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April 18, 2006 | Publication| Achilles' Heel: First-Party Property "Bad-Faith" Damages

Thomas A. Keller

This is one of a series of articles under the by line "Butler on Bad Faith" originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 19, #24 (April 18, 2006).

[Editor's Note: Thomas A. Keller is a senior associate with the law firm of Butler Weihmuller Katz Craig LLP. He is active in the firm's Extra-contractual and Coverage Departments. Michael A. Zaritsky is an associate with the law firm of Butler Weihmuller Katz Craig LLP. He is active in the firm's Extra-contractual, Coverage and Class Action Departments. The commentary, other than the quoted material, are the authors' opinions – not the opinions of Butler Weihmuller Katz Craig LLP nor Mealey's Publications. Copyright © 2006 by the authors. Responses are welcome.] 

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]

Jurisdictions throughout the United States typically hold that an insurer will be liable in a first-party "bad-faith" action for those amounts that are the natural, proximate, probable, or direct consequence of the insurer's "bad-faith" actions.[FN2] The following have been addressed by courts as "damages" in the first-party "bad-faith" context: (1) Attorney's fees and costs; (2) foreclosure costs; (3) mental anguish and emotional distress; (4) excess judgments; (5) miscellaneous costs; (6) personal injury damages; and, (7) contractual damages barred by the statute of limitations.


In surveying the array of damages available in a first-party "bad-faith" action, the Florida Supreme Court, in McLeod v. Continental Insurance Company,[FN3] stated:

[T]here are two types of damages, compensatory and punitive.... [Florida Statutes §]624.155(4)[FN4] specifically sets forth the requirements for an award of punitive damages[FN5] under the statute.... [C]ompensatory damages a[re] "the loss, injury or deterioration caused by negligence, design or accident of one person to another...."[FN6] [T]his Court [has] stated that the "fundamental principle of the law of damages is that the person injured by breach of contract or by wrongful or negligent act or omission shall have fair and just compensation commensurate with the loss sustained in consequence of the defendant's act which [gave] rise to the action."[FN7] [Accordingly,] we hold that the damages recoverable in a first-party suit under [§]624.155 are those amounts which are the natural, proximate, probable, or direct consequence of the insurer's bad-faith actions, and we reject the contention that first-party bad-faith damages should be fixed at the amount of the excess judgment. The insurer in a first-party bad-faith action is subject to a judgment in excess of policy limits if the actual damages resulting from the insurer's bad-faith are found to exceed the policy limits. Such damages may include, but are not limited to, interest, court costs, and reasonable attorney's fees incurred by the plaintiffs. The attorney's fees shall also include any fees incurred in the original underlying action as a result of the insurer's bad-faith actions.[FN8]

[Emphasis supplied].

Thus, in Florida, according to McLeod, if "bad-faith" is found, the insurer may be held responsible for interest, court costs and reasonable attorney's fees.[FN9]

Wisconsin also allows damages in first-party "bad-faith" litigation, including any damages that are the proximate result of "bad-faith" conduct.[FN10] Wisconsin courts have held that damages resulting from an insurer's "bad-faith" conduct may include attorney's fees and costs[FN11] as well as expert witness fees and attorney travel expenses[FN12] that are normally not recoverable in litigation.

In contrast, New York courts have held that "bad-faith" damages must have been within the contemplation of the parties at the time of entering into the insurance contract.[FN13] If the "bad-faith" damages are speculative, remote, and not within the contemplation of the parties at the time of execution of the insurance contract, they are not recoverable as first-party property "bad-faith" damages. In Harriman v. Norfolk & Dedham Mut. Fire Ins. Co., the plaintiff contended that she suffered a plethora of consequential damages as a result of the "bad-faith" conduct of the insurer when it refused to settle her claim for loss of use to her home.[FN14] Included in the "bad-faith" damages being claimed were legal fees not incurred in the "bad-faith" action and miscellaneous costs for such things as postage and photocopying. The Harriman court held that these damages were not recoverable as consequential damages in a first-party property "bad-faith" case as they were not within the contemplation of the parties at the time of the execution of the insurance contract.

