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January 22, 2008 | Publication| Ripe for Campbell Review: A Florida Uninsured Motorist Claimant's Statutory Right to Recover Excess Verdict Damages in a Bad Faith Action

J. Pablo Cáceres, Christopher M. Ramey

Ripe for Campbell Review: A Florida Uninsured Motorist Claimant’s Statutory Right to Recover Excess Verdict Damages in a Bad Faith Action

By: J. Pablo Caceres and Christopher M. Ramey

This is one of a series of articles under the by line “Butler on Bad Faith” originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 21, #18, page 29 (January 22, 2008).

[Editor's Note: J. Pablo Caceres is a partner with the law firm of Butler Weihmuller Katz Craig LLP, with offices in Charlotte, Miami, Mobile, Tallahassee, and Tampa. He litigates a broad range of first and third party coverage and bad faith insurance claims. Christopher M. Ramey is an associate with the law firm of Butler Weihmuller Katz Craig LLP. His practice centers around the litigation of first-party property coverage issues and bad faith. This commentary, other than the quoted material, is the authors’ opinion; not their firm's, and not Mealey's Publications’. Copyright © 2008 by the authors. Responses are welcome.]

                                                                                         

In many jurisdictions, jurors can award punitive damages to punish or penalize an insurer for improper claims handling, in addition to any compensatory damages caused by an insurer’s bad faith. Such jury awards of punitive damages now are subject to scrutiny under State Farm Mutual Automobile Insurance Company v. Campbell.1 As a result of Campbell, insurers have one final check against excessive punitive damages awards by juries.

Within the context of a bad faith action involving an uninsured motorist (UM) claim, one jurisdiction, by statute, allows punitive-like damages that would seem to raise serious Campbell concerns. In a Florida bad faith action, a UM insured can recover the total amount of a personal injury damages verdict that was set by a jury in a prior UM contract action and that exceeded the applicable UM policy limits.2 For example, suppose a UM claimant sues an insurer in Florida for contractual UM benefits having policy limits totaling $25,000. Under Florida law, the UM claimant would present her case for personal injuries against the insurer and a jury would determine liability and damages caused by the uninsured tortfeasor. Assume a jury returns a verdict for $1,000,000, representing the personal injury damages sustained by the UM claimant. The resulting judgment against the UM insurer in that action would be limited by the $25,000 UM policy limit. However, the $1,000,000 personal injury verdict–an excess verdict because of the low policy limit–would be recoverable, by statute, in any subsequent bad faith action for improper UM claims handling.

Now, here’s the important point for applying a Campbell analysis. Assume an award of prior excess verdict amount equates to the imposition of bad faith punitive damages (as discussed later, it does). Doesn’t the above scenario, so common in Florida, present serious Campbell concerns? At first blush, it would seem so, given that the 40 to 1 ratio between the $1,000,000 excess verdict and the $25,000 policy limit3 would greatly exceed the "single digit" guideline set by Campbell. Moreover, the amount of the personal injury-based excess verdict has little to do with the degree of "bad faith" in the handling of the UM claim. The jury in the underlying contractual UM claim did not hear any evidence of bad faith. Yet, by statute, the full amount of that verdict is awardable, automatically, when a UM insurer is found liable for bad faith.

Notably, Florida appears unique in allowing recovery of the excess verdict amount in a UM bad faith case.4 This may be because Florida’s first party bad faith action is statutory, while most other states that recognize first party bad faith base the action on tort or contractual principles, which require the element of causation.5 For example, in California, an insurer in bad faith cannot be liable for excess bodily injury damages involving an uninsured motorist.6 The rationale is that such damages precede any bad faith conduct by the insurer and are not proximately caused by the insurer.7 In Pennsylvania, no common law remedy exists for an action against a bad faith insurer.8 Instead, a Pennsylvania insured must sue under its statutory scheme which contains no express allowance for recovery of a UM excess verdict.

Florida did not always allow recovery of the excess verdict in a first party bad faith action. Before the UM statute was amended specifically to allow such recovery, in McLeod v. Continental Insurance Company, the Florida Supreme Court held that the underlying excess verdict in a UM case could not be recovered in a subsequent statutory bad faith case.9 The court discussed fundamental principles underlying compensatory damages. Such damages represent the "loss, injury or deterioration caused by negligence, design or accident of one person to another."10 A person injured "by breach of contract or by wrongful or negligent act of omission shall have fair and just compensation commensurate with the loss sustained in consequence of the defendant’s act which [gave] rise to the action."11 Within the context of a UM bad faith action, the McLeod court noted that the amount of a UM excess verdict does not qualify as a bad faith compensatory damage because 1) the excess judgment did not injure the UM insured and 2) the uninsured tortfeasor, not the insurer, caused the excess verdict damages.12 "To allow recovery of the excess judgment would be in direct conflict with the fundamental principle that one is not liable for damages that he or she did not cause."13

Of course, a third-party bad faith action fundamentally differs from a UM bad faith action with regard to the recovery of any excess judgment. An excess judgment entered against an insured (under bodily injury liability coverage) in a third-party action is recoverable because the insurer’s bad faith failure to settle 1) caused the judgment against the insured and 2) the judgment against the insured, indeed, amounts to real damage that was avoidable but for the insurer’s bad faith failure to settle.14 But, within the context of a UM bad faith claim, the UM insured is not damaged by the entry of an excess judgment.15 The UM insured, of course, was damaged by the uninsured motorist.

McLeod’s holding that a UM claimant in a bad faith action could not recover the amount of the excess judgment soon became moot. Immediately after McLeod, the Florida Legislature amended the UM statute and expressly authorized such recovery in a UM bad faith case.16

Eventually, the Florida Supreme Court addressed, very briefly, pre-Campbell constitutional concerns regarding the statutory amendment in State Farm Mutual Automobile Insurance Company v. LaForet.17 (Actually, LaForet is better known in Florida as establishing the "totality of the circumstances" standard for determining "bad faith.") Within the discussion of whether the amendment was retroactive, the court gave a footnote’s worth of discussion to the point raised by Amicus Florida Defense Lawyers Association ("FDLA").18 The FDLA argued that the statute was unconstitutional as a whole, not just when retroactively applied. The Florida Supreme Court rejected the argument "without discussion," citing its acknowledgment in McLeod that the enactment of such a provision would be within the province of the Legislature.19

The acknowledgment in McLeod is dubious. Citing the Florida Supreme Court case of E. F. Hutton & Company v. Rousseff,20 the McLeod court wrote that "the legislature has the right to modify the common law definition of damages and allow recovery for amounts not proximately caused by the insurer’s bad faith."21 This statement, however, cannot be interpreted to mean that the legislature’s prerogative has no constitutional limitations, particularly with respect to insurance bad faith damages.22 Moreover, the Florida Supreme Court’s reliance on Rousseff seems misplaced. Rousseff involved the very narrow question of whether Florida’s statutory securities fraud remedies required proof of causation for recovery of damages, even though the statute had no expressed causation element.23 In holding that proof of causation was not required, the Florida Supreme Court in Rousseff did not say (or mean to say) that the Florida legislature had the unfettered right to "modify the common law definition of damages." In fact, the Court in Rousseff noted that the Florida statutory securities fraud remedies were "patterned after" the common law action for contractual rescission, a remedy that does not require proof of causation.24 Clearly, the omission of any causation element did not modify any "common law definition of damages"–the common law rescission remedy was consistent with the securities fraud statutory scheme.25

So, LaForet’s rejection, in a footnote, of the FDLA’s pre-Campbell constitutional argument seems to lack any real precedential support. Perhaps the Florida Supreme Court’s scant attention to the issue is best explained by the fact that FDLA’s point was not raised by the petitioner, State Farm.26 But, while the Florida Supreme Court found the UM bad faith penalty constitutional in LaForet, new considerations should arise after the U.S. Supreme Court released its decisions in BMW of North America, Inc. v. Gore27 and State Farm Mutual Automobile Insurance Company v. Campbell.28 The FDLA did not, of course, have these cases at its disposal in LaForet.

