A federal District Court applying Florida law recently ratified an insurer’s diligent responses to a claimant’s cat-and-mouse attempt to manufacture a bad-faith set-up claim. The ruling is interesting because it addresses two common situations. First, the insured did not cooperate with the insurer’s attempt to meet a time-limited settlement demand, which caused the deadline to pass without settlement. Second, the claimant tried to create a no-win situation for the insurer by offering to forego collection on an excess verdict if the insurer would forego an appeal. The insurer responded appropriately with regard to both issues, providing a road map for future insurers to obtain summary judgment when put in the same situations.

The Claim

In Hinson v. Titan Ins. Co., No. 3:13-CV-394-MCR-EMT, 2015 WL 5256848 (N.D.Fla. Sept. 6, 2015), the insured caused a collision with a cyclist. A day after the collision, the adjuster had already confirmed that the insured was clearly at fault, and that the cyclist’s injuries exceeded the policy limit. Accordingly, she set reserves in the amount of the policy limits to be paid out to the driver of the motorcycle. The adjuster also sent an “excess letter” to the insured, informing him that the driver’s injuries could exceed the policy limits and that he could be personally liable for any excess judgment.  Within a week of the collision, the insurer sent a settlement letter offering to pay the full $10,000 bodily injury limit; the claimant’s counsel rejected it. Shortly over a month following the collision, the insurer again offered the bodily injury policy limits and tendered the full policy limits for the bodily injury claim, which was also rejected.

The Demand

Three months following the collision, the insurer received from claimant’s counsel a time-limited demand to settle in exchange for (1) the bodily injury policy limits, (2) an amount to cover the damages to the motorcycle plus interest and the cost of upgrades and (3) an affidavit from the insured identifying any other applicable insurance. The letter demanded compliance with all terms within 20 days. The claims adjuster for the insurer attempted to contact the insured multiple times by phone concerning the affidavit but was never able to speak with him directly. The adjuster also mailed a letter to the insured with a copy of the demand letter and an affidavit for him to execute. In addition to sending the letter, the adjuster also hand delivered a copy of the affidavit to the insured’s home. Having not received the executed affidavit by the deadline to respond to the demand, the insurer responded to the demand enclosing a check for the $10,000 bodily injury limit and another check for the property damage and explaining the efforts to obtain the affidavit and that it would be forwarded upon receipt. Counsel for the injured party returned the checks because the insurer had failed to fully comply with the terms of the demand and informed the insurer that he would be proceeding with litigation. A month after the deadline to return the executed affidavit had passed, the insured finally faxed the signed affidavit which was forwarded to counsel for the injured party, but this was not accepted and the case proceeded to trial.

The Verdict and Appeal

At trial, the jury found the insured liable and awarded a verdict in excess of the policy limits. After the verdict, but before the final judgment was entered, counsel for the claimant sent the insured’s defense counsel a letter offering to stay execution on the remaining judgment until after the insured pursued a bad faith suit and assigned any proceeds, and regardless of the outcome, at the conclusion of the bad faith litigation, the insured would be released and the judgment satisfied. The proposal required the insured and insurer not to pursue an appeal. However, the insurer chose to pursue an appeal and the judgment was affirmed on appeal.

Consequences of Failure to Cooperate

The insured brought this bad faith litigation against the insurer alleging that it acted in bad faith by failing to settle the claim and by refusing the forgo its right of appeal to protect the insured from the excess judgment. With regard to the failure to settle claim, the Court agreed that there were no facts to support a finding of bad faith because the insurer promptly and repeatedly attempted to settle the claim for policy limits, and the failure to meet the 20-day settlement deadline could not fairly be attributed to the insurer’s bad faith when the insurer timely responded to the demand except for the affidavit which the insured was responsible to provide.

Ability to Appeal

Furthermore, the District Court found that the insurer refusing to give up its post-verdict right to appeal (which would have protected the insured from the excess judgment) did not amount to bad faith because the insurer had no obligation to accept such an offer. The Court equated this offer with a Cunningham agreement. See Cunningham v. Standard Guaranty Ins. Co., 630 So.2d 179, 181 (Fla. 1994). “Although this type of agreement offers the insured complete protection from an excess judgment, courts have concluded that an insurer’s failure to enter into a Cunningham agreement does not constitute bad faith.” Hinson, at *6. “The Court [found] no practical reason to differentiate between this post-verdict proposal and a Cunningham agreement for purposes of determining whether [the insurer] acted in bad faith and [found] them sufficiently analogous for the Court to conclude that [the insurer] was not under a good faith obligation to accept [the] post-verdict proposal.” Id. Additionally, the Court concluded that even had the insurer acted solely in its own interest by rejecting the proposal, this is immaterial because the failure to enter this post-verdict proposal did not cause the excess judgment. See Perera v. U.S. Fid. & Guar. Co., 35 So.3d 893, 903-04 (Fla. 2010)(stating an insurer is responsible for an excess judgment that is caused by its bad faith).

Conclusion

In Hinson, it was critical to the insurer’s defense that it had diligently documented (1) its affirmative offer of the policy limits, (2) its attempts to secure settlement on the terms set by the claimant and (3) the insured’s failure to cooperate. This is consistent with Tips #5 and #8 of our Ten Steps for Avoiding Bad Faith Failure to Settle Claims, which is part of Dentons’ Stopping The Setup training program. For more information about “Stopping The Setup” please contact the key contacts identified herein.