In prior blogs, I have written about cases involving insurance company third-party bad faith. Third-party bad faith occurs when an insurance company fails to protect an insured’s interests in a lawsuit brought against him or her by a third party that results in an uninsured judgment above the limits of the policy. When an insured gets sued, the duty of the insurance company is to make sure that the policyholder does not get exposed to a judgment in excess of the policy limits that (s)he purchased.
Decided in September of this year, the Supreme Court of the State of Florida reminded GEICO of what can happen when it fails to protect its insured under these circumstances. That reminder came in the form of holding GEICO responsible for $9.2 million, the verdict against its insured above the $100,000 policy limits (along with some additional damages).
The case, entitled Harvey v. GEICO, arose when GEICO’s insured, James Harvey, was involved in a car accident with a 51-year-old man who died from the crash and left behind a wife and three children. The limits of Harvey’s policy with GEICO were $100,000. GEICO determined, almost immediately after the accident, that Harvey was responsible for the accident and that Harvey had significant financial exposure above the limits of the policy.
In this case, the claims adjuster for GEICO unreasonably delayed and failed to cooperate with the attorney for the plaintiff. This led to a breakdown in any possible settlement discussions and the filing of suit by the plaintiff, who ultimately obtained an $8.5 million verdict against GEICO’s insured, Mr. Harvey.
Supreme Court Decision
Under the circumstances, the Florida Supreme Court reminded insurance companies that when liability is clear and the injuries are so serious that a judgment in excess of the policy limit is likely, “an insurer has an affirmative duty to initiate settlement negotiations.” The court described the exposure to the insured under these circumstances as a “taking financial time bomb” where suit could be filed at any time.
In holding GEICO responsible for the entire excess verdict, plus additional damages, totaling $9.2 million, the Florida high court ruled that, although GEICO offered the policy limits to the plaintiff before the giant verdict was rendered against its insured, that rejected offer was insufficient to defeat Mr. Harvey’s bad faith claim against GEICO.
This ruling by the Florida Supreme Court sends a strong message to insurance companies that sell liability policies in the State of Florida. That message is, simply: you better treat your insureds with the utmost good faith when you have control of their financial destiny.
For those policyholders who have been or believe they may be exposed to an excess financial judgment due to the bad faith conduct of their insurance company, feel free to give us a call.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack