Disciplined in Sophisticated Defense and Insurance Litigation

January 19, 1999 | Publication| Duty of Insurers to Advise Insureds of Policy Benefits

Introduction

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.(1) Other courts have refused to impose this duty upon insurers.(2) Recent cases suggest a trend toward imposing this duty.

Cases Holding Insurer Has Duty to Inform Insured about Available Coverage

A.  California

In Ramirez v. USAA Cas. Ins. Co.,(3) a California court held that an insurer who failed to inform its insured about potential first-party benefits breached the duty of good faith and fair dealing.

On November 16, 1985, Jesus Ramirez received serious injuries while a passenger on a motorcycle driven by Todd Rentsch. Rentsch carried $100,000 of uninsured motorist (UM)coverage on the motorcycle through USAA. In response to Ramirez's counsel's request for coverage information, USAA told counsel that Rentsch's policy did not provide UM coverage. However, on July 17, 1987, USAA informed Ramirez about Rentsch's UM policy and Ramirez filed a claim for UM benefits.

USAA denied Ramirez's claim as untimely because Ramirez did not file his claim within one year of the accident. Ramirez sued USAA for bad faith based upon USAA's failure to initially tell him about Rentsch's UM coverage. USAA moved for summary judgment. Ramirez then moved for a new trial and the trial court granted this motion. USAA appealed.(4)

The appellate court affirmed, stating that the trial court erred in granting summary judgment for USAA. The appellate court noted that Ramirez stated a cause of action for first-party bad faith "based on the failure, negligent or intentional, to disclose the underinsured insurance coverage existed."(5) Relying on Davis v. Blue Cross of Northern California,(6) the court stated that "[i]t is basic that an insurer has a duty to disclose policy terms to its insureds."(7)

The Ramirez court rejected USAA's argument that USAA had no duty to Ramirez to inform him about UM coverage because Ramirez was represented by counsel.(8) The court stated that "[i]f USAA's point is that Ramirez dealt with it through attorneys, rather than directly, we do not perceive how USAA's duty to disclose has been changed."(9)

The court also rejected USAA's arguments that USAA owed no duty to disclose UM coverage to Ramirez because Ramirez had not exhausted the liability insurance of the tortfeasor and that the Ramirez's suit against the tortfeasor and Rentsch had not yet been resolved.(10)

B.  Pennsylvania

In Dercoli v. Pennsylvania Nat'l Mut. Ins. Co.,(11) the Supreme Court of Pennsylvania appeared to expand an insurer's duty to its first party insured to include a duty to provide full disclosure of all information affecting benefits available to its insured. The Supreme Court later retreated from that position in Petersen v. USAA Property & Cas. Ins. Co(12) and Miller v. Keystone Ins. Co.(13)

In Dercoli, David Dercoli died and Dorothea Dercoli received severe injuries in a car accident. Dorothea filed a claim for benefits with the two companies that insured the Dercolis' car, Pennsylvania National Mutual (Penn National) and Grange Mutual Casualty Company (Grange). Both insurers paid and continued to pay on the claim until approximately April, 1984.

While Dorothea received benefits, the insurers' agents advised her that she did not need independent counsel because each would see to it that she received all available benefits. Dorothea relied upon these representations and believed that she was receiving all benefits to which she was entitled. She later learned that the Pennsylvania had abolished interspousal tort immunity in Hack v. Hack,(14) making her potentially eligible for liability benefits. Dorothea did not learn of this change in the law until 1985.

Dorothea sued Penn National and Grange for failing to advise her of the change in Pennsylvania law that would allow her to receive benefits under the policies' liability overages. The trial court dismissed Dorothea's complaint and the Superior Court affirmed. The Supreme Court of Pennsylvania reversed, finding that both insurers breached the duty of good faith and fair dealing.(15) The Dercoli court held that "[t]he duty of an insurance company to deal with the insured fairly and in good faith includes the duty of full and complete disclosure as to all of the benefits and every coverage that is provided by the applicable policy or policies along with all requirements, including any time limitations for making a claim."(16)

Three years later in Petersen, the Supreme Court of Pennsylvania retreated from the duty it imposed on insurers in Dercoli. Petersen held that an insurers' duty of good faith did not require a comprehensive explanation of benefits to the insured.

