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

Is Summary Judgment Ever Available?

 By: Alan J. Nisberg

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

[Editor's Note: Alan J. Nisberg is a partner with the law firm of Butler Weihmuller Katz Craig LLP with offices in Florida, North Carolina and Alabama. He is an experienced trial and appellate lawyer, active in the firm's extra-contractual, class action and coverage departments. This commentary, other than the quoted material, are the author's opinions – not the opinions of Butler Weihmuller Katz Craig LLP nor Mealey's Publications. Copyright 2009 by the author. Responses are welcome.]

"I do not believe that it is acceptable for the Court to merely say that bad faith is a jury question. It is the Court's responsibility to have logical, objective standards ...."1

                                                    Supreme Court of Florida
                                                    Justice Wells (dissenting)

I.    Does an Insurer Have A Right To Be Wrong?

Insurance companies, like the rest of us, sometimes make honest mistakes. More often than we like, those mistakes result in a breach of the insurance policy. However, an honest mistake is not the equivalent of "bad faith." Often mistakes are made despite good intentions and diligent efforts of insurance representatives to do the right thing. Where the insurance company gives its level best to meet its good faith obligations to the insured, justice requires that policyholders be held to the insurance contract for a remedy – and prohibited from suing for extra-contractual damages. However, not everyone agrees. Claimants frequently decry "bad faith!" and file lawsuits for damages beyond the insurance contract. Extra-contractual damages may be awarded by an empathetic jury even where the insurer has been honest and reasonable in its approach to the claim handling.


II.     What Does It Take to Police the Insurance Industry?

Generations of anecdotal vignettes characterizing the insurance industry as an "evil empire" have resulted in laws designed to protect ordinary citizens against the evil ways of the powerful insurance industry. Consumer advocates were very successful in lobbying every branch of government to protect us from misconduct by the insurance industry. The executive branch of each state regulates the business of insurance and disciplines insurers for improper conduct. Our judicial and legislative branches have formulated the modern day tort of insurer bad faith. While intentional wrongdoing is repugnant to our societal norms, mores and public policy, intentional misconduct by insurers is the exception, not the rule in contemporary society. Nonetheless, bad faith litigation is prolific.

In addition to government intervention, the plaintiffs' bar has been aggressive in litigating against insurance defendants for decades. Undoubtedly, this has had an impact on insurance industry behavior and the implementation of policies and procedures to ensure best practices. However, one reasonably may question the true motivation behind most of today's bad faith litigation. Attorneys specializing in the representation of policyholders continue to develop new strategies every day intended to artificially force insurance companies to make mistakes. The bad faith "set up" of an insurance company is designed to give claimants limitless recovery for their losses.2 One could persuasively argue that setting up an insurance company to make mistakes that they would not otherwise make in order to force exposure beyond the insurance policy limit is inequitable.

Florida's judiciary, however, has declined to address this behavior. The reason is that strategies initiated by plaintiffs' legal counsel effectively may continue to assist regulators, legislators and judges in policing the claim handling policies and practices of the insurance industry. The Supreme Court of Florida has opined that the bad faith "set up" is not likely to lead to increased premiums for consumers and will continue to have "a beneficial effect on the handling of claims."3 Therefore, the courts have effectively condoned a legalized form of extorting the insurance industry based on the perceived collateral benefits to the consumer. At the same time, almost every bad faith case that does not settle is forced to a jury trial. Requests for summary adjudication of bad faith actions are frequently denied. Florida's high court views this as "beneficial."


III.     How to End Frivolous Litigation

What can an insurer do to protect itself from overzealous litigation? Insurers have many tools at their disposal to block overreaching insurance claims. Policy limits, suit limitation clauses and conditions to coverage may be invoked. Insurers may deny claims for fraud, intentional loss, concealment of material information, and failure to cooperate. Insureds may also be subject to criminal prosecution for attempts to commit insurance fraud. However, most of the insurance company's strategies to address an insured's misconduct relate only to the contract claim, not allegations of bad faith. The most effective way to defeat a baseless bad faith claim is by filing a motion for summary judgment. This is easier to win in some jurisdictions than others.

IV.     When is Summary Judgment Available?

Whether an insurer may summarily end an extracontractual claim is often dependent on where the lawsuit is pending. The universal standard in every state in the nation is whether the insurance company acted reasonably. However, the way this standard is applied differs from one state to the next. In some states, the insurer's claim decision only has to be justifiable – it does not have to be correct. If it is "fairly debatable" that the claim decision may have been a reasonable one, then there is no bad faith. Summary judgments in favor of an insurer on allegations of bad faith come with some degree of frequency in these jurisdictions. In the past year alone, reported decisions applying the "fairly debatable" standard have granted or affirmed summary judgments in favor of insurance companies in California, Iowa, Kentucky, Mississippi, Nebraska, New Jersey, Ohio, Oklahoma, Pennsylvania and Washington.4

In other states, where the insurer may be held liable for "bad faith" even if it had a reasonable basis for its claim decision, summary judgment is still possible but considerably more difficult to come by.5 In Florida, where consideration of the "totality of the circumstances" is the standard, summary judgment for the insurer does not come with frequency. This paper reviews the reported summary judgments for insurers in bad faith cases in 2008-2009 and compares the results to the experience in Florida.

        A.     The Popular "Fairly Debatable" Standard

                 1.     Summary Judgments

In most of these United States, the judiciary applies a "fairly debatable" standard. Under this standard, an insurance company cannot be held accountable for "bad faith" unless it had no reasonable basis for its claim decision. If it is "fairly debatable" that the insurer had a valid reason to deny benefits or delay processing of a claim, then there is no bad faith. Thus, in a purely "fairly debatable" jurisdiction, an insurer has the right to be wrong so long as it had a reasonable basis for its actions.

In Hafiz v. Metropolitan Life Insurance Co.,6 the United States District Court recognized as "settled law in California" that an insurer denying or delaying the payment of policy benefits due to a genuine dispute over a possible misrepresentation in the insurance application is not liable in bad faith even though it ultimately might be liable for breach of contract. In granting summary judgment in favor of the insurer, the court noted that "where an objectively reasonable basis for denial of a claim actually exists, the insurer cannot be held liable for bad faith as a matter of law."