Before considering Gore/Campbell, one must accept the premise that the UM statute authorizes, in effect, the recovery of punitive damages in a bad faith case, notwithstanding the statute’s failure to call these damages "punitive." The Florida Supreme Court in McLeod discussed at length why any imposition of the excess verdict would amount to an award of punitive damages.29 LaForet confirmed that the UM statute is a penalty.30 So, for purposes of a Gore/Campbell analysis, the authorized recovery of the excess verdict amount must be considered a punitive remedy. As previously discussed, such damages cannot be considered compensatory.

According to the Court in Campbell, punitive damage awards must follow the guideposts set forth in Gore.31 State courts must implement the Gore principles "with care," taking into account "both reasonableness and proportionality"32 as the Due Process Clause of the Fourteenth Amendment disallows "grossly excessive" or "arbitrary punishments" on the tortfeasor.33 The guideposts are: 1) the degree of reprehensibility of the conduct, 2) the ratio between the punitive award and the actual harm inflicted on the plaintiff, and 3) sanctions for comparable conduct. Here, only the first two really merit discussion.

As noted in previous articles, the reprehensibility guidepost focuses around five considerations.34 These includes whether: 1) the harm by the insurer consisted of physical rather than economic harm; 2) the insurer’s conduct exposed an indifference to or a reckless disregard for the safety of others; 3) the insurer’s conduct exposed a economically vulnerable victim; 4) the conduct occurred repeatedly; and 5) the conduct involved intentional malice, trickery, or deceit.35

Florida’s UM statute ignores the guideposts and the specified reprehensibility considerations when it authorizes full recovery of the UM excess verdict amount. It has to--the insurer’s conduct did not cause the damages represented by the excess verdict. The excess verdict amount is determined only by the seriousness of the personal injury claim, not the nature of the insurer’s conduct. The reprehensibility factor has no role whatsoever in determining whether an award of the excess judgment amount exceeds constitutional limitations. Also, under Florida’s bad faith statute, liability for the UM excess judgment would not necessarily require a determination that the insurer engaged in the type of conduct normally applicable to a determination of punitive damages. For these reasons alone, the UM statute could be struck down as unconstitutional.

With regard to the second, ratio guidepost, the UM statute has the potential to authorize awards that greatly exceed the punitive-compensatory single-digit ratio. This "single digit" figure is important because even though the Campbell Court refused to place concrete constitutional limits on the ratio between compensatory and punitive damages, single digit multipliers were recognized as most likely to satisfy a due process test.36 However, could the statute be struck merely because it has the potential to award amounts exceeding reasonable ratios? Juries have the similar potential to award such amounts and, of course, they remain an integral part of the procedure. If the UM statute is not struck down for violation of the first guidepost, perhaps a case by case consideration would be warranted to determine whether particular excess judgment- based awards exceed the permissible ratio.

In this article, we assumed the UM policy limit amount would be a proper basis for determining the Gore ratio. It represents the contractual amount allegedly withheld in bad faith, and it makes sense to use as the basis for the ratio, even though, in Florida, the policy limit is recovered in a different action. But, as one federal appellate court noted in Willow Inn, Inc. v. Public Service Mutual Insurance Company, there are "no shortage of candidates" as to which figures to use as the basis for the ratio.37 Within the UM context, one could argue that the damage directly caused by the delay in payment would be the appropriate figure to use. In Florida, such compensatory damages are often nominal. The expected recovery might include only the insured's attorney fees, extra costs, and interest.38 It should be noted that Florida allows emotional distress damages only in a bad faith action involving health care insurance.39

There is another important point to consider with respect to Florida’s statutory bad faith scheme as it relates to UM bad faith damages. In addition to recovery of the excess verdict amount and compensatory damages, Florida’s bad faith statute specifically allows a claimant to recover punitive damages.40 Even LaForet noted that Florida’s bad faith statute awards two penalties.41 This double penalty would seem to violate fundamental Gore/Campbell considerations.

Eventually, the Florida Supreme Court must consider a Campbell challenge to the UM statute, or at least its application to particular cases. If the Florida Supreme Court fails to strike down the statute, it is conceivable that it will attract the attention of the U.S. Supreme Court. In light of the continuous cycle of Campbell challenges to jury awards of punitive damages, a Campbell challenge to a statutorily-sanctioned award at least would break the monotony of jury-sanctioned punitive damages amounts.

ENDNOTES

1. State Farm Mutual Automobile Insurance Company v. Campbell, 538 U.S. 408 (2003).

2. Florida Statute § 627.727(10) reads: "The damages recoverable from an uninsured motorist carrier in an action brought under s. 624.155 [the Florida bad faith statute] shall include the total amount of the claimant’s damages, including the amount in excess of the policy limits, any interest on unpaid benefits, reasonable attorney’s fees and costs, and any damages caused by a violation of a law of this state. The total amount of the claimant’s damages is recoverable whether caused by an insurer or by a third-party tortfeasor."

3. As will be discussed later herein, one could argue that the $25,000 policy limit in the underlying contractual UM case cannot be used in the subsequent bad faith case to determine whether bad faith punitive damages exceed the appropriate ratio.

4. Creative Westlaw searches revealed that only Florida appears to allow such recovery.

5. First-Party Bad Faith: The Search for a Uniform Standard of Culpability, 52 Hastings L.J. 181, 182 n. 5 (2000) (finding twenty-five states that explicitly allow common law tort recovery, but citing five others that have allowed for "similar damages on expanded notions of contract law," and two more that have enacted statutes covering bad-faith actions).

6. See State Farm Mutual Automobile Insurance Company v. Superior Court of Las Angeles County, 123 Cal.App. 4th 1424 (2004).

7. Id. at 1433. California is a tort-based bad faith state. Id.

8. See Reithmiller v. Bedford County Grange Mutual Insurance Company, 52 Pa. D. & C.4th 190, 195 (2001).

9. McLeod v. Continental Insurance Company, 591 So. 2d 621, 626 (Fla. 1992).

10. Id. at 624.

11. Id.

12. Id.

13. Id.

14. Id.

15. Id.

16. State Farm Mutual Automobile Insurance Company v. LaForet, 658 So. 2d 55, 60 (Fla. 1995).

17. LaForet, 658 So. 2d at 55.

18. Id. at 61, n. 1.

19. Id.

20. E. F. Hutton & Co., Inc. v. Rousseff, 537 So. 2d 978 (Fla. 1989).

21. McLeod, 591 So. 2d at 625.

22. Interestingly, involving an insurer’s wrongful refusal to pay, the U.S. Supreme Court acknowledged the ability of a state legislature to fix an amount of damages if those damages were moderate and reasonable. Life & Casualty Company of Tennessee v. McCray, 291 U.S. 566, 570 (1934).

23. Rousseff, 537 So. 2d at 978.

24. Id. at 981.

25. Id. at 981-82.

26. See Appellant’s Brief, 658 So. 2d 55 (Fla. 1995) (No. 83537).

27. BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996).

28. Campbell, 538 U.S. at 408.

29. "Further, arbitrarily setting the damages recoverable as the amount of the excess judgment would be analagous (sic) to imposing a penalty or punitive damages upon the insurer." McLeod, 591 So. 2d at 625.

30. LaForet, 658 So. 2d at 61.

31. Campbell, 538 U.S. at 427.

32. Id. at 428.

33. Id. at 416-17. The Court maintains this fundamental principle dates back to the Magna Carta and "arises out of the basic unfairness of depriving citizens of life, liberty, or property, through the application, not of law and legal processes, but of arbitrary coercion." The Court continues, "[t]he reason is that [e]lementary notions of fairness enshrined in our constitutional jurisprudence dictate that a person receive fair notice not only of the conduct that will subject him to punishment, but also of the severity of the penalty that a State may impose."

