Florida Senate Judiciary Committee Debates Bad Faith Litigation-Related Issues

 

The Florida Senate Committee on Judiciary (“Committee”) met today, February 22, 2011 during which a formal discussion on bad faith insurance litigation was held.  To access meeting materials, including a podcast of today’s meeting, click here. 

The discussion was opened by a proponent of bad faith reform, who gave an illustrative example of the “bad faith game,” which he characterized as being “played” by plaintiffs’ attorneys and permitted by the courts. Tort reform has been necessary, he said, because the system has centered on awarding damages based on the net worth of an insurer, not the cost of the damage caused.

The proponent’s example was a letter from an insured to a plaintiff, in which a settlement of $50,000 was offered for an auto accident. The plaintiff’s attorney responded that the offer would be considered if it was made on an acceptable form (which was undefined), and further stated that this, together with the names of all drivers in the accident, the title numbers of all vehicles involved and the insurance company’s financials all had to be provided within 10 days. This type of scenario, it was explained, is how a $50,000 claim turns into a $5 million “pot of gold.” The resulting increase in this type of litigation has caused millions of dollars in economic loss.

Former Supreme Court Justice Charlie Wells then spoke on behalf of bad faith reform supporters, explaining that he has no interest in any insurance company, but since bad faith has caused so much damage to the State of Florida, pursuing reform has become an important personal issue to him.

The system, he said, currently benefits a few claimants and attorneys at a distinct cost to the rest of society. Good faith, he added, must be extended to all parties in a dispute, including the plaintiff. 

Tammy Purdue of Associated Industries of Florida indicated that the business community is paying higher premiums because insurers are unable to properly investigate a claim and settle it reasonably due to bad faith.

Bob Vaughn of Liberty Mutual Insurance Company stated that plaintiffs are now routinely withholding information and unilaterally setting timelines.  Also, plaintiffs’ attorneys are frequently submitting demands that insurers cannot agree to, all in an effort to set up a bad faith claim. In Mr. Vaughn’s opinion, Florida has the worst situation as it pertains to bad faith litigation.

Senator Ellyn Bogdanoff asked whether bad faith claims are filed when a company offers to settle for less than policy limits. It was stated that many offers are rejected when payment of policy limits is offered by the insurer, while other conditions are not met.

Senator Bogdanoff also asked what percentage of insurance premiums are being paid by businesses due to the costs of bad faith litigation. It was indicated that, at some point in the State of California, 25 percent of premiums were attributed to the cost of bad faith litigation.  The number is equally significant in Florida.

Senator John Thrasher asked about specific solutions to the problem, to which a proponent of bad faith reform replied that a possible remedy could be the use of a statutory timeline in which to file claims, similar to that used in relation to medical malpractice claims.  That could be coupled with a requirement for written offers, which could not contain unreasonable conditions.

Senator Bogdanoff asked why other information is necessary if policy limits are offered, to which Justice Wells answered that the current law requires some information to be produced, which, in his opinion, was appropriate.

It was stated by a bad faith reform proponent that many of the conditions, such as a request for an insurer’s net worth, cannot be asked of the insured.

Senator David Simmons stated that “gotcha” lawsuits are out of control and asked why there shouldn’t be a 60-day bad faith notice provided to the insurer, as well as to the Florida Office of Insurance Regulation, in which time the insurer would be able to cure any breach that could lead to a bad faith claim?

Justice Wells said he thought that Senator Summons’ suggestion was a good first step toward a solution.

Dale Swope, representing “Taxpayers Against Insurance Bad Faith,” opened on behalf of speakers present at today’s meeting who are opposed to bad faith reform. Mr. Swope stated that customers, primarily small business, are the losers if the third-party bad faith litigation system is reformed.  He indicated that, once a claim is made, policyholders are at the mercy of their insurance company and bad faith is the only tool they have to defend themselves.

Mr. Swope said that no business can purchase enough insurance to truly limit its liability.  To illustrate, he recounted a case in which the Plaintiff requested to see a commercial Defendant’s liability policy prior to accepting an offer from the Defendant’s automobile insurer.  The Defense counsel denied the request, while berating the Plaintiff’s counsel over it.  During the discovery process, it was determined that the Defendant’s liability policy provided $500,000 in coverage for auto accidents.

A civil litigator expanded on the issue of additional criteria necessary to settle a claim. He indicated that the collection of seemingly needless information “roots out” bad faith claims and ensures that policyholders are protected from further litigation.

John Romano, who spoke on behalf of the Florida Justice Association (“FJA”), finished the presentation by continuing on the topic of conditions to settlement.  He equated a settlement to a new contract, in which conditions on a settlement are terms to the new contract, thus eliminating the need to go to court. If an insurer rejects the conditions, but offers policy limits, it has rejected the offer in full.

Fred Cunningham, President-Elect of FJA, stated that bad faith reform is a “solution looking for a problem.” He explained that 10-day demand letters have been “out of favor” in Florida courts since the 1970s and that the law already applies a reasonableness standard that allows insurers to appropriately investigate claims.

Senator Bogdanoff asked what the obligation of the insured is when he or she receives a reservation of rights notice.  Mr. Swopes contended that the reservation of rights forces the insured to choose between accepting coverage or having to defend one’s self.

Senator Bogdanoff also asked whether insurance companies communicate with an insured’s attorney. Mr. Swopes responded that good insurance companies include the insured’s counsel and, if insured’s counsel is excluded from proceedings, there should be a cause of action. 

Senator Simmons asked Mr. Swope why insurance companies shouldn’t be given time to investigate demands, inasmuch as the reform opponents stated that 10-day demand letters are unreasonable.  Further, they indicated that litigation is pending to determine whether 34 days is unreasonable.

Senator Simmons then asked the opposition group whether they thought 30 days is reasonable. Mr. Cunningham cited a federal court ruling that indicated the amount of time to decide whether to accept a demand should be related to the amount of the demand.  All timelines should be decided on a case-by-case basis, he added.

The opponents for reform indicated that the “liability market does not indicate there is a need for bad faith reform.”

The Committee generally held the position that bad faith litigation is a problem in Florida’s judicial system. Although it appeared Committee members had different ideas about fixing the problem, it was evident that they shared a consistent voice of concern warranting a necessity for action. 

 

Should you have any questions or comments, please contact Colodny Fass.

 

 

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