Florida Supreme Court Strengthens Policyholders’ Bad-faith Claims

Margo Meta | The Policyholder Report | September 27, 2018

Last week, a divided Florida Supreme Court strengthened policyholders’ bad-faith claims against insurers by overturning an appellate court’s decision, finding that the lower court had misapplied Florida’s well-established bad-faith precedent and had relied on inapplicable federal case law.

In Harvey v. GEICO General Insurance Co., James Harvey was involved in an automobile accident that resulted in a fatality. Following the accident, a paralegal with counsel for the deceased’s estate spoke to Fran Kourkas, a GEICO claims adjuster regarding the claim, requesting a statement from Harvey to determine the extent of his assets and other potential insurance coverage. Kourkas denied this request, despite knowledge that it was standard practice, and he failed to inform Harvey of the request.

Shortly thereafter, GEICO tendered the $100,000 policy limits to Sean Domnick, the lawyer representing the decedent’s estate. When Harvey learned of Domnick’s request, he informed Kourkas that he would provide a statement and requested that Kourkas inform Domnick, but Kourkas did not relay the message. Due to Kourkas’s failure to communicate, Domnick returned GEICO’s check and filed a wrongful-death action against Harvey. The case went to trial and Harvey was found 100% at fault. The estate was awarded $8.47 million in damages.

Harvey filed a bad-faith claim against GEICO based on the excess judgment. Domnick testified that he received no communication from GEICO after his request for a statement, and that if he had been aware that Harvey’s only other asset was a business account worth $85,000, he would have accepted the policy limits and would not have filed suit. The decedent’s wife testified that she would have settled for the policy limits at Domnick’s recommendation. At the trial on these bad-faith claims, the jury awarded Harvey $9.2 million. GEICO appealed, arguing that Harvey had failed to provide evidence of bad faith. The appellate court agreed and reversed, stating that “even if the insurer’s conduct was deficient, the insurer’s actions did not cause the excess judgment rendered against the insured.”

Bad-faith Standard

The Florida Supreme Court reversed the Court of Appeals. In its opinion, the Florida Supreme Court expressly disavowed the holding in Novoa v. GEICO Indemnity Co., in which the 11th Circuit Court of Appeals found that an insurer did not have to act “perfectly, prudently or even reasonably” as long as the insurer did not act solely out of self-interest.

The Florida Supreme Court also cited a 1980 case, Boston Old Colony v. Gutierrez, for the proposition that an insurer has a duty to handle defense claims with the same degree of care and diligence as person of ordinary care and prudence would exercise in the management of his own business. The Court noted that because the duty of good faith involves an insurer’s diligence and care, the insurer’s negligence is relevant to a question of bad faith.

The insurer has this duty because it controls all decisions related to the claim, and the insured has no control over the claim handling. The Court further relied on Boston Old Colony, finding that an insurer must provide certain advice to an insured, including the probable outcome of litigation, the possibility of an excess judgment, and steps to take to avoid such a judgment. The court cautioned that these requirements are not a “mere checklist.” Rather, the insurer must work diligently, with the same “haste and precision” as though it were in the insured’s shoes, in order to avoid an excess judgment.

The Court found that where liability is clear, and injuries or damages are so serious that an excess judgment is likely, the insurer has an affirmative duty to initiate settlement negotiations and any delay in making an offer could be viewed as bad faith. Further, an insurer cannot escape its obligations to the insured by simply tendering its policy limits. The insurer’s obligations to the insured continue throughout the duration of the claims-handling process.

The Court concluded that GEICO had failed to act as if Harvey’s potential financial exposure was “a ticking financial time bomb” and served as a “considerable impediment” to both Harvey and Dominick. GEICO failed to act with the same degree of care and diligence as an ordinary, prudent person would in the handling of his own business. Accordingly, it acted in bad faith.