In Michael v. Nuckolls Concrete Services, Inc.,7 the Court of Appeals of Iowa held that to succeed on a motion for summary judgment the insurer must demonstrate that it had a reasonable basis for denying or delaying payment of a claim. In Michael, a workers' compensation insurer initially authorized medical treatment but eventually found ongoing treatment to be unnecessary. Michael sued the insurer for bad faith denial of continued medical care. The insurer filed a motion for summary judgment and won. The Iowa court held that if the claim can be disputed on any logical basis, the "fairly debatable" standard is met. Summary judgment under this standard did not require the court to weigh the evidence that was available to the insurer, but only to decide whether evidence existed to justify denial of the claim.

In Nautilus Insurance Company v. Cassady,8 an employee was seriously injured on a construction site during the tear down and removal of a shed on the property. The United States District Court (applying Kentucky law) found that the commercial general liability insurer who challenged coverage based on a "debatable" or "reasonable" interpretation of its demolition exclusion in the policy was entitled to summary judgment on the allegations of bad faith. The United States Court of Appeals affirmed summary judgment in favor of the insurer.

In State Farm Mutual Automobile Insurance Company v. Estate of Blanchard,9 Blanchard died from injuries sustained in a single car motor vehicle accident. He was a passenger in a vehicle negligently operated by the driver who had no automobile liability insurance at the time of the accident. Blanchard presented a claim for medical payment benefits and uninsured motorists coverage. The insurer expressed concerns regarding coverage, because Blanchard was not clearly an insured relative whose primary residence was with the named insured at the time of the accident. Two different reasonable views of the policy language were posited. Ultimately, the court found coverage, rejecting the insurer's policy interpretation. However, because the insurer's unsuccessful policy interpretation was a reasonable one, the court (applying Mississippi law) granted the insurer's request for summary disposition of the bad faith claim.

In Esch v. State Farm Mutual Automobile Insurance Company,10 the Nebraska appellate court affirmed a summary judgment in favor of the insurer in a bad faith claim. The action involved a potentially fraudulent first-party claim for property damage to an allegedly stolen and burned automobile. Viewing the evidence that was available to the insurer at the time of the claim, the insurer had good reason to deny the suspicious claim even though it did not have enough information to "prove" that the insureds had caused the destruction of their vehicle. The insurer reasonably inferred from the initial facts that the insureds had engaged in concealment or fraud. The court declined to consider whether the insurer exercised the proper amount of care in investigating the insureds' claim because there was an "arguable basis" to deny the claim. Where there is an "arguable basis" to deny the claim, a bad faith cause of action fails as a matter of Nebraska law regardless of the manner in which the investigation was conducted.

Similarly, in Newman v. State Farm Fire and Casualty Company,11 the United States Court of Appeals affirmed summary judgment in favor of an insurer on a bad faith case based upon its denial of a fire loss claim. A legitimate dispute existed about the cause of the fire. Under Oklahoma law, if there is a legitimate dispute about coverage, an insurer's decision to refuse to pay a claim or to litigate a dispute is not a breach of one's duty of good faith where the insurer's position is reasonable and legitimate. The court held that the decisive question was whether the insurer had a good faith belief that there was a justifiable reason for withholding payment under the policy. Since there was evidence indicating that the fire was due to arson, no reasonable jury could find the insurer's investigation and evaluation of Newman's fire claim to be unreasonable.

In Vogias v. Ohio Farmers Insurance Company,12 the trial court entered summary judgment in favor of an insurer on a bad faith claim because the insured could not oppose the motion with evidence tending to show that the insurer had "no reasonable justification" for refusing to pay the claim. In Ohio, to grant a motion for summary judgment in favor of the insurer on the bad faith claim, the court must determine (when viewing the evidence in the light most favorable to the insured) that the claim was reasonably justified based on either the status of the law at the time of the denial or the facts that gave rise to the claim. Based on suspicious circumstances surrounding the insured's jewelry theft claim and the insured's unilateral termination of an examination under oath before the insurer could obtain substantive information crucial to recovery of insurance benefits, the Ohio appellate court affirmed the summary judgment.

In Bottke v. State Farm Fire and Casualty Co.,13 the United States District Court granted summary judgment in favor of an insurance company that disputed the scope of necessary repairs to restore Plaintiff's property following a water leak. The insured alleged that the insurer engaged in bad faith by misrepresenting information to the contractor that inspected the loss site. Recognizing that under Pennsylvania law the essence of a bad faith claim is the denial of benefits without good reason, the court held that an insurer is entitled to summary judgment if it can show a "reasonable basis" for its actions. The supposed misrepresentation by the insurer to its contractor was that there was only one leak, even though there were multiple leaks in the house. Ultimately, the United States District Court found this to be unpersuasive in light of the complete and thorough investigation by the contractor.14

In Whitmore v. Liberty Mutual Fire Insurance Company,15 the court granted summary judgment under Pennsylvania law in favor of the insurer on a bad faith claim involving policy interpretation. The issue was whether the insurer's pollution exclusion applied to the spill of heating oil in the insureds' home. Even though the court found the pollution exclusion to be inapplicable to the spill of heating oil in the insureds' home, this was not sufficient to establish bad faith by the insurance company. Pennsylvania law does not allow for the finding of bad faith when an insurer's conduct is in accordance with a reasonable (albeit incorrect) interpretation of the insurance policy. Acknowledging that several published decisions referred to heating oil as a pollutant, the court determined as a matter of law that the insurer's interpretation of the pollution exclusion was not "wholly, unreasonable or reckless." Therefore, the court granted the insurer's motion for summary judgment on the bad faith claim.

