By Barry Zalma, Attorney and Consultant
In March I posted an article on the need to put a stake through the heart of the tort of bad faith. The post that follows deals with a case that supports the position I took in that post and makes me wonder why more courts don't recognize the inequity and damages to the public caused by the tort of bad faith.
In 1985 Justice Kaus of the California Supreme Court made a comment on the tort of bad faith that predicted the finding of the Florida Appellate court case I summarize below. Justice Kaus said:
The problem is not so much the theory of the bad faith cases, as its application. It seems to me that attorneys who handle policy claims against insurance companies are no longer interested in collecting on those claims, but spend their wits and energies trying to maneuver the insurers into committing acts which the insureds can later trot out as evidence of bad faith. [White v. Western Title, 40 Cal. 3d 870, 221 Cal. Rptr. 509 (December 31, 1985)].
Florida Refuses to Allow Bad Faith Set-Up to Succeed5
In Olive Goheagan, As Personal Representative of the Estate of Molly v. American Vehicle Insurance Company, A Florida For Profit, 2012 Fla. App. LEXIS 9573 (Fla.App. 06/13/2012), Olive Goheagan, as personal representative of the estate of Molly Swaby, individually and as assignee of John Perkins, appealed a final summary judgment entered in favor of American Vehicle Insurance Company ("AVIC") on Goheagan's claim of bad faith in failing to protect its insured, Perkins, from an excess judgment.
On February 24, 2007, Perkins rear-ended the decedent, Swaby, while traveling at a high rate of speed. Perkins had bodily injury liability coverage under an AVIC policy in the amount of $10,000/$20,000. Swaby was severely injured in the accident and remained hospitalized in a coma until her death on May 12, 2007.
Two days after the collision, on February 26, Perkins reported the accident to AVIC. AVIC opened a claims file and assigned the claim to adjuster Lee Ann Grieser. AVIC spoke to Perkins's attorney on February 27. On February 28, Grieser sent a letter to Perkins advising him that the bodily injury claims for the accident may exceed his policy limits, and that AVIC would "make every attempt to settle all claims for bodily injury in accordance with [his] policy limits." As of March 1, Grieser had determined that Perkins was the sole cause of the accident and intended to settle the claim for Perkins's $10,000 policy limit.
Grieser attempted to contact Goheagan, Swaby's mother, on February 28, March 1, March 21, March 27, and April 16. On February 28, Grieser was told by Swaby's stepfather that Goheagan had retained an attorney. The stepfather gave Goheagan's cell phone number to Grieser and told Grieser to call Goheagan. Later that day, Grieser called Goheagan's home number and was told by a friend of Goheagan that Goheagan was not available. Grieser left her contact information with Goheagan's friend.
On March 1, Grieser left Goheagan a voicemail message asking for Goheagan's attorney's information. On March 7, an AVIC property adjuster called Goheagan and received no answer or answering machine.
Grieser reached Goheagan on March 21 and asked for the name of Goheagan's attorney. Goheagan told Grieser that they would talk later. Grieser called again on March 27. Goheagan initially told Grieser to speak to someone else. When Grieser asked Goheagan for the name of the attorney that the stepfather had informed her was hired regarding this accident, Goheagan said she would call Grieser back. On April 16, Grieser called Goheagan and again Goheagan said it was not a convenient time to talk and that Grieser would have to call some other time. On April 19, Grieser learned that Goheagan had filed a wrongful death suit against Perkins. AVIC offered to tender Perkins's $10,000 available coverage to Goheagan's attorney on April 26, which was rejected. Goheagan also rejected a second settlement offer dated June 7.
Subsequently, Goheagan's wrongful death action against Perkins went to trial. Following a jury verdict, a final judgment was entered against Perkins in the amount of $2,792,893.65 on January 20, 2009. An additional cost judgment in the amount of $28,070 followed.