The Court also disavowed the holding in Barnard v. GEICO General Insurance Co., in which the 11th Circuit Court of Appeals found that if an insured’s own actions or inactions result, at least in part, in an excess judgment, the insurer cannot be found liable for bad faith. The Court found that this statement was “fundamentally inconsistent” with Florida precedent, including Berges v. Infinity Insurance Co., which focuses on the actions of the insurer, not the insured. Florida law is clear that an insured’s actions do not excuse an insurer’s bad-faith handling of a claim.

The Court concluded that GEICO’s continued communication failures were a direct cause of the excess verdict, as Domnick had testified that had he been aware of Harvey’s assets, he would have accepted the policy limits and would not have filed suit. As such, GEICO acted in bad faith.

How does this Affect Policyholders?

This opinion is a valuable tool against insurers in future bad-faith cases, as it loosens and broadens the bad-faith standard in Florida. The opinion requires that an insurer put an insured’s interests first and work diligent and hastily to avoid excess judgments. The opinion also strengthens the argument that an insurer is under an affirmative obligation to initiate settlement negotiations in cases where excess judgments are likely, and that even negligent claim handling can result in a finding of bad faith.


Harvey is a win for policyholders. It simply and succinctly states Florida’s bad-faith standard and provides guidance to federal courts on the issue. It also underscores the importance of diligent, competent, and expedient handling of claims, while simultaneously preventing the insurer from shifting the blame for an excess judgment to the policyholder.

Insurance Companies Must Perform in Good Faith Regardless of Their Customer’s Imperfect Actions

Chip Merlin | Property Insurance Coverage Law Blog | September 21, 2018

Insurance companies routinely argue for immunity from their wrongful actions because acts of their customers are not perfect following a loss. Policyholders are not claims specialists. Policyholders generally are not in the insurance claims business much less the civil litigation business which the insurance industry is the number one participant by far.

In a third party “bad faith” case, the Florida Supreme Court yesterday reiterated these practical issues by stating:

To take the Fourth District’s reasoning to its logical conclusion, an insurer could argue that regardless of what evidence may be presented in support of the insured’s bad faith claim against the insurer, so long as the insurer can put forth any evidence that the insured acted imperfectly during the claims process, the insurer could be absolved of bad faith. As Harvey argues, this would essentially create a contributory negligence defense for insurers in bad faith cases where concurring and intervening causes are not at issue. We decline to create such a defense that is so inconsistent with our well-established bad faith jurisprudence which places the focus on the actions on the insurer—not the insured.1

It is unfortunate that we call these cases “bad faith” cases when they are really “lack of good faith” cases. Just read the ethical rules that historically called for insurance companies and their employees to act in the “utmost of good faith and fair dealing” with their customers.

My mother used to remind me that “Chip, two wrongs never equal a right.” The above-mentioned ruling emphasizes this idea. I often find myself reminding attorneys in my firm, as well as myself, that this is true regardless of what the other side is doing in a lawsuit, appraisal or insurance claim. Professionalism and ethical behavior call for honest, legal, proper and civil conduct regardless of how poorly a party on the other side behaves. Still, it is sometimes difficult to turn the other cheek, but it is also not proper for a professional to get walked over by those using improperly aggressive and unprofessional behavior.

I am writing, researching and preparing for a speech at the Georgia Association of Public Adjusters Association (GAPIA) Fall Meeting in Atlanta next week regarding insurance and public adjuster professionalism. My belief is that the most successful adjusters for insurers or pubic adjusters for insureds in the long run are extraordinary examples of consummate professionals. They know much more than others, are vested in becoming personally even better at what they do and are above the fray of any one claim.

These extraordinary performing claims handlers appreciate the other side and understand the other point of view. They look at the policyholder just as importantly a customer following the loss as before and that the insurance company is an important part and has an important societal responsibility of taking care of the policyholder and claimant’s problems promptly. They look at their personal insurance claims work as involving the public trust, do not game the system and look to act fairly, regardless of personal incentives and company objectives not aligned with honesty or fairness.

