A Question of Timing: Policy-Limit Demands and Insurer Bad Faith in Florida

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Navigating the often-turbulent waters of the Florida insurance marketplace can be challenging for liability carriers, who frequently find themselves having to respond very quickly to what may appear to be unreasonable policy-limit demands made by counsel for claimants. These timed demands typically have three things in common, all of which can understandably be problematic for insurers:

  • they come very quickly after an underlying claim has first arisen,
  • they are frequently made well before the carrier has been able to adequately investigate the facts and circumstances of the underlying claim or to verify the injuries and medical condition of the claimant, and
  • they all too often provide a very short deadline for acceptance--combined with (not-so-veiled) threats of insurer bad faith should the carrier not immediately tender its limits within the arbitrary deadline set by counsel. 

While in some cases the underlying facts of a given claim may ultimately prove that a policy-limits demand/tender is entirely reasonable and appropriate, as in a case of clear liability on the part of the insured coupled with catastrophic damages, this is certainly not always true despite what a timed demand may strongly allege. And it goes without staying that what may at first blush may appear to be a case of clear liability may very well evolve in a different direction with time and analysis. As with all claims, large or small, careful and thorough investigation is first required. 

Of course, herein lies the rub; it can be extremely difficult for an insurance professional, who may have only very limited information about the underlying claim when the timed demand is first made, to adequately respond with a ticking “bad faith” clock. This begs the question (and is the focus of this brief article) – How much time is deemed reasonable for a carrier to investigate and respond to a timed policy-limits demand without risking running afoul of Florida’s bad faith laws?

As with so many things in the law, the answer to that question is a definite and resounding, “it depends.” We can, however, glean some general principles from Florida bad faith law that help illuminate the answer of timing as applied to policy-limit demands. Understanding these legal principles can help carriers better navigate these claims and avoid falling into a “bad faith” trap set for the unwary insurance professional. While this article offers only a very brief discussion of what can be a very complex subject, and one that is always very fact and claim-specific, the below Florida-based legal decisions addressing timed demands and subsequent allegations of bad faith can help offer some guideposts for carriers to follow:

(1) A DEMAND FROM THE CLAIMANT IS NOT ALWAYS NECESSARY:

In the seminal case from Florida’s Third District Court of Appeal, Powell v. Prudential, 584 So. 2d 12 (Fla 3d DCA 1991), the court held that an offer to settle is merely one factor to be considered in considering the issue of bad faith for a refusal to settle and that where liability is clear and injuries so serious that a judgment in excess of the policy limits is likely, the insurer has an affirmative duty to initiate settlement negotiations.

The court explained that while bad faith can be inferred from a delay on the carrier’s part in engaging in settlement negotiations if found to be willful and unreasonable, a lack of a formal settlement offer or demand does not preclude a finding of bad faith. Id. at 14. The court continued by explaining that other jurisdictions had determined that carriers may have an affirmative duty to initiate settlement discussions even when no demand has been made if the circumstances appear to warrant such negotiations:

Where liability is clear, and injuries so serious that a judgment in excess of the policy limits is likely, an insurer has an affirmative duty to initiate settlement negotiationsFarmers Ins. Exchange v. Schropp, 222 Kan. 612, 567 P.2d 1359 (1977) (duty to initiate settlement negotiations arises if carrier would initiate settlement negotiations on its own behalf were its potential liability equal to that of its insured); Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 323 A.2d 495 (1974) (where substantial injuries and potential liability of insured are obvious, failure to offer policy limits constitutes bad faith even where there is no assurance that action can be settled); Alt v. American Family Mut. Ins. Co., 71 Wis.2d 340, 237 N.W. 2d 706 (1976) (insurer has affirmative duty to investigate possibilities of settlement); Eastham v. Oregon Auto Ins. Co., 273 Or. 600, 540 P.2d 364 (1975) (insurer may be found to have acted in bad faith for delaying an offer to settle). See generally 14 Couch on Insurance 2d § 51:17 (Rev. ed. 1982); J. Appleman, Insurance Law and Practice § 4711, at 383 (Rev. ed. 1979).

Id. (emphasis supplied).

Powell remains good law in Florida and has been frequently cited with approval. Powell broadly stands for the proposition that a carrier’s failure to initiate settlement discussions when the facts appear to warrant same (i.e. clear liability and significant damages) is one element to be considered by a fact-finder in considering the subsequent question of that carrier’s alleged bad faith. Subsequent courts considering Powell have explained its impact and limitations.

It is true, of course, that Powell holds that an insurer does not have to sit back and wait for a formal demand (‘the lack of a formal offer to settle does not preclude a finding of bad faith’), and, consequently, bad faith can exist if the insurer does not attempt settlement on its own (‘an insurer has an affirmative duty to initiate settlement negotiations’). However, Powell itself cautions that the insurer's affirmative duty to initiate settlement negotiations will exist only ‘where liability is clear.’ 584 So. 2d at 14 (emphasis added). In Powell, for example, the insured's liability (coincidentally, for striking two pedestrians with her car) was evaluated at being somewhere between ‘80-100%.’ See id. at 13.