The penalties and damages available in a first-party "bad-faith" action are set forth by two Louisiana statutes. Previously, Louisiana courts indicated that reasonable attorney's fees were recoverable pursuant to La.Rev.Stat. Ann. § 22:658.[FN15] The relevant portion of this statute provided:

Failure to make such payment within thirty days after receipt of such satisfactory written proofs and demand therefor, as provided in R.S. 22:658(A)(1), or within thirty days after written agreement or settlement as provided in R.S. 22:658(A)(2) when such failure is found to be arbitrary, capricious, or without probable cause, shall subject the insurer to a penalty, in addition to the amount of the loss, of ten percent damages on the amount found to be due from the insurer to the insured, or one thousand dollars, whichever is greater, payable to the insured, or any of said employees, together with all reasonable attorneys fees for the prosecution and collection of such a loss, or in the event a partial payment or tender has been made, ten percent of the difference between the amount paid or tendered and the amount found to be due and all reasonable attorney fees for the prosecution and collection of such amount.

La. Rev. Stat. Ann. § 22:658(B)(1) (1995) [emphasis supplied].

However, in 2003, the Louisiana legislature revised § 22:658(B)(1) to provide as follows:

Failure to make such payment within thirty days after receipt of such satisfactory written proofs and demand therefor or failure to make a written offer to settle any property damage claim, including a third-party claim, within thirty days after receipt of satisfactory proofs of loss of that claim, as provided in Paragraphs (A)(1) and (4), respectively, or failure to make such payment within thirty days after written agreement or settlement as provided in Paragraph (A)(2), when such failure is found to be arbitrary, capricious, or without probable cause, shall subject the insurer to a penalty, in addition to the amount of the loss, of twenty-five percent damages on the amount found to be due from the insurer to the insured, or one thousand dollars, whichever is greater, payable to the insured, or to any of said employees, or in the event a partial payment or tender has been made, twenty-five percent of the difference between the amount paid or tendered and the amount found to be due.

La. Rev. Stat. Ann. § 22:658(B)(1) (2004).

Consequently, in the event that an insurer fails to make payment and the failure to make this payment is found to be arbitrary, capricious, or without probable cause, the ability to recover attorney's fees no longer exists in Louisiana.[FN16]


Among the damages frequently sought by insureds are costs related to the foreclosure of the insured property. Specifically, the insured alleges that the "bad-faith" conduct of the insurer resulted in the foreclosure of the insured property. However, Wisconsin courts have held that an insured could not recover "bad-faith" damages arising from additional losses of over $3,000,000 from post-denial foreclosures on the insured's other cross-collateralized investment properties where the policy only covered the nightclub and there was no evidence that the insurer knew about the insured's other properties at time of contracting, especially where the policy premium was nominal (i.e., $10,000).[FN17] The Wisconsin court specifically held that the "bad-faith" damages in a first-party property "bad-faith" action must flow directly and necessarily from the breach of contract and must be reasonably foreseeable as a probable result of the breach at the time of execution of the contract. The court ruled that foreclosure costs were not reasonably foreseeable.

Similarly, New York courts have refused to allow recovery for foreclosure costs. As previously indicated, courts in New York have held that "bad-faith" damages must have been within the contemplation of the parties at the time of entering into the insurance contract.[FN18] The costs of home refinancing and defending against foreclosure actions were held to not have been within the contemplation of the parties at the time of entering into the contract, and, therefore, not recoverable as consequential damages in a first-party property "bad-faith" case.[FN19] New York courts have also held that recovery of damages resulting from foreclosure (allegedly caused by non-payment of premiums) were not permissible because the foreclosure was not foreseeable at the time of contracting.[FN20]


Another of the frequently cited "damages" in a first-party "bad-faith" action is emotional distress. There is a split of authority regarding the ability to recover emotional distress damages.