From the insurance company standpoint, claims educator Ken Brownlee CPCU wrote in Winning By The Rules:

Why, then, do so many insurers and their claims representatives treat third-party claimants and injured employees as if they were an enemy? Why do so many third-party claimants and employees seek attorneys to represent them in their claims against the insurer? Could it be that insurers have been treating these product users as if the insurer were in charge instead of the injured or damaged party?

If adjusters got back out on the streets and met with folks immediately after their accidents or losses, which is what used to occur forty of fifty years ago, the public might begin to trust the insurance industry again. It might not be so prone to sign up with those television-advertising attorneys. It might also reduce the number of lawsuits that have to be defended at great expense, because when the adjuster knows the claim is valid it would be quickly settled, and when the adjuster knew it wasn’t valid, the denial would be quick, authoritative, and well-documented.2

Little has been written about public adjusters and their obligations to the insurance industry, the public, and their clients. There are very fine public adjuster organizations now at state level promoting professionalism. NAPIA certainly has been stalwart in the growth of licensing the public adjusting profession. It has also been instrumental with The Institutes regarding certification for those seeking to be recognized for knowledge and expertise in their public adjuster profession.

Yet, I tell my Merlin Law Group lawyers to vet every case from every public adjuster. It is not just that we have an ethical obligation to do so. Some public adjusters do not tell their clients what they estimate the loss amount to be because they either overestimate the loss on purpose and do not want to create unrealistic expectations, or they are so poor at negotiating an exact estimate of loss that they leave fairness behind to collect their fee quickly, regardless of the consequence to the client policyholder.

Sometimes, both the public adjuster and insurance company adjuster play the Xactimate game of “who knows what the magic method is to control the Xactimate process” for determining loss. Sometimes, outcome-oriented engineering opinions from either side seem to be the critical suspect issue between the battling interests.

As lawyers for the policyholder, there is one way we now look at to build and repair damaged buildings, and that is legally. What are the contractor specifications to do the job? What is required for labor by the materials needed to be used to make the repair? What do the manufacturer’s specifications call for? What do laws require for safely performing the demolition and construction? What taxes and permits have to be paid? What professionals have to be hired to do the job legally and practically? What do Building Codes call for? What is required so that somebody inspects the job to ensure the people doing the job have done it right—meaning legally and to the specifications demanded?

I now often consult with and hire contract specification experts because there is so much gamesmanship and ignorance displayed by overworked adjusters and public adjusters that I cannot trust either side to get the construction scope and pricing right. I am finding myself saying to experts, “are you sure?” “Are you saying this just because you think I want to hear it?” “Please, do not embarrass me in front of a jury or judge—is this your honest and hard worked upon opinion?”

Again, two wrongs do not make a right! The insurance company is the long-term entity required to always investigate, evaluate and promptly settle or pay claims in good faith. I think that is the practical point of the Florida Supreme Court case from yesterday. Still, the rest of us also owe the public and our clients a duty to do our jobs as professionally as we can.


Thought For The Day

“Always place the best interests of your clients above your own direct or indirect interests.”
—True Blue Life Insurance Code of Ethics


Florida Appellate Court Finds Implications Of Bad Faith In Claims Handling Not Proper In First Party Insurance Coverage Dispute

Ashley Kellgren | Traub Lieberman Straus & Shrewsberry | August 17, 2018

In two separate opinions, Florida’s Fourth District Court of Appeals reiterated the longstanding principle that issues regarding the quality of an insurer’s adjustment of a claim and bad faith should not be interjected into a first party insurance coverage action. In Citizens Prop. Ins. Corp. v. Mendoza, 42 Fla. L. Weekly D. 1523 (Fla. 4th DCA 2018), an issue on appeal was whether the trial court properly instructed the jury on a duty to adjust the claim. In that case, the insureds incurred water damage to their home caused by a water heater leak. The insurer investigated the claim and denied coverage based on the policy’s constant or repeated seepage or leakage exclusion. At trial, the insureds took issue with the way the adjuster denied the claim, asserting that he violated ethical rules and the policy itself.   Over the insurer’s objection, the trial court instructed the jury regarding the adjuster’s “duty to adjust” the claim.