In Shepard v. Foremost Insurance Company, Inc.,16 a United States District Court (applying Washington law) also granted summary judgment for an insurer on a bad faith claim based on policy interpretation. The insured's boat filled with water. The insurance company hired an expert who determined that the flooding was caused by rust to the engine. Following the insurer's denial of the claim based on an exclusion for losses caused by rust, the insured obtained a competing expert opinion which created a genuine issue of material fact as to whether the exclusion applied to this loss. As a result of the competing expert opinions (and, thus, the applicability or inapplicability of the pertinent exclusion), the policyholder could not show that the insurers' denial was "unreasonable, frivolous, or unfounded." Thus, the court denied cross-motions for summary judgment on the contract claim, but granted summary judgment on the bad faith claim for the insurer.17

In Knoepfler v. Guardian Life Insurance Company of America,18 a New Jersey case involving interpretation of the insurance policy, the insurer denied disability benefits and moved for summary judgment on the bad faith claim, arguing that the action was barred by the contractual suit limitation clause. In New Jersey, a first-party claimant who is unable to obtain summary judgment on the breach of contract claim is not entitled to assert a claim for bad faith refusal to pay.19 The United States District Court held that there were genuine issues of disputed fact on the underlying breach of contract claim, requiring summary judgment in favor of the insurance company on the bad faith count. The existence of an arguable basis for the insurer's claim decision precluded the insured's action for bad faith.

Most of the cases discussed above were claims of first-party bad faith, but the "fairly debatable" standard often leads to summary judgment where the claim decision relies on an underlying third-party tort action.20

Nonetheless, it is not a foregone conclusion that the courts will apply the same standard to first-party and third party bad faith cases. For example, in a recent New Jersey appellate decision, Williams v. State Farm Indemnity Company,21 the court questioned whether the "fairly debatable" standard should apply to a bad faith case arising out of the handling of a third-party liability claim.22 The Williams court proposed that an insurer should not be entitled to summary judgment simply because it is "fairly debatable" that the insurer acted in good faith when failing to settle a bodily injury liability claim brought against its insured. Instead, the court essentially suggested just the opposite. If it is fairly debatable that the insurer acted in bad faith, then it should go to the jury.23 This proposed standard, although not expressly adopted for third-party bad faith actions in Williams, is akin to Florida's "totality of the circumstances" standard discussed below.

                    2.       No Summary Judgment

Of course, summary judgment in a "fairly debatable" jurisdiction is not always available to an insurer asserting that there is an arguable basis for denying a claim. The question of reasonableness of the insurer's decision still may be a question of fact. For example, in Burgess v. Allstate Insurance Company a policyholder brought a claim for hurricane damage to her home. The parties disagreed on the amount of the loss. The insurer contended that the policyholder's assertion of bad faith claim handling should be precluded by summary judgment because there is a continuing reasonable dispute over the extent and amount of property damage. The asserted that it had already paid the undisputed amounts, leaving only questionable claims for determination. In response, the policyholder contended that the advance payments were based on "absurdly low estimates" while ignoring expert reports provided by the homeowner. United States District Court (applying Louisiana law) found the issue to be "simply too close to call" and left the question of whether the dispute over the scope of damages was reasonable to the fact-finder at trial.25

In Guajardo v. AIG Hawaii Insurance Company, Inc., the Supreme Court of Hawaii addressed whether the insurer engaged in a reasonable interpretation of its policy. The case involved a policyholder who crossed the street and was struck by a van causing severe injuries. In an effort to protect its own subrogation rights, the insurer refused to tender underinsured motorists benefits. The insurer argued that its policy required the insured to pursue the tortfeasor to judgment in order to protect those subrogation rights and the insured should not have accepted a policy limits bodily injury liability settlement. On appeal, the question was whether the insurer's interpretation of the policy was reasonable. Under Hawaii law, conduct based on an interpretation of the insurance contract that is reasonable does not constitute bad faith.27 The Hawaii Supreme Court found that there was a genuine issue of material fact as to whether the insurer's interpretation of its underinsured motorist policy was reasonable, and remanded the case for a jury trial on the issue of bad faith.


            B.      Florida's "Totality of the Circumstances" Standard

Florida's standard for determining whether an insurer acted in bad faith is based on the "totality of the circumstances."28 This standard proves to be a greater challenge to insurance companies hopeful to get their motion for summary judgment granted in a bad faith case. The Supreme Court of Florida has opined that "the issue of bad faith is ordinarily one for the jury."29 Of course, the complete lack of evidence of bad faith is always a basis for summary judgment.30 However, where matters such as reasonable diligence and ordinary care are material in determining bad faith, it is traditionally an issue for the fact finder to decide.31

                    1.        No Summary Judgment

In the first-party context, in Paz v. Fidelity National Insurance Co.,32 a summary judgment favorable to the insurer was reversed where the insured demonstrated that there was a genuine issue of fact as to whether the insurer intentionally delayed or avoided payment. The Florida intermediate appellate court reversed summary judgment based on evidence of the insurer routinely demanding mediation and arbitration as a means of delaying or avoiding payment. The court did not consider whether the insurer had a reasonable basis for demanding alternative dispute resolution in that case.

In the third-party bad faith context, Florida's appellate courts have reversed summary judgments that favored insurance companies where the jury could find that "a reasonably prudent person faced with paying the entire judgment would have settled" under disputed material facts.33 For example, in Farinas v. Florida Farm Bureau General Insurance Company,34 the appellate court held that the question of reasonableness of the insurer's decision to settle with some claimants and not others precluded summary judgment on the bad faith claim.35 Similarly, in Robinson v. State Farm Fire & Cas. Co.,36 the appellate court held, in a case involving clear liability and damages in excess of policy limits, that the insurer's "reasonable and legitimate" basis to deny coverage was not dispositive of an action for bad faith failure to settle a claim against its insured.