The Florida Supreme Court touched on emotional distress damages and advised that an award for mental anguish in "bad-faith" insurer cases is restricted to instances in which the insured acted with sufficient malice to support an award of punitive damages.[FN21]

In Time Insurance Company v. Burger,[FN22] the Florida Supreme Court explored the issue of emotional distress in the context of a first-party "bad-faith" action against a health insurer. Although compensatory damages for emotional distress were allowed, the Court qualified and narrowed its holding:

In view of the possibility that an unjustified refusal to pay an insured's medical or hospital bills could result in the inability to obtain health care, we hold that [§]624.155(1)(b)(1) authorizes the recovery of damages for emotional distress in a first-party bad-faith claim against a health insurance company.[FN23]

Consequently, this holding limited emotional distress damages to first-party "bad-faith" conduct by health care insurers in the State of Florida.

New York has held that consequential damage claims resulting from mental and emotional distress, loss of reputation, public embarrassment, humiliation and mental anguish must arise from the creation of a relationship or duty between the insured and insurer separate from the contractual obligations of each party.[FN24] Accordingly, in the first-party property "bad-faith" context, these types of damages are typically unavailable because no separate relationship is created or exists other than the contractual relationship.

Louisiana courts may allow recovery for nonpecuniary loss in a first-party breach of contract case when the contract is intended to gratify a nonpecuniary interest and, because of the circumstances surrounding the formation or the nonperformance of the contract, the obligor knew, or should have known, that his failure to perform would cause that kind of loss.[FN25] However, because first-party property "bad-faith" cases involve contracts that do not address nonpecuniary interests, damages for emotional distress and mental anguish are typically not available in first party property "bad-faith" actions.[FN26]

Several jurisdictions allow a first-party "bad-faith" plaintiff to seek and recover emotional distress damages. California commonly allows a cause of action for intentional infliction of emotional distress resulting from an insurer's actions. Thus, emotional distress damages are recoverable in California in the first-party property context.[FN27] However, the court, in Waters v. United Services Auto. Assn.,[FN28] stated that emotional distress damages are only available if the insured has suffered a financial loss in addition to emotional distress.

Colorado also allows non-economic losses as compensatory damages in a first-party "bad-faith" action to include: emotional distress; pain and suffering; inconvenience; fear and anxiety; and, impairment of the quality of life.[FN29] However, an insured suing under the tort of "bad-faith" breach of an insurance contract is only entitled to recover damages based upon traditional tort principles of compensation for injuries actually suffered, including emotional distress.[FN30]

Alabama courts have indicated that recoverable damages for the tort of first-party property "bad-faith" may include mental distress and economic loss.[FN31] In expanding this form of recovery, the Alabama Supreme Court indicated that damages for mental anguish may be available if the contractual duties imposed in the policy are so coupled with matters of mental solicitude as to form a duty that is subsequently breached and results in mental anguish.[FN32]

Mississippi, like Alabama, similarly indicates that recoverable compensatory damages for the tort of first-party property "bad-faith" may include emotional distress and economic loss.[FN33] However, Mississippi courts impose the additional requirement that an insured set forth sufficient evidence to support an award of emotional distress damages.[FN34]


In first-party "bad-faith" actions, plaintiffs typically argue that they are entitled to contractual damages that are in excess of the policy limits. However, these "damages" typically bear no relation to the "bad-faith" conduct of the insurer and should not be recoverable. Florida courts have addressed the award of excess judgments as "bad-faith" damages. In McLeod, the Florida Supreme Court held that recovering an excess judgment is analogous to imposing a penalty or asserting punitive damages upon the insurer.[FN35] Consequently, the McLeod Court refused to allow excess judgments as damages in a first-party "bad-faith" action. However, the Court, in State Farm Mutual Automobile Insurance Company v. Laforet,[FN36] carved out a narrow exception to this prohibition when the first-party action relates to an uninsured motorist claim under Florida Statute § 627.727(10).[FN37]

Accordingly, the damages recoverable in a first-party "bad-faith" action under Florida Statute § 624.155 are those amounts that are the natural, proximate, probable, or direct consequence of the insurer's "bad-faith" actions. The Florida Supreme Court rejected the contention that first-party "bad-faith" damages should include amounts of the breach of contract judgment in excess of the policy limits.[FN38] Consequently, in typical first-party property cases, it is not the insurer's conduct that results in the excess judgment, it is the damage that is caused by the peril that is not attributable to the insurer.