On appeal, the Fourth District reversed final judgment in favor of the insureds, explaining that the trial court’s instruction “transformed the case into a referendum on the quality of the adjuster’s performance instead of focusing the jury on the factual issue of whether the loss fell under the policy exclusion.” Continuing, the Court explained that, while issues regarding whether the adjuster “properly investigated” or “properly adjusted” the claim may be appropriate in a bad faith case, such considerations have no place in a simple breach of contract claim.

On that same day, the Fourth District issued a similar opinion in the case of Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 43 Fla. L. Weekly D 1513 (Fla. 4th DCA 2018). In Kuwas, the insured alleged two counts of breach of contract in connection with the insurer’s denial of coverage for two claims for property damage as a result of a water loss. At trial, the insured’s theory of his case focused on the insurer’s handling of his claim and other claims in general. For example, in opening statement and questioning of the insurer’s litigation manager, counsel for the insured commented that the insurer was “playing the odds” in hopes that the party seeking to be paid will not sue or it would deter others from making claims. Counsel for the insured suggested that this “playing the odds” was the wrong thing to do and would be a breach of the policy. The jury returned a verdict in favor of the insured and the trial court denied the insurer’s motion for a new trial.

On appeal, the insurer argued that “implications of bad faith should not form a basis to determine liability in a first party insurance coverage action.” The Fourth District agreed, finding that criticism of the insurer’s claim handling practices as a business practice was improper. The Court likewise agreed that the insured improperly used his questioning of the litigation manager as an opportunity to paint the insurer as a carrier that denies claims for any (or no) reason, which inappropriately shifted the focus to the insurer’s claim handling and bad faith. The issues of claim handling and bad faith were not before the jury and not proper considerations in a breach of contract action, where the insurer’s liability for coverage and damages has yet to be determined. The Court concluded that this, along with other errors at trial, warranted a new trial.

Texas Supreme Court Issues Highly Anticipated Bad Faith Opinion

Jamie L. Moore | Bradley Arant Boult Cummings LLP | May 15, 2018

One year after its initial decision in a significant bad faith case, the Texas Supreme Court has issued its much-awaited opinion in USAA Tex. Lloyds Co. v. Menchaca. The case involved a homeowner whose post-Hurricane Ike property damage claim was denied by USAA Texas Lloyds Company (USAA). At trial, the jury found that USAA did not breach the policy, but that the company did violate the unfair settlement practices provisions of the Texas Insurance Code.

Given that “substantial confusion” existed in Texas courts regarding the relationship between contractual claims for breach of an insurance policy and statutory bad faith claims under the Texas Insurance Code, the Texas Supreme Court attempted to set clearer precedent in its original opinion in April 2017. However, the ruling was met with concern that it further muddied Texas insurance law and set negative precedent for insurers by reviving claims for treble damages under the Texas Insurance Code. In an unusual move, the Texas Supreme Court agreed to a rehearing.

In the newly released opinion, which replaces the 2017 ruling, the court reiterates the five “distinct but interrelated rules that govern the relationship between contractual and extra-contractual claims in the insurance context” it previously identified last year. Importantly, the court further clarifies the critical point for insurers that generally an insured cannot recover damages under the Texas Insurance Code without establishing a breach of the policy, and that exceptions to the general rule are narrow.

The five rules developed by the Texas Supreme Court that should be applied by Texas courts to the interplay between contractual and Texas Insurance Code statutory claims are:

  1. The General Rule: An insured cannot recover policy benefits under a Texas Insurance Code violation if the insured does not have a right to those benefits under the policy. This rule derives from the fact that the Texas Insurance Code only allows an insured to recover actual damages “caused by” the insurer’s statutory violation.
  2. The Entitled-to-Benefits Rule: An insured who establishes a right to receive policy benefits can recover the benefits as “actual damages” under the Texas Insurance Code if the statutory violation causes the loss of benefits. The court refers to this rule as a “logical corollary to the general rule.”
  3. The Benefits-Lost Rule: An insured can recover benefits as actual damages under the Texas Insurance Code even if the insured has no right to those benefits under the policy if the insurer’s conduct caused the insured to lose that contractual right. This principal is recognized where an insurer misrepresented a policy’s coverage, waived its right to deny coverage or is estopped from doing so, or committed a violation that caused the insured to lose a contractual right to benefits that it otherwise would have had.
  4. The Independent-Injury Rule: This rule has two aspects:
    1. If an insurer’s statutory violation causes an injury independent of the insured’s right to recover policy benefits, the insured may recover damages for that injury even if the policy does not entitle the insured to receive benefits. However, when an insured seeks to recover damages that “are predicated on,” “flow from,” or “stem from” policy benefits, the general rule applies and precludes recovery unless the policy entitles the insured to those benefits; and
    2. An insurer’s statutory violation does not permit the insured to recover any damages beyond policy benefits unless the violation causes an injury that is independent from the loss of benefits.
  5. The No-Recovery Rule: An insured cannot recover any damages based on an insurer’s Texas Insurance Code violation unless the insured establishes a right to receive benefits under the policy or an injury independent of a right to benefits. This rule is considered “the natural corollary to the first four rules.”

The court also provided additional context and guidance for these rules. Ultimately, with respect to the claims at issue in this particular case, the court remanded the case to the trial court for a new trial consistent with its opinion.

Bad Faith Requires Misconduct by Insurer That is Dishonest, Malicious, or Oppressive

Barry Zalma | Zalma on Insurance | July 10, 2018

Negligence in Adjusting Claims is Not Enough to Prove Bad Faith

To prove the tort of bad faith it is necessary that the plaintiff prove that the insurer acted with affirmative misconduct without a good faith defense, and that the misconduct must be dishonest, malicious, or oppressive in an attempt to avoid its liability under an insurance policy. It is more than refusing to pay the person insured what is demanded or what the insured believes if fair and reasonable.

In Alexandra Sims v. State Farm Mutual Automobile Insurance Company, United Policyholders Amicus on Behalf of Appellant(s), No. 17-1333, United States Court of Appeals For the Eighth Circuit (July 3, 2018) the Eighth Circuit was asked to reverse the district court’s grant of summary judgment to State Farm on plaintiff’s bad faith tort claim and on an evidentiary rulings on the underinsured motorist coverage claim.

Alexandra Sims sued her insurance carrier, State Farm Mutual Automobile Insurance Company (State Farm), for the tort of bad faith, violation of the Arkansas Deceptive Trade Practices Act (ADTPA), and for damages on an underinsured motorist coverage claim. She appeals the district court’s grant of summary judgment to State Farm on the bad faith claim, and an evidentiary ruling on the underinsured motorist coverage claim.


In 2008, while a senior in high school, Sims was involved in a two-vehicle crash. Her car was rear-ended by an underinsured 16-year-old who was texting while driving. Sims suffered numerous soft-tissue injuries as a result of the crash. Sims sued the underinsured driver and he settled for $50,000, which was the limit of his insurance coverage. Sims filed a claim for her remaining damages under her own underinsured motorist policy, provided by State Farm, seeking the policy limit of $100,000. She submitted past medical expenses of about $21,000, and expert reports that predicted future medical costs and economic losses that well exceeded the policy maximum. She also attached medical records documenting her injuries.

State Farm assigned the claim to claims adjuster Dean Ripley. Ripley sought the assistance of a State Farm medical professional to help assess the medical records Sims had provided. This review indicated that Sims had received treatment for “soft tissue” injuries for longer than the typical six-week period. Ripley, in consultation with claims supervisor Oscar Rodriguez, sought clarification from Sims’s treating chiropractor. The chiropractor explained that Sims suffered from torn ligaments, an injury that could not be expected to heal in six weeks, could not be repaired by surgery, and was likely permanent. After receiving this information, Ripley suggested that State Farm might want to ask for an independent evaluation of Sims’s injuries, but Rodriguez asked Ripley to prepare an offer of settlement based on the information he already had.