34. Id. at 419, citing Gore, 517 U.S. at 559. See also Diane M. Barnes, Punitive Damages- the Rationale of Ratios, Vol 21, Number 16 (December 18, 2007); John V. Garaffa, Sleep Tight, Don't Let the Bedbugs Bite: Exploring the Increasingly Ephemeral Limits on Punitive Damages, Mealey's Litigation Report: Insurance Bad Faith, Vol. 19, Number 14 (November 15, 2005); John V. Garaffa, Remanded in Light of State Farm v. Campbell: The Opportunity For Further Illumination Presented by Williams v. Philip Morris Inc., Mealey's Litigation Report: Insurance Bad Faith, Vol. 20, Number 10 (September 19, 2006).

35. Id.

36. Id. at 425.

37. Willow Inn, Inc. v. Public Service Mutual Insurance Company, 399 F.3d 224, 234 (3rd Cir. 2004).

38. LaForet, 658 So.2d at 61.

39. Time Insurance Company v. Burger, 712 So. 2d 389 (Fla. 1998).

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April 26, 2012 PublicationCreative Methods Used To Set-Up ‘Bad Faith' Claims — Use Of Multiple Coverage Demands

In the past decade, the bad-faith environment has rapidly shifted from a useful tool used by consumers to protect themselves from arguably egregious actions to an elaborate trap set by personal injury plaintiff attorneys to reap outrageous awards from seemingly innocent conduct by claims professionals. Insurance companies now fear multi-million dollar verdicts based on policies written for insureds who did not want more than the absolute minimum coverage allowed. Based on technicalities, clever plaintiff attorneys attempt to convince courts to rewrite insurance policies, allowing for unlimited recoveries.

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March 22, 2012 PublicationA Liability Insurer's (Almost Absolute) Right To Settle Claims Without The Insured's Consent

Many cases hold that a liability insurer can settle a claim against its insured without the insured’s consent because the policy language gives an insurer the right to settle even when an insured may not want to settle.1 For the most part, courts in California, Florida, and Louisiana allow insurers to settle claims without the insured’s consent where the policy gives the insurer the right to settle as it deems expedient. However, courts may nonetheless consider whether a settlement may have adversely impacted the insured to determine whether an insurer acted in good faith.

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February 23, 2012 PublicationBullock v. Philip Morris USA, Inc.: Where ‘Reprehensibility' As An Exception To Constitutional Protections And the Ratio Guidepost Includes The Wealth Of The Defendant

On November 30, 2011, the California Supreme Court exercised its discretion and let stand a $13.8 million punitive damage award that was more than 16 times the compensatory damages awarded by the jury. The case, Bullock v. Philip Morris, 1 (Bullock) involved a smoker diagnosed with lung cancer who filed suit against the cigarette manufacturer, seeking damages based on products liability, fraud, and other theories.

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January 26, 2012 PublicationWho Killed Reverse Bad Faith? And Why It Could Make A Comeback

In every state in the union an insured can seek some form of compensation for an insurer’s ‘‘bad faith’’ in adjusting a claim.Yet only one state, Tennessee, currently allows an insurance company to recover damages caused by the insured’s bad faith.This imbalance has allowed ‘‘bad faith’’ litigation to become big business.The tendency of courts to treat insureds like a disadvantaged class has created an uneven playing field for insurance companies in claims adjustment.

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December 22, 2011 PublicationA Wolf In Sheep's Clothing (Insurers Should Be Vigilant In Florida)
[ Editors note: Alan J. Nisberg, Esq., is a partner with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial and appellate attorney, specializing in extra-contractual, class action and complex coverage litigation. This commentary, other than the quoted material, expresses the authors opinions -  not the opinions of Butler or Mealey's. Copyright © 2011 by the author. Responses are welcome. ] 
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November 23, 2011 PublicationProximate Causation In Third-Party Bad Faith: Not Every Bad Decision Is A Bad-Faith Suit

James Michael Shaw Jr. is a senior associate with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. He practices in the firm's Extra-Contractual, Third-Party Coverage and Liability Departments. Any commentary or opinions do not reflect the opinions of Butler or Mealey's. Copyright © 2011 by James Michael Shaw Jr. Responses are welcome.

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October 27, 2011 PublicationRecent Application Of State Farm v. Campbell In Bad-Faith Cases

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 25, #10 (September, 2011). © 2011 

[ Julie A. Simonson is an associate with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. She is active in the firm's Extra-Contractual and Liability Departments. Any commentary or opinions do not reflect the opinions of Butler or Mealey's. Copyright © 2011 by Julie A. Simonson. Responses are welcome. ]

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August 25, 2011 PublicationApplying The Litigation Privilege In Bad-Faith Cases

[BrianD.Webb,Esq.,is a partner with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial and appellate attorney specializing in extra-contractual and complex coverage litigation. This commentary expresses the author's opinions–not the opinions of Butler or Mealey's. Copyright#2011 by Brian D. Webb. Responses are welcome.] 

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July 28, 2011 PublicationThe Insurer's Bill Of Rights (A Balance Of Power)
[Editor's Note: Alan J. Nisberg is a partner in the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial attorney and appellate lawyer, specializing in extra-contractual, class action, and complex coverage litigation. This commentary, other than the quoted material, expresses the author's opinions - not the opinions of Butler or Mealey's. Copyright#2011 by the author. Responses are welcome.] 
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June 23, 2011 PublicationChoice-Of-Law Principles Affecting Insurance Bad-Faith Claims

[R. Steven Rawls is a partner and Ryan K. Hilton is a senior associate with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. This commentary expresses the author's opinions–not the opinions of Butler or Mealey's. Copyright © 2011 by R. Steven Rawls and Ryan K. Hilton. Responses are welcome.] 

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February 24, 2011 PublicationThe Duty to Initiate Settlement Negotiations: Where Does it Begin and How Far Does it Go

Editor's Note: James Michael Shaw, Jr., is a senior associate with the law  firm of Butler Weihmuller Katz Craig LLP with offices in Charlotte, Chicago, Miami, Mobile, Tallahassee,and Tampa. Mr. Shaw practices in the firm's Extra-Contractual,Third-Party Coverage,and Liability Departments. Mr.Shaw is also an adjunct professor at St.Petersburg College, teaching legal research and writing. Copyright 2011 by James Michael Shaw Jr. Responses are welcome

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January 27, 2011 PublicationThe Doctrine Of ‘Substantial Compliance': An Erroneous Application

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #18 (January 27, 2011). © 2011  

[Editor's Note: John J.  is with the law firm of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial and appellate lawyer in the firm's Coverage and Extra-Contractual Departments. Any commentary or opinions do not reflect the opinions of Butler or Mealey's. Copyright © 2011 by John J. . Responses are welcome.] 

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December 23, 2010 PublicationDoes Policy Reformation Create A Retroactive Bad-Faith Claim?

[Editor's Note: Laura A. Turbe-Capaz is a senior associate in the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee, and Miami. She is an experienced trial attorney in the firm's Extra-Contractual, Third-Party Coverage, and Liability Departments. Copyright#2011 by Laura A. Turbe-Capaz. Responses are welcome.] 

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December 09, 2010 PublicationSplitting The Baby: The Insurer's Duty To Notify The Insured Of The Need For An Allocated Verdict

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #15 (December 9, 2010). © 2010  

[Editor's Note: Fay E. Ryan is a partner the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee and Miami. She is an experienced trial attorney in the firm's Extra-Contractual, Third-Party Coverage, and Liability Departments. Kimberly N. Gorak is a senior associate in the Tampa office of Butler , also practicing in the firm's Extra-Contractual, Third-Party Coverage, and Liability Departments. Any commentary or opinions do not reflect the opinions of Butler or Mealey's. Copyright © 2010 by Fay E. Ryan and Kimberly N. Gorak. Responses are welcome .]