                    2.       Summary Judgments

The only reported decisions in Florida in which an insurer has successfully moved for summary judgment to foreclose a bad faith action based on the reasonableness of its own conduct is where the insured failed to provide any evidence whatsoever of unreasonable conduct.37 All other Florida summary judgments in favor of insurers in bad faith cases have been on technical grounds. For example, first party cases may be subject to summary judgment where the claimant has failed to comply with statutory conditions precedent to recovery. In Florida, first-party bad faith is impermissible unless it meets the requirements of Florida's bad faith statute.38 Failure to provide notice to the insurer of the misconduct and to give the insurer an opportunity to cure it is fatal to a first-party bad faith lawsuit.39 Notification to the insurance company that lacks sufficient specificity to give the insurer a reasonable opportunity to remedy the problem may entitle the insurer to summary judgment on the bad faith action.40

In certain third-party circumstances, Florida courts also have concluded as a matter of law that an insurance company could not be liable for bad faith.41 For example, in State Farm Fire & Casualty Co. v. Zebrowski,42 the Supreme Court of Florida affirmed a summary judgment in favor of the insurer, because Florida's bad faith statute did not create any duty of the insurer to a third-party claimant in the absence of an excess judgment.43 In Gallina v. Commerce and Industry Insurance,a United States District Court noted that Florida has only three defined exceptions to the general principle that an excess judgment is an essential element of any third-party bad faith claim: (1) if the insurer denies coverage and refuses to handle the insured's defense; (2) if the insurer offers to defend the insured under a reservation of rights to deny coverage; or (3) if the insurer and the third party claimant stipulate to try the bad faith case before trying the underlying negligence claim. The Gallina Court entered summary judgment in favor of the insurer on both the breach of contract and bad faith claims, finding no excuse for the insured's failure to comply with the policy requirement that it obtain a determination of damages either with the insurer's consent or after a trial and judgment.45

Just nine days later, in Perera v. USF&G, the United States Court of Appeals certified two questions to the Supreme Court of Florida: (1) whether a bad faith action can be maintained when there is no excess judgment against the insured; and (2) if so, then whether a bad faith action can be maintained when the insurer's actions never resulted in excess exposure to the insured. Currently unresolved under Florida law, these certified questions highlight the possibility of an insurer's entitlement to summary judgment in a bad faith action when the insured settles the underlying liability action without consent of the insurer and/or fails to demonstrate that there would have been exposure to an excess award.

Depending on the coverage language of the policy, an insurer may also obtain summary disposition where the insurer perfects a settlement within policy limits. For example, in Shuster v. S. Broward Hospital District Physician's Professional Liability Insurance Trust, the Florida Supreme Court concluded that an insurer could not be liable for bad faith where it settled within policy limits and the policy provided that it had the authority to settle any claim "as it deems expedient."

In addition, settlement of an underlying liability action may extinguish a bad faith case.48 For example, in Federal Insurance Company v. National Union Fire Insurance Company of Pittsburgh, P.A.,49 the United States Court of Appeals reversed an order which denied summary judgment to a primary insurer in a bad faith claim brought against it by the excess insurer. The excess insurer sued the lower tier insurer for failure to timely settle the liability claim. However, a settlement was procured which satisfied the underlying judgment and eliminated the possibility of excess exposure to the insured. Finding that the excess insurer had no right to a bad faith cause of action as a matter of law, the Eleventh Circuit held that the primary insurer was entitled to summary judgment.

V.      Conclusion

In most jurisdictions, insurers are protected from frivolous bad faith lawsuits when they make honest mistakes. In some jurisdictions, however, any imperfection in claim handling – even if it is based on sound reasoning – may force protracted bad faith litigation. While there are some cases likely to obtain summary judgment in the "totality of the circumstances" jurisdictions, a jury trial more commonly becomes the only option. Forcing insurers to a bad faith trial usually means expensive litigation, invasive discovery, distraction of personnel, disruption of business activity, and potential exposure to significant verdicts by jurors who too frequently give their personal sympathy and the benefit of the doubt to insureds. Inequitable settlements usually result. By refusing to address the inequity of contrived lawsuits brought by insureds, and by permitting plaintiffs' legal counsel to hold the insurance industry hostage to protracted bad faith litigation, the judiciary in Florida has overlooked the impact this ultimately may have on consumers. Skyrocketing insurance premiums and the flooding of our court dockets with unnecessary litigation should be a jumping off point for a more discerned look at Florida's bad faith law.

In jurisdictions like Florida, the courts have thus far declined to address the impact of protracted bad faith litigation on the insurance industry, on the court, and ultimately on the consumer. Lobbying for legislative recognition of the problem and more thoughtful appeals to the judiciary based on empirical data may be necessary to bring about change.



1 896 So. 2d 665, 685 (Fla. 2005).

2 See, e.g., Berges v. Infinity Insurance Co., 896 So. 2d at 685 (Fla. 2005) (Wells, J., dissenting) (acknowledging the bad faith "set up" in the context of setting artificial deadlines in a third-party liability action.).

3 896 So. 2d at 683 (recognizing, however, that its conjecture is not based on any empirical data).

4 See Endnotes 6 through 13, 15,16,18, 20 and accompanying text below.

5 See e.g., Maldonado v. First Liberty Ins. Corp., 546 F. Supp. 2d 1347 (S.D. Fla. 2008).

6 2008 WL 4453581 (N.D. Cal., Oct. 3, 2008) (California law).

7 2008 WL 5009296 (Iowa App. 2008)(Iowa law).

8 291 Fed. Appx. 686, 2008 WL 2967707 (6th Cir., Aug. 1, 2008)(Kentucky law).

9 2008 WL 4187948 (N.D.Miss., Sept. 8, 2008) (Mississippi law).

10 2009 WL 52176 (Neb. App., Jan. 6, 2009)(Nebraska law).

11 290 Fed. Appx. 106, 2008 WL 2967663 (10th Cir., Aug. 5, 2008)(Oklahoma law).

12 177 Ohio App. 3d 391, 894 N.E.2d 1265 (Ct. App. Ohio, July 18, 2008)(Ohio law).

13 2009 WL 159703 (E.D. Pa., Jan. 22, 2009).

14 In granting summary judgment, the Bottke court distinguished Atiyeh v. Liberty Mutual Fire Insurance Co., 185 F. Supp. 2d 436 (E.D. Pa. 2002), in which the insurance company may have unduly influenced a doctor performing an independent medical examination by sending a letter suggesting to the doctor how he should opine as to the Plaintiff's condition.

15 2008 WL 4425227 (E.D. Pa., Sep. 30, 2008)(Pennsylvania law).

16 2008 WL 5143024 (W.D.Wash., Dec. 5, 2008)(Washington law).

17 In Washington, as with other jurisdictions, bad faith will not be found where a denial of coverage is based upon a reasonable, albeit erroneous, interpretation of the insurance contract. See 1300 Alki Condominium Owners Association v. The Hartford Casualty Insurance Company, 2004 WL 2654914 (W.D.Wash. 2004).