Welford v. Liberty Ins. Corp., 190 F. Supp. 3d 1085, 1095 (N.D. Fla. 2016), aff'd sub nom. Welford v. Liberty Mut. Ins. Co., 713 Fed. Appx. 969 (11th Cir. 2017). 

It should also be noted that in Florida, bad faith is judged by a “totality of the circumstances” standard rather than by specific bright-line rules or specific timing, and so a failure to initiate settlement discussions under Powell may be only one of many factors to be considered by a fact-finder in considering the question of alleged insurer bad faith. See Berges v. Infinity Ins. Co., 896 So. 2d 665, 679 (Fla. 2004).

(2) THE CARRIER MUST BE GIVEN A REASONABLE OPPORTUNITY TO INVESTIGATE THE UNDERLYING FACTS BEFORE RESPONDING TO A DEMAND:

Assuming that the facts and circumstances which trigger the Powell doctrine do not appear to apply, we can then consider how much time Florida courts have found to be “reasonable” in order for a carrier to adequately investigate the facts and circumstances of a given claim in the context of subsequent bad faith allegations.

In Johnson v GEICO, 318 Fed. Appx. 847 (11th Cir., 2009), the Eleventh Circuit Court of Appeals, when considering this question, found that a period of 33 DAYS POST-CLAIM was reasonable and explained:

An insurer—acting with diligence and due regard for its insured—is allowed a reasonable time to investigate a claim; no obligation exists to accept a settlement offer (or to tender policy limits in advance of a settlement offer) without time for investigationSee Boston Old Colony, 386 So. 2d at 785 (part of good faith duty is obligation of insurer to investigate the facts); DeLaune v. Liberty Mut. Ins. Co., 314 So. 2d 601 (Fla.App.1975) (recognizing right first to make inquiry and evaluate merits of claim before obligation to settle is triggered).

After viewing all the evidence in the light most favorable to Insureds, we conclude that insufficient evidence of bad faith was proffered to take this case to a jury. The record shows that liability was contested initially by Johnson. Geico's BI adjuster moved quickly to determine liability. Staley's counsel made a 30–day demand for policy information; Geico responded in far fewer days. Even though no facts suggested that Staley needed immediate funds and no settlement demand was made, Geico offered the policy limits within that 30–day period and just 33 days of the accident date. In the light of the information known to Geico and the totality of the circumstances, no reasonable jury could find that Geico breached its duty of good faith.

Id. at 851.

Likewise, in Cosola v. Geico Gen. Ins. Co., 12-CV-80607, 2013 WL 4854516 (S.D. Fla. Feb. 28, 2013) (applying Florida law), the court found the no bad faith existed where GEICO made its tender WITHIN APPROX. 30 DAYS OF BEING NOTIFIED OF THE CLAIM:

Here, the facts, as alleged, do not justify a claim for insurer common law bad faith. To the contrary, Plaintiff's allegations demonstrate that Geico acted promptly, diligently, and in good faith in resolving the coverage issue and tendering the policy limits to Plaintiff's counsel. Geico tendered its policy limits within 30 days from the date which Plaintiff's counsel sent its representation letter and vehicle homicide investigation. Notably, within this time Geico resolved the coverage dispute concerning Santoro's policy and consistently notified Plaintiff's counsel of its progress concerning the same. Moreover, the allegations demonstrate Plaintiff never made a demand to Geico for payment under the policy. In fact, neither Plaintiff nor Plaintiff's counsel made any request for payment, nor did they make any contact with Geico whatsoever from the date Plaintiff's counsel sent the representation letter, March 12, 2007, to the date when Plaintiff's counsel sent the letter rejecting Geico's tender of the policy limits, April 19, 2007. Despite this, however, Geico tendered the policy limits to Plaintiff's counsel on its own accord in less than a month after receiving Plaintiff's counsel's representation letter. These facts, as alleged by Plaintiff, do not support a finding of bad faith.

Id. at *2.

And, in Clauss v Fortune Ins. Co., 523 So. 2d 1177 (Fla 5th DCA 1988), the Fifth District Court of Appeal held that a ONE MONTH PERIOD OF TIME TAKEN BY THE CARRIER IN ORDER TO VERIFY THE FACTS OF THE CLAIM WAS NOT UNREASONABLE OR EXCESSIVE AND DID NOT RISE TO THE LEVEL OF BAD FAITH:

In the present case, there were insufficient allegations of unreasonable and bad faith conduct on the part of Fortune. There was only a one-month time span between the initial demand for the policy limits and the notice of the bad-faith failure to settle. During that time, Fortune expressed its willingness to tender the policy limits, but desired verification. A one-month period to verify the claim was not excessive, and certainly does not rise to the level of bad faith, particularly when Fortune tendered the policy limits one day after the notice of the bad-faith failure to settle was sent by Clauss.