Deborah Petersen suffered injuries in an automobile accident. Petersen carried $20,000first-party auto insurance with USAA and health insurance with Blue Shield. The BlueShield policy excluded coverage for temporo mandibular joint syndrome (TMJ) from which Petersen suffered after the accident. Petersen exhausted her $20,000 auto policy benefits and applied for benefits under the Blue Shield policy. Blue Shield denied Petersen's request pursuant to a TMJ exclusion.

Petersen sued both USAA and Blue Shield for bad faith. Petersen alleged that both insurers owed her a duty to explain their respective policies to her. Peterson asserted that this duty included an explanation to her of how the policies interacted with each other and how that interaction affected the availability of benefits to her. The trial court granted the insurers' demurrers to Petersen's complaint. The appellate court sustained the demurrers. The Supreme Court of Pennsylvania affirmed.(17)

Petersen argued that Dercoli imposed a duty upon insurers to thoroughly advise insured about policy terms, including coverage exclusions and interaction with other policies. The court rejected these arguments observing that:

"the duty [imposed on insurers] in Dercoli was premised upon three factors: (1) the insurer had assumed the responsibility for processing its insured's claims; (2) the insurer knew that the insureds was relying exclusively on its advice and counsel; and,(3) the insurer had knowledge regarding an additional claim for benefits to which Mrs. Dercoli was entitled and it failed to disclose such information."(18)

In 1994, the Supreme Court of Pennsylvania further limited Dercoli's scope in Miller v.Keystone Ins. Co.(19) Miller held that an insured was not entitled, as a matter of right, to be advised about potential benefits available in the future.

John Miller died in a car accident. Keystone insured Miller and promptly paid funeral, collision, and survivor's loss benefits to his mother and executor, Mary Miller. In August,1986, Mary Miller sued Keystone for post-mortem work loss benefits, although she had not requested these benefits before filing suit. The trial court granted summary judgment for Keystone. The Superior Court reversed.(20) The Supreme Court of Pennsylvania reversed the appellate court and ordered the trial court's summary judgment for Keystone reinstated.(21)

Miller argued that Keystone had a duty to advise her that her son's estate might be entitled to post-mortem work loss benefits. She asserted that Keystone's failure to advise hereabout these benefits breached Keystone's duty of good faith and fair dealing as defined in Dercoli.(22) The Supreme Court of Pennsylvania disagreed, holding that "[the] Superior Court was incorrect in holding that Dercoli imposes an affirmative duty upon an insurer to advise and inform an insured of all potential claims when the insurer assumes responsibility for processing the claim."(23) The Miller court distinguished Dercoli, stating"[c]learly, the insurer's knowing and purposeful misrepresentation was critical to this Court's determination [in Dercoli] that the insurers were bound to disclose all of the benefits to which the claimant was entitled."(24)

C.  Iowa

In Weber v. State Farm Mut. Auto. Ins. Co.,(25) the district court held that an insurer's duty to disclose available coverage to an insured is not extinguished simply because the insured has retained counsel.(26)

On November 28, 1988, Richard Weber, his wife, Mary Weber, and their three minor children were involved an auto accident in which Richard, Mary, and one of their children were killed. The children's grandmother, Edith Kelly, was appointed guardian and conservator of the two surviving children.

State Farm assigned claims representative Steve Logan to handle the Weber file. Logan spoke with claimant's attorney Robert Todd on December 7, 1988 about available coverage for medical and funeral expenses and collision damage. Although Logan knew that the estates and surviving children were potentially entitled to UM benefits, he did not discuss UM benefits with Todd. At a meeting with Todd on January 6, 1989, Logan again failed to disclose the existence of UM coverage to Todd. Prior to that meeting, Logan's supervisor advised Logan that he did not have to "explain the law to attorneys."(27)

In April, 1989, Edith Kelly hired attorney Daniel Cahill to "find money in the form of insurance benefits for the two Weber children."(28) Cahill then requested a copy of the Weber policy from Logan. Logan wrote to Cahill enclosing an identical sample, but not the actual policy. Logan's supervisor then reviewed Logan's letter and advised Logan to send another letter to Cahill disclosing "all coverage under the policy."(29) Logan sent the recommended letter to both Cahill and Todd on May 5, 1989. Logan then sent another letter, this time to Cahill only, advising that UM coverage applied. Cahill then sued State Farm for UM benefits. That suit settled for $185,000. The Webers then sued State Farm for first-party bad faith.

