BAD FAITH LITIGATION IN FLORIDA: REASONABLE INVESTIGATION AND REASONABLE NOTICE
By Gary R. Shendell - Shendell Pollock, P.L.
Increasingly, plaintiffs in Florida seek to pressure settlements from defendants and their insurers through artfully pleaded complaints followed closely by time limited demands that provide minimal opportunity to review the underlying matter before deciding on the value of the claim. These time limit demands, which offer to settle the matter in exchange for the remaining insurance policy limits, frequently make conclusory presentations of the alleged damages and presume liability of the insured. Insurers receiving these demands on behalf of their clients often are given as little as 20 days to investigate the circumstances underlying what are often complex claims. They must also determine whether to tender the policy limits in light of the circumstances and in conformance with the duty to act fairly and honestly towards the insured and with due regard for the insured’s interests or to deny the claim for lack of liability and/or damages and face the potential for bad faith litigation and exposure to extra-contractual liability. Recent cases however, have recognized the rights of insurers to conduct “reasonable investigation” into the facts underlying a claim prior to responding to a policy limit demand.
One recent example of the courts recognizing the need to allow insurers time for reasonable investigation is Shin Crest PTE, LTD v. AIU Ins. Co., 605 F. Supp 2d 1234 (M.D. Fla. 2009). In Shin Crest, the Federal Middle District of Florida held that potential damages far in excess of the policy limits are not determinative of bad faith when liability is not clear at the time of the demand. Id at 1241. The Shin Crest court cited approvingly to Florida Supreme Court Justice Wells’ dissenting opinion in Berges v. Infinity Insurance Co., 896 So. 2d 665 (Fla. 2005) which stated:
[T]here are strategies which have developed in the pursuit of insurance claims which are employed to create bad faith claims against insurers when, after an objective, advised view of the insurer’s claims handling, bad faith did not occur. This is a strategy which consists of setting artificial deadlines for claims payments and the withdrawal of settlement offers when the artificial deadline is not met. The goal of this strategy is to convert a policy purchased by the insured which has low limits of insurance into unlimited insurance coverage.
[Allowing created] bad faith action[s] is ... greatly detrimental to Florida’s liability insurance consumers because of the increases in their insurance costs.
Id. at 685-86
Likewise, the Southern District of Florida also recognized that reasonable time for investigation is necessary in the case Aboy v. State Farm Mut. Auto. Ins. Co., Slip Op., WL 727967 (S.D. Fla. 2010). In Aboy, the court declined to find bad faith when the insurance company delayed tendering its $15,000.00 policy limit until such time as it became clear that the damages in the matter exceeded the applicable policy limits. The court noted: “the relevant principal . . . is that an insurer is entitled to conduct a reasonable investigation before tendering a policy limit.” Id. at 4.
In addition, courts are also restricting plaintiffs’ ability to “manufacture” statutory bad faith claims. In August 2010, Shendell and Pollock P.L. litigated the sufficiency of a Civil Remedy Notice wherein Judge Huck of the Southern District dismissed the plaintiffs’ statutory bad faith claims, which were predicated upon a multifarious and vague Civil Remedy Notice. The court’s order stated:
[T]he civil remedy notice reflects a shotgun-blast effort to hit a lot of targets with a single salvo. This approach is contrary to the purpose of the statute. The civil remedy notice must reflect a good-faith effort to inform the insurer of how it has fallen short of its obligations under the policy and what it can do to fix its shortcomings.
The Court also noted: “The civil remedy notice is not the place for posturing or advocacy, and an effort to overstate a claim in a civil remedy notice may end up undermining it.”
Fortunately, the courts continue to recognize the potential for abuse inherent in the bad faith litigation arena and to acknowledge the realities facing insurers and defense counsel with regard to reasonably investigating liability and damages as part of responsible claim handling practices.
By Gary R. Shendell
Shendell Pollock, P.L.
621 N.W. 53rd Street, Suite 310
Boca Raton, FL 33487
South Florida Legal Guide 2011 Edition