18 2008 WL 4371767 (D.N.J., Sept. 18, 2008)(New Jersey Law).

19 Knoepfler, 2008 WL 4371767 at *4 ("In effect, the New Jersey Supreme Court equated the 'fairly debatable' standard for bad faith with the summary judgment standard of genuine issue of material fact.").

20 See e.g., Hamburger v. State Farm Mut. Auto. Ins. Co., 361 F.3d 875, 881 (5th Cir.2004) (granting summary judgment to insurer because there was a bona fide dispute on the value of insured's claim for pain and suffering); Williams v. Hartford Cas. Ins. Co., 83 F. Supp. 2d 567, 575 (E.D. Pa. 2000)(applying Pennsylvania law)(holding no bad faith as a matter of law when "[a] large component of the [insured's] claim involved pain and suffering, loss of life's pleasures and loss of consortium, all of which reasonable minds could differ in quantifying"); Wetherbee v. Econ. Fire & Cas. Co., 508 N.W.2d 657, 661-62 (Iowa 1993)(finding that if the underlying third-party tort claim is fairly debatable as to either the facts or the law, this circumstance provides a reasonable basis for denial of underinsured-motorist benefits.).

21 2009 WL 112753 (N.J. Super. A.D., Jan. 20, 2009)(New Jersey Law).

22 Clearwater, 792 P.2d at 722-23 (comparing first-party and third-party bad faith and concluding that "although the 'fairly debatable' standard sufficiently protects both parties' interests in first-party actions, it inadequately protects the insured's interests in third-party actions.").

23 Williams, 2009 WL112753, *2 (opining that the standard should be "whether there is sufficient evidence from which reasonable minds could conclude that in the investigation, evaluation, and processing of the claim, the insurer acted unreasonably and either knew or was conscious of the fact that its conduct was unreasonable."

24 2008 WL 5121962 (M.D.La., Dec. 5, 2008) (Louisiana law).

25 Burgess, 2008 WL 5121962, *3 (recognizing that other courts have granted summary judgment in favor of insurers on an insured's claim of bad faith claim handling, but in such cases the plaintiffs failed to offer any facts indicating that the insurer acted arbitrarily). See, e.g., Gates v. Auto Club Ins. Co., 2007 WL 1464259 (E.D.La. 2007); Baker v. Dearie, 2006 WL 1968902, *2 n7 (E.D. La.. 2006).

26 118 Hawaii 196, 187 P.3d 580 (Hawaii, July 8, 2008).

27 Guajardo, 118 Hawaii at 203, 187 P.3d at 587.

28 State Farm Mutual Automobile Insurance Co. v. Laforet, 658 So. 2d 55, 63 (Fla. 1995).

29 Berges, 896 So. 2d at 680; Boston Old Colony v. Gutierrez, 386 So. 2d 783, 785 (Fla. 1980)("The question of failure to act in good faith with due regard for the interests of the insured is for the jury.").

30 See e.g., Johnson v. GEICO General Ins. Co., Case No. 08-11336(11th Cir.,March 11, 2009)(unpublished decision)(applying Florida law)(affirming summary judgment for insurer where no reasonable jury could find the insurer breached its duty of good faith in light of diligent investigation, tender of policy limits within 33 days of automobile accident, and absence of any demand); Maldonado v. First Liberty Ins. Corp., 546 F.Supp.2d 1347 (S.D. Fla. 2008)(finding that no reasonable jury could find that the insurer acted in its own best interest and in disregard for the insured where the insurer advised of settlement opportunities, the probable outcome of litigation, the possibility of excess exposure and ways to avoid it, and tendered policy limits, but the claim did not settle because the insured refused to comply with an additional term of the offer that was outside of the insurer's control); TIG Ins. Co. v. Smart School, 401 F.Supp.2d 1334 (S.D. Fla. 2005)(granting insurer's motion for summary judgment on bad faith claim because insured failed to come forward with sufficient evidence when taken as true that would legally constitute bad faith); RLI Insurance Co. v. Scottsdale Ins. Co., 691 So. 2d 1095 (Fla. 4th DCA 1997)(finding that the evidence presented showed "beyond any doubt that the primary insurer at no time missed an opportunity to settle which would have put it in a bad faith posture."); Clauss v. Fortune Ins. Co., 523 So. 2d 1177 (Fla. 5th DCA 1988)(affirming summary judgment for insurer where conduct was reasonable despite failure to meet arbitrary time demands); Caldwell v. Allstate Ins. Co., 453 So. 2d 1187 (Fla. 1st DCA 1984)(affirming final summary judgment for insurer on bad faith claim where insurer exercised reasonable diligence in investigating claim and expedited coverage determination via declaratory relief action); Williams v. GEICO Gen. Ins. Co., Case No. 4:04cv173-SPM/AK (N.D. Fla. 2007)(granting insurer's motion for summary judgment where insurer did not comply with unreasonable and arbitrary time limit demand, but took initiative in settlement negotiations, kept the insured properly informed, and had no reasonable opportunity to settle); Mattadeen v. State Farm Mutual Auto. Ins. Co., Case No. 04-80034-CIV-HURLEY/HOPKINS (M.D. Fla. 2004)(granting summary judgment favorable to insurer in a third party bad faith case where plaintiffs "failed to offer even a scintilla of record evidence" to support their claim that State Farm conditioned settlement on over-reaching releases).

31 Campbell v. Gov't Employees Ins. Co., 306 So. 2d 525, 530-31 (Fla. 1974)("Traditionally, reasonable diligence and ordinary care are considerations of fact – not of law."); See also Auto Mutual Indemnity Co. v. Shaw, 184 So. 852 (Fla. 1938).

32 712 So. 2d 807 (Fla. 3d DCA 1998).

33 Robinson v. State Farm Fire & Cas. Co., 583 So. 2d 1063, 1069 (Fla. 5th DCA 1991).

34 850 So. 2d 555 (Fla. 4th DCA 2003).

35 For tips on avoiding bad faith exposure in mutliple claim cases, see Nisberg, Alan J., Juggling Multiple Claims With Inadequate Limits, Mealey's Litigation Report: Insurance Bad Faith, Vol. 17 #12, p.15 (Oct. 15, 2003).