State Farm moved for summary judgment, arguing that an insurer has no duty to disclose policy benefits to an adversary insured. The Webers also moved for summary judgment. The district court denied State Farm's motion and granted the Webers'.(30)

The court dismissed State Farm's contention that it owed no duty to the Webers to disclosethe UM coverage because they assumed an adversarial posture. The court held that"nothing in the record indicates either Todd or Cahill threatened to sue State Farm prior to May, 1989. There is no evidence that an adversarial relationship existed between the insured or the insureds' attorneys and State Farm until the plaintiffs filed the suit against Richard Weber's estate on May 19, 1989."(31)

The court noted that "the defendant was under a duty to exercise reasonable care to disclose the uninsured motorist coverage provisions of the policy."(32) The court rejected State Farm's argument that it had no duty to advise its insured about potential UM benefits because the insured retained counsel. The court stated that "the retention of counsel by plaintiffs did not extinguish the defendant's duty to disclose that [UM] coverage."(33)

D.  Tennessee

In MFA Mut. Ins. Co. v. Flint,(34) the Supreme Court of Tennessee ruled that an insurer is obligated to advise an insured of available UM benefits about which that the insurer knows the insured is unaware. (35)

In MFA, the insureds suffered injuries in an auto accident with an uninsured driver. The adverse driver was completely at fault. An MFA adjuster visited the insureds and explained that medical bills and lost wages would be paid but did not advise them about UM coverage. MFA then paid the insureds and obtained releases. After learning of UM benefits, the insureds sued MFA for first-party bad faith and to have the releases set aside based upon MFA's withholding of UM benefits. The trial court set aside the releases and found that MFA acted in bad faith. The appellate court affirmed. The Supreme Court of Tennessee affirmed.(36)

MFA maintained that its relationship with its UM insureds was strictly contractual and did not require it to inform the insureds about UM coverage. The MFA court rejected this argument, stating that "it does not necessarily follow that the insurer owes no duty that isnot specifically spelled out in the contract drawn by the insurer."(37) The court further commented that "an insurer is under the duty of dealing with its insured fairly and in good faith in settling a claim by its insured under the uninsured motorist provision of an automobile liability insurance contract."(38)

The MFA court focused on three factors. First, there was never a question that the uninsured motorist was fully at fault for the accident. Second, MFA knew that its insured were entitled to UM benefits. Third, MFA's adjuster knew the insureds were unaware of their entitlement to such benefits. Based upon these particular circumstances, the court upheld the lower court's finding of bad faith.

Cases Holding Insurer Has No Duty to Inform the Insured About Available Coverage

E.  Indiana

In Wedzeb Enterprises, Inc. v. Aetna Life & Cas. Co.,(39) the court ruled that an insurer has no good faith duty to determine that an insured is aware of all policy terms and conditions which may provide coverage before submitting a release to the insured.

Wedzeb distributed heating and air conditioning parts. Wedzeb stored the parts in a warehouse insured by Aetna. A fire destroyed the warehouse and the stored parts. During the fire, the parts released toxic polychlorinated biphenyls into the surrounding environment, which required cleanup and removal. Wedzeb subsequently filed a claim in federal court for benefits from Aetna.

Aetna and Wedzeb disagreed about whether the policy covered the cleanup cost. Wedzeb then sued Aetna to determine if the policy covered the cleanup. While that case proceeded, the Indiana Environmental Management Board (EMB) sued Wedzeb in state court seeking an injunction and civil penalties pursuant to the cleanup and removal of the toxic waste. This suit was resolved by consent decree requiring Wedzeb to pay for cleanup and debris disposal.

The federal court subsequently entered judgment for Wedzeb in its suit against Aetna, holding that the policy covered the cost of cleanup and disposal.(40) Aetna then paid Wedzeb $474,326 on the claim and obtained a release from Wedzeb forever discharging Aetna from liability related to the fire cleanup and toxic debris removal.

No debris was cleaned up or removed for over two years. The EMB sued Wedzeb again. Wedzeb filed a declaratory judgment action against Aetna requesting that Aetna pay the cleanup costs. The court granted summary judgment for Aetna. Wedzeb appealed.(41) The Indiana Court of Appeals affirmed judgment for Aetna.(42)

Wedzeb argued that Aetna acted in bad faith because it did not inform Wedzeb of "potential coverage rights" under the policy.(43) The court held that Aetna did not owe Wedzeb a duty to advise it about all potential coverage under the policy because Wedzeb was represented by counsel and was engaged in litigation against Aetna.(44)

Wedzeb cited MFA Mut. Ins. Co. v. Flint(45) to support its contention that Aetna's duty of good faith included a duty to advise it of policy coverages. The court distinguished Flint on the basis that 1) the insured in that case was unrepresented; 2) the insurer knew the extent of the insured's injuries; and 3) the insurer knew the insured's injuries were covered under the policy.

