Florida Bad Faith Claims: Best Practices In Claims Handling

Joanne McGovern (Claims Regional Vice-President for ProSight Specialty Insurance), joined Laura Besvinick and Julie Nevins (both of Stroock & Stroock & Lavan) to discuss the dynamics of claims-handling in Florida, the hallmarks of good faith claims-handling, and avoiding bad faith claims.

            Bad faith claims have become something of a “cottage industry” in Florida.  Certain policyholder counsel employ bad faith “set-up” strategies, particularly in cases where the liability is uncertain, but there are high damages.  In practice, there is little difference between what is required for a bad faith claim in Florida state court and ordinary negligence.  Although the legal standard is different, it is very difficult to prevent a bad faith claim from getting to a jury in Florida state court.

            Florida is one of the few states that require a settlement offer even without a demand where the liability is “certain” and the damages are significant (e.g., likely beyond policy limits).  A failure to settle, even absent a policyholder demand, is one frequent scenario for a bad faith claim.  Another major problem is the time-limited settlement demand, where the policyholder may attempt to set up a bad faith claim by providing some, but not enough, information.  The panelists agreed that it is important to get ahead of the process by, for instance, making a settlement offer first, if possible, to show that the insurer is being proactive.  Other suggestions were to ask for information before the insurer hears from the policyholder and to invite the policyholder to a meeting to discuss possible resolution.  Should the policyholder say that it is “not ready,” the insurer has effectively gotten itself out of bad faith territory.  It is particularly important to stay engaged with the policyholder when there may not be enough in limits available (e.g., because there are a number of insureds).  The panel also discussed the importance of the claims-handler being mindful that comments in text messages will be treated the same as if they were written in the claim file, and that cell phone records (both for company phones and personal phones) may be subject to subpoenas.  Other principles of good, common sense claims-handling are making sure that the policyholder is aware of settlement opportunities and the risks of an excess judgment, advising the policyholder of probable outcomes, and acting in the “best interests” of the insured.

            Insurers also face special risks when they offer a defense under a reservation of rights.  Florida courts permit the policyholder to reject the defense as offered and to take control of the defense.  Most Florida courts will treat the offer of a defense subject to an ROR as a denial of coverage and permit the policyholder to enter into a consent judgment.  The panel discussed the requirements for collection of the judgment, including the existence of coverage, breach of the duty to defend, that the settlement amount was reasonable, and some good faith component (i.e., absence of collusion).  Although liability is not technically at issue, it will often be a “back door” consideration relevant to the reasonableness of the amount of the settlement.