
When I file lawsuits after attempting to settle a claim or file a uninsured or underinsured motorist lawsuit for benefits under a policy, I always file a complaint under 624.155, so that I cover all my bases. It also triggers an opportunity for the carrier to get a second bite at the apple, but it is a rare event when a case settles once the complaint is filed and a lawsuit is started.
Pursuing bad faith claims against insurance carriers is not for the faint of heart or for small firms that don’t have the funds and backing to pursue significant damages against a target that is usually worth billions of dollars. When going after such companies, lawyers and law firms can expect a significant defense, especially when the insurance carrier is looking at paying out 10, 100 or even 1,000 times the face value of the policy.
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