F.  Illinois

In Schoonover v. Am. Family Ins. Co.,(46) the court held that an insurer's duty of good faith did not require that the insurer furnish an insured with a copy of the policy without a request for the policy. Schoonover does not squarely address whether an insurer's duty of good faith and fair dealing requires an insurer to advise an insured of a policy's contents. However, in finding that the insurer had no duty to spontaneously furnish an insured a copy of the policy, Schoonover supports the proposition that insurers are not obligated to advise insureds of available policy benefits.

John Schoonover purchased a homeowner's policy from American Family, effective November 16, 1987. Fire destroyed the insured house on November 20, 1987. However, Schoonover did not file his claim until March 10, 1988. American Family denied the claim on May 9, 1988. Schoonover then sued American Family to recover the value of the lost house and his attorney's fees.

American Family moved for summary judgment on grounds that Schoonover did not file suit within the policy's one-year suit limitation period. The trial court denied the motion, accepting Schoonover's argument that he was not bound by the suit limitation clause because he did not have a copy of the policy. American Family appealed. The Illinois Appellate Court reversed and remanded the case for entry of summary judgment for American Family.(47)

The Schoonover court found that the insurer was not obligated to provide the insured a copy of the policy unless asked to do so. The court noted "[i]t is clear that actual or manual delivery of a policy is not essential to the completion of an insurance contract, unless the contract expressly indicates delivery is a requirement as a condition of the consummation of the contract."(48) Relying on the presumption that the insured is charged with knowledge of the policy terms, the court observed that "[t]he insured cannot blame the insurance company for his failure to read the policy to discover the requirements for bringing suit. It is not the duty of the insurer to inform the insured of his duties."(49) The court cited an extension of the time for filing the claim which the insurer had granted to the insured as evidence the insured knew that the policy existed and that he should obtain a copy if he did not have one. The court also considered Schoonover's legal representation, commenting that "numerous courts have determined that representation by an attorney precludes an insured from alleging that he was misled by the terms of a policy or was ignorant of certain provisions in the policy."(50)

Common Factors Courts Consider in Duty to Advise Cases

1.  Whether the insured is represented by counsel

There is no consensus that an insured's retention of counsel extinguishes an insurer's good faith duties to inform insureds of coverage. Some courts hold that an insured who hires an attorney and immediately assumes an adversarial posture is not owed the same duty of good faith as a non-adversary insured.(51) However, some cases hold that insurers owe the same duty to represented and unrepresented insureds where no suit is threatened.(52)

2.  Advising an insured that independent counsel is unnecessary

In Dercoli v. Pennsylvania Nat'l Mut. Ins. Co.,(53) the court held that the insurer's representations to the insured that she did not need to hire independent counsel to protect her interests supported a finding of bad faith. Later, in Miller v. Keystone Ins. Co.,(54) the court found an insurer's misrepresentations about the need to hire counsel "critical to this Court's determination that the insurers were bound to disclose all of the benefits to which the claimant was entitled."(55) This suggests that insurers who make such representations may find a concomitant good faith duty to advise their insured of all available coverage.

3.  Withholding benefit information from a non-adversary insured

Courts take a dim view of failing to disclose known policy benefits to an insured unless an uninsured has filed suit or is engaged in adversarial tactics.(56)

4.  Knowing that the insured is relying upon insurer to protect insured's interests

Courts have demonstrated distaste for insurers that fail to fully advise an insured where the insurer knows the insured is relying upon its employees or agents for advice. As the Miller court reiterated, this conduct will lead to a finding of bad faith.

Conclusion

Whether an insurer will be found to have a duty to advise its insured about the scope of available coverage depends upon several factors. Some courts impose this duty when the insurer undertakes to advise or otherwise control information available to the insured, even when the insured is represented by counsel. Other courts limit this duty, even when the insureds is not represented by counsel. Recent cases suggest a trend toward imposing this duty.