The Bad Faith Suit
Goheagan filed the instant common law bad faith action against AVIC after the final judgment was entered against Perkins in her wrongful death suit. Goheagan alleged that AVIC breached its duty of good faith with regard to the interests of Perkins, in part, by failing to affirmatively initiate settlement negotiations with Swaby, failing to actually tender the policy limits in a timely fashion, and failing to warn Perkins of the possibility of an excess judgment.
AVIC moved for summary judgment, arguing that no genuine issue of material fact existed as to whether AVIC fulfilled its duty of good faith toward Perkins.
Goheagan filed the affidavit and deposition of Mark Lemke in opposition to AVIC's motion for summary judgment. In Lemke's opinion, "[t]he claim should have immediately been recognized as one requiring tender of the $10,000 policy limits. Steps should have been taken to immediately tender the $10,000 policy limits to Molly Swaby. This did not happen." Lemke also submitted that no ethical rules would have prohibited Grieser from tendering a check to Goheagan. Lemke's expert testimony was not effective because it was limited to legal conclusions which are the sole province of the court.
The trial court granted summary judgment in favor of AVIC.
The good faith duty obligates the insurer to advise the insured 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 insured of any steps he might take to avoid same. The insurer must investigate the facts, give fair consideration to a settlement offer that is not unreasonable under the facts, and settle, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so.
In this case, the appellate court found that the evidence did not support the proposition that AVIC failed to settle the claim if possible, where a reasonably prudent person would do so nor does it demonstrate that the failure to settle was willful and without reasonable cause. To accept Goheagan's theory of bad faith, AVIC would have had to tender a letter with a check that could not be cashed. Since Swaby's stepfather informed AVIC that Goheagan had retained an attorney regarding this accident. Florida's Administrative Code, like that in every state, has a rule that an adjuster may not negotiate or effect settlement directly or indirectly with any third-party claimant represented by an attorney, if the adjuster has knowledge of such representation.
Although normally the question of whether an insurer acted in good faith is to be decided by a jury, there are instances where the evidence demonstrates that the insurer fulfilled all its legal obligations. Where the insurer fulfills its obligations and there is not sufficient evidence from which any reasonable jury could have concluded that there was bad faith on the part of the insurer, then summary judgment should be granted for the insurer.
The claim for "bad faith" failure to settle should be exactly that - only for situations in which the insurer truly is refusing in bad faith to settle, not when it is in fact attempting to settle the claim. Gwynne A. Young & Johanna W. Clark, The Good Faith, Bad Faith, and Ugly Set-up of Insurance Claims Settlement, 85 Fla. Bar. J. 9, 14-15 (Feb. 2011).
The Florida court made clear that it does not like cases where an insurer is "set-up" for bad faith because injuries were severe and available limits were small. When an adjuster attempts to communicate with the claimant's counsel and is met with petulance and a refusal to communicate, even after an attempt to settle is made, there can be no bad faith on the part of the insurer. There is, however, bad faith on the part of the insured and counsel who compelled the insurer with small limits, to defend its insured through trial of a clear liability case and then defend a spurious bad faith case. But, like the animals in George Orwell's Animal Farm, all litigants are equal but some are more equal than others. Although an insured or claimant can sue an insurer for the tort of bad faith an insured cannot sue the insured for the tort of bad faith.
Reprinted with Permission from Zalma on Insurance, (c) 2012, Barry Zalma.
Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant. He recently published the e-books, "Zalma on Insurance;" "Murder and Insurance Don't Mix;" "Heads I Win, Tails You Lose - 2011," "Zalma on Rescission in California," "Zalma on Diminution in Value Damages," "Arson for Profit" and "Zalma on California Claims Regulations," and others that are available at Zalma Books. Mr. Zalma can also be seen on World Risk and Insurance News' web based television program "Who Got Caught".
Mr. Zalma can be contacted at Barry Zalma or firstname.lastname@example.org, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma's Insurance Fraud Letter.
Zalma on Insurance is a LexisNexis Insurance Law Community Top Insurance Blogs for 2011 winner.
For more information about LexisNexis products and solutions connect with us through our corporate site.
Grieser reached Goheagan on March 21 and asked for the name of Goheagan's attorney. Goheagan told Grieser that they would talk later.