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November 24, 2010 PublicationPitfalls For The Unwary: The Use Of Releases To Preserve Or Extinguish Any Potential Bad-Faith Claims Between The Primary And Excess Insurance Carriers

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #14 (November 24, 2010). © 2010 

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September 23, 2010 PublicationWe Said What We Meant And We Meant What We Said! — Enforcing Contract Language Despite Assertions Of Bad Faith And Insurer 'Misconduct' During The Adjustment Of The Claim

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #10 (September 23, 2010). © 2010  

[Editor's Note: John V. Garaffa is a Partner and Jason M. Seitz is an associate with the law firm of Butler Weihmuller Katz Craig LLP in Tampa, Florida.  Any commentary or opinions do not reflect the opinions of Butler or Mealey's Publications. Copyright © 2010 by Jason M. Seitz and John V. Garaffa. Responses are welcome.]

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August 26, 2010 PublicationChinese-Drywall Cases And Their Impact On Liability-Insurance Carriers In Settling Multiple Claims In Good Faith Against Their Insureds In Certain State Courts

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #8 (August 26, 2010). © 2010  

[Editor's Note: Steve Rawls is a partner and Ryan K. Hilton is a senior associate with the law firm of Butler Weihmuller Katz Craig LLP in Tampa, Florida. Any commentary or opinions do not reflect the opinions of Butler or Mealey's Publications. Copyright © 2010 by R. Steve Rawls and Ryan K. Hilton. Responses are welcome.]

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July 29, 2010 PublicationBad Faith - Variations On A Theme

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #6 (July 29, 2010). © 2010  

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May 27, 2010 PublicationBad Faith and Beyond: A Business Law Primer For Insurers

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #2 (May 27, 2010). © 2010  

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May 13, 2010 Publication(Almost) Twenty Years After Powell: Case Studies On A Liability Insurer's Duty To Initiate Settlement Negotiations

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #1 (May 13, 2010). © 2010 

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March 25, 2010 PublicationBreaking Down Privileges: Discovery of the Claim File In Florida Bad-Faith Actions

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 23, #22 (March 25, 2010). © 2010  

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February 25, 2010 PublicationExtracontractual Recovery Without Bad Faith

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 23, #20 (Feburary 25, 2010). © 2010  

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January 28, 2010 PublicationA Look Back At Some Of 2009s Significant Bad Faith Decisions

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 23, #18 (January 28, 2010). © 2010

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December 24, 2009 PublicationThe Mediation

I met Bob for breakfast at his hotel about ninety minutes before the mediation was scheduled to commence. Although we had been doing business together for the past twenty-five years, I hadn't seen him for some time. He was a very competent and sophisticated first-party insurance property general adjuster; one of those dinosaurs who had been working for the same insurance company his entire career. It was a pleasure to meet up with him again.

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October 22, 2009 PublicationDoes An Insured Owe A Duty Of Good Faith To Its Insurer When The Insured Is Responsible For Defense Costs In A Self-Insured Retention?

Many businesses are increasingly utilizing insurance policies with large self-insured retention endorsements in order to exercise better control over the defense of claims. In these circumstances, an issue may arise regarding whether an insured who is responsible for defense costs under a self-insured retention ("SIR") owes a duty of good faith to its insurer.

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August 27, 2009 PublicationFairly Debatable?

On August 5, 2009, the South Dakota supreme court joined an exceedingly small minority of courts in the United States that have imposed a duty to conduct a reasonable investigation into first-party claims in order to avoid "bad-faith" liability.2 As they say, the road to Hell is paved with good intentions. This decision certainly affirms the truth of that old saw

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July 30, 2009 PublicationWrit Of Certiorari Dismissed As Improvidently Granted -- The Ambiguous End To Philip Morris USA, Inc. v. Williams

On March 31, 2009, the United States Supreme Court dismissed, as improvidently granted, a writ of certiorari in Philip Morris USA, Inc. v. Williams. While the reason for the court's action remains a mystery, it seemed to signal an end to the court's interest in the central constitutional issue in the case: punitive damages. Unfortunately, the court's decision to abandon the issue leaves both the litigants and observers wondering what, if anything, had been gained by years of decisions, reversals and remands.

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May 29, 2009 PublicationPreparation For Deposition

The deposition of the designated corporate representative of the insurance company defendant is, often, the tipping point of the case. Preparation is paramount to success. It isn't easy, and it isn't fun. The designated representative usually is a company executive with many responsibilities and pressures. But there is no substitute for time and effort. There is no other way. Here is a case in point.

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April 23, 2009 PublicationArbitrary and Capricious

In Grilletta v. Lexington Insurance Company,8 the United States Court of Appeals for the Fifth Circuit reviewed the insurer's handling of a Hurricane Katrina property claim.9 Mr. Xavier Grilletta and Mr. Randy Lauman owned a vacation lakehouse on the southeastern shore of Lake Pontchartrain, a lake bordering New Orleans to the north. 

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March 26, 2009 PublicationFlorida's Bad Faith Quagmire: Is Summary Judgment Ever Available?

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 22, #22 (March 26, 2009).

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March 01, 2009 PublicationThe Wheels On The Bus Go Round

You want answers? I think I'm entitled. You want answers?! I want the truth! You can't handle the truth!

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February 26, 2009 PublicationIs Abnormal Becoming The New Normal In Alabama?

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 22, #20 (February 26, 2009).

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November 25, 2008 PublicationUnreasonable Consent Judgments; What Next?

The scene is all too familiar: an insured, disenchanted with its insurer's refusal to defend an action the insured believes is within coverage, decides to enter into a "consent judgment" with the plaintiff, in return for which, the plaintiff agrees only to pursue satisfaction of the "judgment" against the insurer. 

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October 30, 2008 PublicationIs There Common Law Insurance Bad-Faith In Florida?

Is there common law insurance "bad-faith" in Florida? Having practiced law in Florida for twenty-six years the answer, in first-party as opposed to third-party excess judgment cases, has always been "No." Recently some have argued otherwise.

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September 25, 2008 PublicationBaffled

I have been hearing the mantra for over twenty-six years. At first it was rare, but it has increased over the years, almost to the point where it's a given. The advocate of the mantra is usually a judge, or a mediator, who was once a judge. The following is the typical mantra, exposed by a not so typical response.

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August 28, 2008 PublicationTorts for Tots (Bad Faith And Other Independent Torts)
The responsibility of caring for a child is not one to be taken lightly. Our society demands vigilance from those who bring new life into rld, and rightly so. We are held to a higher standard in dealing with our offspring than with others. The special relationship between a parent and a child is built upon trust and an expectation that one (the parent) will give security tothe other (the child). So too is the bond between insurer and insured.
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July 15, 2008 PublicationExxon Shipping Co. v. Baker: Sailing Into The Confluence Of Common Law And Constitutional Standards For Punitive Damages

On June 25, 2008, the United States Supreme Court issued its much anticipated opinion in Exxon Shipping Co. v. Baker. The Supreme Court reduced the punitive damage award from $2.5 billion dollars to $507 million dollars, an amount approximately equal to the jury's award of compensatory damages. While the decision certainly warmed the hearts of Exxon's previously discomfitted stockholders, the Court's opinion provides only limited encouragement to defendants involved in the current punitive damage lottery.

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June 17, 2008 PublicationConsequential Damages Under the Insurance Contract -- The New "Bad Faith?"

The ability of an insured to recover consequential damages under an insurance contract allegedly caused by failure or delays in the insurer making payments has traditionally been controversial. Jurisdictions have been divided in their approach as noted in the following annotation cited by the district court in Indiana

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May 20, 2008 PublicationThe Begrudged "Insurance Bad-Faith-Suit" Exception to the Attorney-Client Privilege

What constitutes the insurance claim file? If an insurer has a continuing duty to review and pay valid claims even after it is sued, does the claim file continue through the litigation?1 Does it continue through the appeal? Are all attorney-client communications contained in such claim files that were thought to be confidential now discoverable because the insurer lost the underlying first-party claim, litigation, or appeal?