36 583 So. 2d at 1069.

37 See footnote 30 supra.

38 State Farm Mut. Auto. Ins. Co. v. Laforet, 658 So. 2d 55, 58-59.

39 Talat v. Aetna, 753 So. 2d 1278, 1283-84 (Fla. 2000).

40 See e.g. The Heritage Corp. Of South Florida v. National Union Fire Ins. Co. Of Pittsburgh, PA, 580 F. Supp.2d 1294 (S.D.Fla., July 24, 2008); Valenti v. Unum Life Ins. Co. Of America, 2006 WL 1627276 (M.D. Fla. 2006); But cf. Tropical Paradise Resorts, LLC v. Clarendon America Ins. Co., 2008 WL 3889577 (S.D. Fla., Aug. 20, 2008).

41 Berges, 896 So. 2d at 680.

42 State Farm Fire & Casualty Co. v. Zebrowski, 706 So. 2d 275, 277 (Fla. 1997).

43 See Section 624.155, Fla. Stat. (1995).

44 2008 WL 4491543 (M.D. Fla., Sept. 30, 2008).

45 Gallina, 2008 WL 4491543, at *

46 544 F.3d 1271 (11th Cir., Oct. 9, 2008).

47 591 So. 2d 174, 178 (Fla. 1992).

48 Even though settlements may dispose of the bad faith case, insurers should be cognizant of disputed factual issues or an express preservation of the bad faith lawsuit that may preclude summary disposition of the bad faith action. See, e.g., Abernathy v. National Union Fire Ins. Co., 717 So. 2d 196 (Fl. 5th DCA 1998)(reversing summary judgment to the detriment of the insurer to allow a factual determination as to whether a release of all parties for any and all claims arising out of a personal injury action was intended to be broad enough to bar litigation of a pending bad faith case against the insurance carrier for withholding medical payment benefits); NAVL, 678 So. 2d at 1328 (allowing bad faith action after settlement of underlying liability action without an excess judgment where the settlement expressly reserved the right to sue the insurer to recover settlement funds).

49 2008 WL 4737667 (11th Cir., Oct. 30, 2008)(Florida law).

September 08, 2015 PublicationThe Ongoing Struggle Over Removal Of First-Party Bad Faith Cases In Florida

The critical fact that seems to have been glossed over by all of the courts considering this question is the fact that once a final judgment has been entered by a Florida trial court, the court loses jurisdiction to do anything further.

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April 27, 2015 PublicationRicky's Believe It Or Not: Part Two

In the January 26, 2015 edition of this publication, I shared a collection of excerpts from documents authored by attorneys. Given the sheer volume of paper which crosses my desk in reviewing claims for coverage and bad faith, I inevitably come across some very humorous (though not intentionally so) mistakes in the various documents reviewed. This month, I share some of the funniest entries I've seen in deposition transcripts and medical records.

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January 26, 2015 PublicationRicky's Believe It Or Not

As an attorney for more than sixteen years, and a practitioner of insurance bad faith for nearly eleven years, I have seen virtually every kind of bad faith set-up one could imagine. I have shared my observations through various articles published in this fine periodical as well as other publications. The law of insurer bad faith is obviously one which is constantly in flux. Therefore, it would be a simple matter to wax eloquent upon the latest pronouncement from the high court of one of our many state and federal courts. However, I feel compelled to digress from the usual stately discussion of the intricacies of bad-faith law and share some of the more amusing things I have come across during my review of tens of thousands of documents contained in claim files, medical records and correspondence, done in connection with representing insurers in this field.

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December 22, 2014 PublicationChallenging Consent Judgments As Unreasonable Or Tainted By Bad Faith

Generally, if an insurance company refuses to defend its insured against a claim, the insured may protect himself by entering into a stipulated agreement with the claimant and holding the insurance company responsible for paying the claimant the agreed-to amount.

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November 24, 2014 PublicationThe Coverage Action 'Fixed' Bad Faith Damages: Are The Total Damages Binding?

Florida state and federal courts struggle with excess damage verdicts in first-party bad-faith actions arising out of uninsured motorist/underinsured motorist (UM) coverage. Recent case decisions produce mixed results for insurers. But mention UM coverage, bad faith, and total damages, and Florida Statute Section 627.727(10) immediately comes to mind. Comments by two judges framed the Section 10 debate.

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October 27, 2014 PublicationThree Is A Crowd: Revisiting The Third Party Beneficiary Doctrine

This article examines the third party beneficiary doctrine in conjunction with the approaches courts follow with regard to the collection of an excess judgment from a liability insurer.

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September 22, 2014 PublicationCourts' Different Views On Additional Insureds' Duties Under Liability Policy Notice Provisions

Liability policies typically require the insured to provide prompt notice of a claim or suit. Notice is regarded as a condition precedent to the insurer's duty to defend or indemnify. The notice provisions in a typical liability policy seem straightforward. However, issues surrounding notice become complicated when an additional insured, who is typically not a party to the insurance contract and sometimes unnamed in a policy, is involved. Under those situations, courts have had to address, among other issues, the sophistication and resources of the additional insured, whether the additional insured is aware that coverage potentially exists or even that policies potentially exist, whether the jurisdiction requires the additional insured to actually tender the claim or suit or whether another insured's tender of the claim or suit is sufficient and whether there was late notice or no notice at all by the additional insured. Different jurisdictions have reached different results. 

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August 25, 2014 PublicationWall Of Confusion: GEICO General Insurance Company v. Bottini And Its Ill-Begotten Progeny

On July 20, 2012, a three-judge panel of Florida's Second District Court of Appeal released what, on its face, appeared to be a relatively innocuous opinion in Geico General Insurance Company v. Bottini . The Bottini appeal arose as a result of Geico's appeal of a jury verdict in the amount of $30,872,266 rendered against it in an uninsured/underinsured motorist (‘‘UIM'') case. Consistent with precedent, the trial court entered a judgment against Geico in the amount of the policy's limit of liability, $50,000. Because the huge verdict had the effect of fixing the plaintiff's damages in a subsequent bad faith case, Geico naturally sought review of that verdict. The panel opinion concluded simply, ‘‘Based on the evidence presented, we are satisfied that even if Geico were correct that errors may have affected the jury's computation of damages, in the context of this case and the amount of the judgment, any such errors were harmless.''

