Bad Faith reform is again a goal of the insurance industry during this session of the Florida Legislature. To understand the purpose of Florida “Bad Faith” insurance laws, I will start with a basic primer. Florida Statutes, in §624.155, prohibits an insurer from “not attempting in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for her or his interests.” The question, it would appear, is to ask “Why is the insurance industry so opposed to a law that merely requires it to act fairly and honestly towards it’s insured?”
The importance of this statute for Florida consumers cannot be understated. I will examine this statute in the context of a Florida automobile accident case. Hypothetically speaking, John Doe is traveling through the intersection of Main Street and U.S. 19 in New Port Richey, heading south to get home to Tarpon Springs. Jane Doe temporarily is not paying attention, and inadvertently goes through the red light as she is heading west on Main Street, broadsiding the driver’s side of John’s car. As a result of the automobile accident, John is “Bayflighted” to Bayfront Medical Center, where he undergoes surgical repair of a fractured femur. John also requires extensive outpatient care, and although he returns to work after three weeks, he suffers from chronic back pain. His total medical expenses after just a few months amount to $75,000.00.
Jane Doe was insured through Acme Insurance Company, and her policy provides $100,000.00 in bodily injury liability coverage that is available to John for his personal injury claim against Jane for her negligent operation of a motor vehicle (which would include past and future medical expenses, wage loss, pain and suffering, etc.). John Doe’s attorney sends all the medical records to Acme, and demands the $100,000 in coverage, agreeing that John will release Jane if the policy coverage is paid. In other words, if Acme Insurance pays the policy limits, Jane will have no further exposure to civil liability, and thus will suffer no economic harm due to injuring John. However, Acme jerks John’s attorney around, refusing to pay. Fed up with Acme’s unwillingness to pay what is clearly a reasonable demand, John and his attorney file suit, and a jury eventually returns a verdict for $675,000.00.
Taking the above hypothetical into consideration, understand that without Bad Faith laws, Acme Insurance has just doomed it’s own insured. All Acme would do after such a verdict is stroke a check for $100,000.00, and leave Jane Doe “on the hook” for the remaining $575,000.00, which would certainly ruin her financially. However, under the Bad Faith Statute, if several conditions are met, then Acme Insurance could be responsible for the full amount. Why? Because it did not act “fairly and honestly” in it’s fiduciary duty to protect it’s own insured!
The insurance industry complains that the Bad Faith statute is unfair, by exposing them to claims that far exceed the amount of the policy coverage. Specifically, it argues that nefarious and clever trial lawyers employ tactics to “set them up” for bad faith, by making it difficult for insurance companies to act in good faith, by employing such tactics as unreasonable deadlines or conditions. The industry, and those entities that do it’s lobbying, cry about a “bad faith crisis.” Frankly, all of these arguments by the insurance industry are red herrings and completely nonsensical. This is the reality of the environment under current bad faith laws:
1) Bad faith trials are not even that common, and thus there is no “crisis.” This is because there are a lot of conditions that must be met before an insurer must pay more than the policy coverage. It is not enough that the Plaintiff goes to trial and wins a verdict that exceeds coverage; the Plaintiff must also prove that the insurer was not reasonable in a separate action after the verdict.
2) Florida law is very clear that insurance companies will not be found to have committed fraud or bad faith if they have been “set up” by Plaintiff’s attorneys whom have created obstacles to a settlement. Thus, insurers are already protected by Florida case law against unreasonable behavior by attorneys.
3) Florida law is clear that in the context of bad faith, it is the insurers’ behavior that is to be analyzed. Therefore, they are the ones that control their own destiny, and the only legal requirement is that they act in good faith to protect an insured when it is reasonable to do so under the circumstances. Is it unreasonable to expect an insurer to actually protect it’s own customer?
So, if current Bad Faith laws are not unreasonable, then why is it an annual pet project of the Florida insurance industry to rid itself of a legal obligation to handle automobile accident insurance claims in good faith? The answer is simple, without a bad faith statute, insurers could employ highly unethical tactics to stonewall persons injured in automobile accidents (and other types of claims), without fear of any legal reprisal whatsoever. The industry knows that filing fees and the cost of serving a summons have become so high (in excess of $450.00) that they could manipulate many injured victims into a settlement for an amount far less than the value of the claim, as the victim would see little upside to taking a risk of a lawsuit. And what if the victim did file suit and obtain a verdict for an amount far greater than the policy? Why would the insurance company care, it’s insured would be responsible!
This session’s attempt by the insurance industry to emasculate Florida’s Bad Faith laws comes in the form of House Bill 813, which I have read in it’s entirety. While it does not seek a total repeal of bad faith, the industry is seeking to further protect itself at the peril of it’s own insured customers. If passed into law, this bill would allow insurance companies that do not act in the interests of it’s own insureds a type of “get out of jail free” card, by allowing payment of the policy after months or years of acting in bad faith.
In summary, there is no “bad faith crisis,” and all current laws do is require an insurer to act with reasonable care to protect the very people paying premiums for coverage. The effort to change bad faith laws are an attempt to essentially legalize a campaign of fraud and bad faith practices against persons injured in Florida automobile accidents.