ENDNOTES

1. See Ramirez v. USAA Cas. Ins. Co., 234 Cal. App. 3d 391 (Cal. Ct. App. 1991);Dercoli v. Pennsylvania Nat'l Mut. Ins. Co., 554 A.2d 906 (Pa. 1988); Weber v.State Farm Mut. Auto. Ins. Co., 873 F. Supp. 201 (S.D. Iowa 1994); MFA Mut.Ins. Co. v. Flint, 574 S.W.2d 718 (Tenn. 1978).

2. Wedzeb Enterprises, Inc. v. Aetna Life & Cas. Co., 570 N.E. 2d 60 (Ind. Ct. App.1991); Schoonover v. Am. Family Ins. Co., 572 N.E.2d 1258 (Ill. App. Ct.1991).

3. 234 Cal. App. 3d 391 (Cal. Ct. App. 1991).

4. Id. at 396.

5. Id.

6. 600 P.2d 1060 (Cal. 1979).

7. Id.

8. 234 Cal. App. 3d at 400.

9. Id.

10. Id.

11. 554 A.2d 906 (Pa. 1988).

12. 595 A.2d 623 (Pa. 1991).

13. 636 A.2d 1109 (Pa. 1994).

14. 433 A.2d 859 (Pa. 1981).

15. Id. at 910.

16. 554 A.2d at 909.

17. Id. at 627.

18. 595 A.2d at 625.

19. 636 A.2d 1109 (Pa. 1994).

20. Id. at 1110.

21. Id. at 1114.

22. Id. at 1111.

23. Id. at 1112.

24. Id.

25. 873 F. Supp. 201 (S.D. Iowa 1994).

26. Id. at 209.

27. Id. at 202.

28. Id.

29. Id.

30. Id. at 209.

31. Id. at 207.

32. Id. at 209.

33. Id.

34. 574 S.W.2d 718 (Tenn. 1978).

35. Id. at 722.

36. Id. at 721.

37. Id. at 720.

38. Id. (internal quotation marks omitted).

39. 570 N.E.2d 60 (Ind. Ct. App. 1991).

40. Id. at 62.

41. Id.

42. Id. at 64.

43. Id. at 62.

44. Id. at 63.

45. 574 S.W.2d 718 (Tenn. 1978).

46. 572 N.E.2d 1258 (Ill. App. Ct. 1991) (overruled sub silentio on other grounds in Faier v. Ambrose & Cushing, P.C., 609 N.E.2d 315 (Ill. 1993)).

47. Id. at 1266-1267.

48. Id. at 1264.

49. Id.

50. Id. at 1266; citing Advanced Methods, Inc. v. Grain Dealers Mut. Ins. Co., 274F.2d 634 (7th Cir. 1960), where the U.S. Court of Appeals for the Seventh Circuit found that Grain Dealers [insurer] did not owe Advanced Methods [insured] a duty to furnish a copy of the policy's forfeiture conditions where Advanced Methods hired attorneys who threatened suit.

51. See, e.g., Advanced Methods, Inc. v. Grain Dealers Mut. Ins. Co., 274 F.2d 634(7th Cir. 1960).

52. Ramirez, infra at note 1.

53. 554 A.2d 906 (Pa. 1989).

54. 636 A.2d 1109 (Pa. 1994).

55. Id. at 1112.

56. See also MFA Mut. Ins. Co. v. Flint, 574 S.W.2d 718 (Tenn. 1978).

57. Gatlin plead uninsured motorist coverage in the separate suit later consolidated into the circuit court but, according the opinion, only trial the issues of coverage and notice were decided during the trial.

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

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

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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

Introduction

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

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August 17, 1999 PublicationMultiple Claims Exceeding the Policy Limits

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

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July 20, 1999 PublicationAdvice of Counsel: Insurance Companies' First and Last Line of Defense / Mealey's Litigation Reports: Bad Faith

The dynamic nature of bad faith law throughout the country practically mandates that insurers have ongoing legal advice to protect the interests of the company, the shareholders and all insureds. Such advice can prevent unwitting misconduct by the insurer. The "advice of counsel defense" in the context of insurance bad faith litigation issimply an insurer asserting, as proof that it did not act in bad faith, that it reasonably relied on the advice given by its legal advisors.

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July 01, 1999 PublicationStandard of Care in First Party Bad Faith Actions: Is "Fairly Debatable" Fair?

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

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

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

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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