Id. at 1178; see also Southern Gen. Ins. Co. v. Holt, 416 S.E. 2d 274, 276 (Ga. 1992) (“An insurance company does not act in bad faith solely because it fails to accept a settlement offer within the deadline set by the injured person's attorney.”).

Finally, in DeLaune v. Liberty Mut. Ins. Co., 314 So. 2d 601, 601 (Fla. 4th DCA 1975), a case involving a very short 10-day timed demand and what appeared to be a prototypical bad faith “set up,” the Fourth District Court of Appeal found that the 10-DAY DEADLINE WAS UNREASONABLE and that the carrier had the right to independently investigate the medical information furnished, explaining the sequence of events as follows:

The accident happened December 27, 1971. In less than a month suit was filed. Defense counsel received the file to defend eleven days later. Eight days after that plaintiffs' counsel offered to settle for the policy limits but limited the time for acceptance to ten days. It is the latter aspect of the offer which we find totally unreasonable under these circumstances. In view of the short space of time between the accident and the institution of suit, the provision of the offer to settle limiting acceptance to ten days made it virtually impossible to make an intelligent acceptance. Nor does the enclosure of an affidavit from a doctor stating that the injured plaintiff would be totally disabled warrant a different conclusion. Since when does one party to a lawsuit have to accept at face value the medical information furnished by the other party without even any inquiry? The evidence here shows that appellee its adjusters, and its counsel proceeded with all due haste to determine and evaluate their position, and they almost made plaintiffs' unreasonable deadline. It should be noted that the personal injury case went to trial ten months after the deadline, so the time limitation was not invoked because the trial was imminent. Finally, to demonstrate that this whole charade might have been a ‘set up’ for just such a suit as we are considering (as argued by appellee) when Monday came, after the Friday deadline, and the home office authorized settlement, plaintiffs' counsel refused it.

Id. at 603.

(3) THE THOROUGHNESS OF THE CARRIER’S INVESTIGATION WILL BE RELEVANT TO THE ISSUE OF GOOD OR BAD FAITH.

Although not addressing the specific amount of time involved in reasonably investigating a claim and timed demand, carriers should be mindful, as stated by the Florida Supreme Court in State Farm v Laforet, 658 So. 2d 55 (Fla. 1995), that the level of diligence and thoroughness in completing its investigation of the underlying facts is to be considered by the fact-finder when considering if that carrier acted in good faith

The Laforet court reaffirmed that bad faith is to be adjudicated under a “totality of the circumstances” approach and outlined the various factors that must be considered, which include the carrier’s efforts in property investigating the facts of the claim:

[A]t least five factors should be taken into account: (1) whether the insurer was able to obtain a reservation of the right to deny coverage if a defense were provided; (2) efforts or measures taken by the insurer to resolve the coverage dispute promptly or in such a way as to limit any potential prejudice to the insureds; (3) the substance of the coverage dispute or the weight of legal authority on the coverage issue; (4) the insurer's diligence and thoroughness in investigating the facts specifically pertinent to coverage; and (5) efforts made by the insurer to settle the liability claim in the face of the coverage dispute. 

Id. at 62–63. Laforet, as the reader will note, addressed the additional complication of questionable coverage in the context of a bad faith failure to settle, which may or may not always be at issue.

Thus, Laforet informs us that it is not merely whether the carrier was provided with sufficient information to adequately respond to a timed demand, but also what affirmative steps the carrier took to undertake a diligent investigation in light of a significant claim, that will be relevant to the question of bad faith.

In sum, none of the above-referenced decisions should be taken in isolation but viewed together, they help to clarify the legal landscape in Florida when addressing timed policy-limit demands that may at best provide an inadequate time period for the carrier to independently verify the facts of a given claim, and at worst, may involve what the claimant’s counsel may hope is a successful bad faith “set up” designed to trap the unwary carrier. 

Alleged insurer bad faith in Florida will almost always be a question of fact for the fact-finder, not an issue of law, and the carrier’s conduct must be evaluated by “totality of the circumstances” approach that will involve a very fact-specific inquiry with respect to the unique facts and circumstances of a given claim. With that said, where liability does appear very clear, and the damages likely to be in excess of policy limits, carriers must move thoughtfully, but swiftly, in responding to a timed demand and may well have an obligation under Powell to affirmatively begin settlement discussions even in the absence of a formal demand having been made.

Dale S. Dobuler is a shareholder in the Segal McCambridge Singer & Mahoney Ft. Lauderdale office and a member of the firm’s Insurance Coverage and Bad Faith Practice Group. Mr. Dobuler practices complex insurance coverage and bad faith and serves as co vice-chair of the DRI Bad Faith practice group. He can be contacted at 954.765.1001 or ddobuler@smsm.com

The Segal McCambridge Insurance Coverage and Bad Faith Practice Group is co-chaired by Patrick Kemp and Douglas McIntosh. For more information on the firm’s Insurance Coverage and Bad Faith practice, email pkemp@smsm.com or dmcintosh@smsm.com.

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