Handling multiple competing claimants and the potential for bad faith liability in Florida
Insurers must frequently navigate the tricky situation of handling multiple competing claims arising from a single accident with clear liability where the policy limits are insufficient to settle all claims. Such claims create obstacles for insurers that could result in bad faith liability if not handled timely and appropriately. Generally, in such situations, Florida law provides that an insurer has the discretion to elect how to settle the claims, and may choose to settle certain claims to the exclusion of others, subject only to a duty to act reasonably and in good faith. Farinas v. Fla. Farm Bureau Gen. Ins. Co., 850 So.2d 555, 561 (Fla. 4th DCA 2003). The duty to act reasonably and in good faith requires the insurer to first fully investigate all potential claims to determine how to best limit the insured's liability, then attempt to settle as many claims as possible within the policy limits, while avoiding indiscriminately settling selected claims and leaving the insured at risk of excess judgments, and also keeping the insured informed of the claim resolution process. Id. at 560.
A critical consideration in any bad faith case is whether the insurer conducted a thorough investigation of all claims before beginning settlement negotiations with any one claimant. Clients frequently ask us if they should investigate potential claims even if the claimant is not represented by counsel, or the insurer does not know whether a claim will be presented? Our answer is yes, absolutely. The insurer should promptly send letters to all potential claimants to ascertain whether they might make a claim.
Documented notice to all potential claimants is especially critical because not all injuries and claimants are created equal. Do the insurer’s obligations change when one claimant sustained significantly greater injuries than the other claimants? A recent Florida case offers new guidance to insurers on this issue. In Montanez v. Liberty Mut. Fire Ins. Co., 2019 WL 3302308 (S.D. Fla. July 23, 2019), an auto accident resulted in non-fatal injuries to four individuals and the death of an infant. The insurer immediately began its investigation after learning of the accident. The insurer obtained the police report, conducted internet searches to locate all possible claimants, sent excess exposure letters to its insured, and advised the insured’s driver to retain personal counsel. Upon learning that the mother of the deceased infant had retained counsel, the insurer made repeated attempts to contact her counsel but he did not respond.
Thirty-two days after the accident, the insurer notified all claimants that the insurer was tendering the full policy limits ($250,000 per person/$500,000 per accident) to settle all claims, and that the insurer would arrange a global settlement conference to assist the claimants in reaching an apportioned settlement. A month later, counsel for the estate notified the insurer that they refused to settle the wrongful death claim because the insurer failed to immediately tender its full per person policy limit. A few days later, the insurer tendered its full per person limits to the estate. The estate rejected the offer and, after filing suit and obtaining an $8.25 million judgment against the insured, brought a bad faith action against the insurer.
Faced with these facts, the Court held that the insurer did not act in bad faith as a matter of law and entered summary judgment in favor of the insurer. In particular, the Court observed:
After learning of the accident, Defendant diligently investigated a potential coverage issue, sought out police and events reports, contacted and advised its insured, and offered, within thirty-two days, to settle all claims by tendering its full policy limits . . . Defendant did so in the absence of a specific demand from Plaintiff and without any indication that might suggest urgency in the resolution of Plaintiff’s claim. . . . Indeed, Defendant’s diligence was undeterred by Plaintiff’s counsel’s repeated refusal to communicate with Defendant during the investigative process. In sum, the facts, when viewed in the light most favorable to Plaintiff, support the contention that, at most, Defendant delayed in offering to settle Plaintiff’s wrongful death claim by thirty-two days while it conducted an investigation. Such delay is not unreasonable.
The Court rejected the plaintiffs’ argument that an insurer has an obligation to immediately tender its per person policy limit to the most injured claimant before engaging in a global settlement conference to apportion the remainder of its per accident policy limit among the other competing claimants.
Though the global settlement approach is generally advisable, some Florida courts have held that it is not required in all cases. For instance, in Houston v. Progressive Am. Ins. Co., 2014 WL 12576820 (M.D. Fla. 2014), the court held “there is no duty under Florida law for an insurer in a multiple competing claimant situation to immediately tender a full split limit to the most injured victim, even where the insurer knows, and other claimants agree, which victim is the ‘most injured.” Id. at *5. However, the Court also noted that if it becomes clear that the injuries to a specific victim are so grave, and the injuries to the remaining potential claimants are so minor, the insurer’s good faith duty may require it to jettison the global settlement approach and make a full tender to the gravely injured victim.
The takeaway for insurers faced with multiple competing claims and insufficient policy limits is that, while each case must be evaluated on its particular facts, the insurer generally has no obligation to immediately tender a full per person policy limit to the most seriously injured claimant, even when the remainder of the per accident limit would be available for the other less serious claims. Instead, the insurer should exercise its discretion to resolve all the claims through a global settlement process. To be in the best possible position to determine how to best protect the insured, the insurer should promptly investigate all potential claims and, to the extent possible, determine which claims involve the most serious injuries. While handling multiple claims can create difficulties and tough decisions for insurers, a prompt investigation, regular documented communication with insureds and claimants, and a calculated approach to valuation of claims will put the insurer in the best position to protect the insured from excess exposure and significantly reduce the likelihood of any bad faith liability in Florida.