By: Adam Berardi
In a highly anticipated decision, a sharply divided Florida Supreme Court reversed the decision of the state’s Fourth District Court of Appeal and reinstated a jury’s $9.2 million verdict against GEICO for the insurer’s alleged bad faith handling of a claim against its policyholder. The dissenting justices warned that the majority’s ruling constitutes “a vast and unwarranted expansion of liability for bad faith claims” and that, in Florida, “mere negligence has now become bad faith.”
The case, Harvey v. GEICO, arose from a deadly car crash in 2006 in which Harvey, GEICO’s insured, was found liable. GEICO issued a policy to Harvey that provided $100,000 in liability coverage and advised Harvey that the claim against him could exceed his policy limits and that he had the right to hire his own attorney. However, when the attorney representing the deceased’s estate contacted the GEICO claims handler assigned to Harvey’s claim to request a statement from Harvey, the claims handler refused the request and did not advise Harvey of the request for two weeks. Following several additional failures by the GEICO claims handler to communicate with Harvey and the deceased’s estate, the deceased’s estate filed a wrongful death suit against Harvey, which resulted in a jury verdict awarding $8.47 million in damages to the estate.
Subsequent to the verdict in the wrongful death action, Harvey filed a “bad faith” action against GEICO seeking coverage for the excess verdict. The “bad faith” trial focused on the communication lapses by the claims handler and the failure of GEICO to attempt to settle the claim knowing that the underlying action involved a “case of catastrophic damages.” The jury ultimately found that GEICO acted in bad faith and awarded judgment in favor of Harvey. GEICO appealed on the grounds that Harvey “offered insufficient evidence at trial to support his bad faith claim” and that GEICO’s actions did not cause the excess verdict. The Fourth District Court of Appeals agreed with GEICO, finding that “even if the insurer’s conduct were deficient, the insurer’s actions did not cause the excess judgment rendered against the insured.”
In reversing the appellate court’s ruling and reinstating the jury’s verdict, the Florida Supreme Court found that the evidence was sufficient to support the bad faith claim and that the appellate court erred in concluding that an insurer cannot be found liable when the insured’s own conduct “at least in part,” results in an excess judgment. The court explained that, under Florida law, “in handling the defense of claims against its insured, the insurer has a duty to use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business.” The court further noted:
“An insurer is not absolved of liability simply because it advises its insured of settlement opportunities, the probable outcome of litigation, and the possibility of an excess judgment. Rather, the critical inquiry in a bad faith [case] is whether the insurer diligently, and with the same haste and precision as if it were in the insured’s shoes, worked on the insured’s behalf to avoid an excess judgment.”
The majority specifically rejected the appellate court’s holding that, if an insured’s actions contribute to an excess judgment, an insurer cannot be liable for bad faith, calling such reasoning “fundamentally inconsistent” with Florida’s high court precedent that “the focus in a bad faith case is not on the actions of the claimant but rather on those of the insurer in fulfilling its obligations to the insured.” Notably, the Supreme Court specifically took issue with the appellate court’s statement that, “even if GEICO’s actions were negligent, negligence alone is insufficient to prove bad faith.” Although it acknowledged that “negligence is not the standard,” the Supreme Court stated that “because the duty of good faith involves diligence and care in the investigation and evaluation of the claim against the insured, negligence is relevant to the question of good faith.”
The dissenting justices strongly disagreed with the majority’s holding on this point. According to the dissent, Florida law is clear that “negligent claims handling does not equate to bad faith” and that the majority’s decision “muddies the waters between negligence and bad faith and bolsters contrived bad faith claims.”
While this ruling is squarely limited to cases applying Florida law, it is likely that policyholders will cite to the Harvey case to support bad faith claims around the country, particularly those cases where an insurer’s conduct does not go beyond negligence. As the dissenting justices warned, at least in Florida, the Harvey decision will likely “incentivize[] a rush to the courthouse steps by third-party claimants whenever they see what they think is an opportunity to convert an insured’s inadequate policy limits into a limitless policy.”
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