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June 26, 2014 PublicationUninsured Motorist Bad-Faith Claims: Separate Action, Separate Trial, Separate Damages

First-party bad-faith claims arising from uninsured motorist (UM) coverage are separate and independent actions, too. If the uninsured motorist coverage action is truly separate and distinct from bad faith, one naturally expects a separate trial on bad-faith liability and extracontractual damages. However, there is a unique problem confronting first-party bad-faith claims arising from uninsured motorist coverage under Florida Statute Section 627.727(10). One decision characterizes the problem as a ‘‘conundrum'' created by Florida law.

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May 22, 2014 PublicationBurden Of Proof Issues In Consent Judgments

When a carrier refuses to defend its insured, the insured may consent to entry of a stipulated judgment. 1 In most jurisdictions the insured (or claimant) bears the burden of proof to show coverage exists as a prerequisite to recovery of an excess judgment. 2 The burden of proving coverage for a consent judgment can sometimes create problems. Consent judgments raise many other issues beyond the scope of this article. 3  

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April 25, 2014 PublicationAn Insurance Carrier's Good Faith Obligations Toward Its Insureds In Liability Settlements Where Not All Of the Insureds Are Released

Generally, liability insurers must secure a release of all of their insureds when settling claims against their insureds. However, some courts have recognized circumstances where an insurer may settle for an insured at the exclusion of another while still maintaining its good faith duties toward all of its insureds. Other courts have seemingly rejected the notion that an insurer can ever settle for one of its insureds at the exclusion of others. These release issues occur most prevalently in automobile accidents involving insured owners and additional insured drivers.  

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March 27, 2014 PublicationAnother Item For Your Checklist: The Bad Faith Concerns Related To Overreaching Proposed Releases

A common scenario: claimant's counsel issues a time limit demand for policy limits and the insurer decides to accept the demand and tender the limits. Once the decision is made to accept the demand, the insurer should go through its checklist of concerns to make sure that each element of the time demand is met, while ensuring that the insured is adequately protected.

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March 13, 2014 PublicationBad Faith And Ordinary Negligence: Distinguishing The Excusable From The Culpable

Bad faith and ordinary negligence typically involve two very different standards of care. In most jurisdictions, courts agree that proof of bad faith requires a showing of insurer culpability greater than ordinary negligence.

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December 19, 2013 PublicationRecent Cases Discussing The Advice Of Counsel Defense: The Good, The Bad, And The Discovery

The gravamen of a third-party claim of bad faith is that the insurer failed to settle a claim against an insured when it had the opportunity to do so. The essence of the claim is that the insurer acted solely on the basis of its own interests, failed to properly and promptly defend the claim, and thereby exposed the insured to an excess judgment. However, a claim based on insurer negligence is insufficient to establish bad faith

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November 21, 2013 PublicationThis Mediation Is Confidential, Right?

Mediation is an effective dispute resolution tool because it allows participants to openly discuss all aspects of a dispute without the fear of recourse or retribution. Confidentiality is a critical component of this process. Litigants and insurers participating in mediation often proceed under the assumption that all communications and conduct occurring during mediation will be cloaked with protection. However, exceptions to confidentiality are slowly eroding what is commonly referred to as the absolute ‘‘mediation privilege.''

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October 24, 2013 PublicationSeparating Fact From Fiction: Strategies For Contesting The Excess Consent Judgment

Few legal maneuvers generate greater skepticism – among courts and insurers – than the excess consent judgment, an increasingly common settlement device used In liability cases.

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September 26, 2013 PublicationSome Considerations In Addressing Time-Limit Demands

Liability insurance carriers should be prompt and proactive when they receive a time-limit demand from a claimant. Time is usually not on the carrier's side when it comes to these settlement communications.

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August 22, 2013 PublicationCausal Friday: Better To Be Lucky Than Good

Sometimes it is better to be lucky than good, as the insurers in the following cases learned. These cases demonstrate that, even where the facts indicate that the insurer acted in bad faith, it is still possible for the insurer to escape extra-contractual exposure. In the absence of a causal link between the excess judgment and the insurer's actions, bad faith liability cannot exist as a matter of law.

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July 25, 2013 PublicationAn Insurer's Liability For A Hospital Lien After Settlement Of A Claim That Impairs The Lien

Over forty states have hospital lien laws. Those laws typically allow hospitals to recover against parties, including insurers, who impair their liens. In many states, the hospital lien laws do not clearly identify the type and extent of damages a hospital can recover against a party who impairs a hospital lien. The damages a hospital can recover from a party who impairs a lien depends upon the language of the applicable hospital lien law and the courts' interpretations of that law. Results vary from state to state. 

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June 27, 2013 PublicationWhy Sue For Bad Faith When Consequential Damages Are Available?

Bad faith aside, insurers often assume a claim's ‘‘total" exposure under the insurance contract is the policy's limit.  Courts traditionally allow insureds to recover contractual damages based on the limit, plus legal interest.  However, a new trend is emerging in some jurisdictions.

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May 23, 2013 PublicationIs The Bad Faith Claim A Part Of The Package?

In an effort to create yet another way to present a claim for bad faith against an insurance company, plaintiff attorneys have been submitting ‘‘package deal'' demands on behalf of multiple claimants who have all incurred damages as a result of the same occurrence.

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April 25, 2013 PublicationRevisiting The Litigation Privilege And Its Application In Bad-Faith Cases

Over the last 25 years, courts have wrestled with the issue of whether to apply an absolute privilege to preclude bad-faith lawsuits based on an insurance company's conduct during the litigation of an underlying first-party or third-party claim. Some courts still refuse to recognize a bad-faith claim against an insurance company based upon its post-litigation conduct.  However, the prevailing trend seems to suggest that courts will find that some of the insurer's conduct remains relevant and admissible, while the conduct of the insurer's attorneys in defending the claim remains privileged.

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March 28, 2013 PublicationWho Is Entitled to the Claims File?