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December 18, 2007 PublicationPunitive Damages - the Rationale of Ratios

Since the Supreme Court’s decision in State Farm Mutual Automobile Insurance Company v. Campbell,1 courts have struggled to define when the Campbell court’s presumptive limit of 9 to 1ratio of punitive damages to compensatory damages is appropriate.2 The Supreme Court stated that the "most important indicium of the reasonableness of a punitive damages award" was the highly subjective measure of the "degree of reprehensibility."3 Wrestling with such an amorphous concept trial courts and appellate courts have sought to justify various punitive damage awards on the basis of a sliding scale, doing little more than subjectively comparing the "reprehensibility" in the case being reviewed, to other recent cases decided before it. The result is a marked disparity from one court to the next as to what constitutes behavior falling within the five (5) factors of reprehensibility discussed in Campbell.

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July 24, 2007 PublicationOxymoronic ("Tortious Breach of Contract")

This is one of a series of articles under the by line “Butler on Bad Faith” originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 21, #6, p. 32 (July 24, 2007).

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June 19, 2007 PublicationWilliams v. Philip Morris Inc. II – The Fog of Legal Rationale

On February 20, 2007, the United States Supreme Court issued its much-anticipated second opinion in the negligence and fraud suit brought by the widow of Jesse Williams against Philip Morris. Mrs. Williams had asserted that the company had purposefully taken actions to obscure the dangers of smoking and, as a result, her husband was deceived into believing smoking was not harmful, a 47 year delusion that ultimately led to his illness and death.

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May 15, 2007 PublicationThe Death of Indemnity

A cornerstone of avoiding insurance “bad-faith” is for an insurer to timely pay what it owes its insured. Therefore, adjusters must know what their insurance contracts cover so they may determine how much to pay their insured.

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March 20, 2007 PublicationCaveat Insuror

On December 21, 2006, the Florida Supreme Court released its opinion in Dadeland Depot, Inc. v. St. Paul Fire & Marine Ins. Co.[FN1] In Dadeland, a bare majority of the high Court, led by Justice Lewis, held that an obligee under a performance bond qualifies as an "insured" within the meaning of section 624.155, Florida Statutes (1999). The Court's decision resulted from the following question certified to it by the Eleventh Circuit Court of Appeals:

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February 20, 2007 PublicationA State In Crisis

Florida is a litigious state. Its more than seventeen million residents comprise this most diverse social, ethnic and cultural state in America. Within this labyrinth of a melting pot is a steel ladle of many aggressive and well financed lawyers who specialize in suing insurance companies.

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September 19, 2006 PublicationRemanded in Light of State Farm v. Campbell: The Opportunity For Further Illumination Presented by Williams v. Philip Morris Inc.

On May 30, 2006, the U.S. Supreme Court again granted a petition for writ of certiorari in the ongoing dispute between Philip Morris and the widow of Jesse Williams, an Oregon resident who died of lung cancer after smoking cigarettes for about 47 years.

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June 15, 2006 PublicationSelected Third-Party Bad Faith Liability Standards Governing Failure to Settle Cases

Under liability insurance policies, insurance companies assume the obligation of defending their insureds. In so doing, carriers can settle and foreclose their insured's exposure or refuse to settle, leaving the insured potentially exposed to damages that exceed the policy limits.  Most courts find that this obligation places insurers and insureds in a fiduciary (or fiduciary-type) relationship.  Accordingly, courts recognize that an insurer owes a duty to the insured to refrain from acting solely on the basis of the insurer's own interests in settlement. This duty extends to situations where an insurer has an opportunity to settle a third-party liability claim against its insured within policy limits and requires an insurer to pay an excess judgement against an insured, where the carrier in good faith should have settled.
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May 17, 2006 PublicationSo You've Decided to Commit "Bad-Faith"

There are many ways for an insurer to find itself in what ultimately develops into a “bad-faith” dilemma. Sometimes an insurer makes a single decision that in retrospect turns out to be a terrible mistake that can be characterized as “bad-faith” conduct:

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April 18, 2006 PublicationAchilles' Heel: First-Party Property "Bad-Faith" Damages

Insurance "bad-faith" is recognized throughout the United States. In the setting of first-party property insurance, the relationship between the insured and insurer commences contractually. However, that contractual relationship can also provide exposure for tort damages in a first-party "bad-faith" action. Indeed, the threat of facing a first-party property "bad-faith" tort action commonly influences insurers to resolve litigation out of fear, rather than for substantive purposes based on the merits. One of the "Achilles' Heels" of such causes of action is the inability of the insured to prove any measurable "bad-faith" damages. The identification and measurement of "damages" in first-party property "bad-faith" actions varies greatly depending on the jurisdiction. This commentary will discuss certain jurisdictional differences relating to damages in first-party "bad-faith" actions, exclusive of punitive damages.[FN1]

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March 21, 2006 PublicationBad Faith Should Be Difficult To Prove

Ten years ago, Roger C. Henderson wrote in his seminal article The Tort of Bad-Faith in First-Party Insurance Transactions After Two Decades, 45 Defense Law Journal 611 (1996):

The tort of bad-faith for breach of an insurer's obligation in the area of first-party insurance was first recognized by a court of last resort in 1973 in Gruenberg v. Aetna Ins. Co. In doing so, the Supreme Court of California created an entirely new cause of action against insurer's against first-party coverages. Prior to this time, the courts followed the common law rule that damages for breach of contract were, with rare exception, limited to those in the contemplation of the parties at the time the bargain was struck. As a general rule, consequential damages were more exclusively within the realm of tort law than that of contract, and it was no tort for a party to breach a contract, even when the breach was intentional. Now, some twenty-two years later, the law regarding the obligation of an insurer in first-party situations is still evolving as more and more courts embrace the new tort. In a steadily growing number of jurisdictions, insurers not only are exposed to consequential damages for economic loss and emotional distress for failing to deal with their insured's fairly and in good faith, but they also may be subject to substantial awards of punitive damages.

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February 21, 2006 PublicationThe Implied Covenant of Good Faith and Fair Dealing

Until the 20th Century, insurance contracts were treated the same as any other contract, with recovery generally limited to the damages contemplated by the parties when they entered into the contract. Insurance contracts, like any other, were enforced by their explicit terms, and courts were reluctant to substitute their own judgment for the terms upon which the parties agreed absent some independent tort or injustice. By the end of the 19th Century, however, the judiciary in the United States began to recognize a general obligation of good faith performance implied in every contract.  By the 1930s, the implied covenant of good faith became a standard doctrine. This duty of good faith and fair dealing originated to resolve disputes over agreements that were not explicit on pivotal contract terms, or left discretionary power in the hands of one of the contracting parties.
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December 20, 2005 PublicationThe Horror: Adjuster Under Oath

This is one of a series of articles under the by line “Butler on Bad Faith” originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 19, #16 (December 20, 2005). © Copyright Butler 2005.

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June 07, 2005 PublicationAn Insurer's Liability For Punitive Damages In An Excess Judgment

Ging v. American Liberty Insurance Company, 423 F.2d 115 (5th Cir. 1970) is a case often cited for the proposition that third party insurers who act in bad faith could be held liable for punitive damages awarded against their insureds. However, the strength of this proposition appears to depend upon the extent to which a jurisdiction would permit the insurability of punitive damages. Those jurisdictions that permit coverage for punitive damages would also likely permit recovery of those damages later as a result of the carrier's bad faith. Jurisdictions whose public policy precludes insuring against punitive damage awards, may be more reluctant to permit recovery in a later bad faith action, depending upon the nature of the liability giving rise to the punitive damage award.

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April 19, 2005 PublicationDetours: Campbell Stops At The Willow Inn

Dealing with punitive damage claims is like driving down a road that is constantly under repair. The road is dangerous, uncomfortable, and full of detours. Although the United States Supreme Court has issued a rather clear and accurate map to help us through this rocky road, in some respects the map is already outdated, just as the road darkens and your interior auto light dims.