Ripley estimated that, after deducting the $50,000 Sims had already received from the underinsured driver, Sims’s damages were between $66,297.12 and $101,297.12. He provided his calculations to Rodriguez and asked for authority to settle Sims’s claim for up to $99,786.72. Rodriguez replied that most of Sims’s medical expenses were from 2008 and it was unclear from the records whether she was still receiving treatment. In his view, “a sympathetic jury would value this claim at [$]100,000 at most,” and he authorized Ripley to settle for a maximum of $50,000 (the estimated value of the claim minus the $50,000 from the underinsured driver).

Negotiations proceeded with no success.  Sims sued State Farm who paid Sims $25,000 for undisputed medical expenses after the suit was filed.

As to the bad faith claim, the trial court found that Sims “has not shown that State Farm has committed any affirmative act of dishonesty, oppression, or malice” as required by Arkansas law. Sims does not contest the district court’s ADTPA ruling on appeal.

The case proceeded to trial on the underinsured motorist claim. At trial, Sims sought to introduce evidence that State Farm’s corporate policies incentivized claims adjusters (like Ripley) and claims supervisors (like Rodriguez) to deny claims regardless of their merit. The district court excluded this evidence as irrelevant and likely to confuse the issues.

After trial, the jury returned a $75,000 verdict for Sims. Because Sims had already recovered that sum from the underinsured driver ($50,000) and State Farm ($25,000), judgment was entered for State Farm.


The Arkansas Supreme Court has explained: “[I]n order to be successful a claim based on the tort of bad faith must include affirmative misconduct by the insurance company, without a good faith defense, and that the misconduct must be dishonest, malicious, or oppressive in an attempt to avoid its liability under an insurance policy. Such a claim cannot be based upon good faith denial, offers to compromise a claim or for other honest errors of judgment by the insurer. Neither can this type [of] claim be based upon negligence or bad judgment so long as the insurer is acting in good faith.] Aetna Cas. & Sur. Co. v. Broadway Arms Corp., 664 S.W.2d 463, 465 (Ark. 1984). This standard “is rigorous and difficult to satisfy.” Unum Life Ins. Co. of Am. v. Edwards, 210 S.W.3d 84, 87 (Ark. 2005). The “dishonest, malicious, or oppressive” acts must be “carried out with a state of mind characterized by hatred, ill will, or a spirit of revenge.” Id. Therefore, even when the insurance company is guilty of “negligence, gross ignorance, or a complete failure to investigate a claim,” the tort of bad faith is unavailable. S. Farm Bureau Cas. Ins. Co. v. Allen, 934 S.W.2d 527, 529 (Ark. 1996).

Even if Ripley and Rodriguez should have done a more thorough investigation and shouldhave given greater weight to the opinions of Sims’s experts, Sims’s allegations show only negligence and fall short of dishonest, malicious, or oppressive conduct as a matter of law.

Viewing the record as a whole, the Eighth Circuit concluded that the nature of the evidence Sims presented reveals the essence of her claim to be that the denial itself was wrongful, which, under Arkansas law, is not enough to make out a claim for the tort of bad faith. The district court did not err in granting judgment to State Farm on this claim.

Sims wanted to introduce evidence that she said would show State Farm had a practice of denying all claims, even those they were contractually bound to pay. If Sims’s damages exceeded the $75,000 she had already recovered, she would receive the balance from State Farm. State Farm’s allegedly obstructive institutional practices had no bearing on the amount of damages proximately caused by the car crash. And even if the “institutional practice” evidence had any probative value on that point, it was substantially outweighed by a danger of confusing the issues and distracting the jury from the task at hand. The district court did not abuse its discretion.


To prove the tort of bad faith the plaintiff must prove more than the insurer failed to pay what plaintiff wanted. There was clearly good reason not to succumb to plaintiffs’ demands or the jury would have found damages. Bad faith, a tort I find to be overused and abused, requires activities that are dishonest, malicious, or oppressive.  Plaintiff abused the tort of bad faith by insisting on this trial and could have avoided trial by negotiating reasonably with State Farm.