The United States Supreme Court has recognized the "attorney-client privilege" as "one of the oldest recognized privileges for confidential communications," the purpose of which is to encourage "full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and the administration of justice."

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February 28, 2013 PublicationNavigating The Southern Bad-Faith Buffet: Extra-Contractual Liability In The Absence Of Breach Of Contract

In the Southeast, catastrophic natural disasters have become all too common, and the physical and financial consequences are borne by the entire region. Five of the top ten costliest hurricanes to hit the United States have impacted North Carolina, and with approximately $159.6 billion in insured coastal assets, North Carolina continues to have significant loss exposure.

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January 31, 2013 Publication‘Bad-Faith' Discovery: Claim Files, Training Materials, Personnel Files, And The Kitchen Sink

A recent discovery order in the federal court case of Signature Development, LLC v. Mid-Continental Casualty Company is illustrative of our liberal discovery. Note, this liability insurer has yet to be found liable or guilty of any wrongdoing.  Signature alleges, however, that the corporate defendant insurer breached the contract of insurance, committed ‘‘bad-faith,'' breached its fiduciary duty to its insured, committed unfair trade practices, intentionally inflicted emotional distress and vexatiously refused to pay. Based upon these allegations alone, the court addressed the scope and burden of discovery. 

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November 21, 2012 PublicationMediation (Resolving Cases With Extra-Contractual Exposure)

By definition, mediation begins with ‘‘me.'' Once conflicting parties have resorted to litigation, they naturally act purely in their own respective self-interest. When a mediation involves allegations of insurer ‘‘bad faith,'' this is especially so. The parties are initially polarized. 

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October 25, 2012 PublicationSquare Pegs In Round Holes: When The Adjustment Process Meets The Evidence Code

If given the chance, most property adjusters would skip the aspect of their job involving litigation. Avoiding lawyers, depositions, and, of course, trials would alleviate much stress. Unfortunately, dealing with lawyers and litigation is an unavoidable job hazard for most adjusters.

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September 27, 2012 PublicationThe Troubles Of Trafalgar : Bad Faith In the Absence Of Breach Of Contract

How can a first-party insurer be legally liable for insurance ‘‘bad faith'' if it has already been found not to be liable for breach of the insurance contract? According to at least one Florida appellate court, by paying an Appraisal Award timely.

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August 23, 2012 PublicationScary Stuff: Insurance Claim Files And Exceptions To The Attorney-Client Privilege

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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July 26, 2012 PublicationThe Vanishing Right To Federal Jurisdiction In Bad Faith Claims In Florida

On April 25, 2012, the United StatesDistrict Court for the Southern District of Florida issued its opinion in Moultrop v. GEICO General Ins. Co., remanding a bad faith claim to state court pursuant to the one-year ‘‘repose'' provision of 28 U.S.C. § 1446(b). The Moultrop decision is one more in a growing line of cases which refuse insurers access to a federal forum based on the repose provision, under the anomalous reasoning that the right to removal expired before the cause of action for bad faith accrued. Unfortunately for the insurers, 28 U.S.C. section 1447(d) precludes appellate review of an order granting a motion to remand.

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May 24, 2012 PublicationProtecting Confidential Communications: Application Of The Attorney-Client Privilege In First-Party Insurance Bad-Faith Cases

Discovery of the insurance company's entire claim file—including confidential communications between the insurer and its attorney—is often the first target on the insured's agenda in a first-party bad-faith lawsuit. In any other context, a party's request for discovery of the opposing party's confidential attorney-client communications would be viewed by courts as a brazen and inappropriate attempt to obtain information obviously protected by the attorney-client privilege; however, in the context of bad-faith litigation, this type of request has been dignified by courts who often look for ways to permit discovery of the insurer's attorney-client communications.

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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

Proximate causation is an element of a claim for bad faith. An often-overlooked element, but an element nonetheless. Even claims with grievous claim-handling errors and high excess judgments can still be very defensible if there is no proximate causation between the two. This article examines the element of the bad-faith cause of action that is most often glossed over. 

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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

In some jurisdictions, including Florida, the courts recognize a duty in some circumstances for a liability insurer to initiate settlement negotiations with a third-party claimant before the claimant has ever made a demand. This duty is a relatively recent invention in the common law and has yet to be fully defined. While most articles on the subject tend to focus on whether or not this duty should exist in the first place, this article skips that threshold question and delves into the particulars that apply in the jurisdictions that recognize it. What triggers the duty? What is required of the insurer to discharge it? What are the defenses to a claim for bad-faith failure to initiate settlement negotiations? This article tackles these emerging questions and more in attempt to define this nascent duty.

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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

The Florida Third District Court of Appeal’s 1991 decision in Powell v. Prudential Property & Casualty Insurance Co. recognized a duty, in some circumstances, for a liability insurer to initiate settlement discussions with a third-party claimant who has not made a demand. The case proved to have a strong ripple effect, bringing about a sea change in bad-faith jurisprudence for the next twenty years. This article examines the expansion of Powell from a unique facts-driven anomaly to an entire branch of bad-faith jurisprudence and discusses early indications that the courts may be retreating again to applications more in line with the original case.

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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

Insurance intermediaries (insurance agents and insurance brokers) are especially vulnerable to claims by insureds. While bad-faith actions continue to be the favored method of pursuing recovery beyond a policy limit, some litigants turn to claims against insurance intermediaries (and the insurers they represent) for extracontractual recovery. In addition to bad-faith law, insurers need to know what kinds of claims can be brought in relation to the procurement of the insurance policy itself and what defenses can be raised. This article delves into this often-misunderstood area of the law and illuminates some legal issues with which every insurer should be familiar.

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

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.

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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, courts have struggled to define when the Campbell court’s presumptive limit of 9 to 1 ratio of punitive damages to compensatory damages is appropriate. 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." 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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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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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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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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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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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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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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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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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 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


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 discovery process has become critical as litigants struggle for advantage. The litigation often raises issues outside the facts of the particular case or claim. The conduct of the insurance company 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 the defense and settlement of third-party claims against the insured. This control imposes upon the insurer a duty to exercise good faith in settling claims. When the claimant makes a 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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Key Points