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March 22, 2005 PublicationThe Timely Demise of Excess Judgments (Probate Nonclaim Statutes)

Imagine your insured is at fault in an accident that kills her and causes devastating injury to another individual. You (the insurer) fail to meet a settlement demand within policy limits. Liability is clear and excess exposure is inevitable. The claimant files a civil lawsuit naming the "estate" of the insured as the defendant. However, the estate of the insured is not set up yet. Having no entity to actually serve with the complaint, the claimant petitions the probate court for administration of the decedent's estate, has a personal representative appointed, and immediately serves legal process on that representative. A multi-million dollar excess judgment is obtained in the civil action.

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January 18, 2005 PublicationPiece Of Mind: The Utah Supreme Court's Response To Campbell

Given that the Utah Supreme Court (“Utah”) previously reinstated a $145 million punitive damages award in favor of the Campbells, it is not surprising that on remand from the U.S. Supreme Court, this same state high court goes to great lengths to justify the largest punitive damages award it believes could possibly survive further constitutional review.

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November 16, 2004 PublicationHospital Lien Laws and Personal Injury Settlements

Many jurisdictions have hospital lien laws. These laws ensure payment to hospitals for the beneficial services they provide. Some jurisdictions liberally interpret these laws so that technical deficiencies in establishing or seeking enforcement do not defeat payment to the hospitals. Other jurisdictions are less likely to ignore such deficiencies.

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September 07, 2004 PublicationPunitive Damages And Hip-Hop

When the gun blows, and the shots fall
When the smoke clears, we'll be right here
Screamin' murder – know it's murder
Murder – we'll be right here
When the gun blows, and the shots fall
When the smoke clears, we'll be right here
Screamin' murder – know it's murder
Murder – we'll be right here – cause it's. . .  MURDER!!!!(1)

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August 17, 2004 PublicationChecklist Charley

On Friday the 13th, twelve years since Hurricane Andrew devastated South Florida, Hurricane Charley detonated Captiva Island, destroyed Punta Gorda, demolished Arcadia, and downed much of Orlando. Damages are presently estimated to exceed $15 billion. The author of this commentary suspects that this is an underestimation in that Florida law has changed since 1992. This commentary attempts to provide notice to all property insurers, adjusters, independent adjusters, and third-party administrators of the essential Florida law that may substantially impact the claims “tail” and reserves of Hurricane Charley.

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July 07, 2004 PublicationThe Continuing Need for De Novo Review of Punitive Damage Awards -- Liggett Group, Inc. v. Engle

In Liggett Group Inc. v. Engle, the Florida's Third District Court of Appeal reversed the largest punitive damage award in history. The circumstances of the award indicate it would have bankrupted the defendants and was, in essence, a civil death sentence. If that were the only error, Engle would merely mark another notch in the continued upward spiral of American jury awards. However, the compounded procedural and constitutional errors in Engle make it particularly useful for those who wish to examine the pros and cons of the current system of punitive damages. 

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January 21, 2004 PublicationDo Liability Insurers Have A Duty To Make An Offer Where There Is No Claim Against The Insured?

A liability insurer has a duty to handle and settle claims made against its insured in good faith. Courts have grappled with whether this duty requires an insurer to make a settlement offer when there is no claim against the insured.

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October 15, 2003 PublicationJuggling Multiple Claims With Inadequate Limits

Everyone knows that an insurer has to act in good faith to its insured when settling claims with third parties. However, when an insurer is faced with multiple claims exceeding the limits of coverage, the insurer is faced with tough choices. Insurers are frequently called upon to defend these choices in “bad-faith” actions. Can an insurer get summary judgment on the issue of “bad-faith” in multiple claimant/inadequate limits cases? Will the insurer be forced to litigate the “bad-faith” issue through a trial? This article attempts to answer these questions and provide guidance to insurers on meeting their duty of good faith when met with multiple claims, the sum total of which exceed policy limits.

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September 17, 2003 PublicationA Conversation With A Capitalist

Like most things, it began with a phone call.

“John?”

“Hello.”

“Hi, John. This is Ralph.”

“Hi, Ralph. How ya doin'?”

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August 13, 2003 PublicationReflections – Thirty Years After Gruenberg v. Aetna Ins. Co.

It has long been accepted that parties to an insurance contract have an obligation to deal with each other fairly and in good faith. As early as 1914, this obligation was found to be grounded within an implied covenant within the contract between the insurer and its insured.  If a denial of benefits under the policy was ultimately resolved by a suit on the contract of insurance, a policyholder who prevailed would receive the amount due plus interest. The recognition of a cause of action for the tortious breach of the duty of good faith and fair dealing in the context of the first-party contract of insurance is relatively recent.

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July 16, 2003 PublicationWhat is a "Reasonable" Settlement When There Are Multiple Claimants?

Sometimes several people sustain injuries in an accident. This article addresses a recent decision of Florida's Fourth District Court of Appeal, Farinas v. Florida Farm Bureau General Insurance Company, that discusses what liability insurers should do when several people sustain injuries in an accident caused by the insured and the value of most, if not all, of each individual claim exceeds policy limits. This article discusses the basis for the Farinas holding and identifies some questions raised by Farinas.

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June 18, 2003 PublicationAppraising Windstorm Claims

Once again the annual “hold-your-breath” season is upon us. In Hartford, New York, and London weather channels are beating “sitcoms” on the “Nielson” ratings. Internet strikes on weather.com are out-numbering those for kournikova.com – well, maybe this is a slight exaggeration. But the point remains; that is, CAT losses, especially windstorm, commonly called Hurricanes, make or break a property insurer's profitability, not just in the year of the occurrence, but typically with a two to three year tail.

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April 16, 2003 PublicationThe Current State of Comparative Bad Faith

In most every jurisdiction, the basis for a claim of insurer bad faith is the recognition of a duty of good faith and fair dealing inherent in any contract of insurance. See, e.g., Boston Old Colony v. Gutierrez, 386 So. 2d 783 (Fla. 1980). The focus in such cases is usually the question of whether or not the insurer has violated that duty. Inevitably, the question arises as to whether or not the actions of the insured can be considered bad faith and, if so, whether such actions can be raised as an affirmative defense to a claim of insurer bad faith. 

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March 19, 2003 Publication"Advice of Counsel" – Defense or Defeat

The involvement of legal counsel to provide advice concerning the settlement of property and liability claims has become increasingly commonplace. This is primarily due to the general proliferation of litigation and specifically "bad-faith" claims. As the involvement of legal counsel becomes more prevalent, so does the "defense" of "advice of counsel." This commentary will address this so-called "defense" in the context of "bad-faith" cases.

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February 19, 2003 PublicationInstitutional Bad Faith: Individual Or Class Action Litigation (All For One? - Or - One For All?)
In 1844, Alexandre Dumas, one of the most famous French writers of the nineteenth century, shared his vision of comradery and unified ambition. In his classic, The Three Musketeers, set under the seventeenth century rule of Louis XIII, a small association of elite combatants swore their allegiance to a common purpose . . . and to each other: All for one, and one for all! Is this sense of nobility and uniformity present in the battle cry of plaintiff lawyers brandishing their swords in modern day litigation against the insurance industry?
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January 22, 2003 PublicationAnger And Punishment

Horace once wrote: “Anger is a brief madness.” Such human condition apparently has not changed in over 2000 years.

USA Today's January 9, 2003 editorial page began with the topic sentence: “Horror stories abound about huge damage awards turning courts into lotteries, transforming plaintiffs and their lawyers into instant winners.” In addressing a recent Ohio Supreme Court decision, the editorial stated

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December 18, 2002 PublicationCan It Be 'Bad Faith' For An Insurer To File A Declaratory Action?

In recent months, insurance company clients of the author have faced allegations that the filing of a declaratory action, by an insurer, to determine or cut off coverage, is bad faith. This is a somewhat novel and, as it turns out, disfavored cause of action. To begin with, a “declaratory judgment action is the preferred manner of deciding a dispute between an insured and insurer over the construction and effect of the terms of the insurance contract.”

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October 23, 2002 PublicationTime Bombs

Insurers find nothing more frustrating than paying for unearned indemnification dollars. In a first-party context this may result from unreported values causing a deflated premium. In other words, the insurer's actual exposures require more premium than charged -- usually over many policy years. In a third-party context this unearned protection is the result of an excess judgment that the liability carrier is required to pay. In most jurisdictions this is the consequence of the liability insurer's failure to settle within policy limits when it had the opportunity to do so. 

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September 18, 2002 PublicationSpoliation As Bad Faith

What happens when an insurer's employee, insured, adjuster or attorney alters or destroys critical evidence? Can spoliation of evidence also constitute bad faith? Although there is no published decision directly on point, it appears that some courts may be willing to extend an insurer's exposure to include extra-contractual damages for such conduct

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April 17, 2002 PublicationSeventh Circuit Court Of Appeals Finds "Independent" Insurance Broker To Be Intermediary Of Insured, Barring Coverage And Bad Faith Claims

The Seventh Circuit recently addressed the question of whether an independent insurance broker, who provided clients to the insured, was their intermediary, thus barring coverage and bad faith claims. (First Insurance Funding Corporation v. Federal Insurance Company, No. 01-2855 (7th Cir. March 28, 2002)).

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January 23, 2002 PublicationOops!

The advent of the “information highway” and evermore aggressive and well financed litigants and litigators have placed overwhelming pressures upon an insurer's infrastructure. Coupled with the past decade of “downsizing” and the commensurate loss of “corporate memory,” the “Oops!” Syndrome has become more than a “pop” lyric. Unfortunately, it has become an all too common part of our bureaucratic culture.

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November 21, 2001 PublicationRecognizing Subtle Exposures To Avoid Bad Faith Claims

“The insurer does not . . . insure the entire range of an insured's wellbeing outside the scope of and unrelated to the insurance policy, with respect to paying third party claims. It is an insurer, not a guardian angel.”

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October 17, 2001 PublicationJustices: Please Take This Case!

Two recent state court decisions jeopardize the right of insurers to consult legal counsel when considering whether to pay or deny the claim of a policyholder. The Arizona and Ohio state supreme courts have issued opinions eroding, even abrogating, the attorney client and work product privileges. In one of these decisions, Boone v. Vanliner, 744 N.E.2d 154 (Ohio 2001), the insurer has petitioned the United States Supreme Court to issue the writ of certiorari, hear the case and reverse the Ohio Supreme Court. The undersigned urges the United States Supreme Court to take the Vanliner case for the reasons stated below.

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September 19, 2001 PublicationAdditional Insured Coverage And Bad Faith

Coverage determinations regarding the nature of policy duties that liability insurers owe to additional insureds may create bad faith exposure for the unwary insurer. Bad faith liability frequently arises when an insurer fails to recognize the scope of defense and indemnification obligations it owes to an additional insured. Issues also arise when additional insureds compete with named insureds for limited policy proceeds which cannot adequately protect the interests of both. This article highlights the source of the dilemma – the scope of the coverage afforded to an additional insured – and provides illustrations of bad faith exposure in the wake of claims asserted against additional insureds.

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April 18, 2001 PublicationResolution of the Underlying Claim as a Prerequisite to Bad Faith

In every jurisdiction that has considered the issue, a claim for bad faith does not accrue until there has been a final determination of the underlying claim for insurance benefits or third party damages. Taylor v. State Farm Mutual Automobile Ins. Co., 913 P.2d 1092 (Ariz. 1996); Blanchard v. State Farm Mutual Automobile Ins. Co., 575 So. 2d 1289 (Fla. 1991). Thus, before a plaintiff can sue an insurance company for bad faith, he must first finally resolve the claim which he contends the insurance company failed to settle in good faith. What constitutes a resolution of that claim varies with the type of claim asserted and the jurisdiction in which it is brought, but it can generally be broken down into three categories: excess judgment, settlement of the underlying claim, and judgment below policy limits.

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March 21, 2001 PublicationDiminished Value In Auto Damage Claims

We have seen, in recent years, a spate of actions for bad faith, and class actions, on the issue of so-called diminished value. These suits claim payment by the insurance company of the actual cash value of a property loss - or the cost to repair a loss - does not make the insured whole. This is because of some intangible quality in the property that cannot be restored by repair. Before the loss it was pristine or original. Afterward it is corrupted or compromised. It is worth less in the market.

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February 21, 2001 PublicationPossible Bad Faith In The Allocation Of Coverage For Third Party Continuous Loss Claims

An insured causes damage or injury that results in a third party claim for continuous loss spanning three years. The third party makes a claim under the policy in effect at the time of the loss. The policy covers the same three years as the loss and provides $300,000.00 for each year. In other words, the policy provides a total of $900,000.00 aggregate coverage over three years. We will assume the claim is settled for $300,000.00.

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October 24, 2000 PublicationRaising the Coverage Defense in the Bad Faith Case

In representing insurers in bad faith litigation, from time to time one will find a coverage issue that was not raised in the underlying litigation. The question to be addressed in this article is whether the coverage issue may be raised for the first time as a defense to the bad faith litigation.

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August 22, 2000 PublicationIs It Bad Faith to Settle Covered Claims Only?

It is beyond dispute that the duty to defend, under liability insurance, is contractual, and is broader than the duty to indemnify. National Grange Mut. Ins. Co. v. Continental Cas. Ins. Co., 650 F. Supp. 1404 (S.D.N.Y. 1986). Even if some allegations of the complaint clearly are outside the scope of coverage, the insurance company is obligated to defend the entire suit. Id. See also, Aerojet-General Corp. v. Transport Indemnity Co., 948 P.2d 909 (Cal. 1997).

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July 25, 2000 PublicationLevel The Playing Field: Abate Or Stay The Bad Faith Action Pending Resolution Of The Underlying Liability Or Coverage Case
Before resolution of a first-party action for coverage or a third-party action to establish an insured's liability, a plaintiff will often initiate an action for bad faith. By doing so, the plaintiff attempts to gain an unfair advantage in discovery and at trial. This article outlines some of the reasons why the bad faith action should be abated in its entirety or, at the very least, stayed pending resolution of the underlying claim.
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June 20, 2000 PublicationThe Public Adjuster's Perspective

Mr. Lesser is a prominent public adjuster. His business office is located in Miami Beach, Florida. The views and opinions stated by Mr. Lesser in this interview are his own. Neither Mr. Craig, nor Butler , necessarily approve or agree with any of them.

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May 19, 2000 PublicationContractors' Bonds: Who Can Sue The Surety For Bad Faith?

A contractor's performance and payment bond creates rights and obligations among three parties ­ the principal, the obligee and the surety. The principal may be the general contractor or a subcontractor. The obligee (under a performance bond) usually is the owner of the project or (under a payment bond) the subcontractors, materialmen and equipment suppliers. The surety most often is an insurance company or financial institution engaged, among other things, in the business of issuing performance and payment bonds.

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April 18, 2000 PublicationThree Reasons Why Loss Reserves Ought Not Be Admissible In A Bad Faith Case

In the trial of a bad faith case, plaintiff often tries to put into evidence the reserves the insurance company set for the claim. This article contends that evidence ought not be admissible. It will outline three reasons why not.

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March 21, 2000 PublicationReimbursement of Defense Costs

In 1997, the California Supreme Court acknowledged that an insurer could recoup defense costs expended by a carrier, provided the carrier proved the costs were expended exclusively defending a non-covered claim. Not surprisingly, insurer's efforts to enforce this right have met with resistance. Insureds assert that the reservation of the right to seek reimbursement creates a conflict between insurer and insured and obligates an insurer to pay for independent counsel. This article examines the parameters pursuant to which reimbursement can be obtained and whether assertion of the right to reimbursement can lead to extra-contractual exposure.

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March 01, 2000 PublicationIssue Revisited: Who Can Sue The Surety For Bad Faith Under A Construction Bond?

In this journal, in May 2000, the author discussed the then recent decision in Ginn Construction Co. v. Reliance Insurance Co., 51 F. Supp. 2d 1347 (S.D. Fla. 1999). He argued that, contrary to a suggestion in Ginn, an obligee under a general contractor's performance bond ought not be allowed to sue the surety for bad faith. This article will look at some decisions handed down since. The trend is toward no bad faith liability by a surety to either an obligee or a principal under a surety bond.

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February 15, 2000 PublicationPerfunctory Defense

per-func-to-ry   per-fúngk'te­re   adj.   Done or acting routinely andwith little interest or care. The American Heritage Dictionary, NewSecond College Edition (1983).

The Scenario

Consider a common scenario. An insurance company issues a liability policy. The policyholder does something, or fails to do something, as a result of which a partyis injured. The injured party becomes the plaintiff, and the policyholder the defendant,in a tort action. The insurance company reviews the tort action and sees right awaythat probably it is not covered. It retains a defense attorney to handle the tort action butsends a reservation of rights letter to the policyholder and files a separate declaratoryaction to determine coverage. So far so good. See, e.g., Insurance Co. of the West v.Haralambos Beverage Co., 195 Cal. App. 3d 1308, 1319 (1987).

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December 21, 1999 PublicationMalicious Defense

This is one of a series of articles under the by line "Butler on Bad Faith" originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 13, #16, p. 25 (December 21, 1999). © Copyright Butler 1999.

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November 16, 1999 PublicationWhy A First Party Insurer Is Not A Fiduciary

Courts, commentators, lawyers and others have applied the word "fiduciary" to insurance companies and insurance claims in a loose manner. The result has been bad law and confusion over if and when an insurer is a fiduciary. This article will argue that an insurer does not, and ought not, owe a fiduciary duty to an insured who has presented a first party claim.

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October 19, 1999 PublicationThe Duty of Good Faith: Continuing Into Litigation

First-party bad faith cases are typically based on conduct or events (e.g., settlement offers, investigations and evaluations) occurring during the time period after a claim is made but before any litigation is commenced. Once a breach of contract or declaratory action is filed, it is generally understood that the insured and insurer stand in an adversarial relationship which presumably entitles each party to zealously pursue its litigation tactics and strategy. Thus, courts generally will not permit an insurer's litigation conduct to be admitted as evidence of bad faith. Over the years, however, a significant number of courts have held an insurer owes a continuing duty of good faith to an insured throughout the litigation process and, therefore, an insurer's post-filing conduct may be admitted as evidence of bad faith. This article is a brief review of some of the leading cases addressing the continuing duty of good faith and its ramifications affecting insurance companies and defense counsel.

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September 21, 1999 PublicationGood Faith Settlement of Claims in Excess of Policy Limits Against Multiple Insureds

Introduction

Insurers and insureds alike may find themselves in the dark when claims against multiple insureds exceed policy limits. Only a few jurisdictions explicitly have addressed how policy proceeds should be allocated in this situation. The jurisdictions that have addressed the issue have split into two general camps. Some hold that carriers must allocate proceeds proportionately among all insureds. Other jurisdictions hold that a carrier need only act in "good faith" and may settle on behalf of fewer than all insureds. The manner of proportional allocation and the characteristics of a "good faith" settlement under such circumstances are not well described in the case law.

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August 17, 1999 PublicationMultiple Claims Exceeding the Policy Limits

When courts and state legislatures expand the duties owed by liability insurers to insureds there is a commensurate expansion of the grounds for extracontractual claims. One area of expansion has been in cases involving multiple third-party claimants - with liability clear and damages exceeding the policy limits. These cases make difficult issues for claims professionals.

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July 20, 1999 PublicationAdvice of Counsel: Insurance Companies' First and Last Line of Defense / Mealey's Litigation Reports: Bad Faith
The dynamic nature of bad faith law throughout the country practically mandates that insurers have ongoing legal advice to protect the interests of the company, the shareholders and all insureds. Such advice can prevent unwitting misconduct by the insurer. The "advice of counsel defense" in the context of insurance bad faith litigation issimply an insurer asserting, as proof that it did not act in bad faith, that it reasonably relied on the advice given by its legal advisors.
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July 01, 1999 PublicationStandard of Care in First Party Bad Faith Actions: Is "Fairly Debatable" Fair?

Since the early 1970s, when first-party bad faith actions came into being, a considerable body of law has developed on the standard of care for insurers to avoid liability. In creating and defining such standards, courts have struggled to balance the interests of insureds and insurers. This article is a general review of those decisions and standards.

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March 16, 1999 PublicationStatute of Limitations in a Bad Faith Action: Which One Applies and When Does It Accrue?

Determining which statute of limitations governs a cause of action against an insurer for bad faith is complicated. It depends on whether the action is a first or third party action. It depends also on whether the controlling jurisdiction deems the action to be one sounding in tort or contract.

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January 19, 1999 PublicationDuty of Insurers to Advise Insureds of Policy Benefits

This article considers whether an insurer has a duty to advise an insured of policy benefits not claimed. Some courts require insurers to protect an insured's interests affirmatively by informing the insured of available benefits. Other courts have refused to impose this duty upon insurers. Recent cases suggest a trend toward imposing this duty.

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December 15, 1998 PublicationFederal Preemption of Extracontractual Claims Under Flood Insurance Policies

During the past year, numerous areas in the United States have experienced severe and, at times, unprecedented flooding. Whether the flooding occurred as a result of the active Atlantic hurricane season or the effect of "El Nino" on national weather patterns, the result for insurers is the same: an increase in the number of claims under flood insurance policies. With this comes a corresponding increase in the likelihood of extracontractual or bad faith claims.

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December 14, 1998 PublicationSupplement to Federal Preemption of Extracontractual Claims Under Flood Insurance Policies

This is a supplement to the December 1998 article published in Mealey's Litigation Reports: Bad Faith on "Federal Preemption of Extracontractual Claims Under Flood Insurance Policies" following the U.S. Third Circuit Court of Appeals reversal of its decision on rehearing in Van Holt v. Liberty Mutual Fire Insurance Co. This supplement was originally published in Mealey's Litigation Report: Bad Faith, Vol. 12, #18, p. 27 (Jan. 19, 1999). Copyright Butler 1999.

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November 17, 1998 PublicationThe Expanding Scope of Discovery in Bad Faith Cases

Bad faith litigation is complex and the stakes are high. In such cases, the discoveryprocess has become critical as litigants struggle for advantage. The litigation often raisesissues outside the facts of the particular case or claim. The conduct of the insurancecompany as a whole sometimes is placed on trial.

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October 20, 1998 PublicationDoes a Liability Insurer Have a Duty to Initiate Settlement Negotiations?

Liability insurance policies typically provide the insurer with complete control over thedefense and settlement of third-party claims against the insured. This control imposesupon the insurer a duty to exercise good faith in settling claims. When the claimant makesa reasonably prudent offer to settle within the policy limits, courts generally agree the good-faith duty owed an insurer will require the insurer to settle the case. 

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August 18, 1998 PublicationChoice of Law in Bad Faith Cases

The substantive law of bad faith is not uniform from state to state. Some states treat bad faith as a breach of contract; some as a tort. In some states, punitive damages are available. In others, they are not. Some allow claims for emotional distress, while others reject them.

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July 21, 1998 PublicationRecovery of Damages for Emotional Distress in Tort, Contract and Statutory Bad Faith Actions

Emotional distress damages may be the most significant aspect of any bad faith action in jurisdictions that allow them. This article outlines the several theories that justify the recovery of such damages. It discusses also the impact of a recent Florida Supreme Court decision which authorized recovery for emotional distress under that state's bad faith statute.

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