Costs that are not covered under the insurance policy, but are a direct consequence of delay in claim handling, may be recoverable as first-party property "bad-faith" damages.[FN39] Specifically, Louisiana courts indicated that demolition costs that were necessary due to the failure of the insured to make a timely payment may be recoverable as "bad-faith" damages.[FN40]

However, New York courts have held that costs that may be related to the insurer's "bad-faith" may not be recovered in a "bad-faith" action because these costs were not within the contemplation of the parties at the time of entering into the insurance contract.[FN41] Specifically, New York has determined that loss of business and lost income were not recoverable as consequential damages in a first-party property "bad-faith" case.


Interestingly, California appears to allow an insured to recover personal injury damages in first-party property "bad-faith" litigation. In Patrick v. Maryland Casualty Co.,[FN42] an insured's roof was damaged by a series of storms. The insured temporarily repaired the roof and submitted a claim. The insured contended the insurance company forced him to obtain needless documentation and multiple estimates that caused endless delay. The insured also claimed the insurer told him that his check was lost in the mail, and then delayed even more when reissuing a new one. Months later, the house continued to be damaged by water. After not receiving the money that had been promised, the insured commenced the repairs himself to avoid the continuing water damage.

Allegedly, the insurer's employee told the insured to do the work himself. However, the record indicates the idea may have originated with the insured. Nevertheless, the insured began replacing the entire roof and not just the damaged portions. While on the roof and attempting repair, the insured lost his balance, jumped to the ground, and was severely injured. As a result, the insured underwent hospitalization, received treatment and was disabled from his job. Thereafter, the insured claimed his injuries were caused by the insurer's conduct and filed suit for negligence, breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty.

On appeal, the court reversed the award of punitive damages[FN43] and remanded the action for failure to consider comparative fault. Specifically, the Patrick court held:

Although no case has yet ruled precisely on the issue of whether negligent conduct by the plaintiff should be compared, in a system of comparative fault, with the bad-faith conduct of an insurer which raises the defense of comparative fault, we conclude that such a defense is available in an appropriate case such as this one.... Here, it is reasonably probable that [the insurer] would have received a more favorable result, absent the error. In this case, the jury was in essence instructed that the insurer would be liable for all [the insured's] damages, regardless of [the insured's] negligence in walking backward on his roof while pulling a heavy and unwieldy panel without taking any particular safety precautions. While we express no considered judgment, it even appears reasonably probable a comparison of the respective faults of the parties would lead to the conclusion [the insured] bore a substantial portion of the responsibility for his injuries caused when he fell off his roof. Certainly we cannot say as a matter of law that he was blameless. We, therefore, must reverse the judgment and remand for a new trial.[FN44]

The Patrick court did not indicate that personal injury damages were unavailable in this situation. Instead, the court remanded the action due to the jury's failure to consider comparative negligence when awarding damages. As such, it appears possible to bring an action for traditional personal injury damages in a first-party property "bad-faith" action in California.


The Wisconsin Supreme Court, in Jones v. Secura Insurance Company,[FN45] held that contractual damages that would not have been available in a breach of contract action as a result of an expired statute of limitations could still be recovered through the tort of first-party "bad-faith."[FN46]

In Jones, the insureds presented a notice of loss to the insurer for damages to their residence and motel. Thereafter, the insurer conducted an inspection and denied coverage. Almost two years after the denial the insureds filed suit against the insurer claiming, among other things, breach of the insurance contract and "bad-faith." The trial court granted summary judgment in favor of the insurer based on the expiration of the statutory period for breach of contract (i.e., one year).[FN47] At the same time, the trial court denied the insurer's motion for summary judgment on the "bad-faith" claim.

In response, the insurer filed a motion for declaratory judgment and requested that the circuit court declare the insureds' damages legally unenforceable since the underlying contract action was barred statutorily. The insurer alleged the insureds lost use of their property, lost property, and lost business were unrecoverable in the absence of a viable action for breach of contract. In other words, the insurer argued that the alleged damages are not recoverable in "bad-faith" since the underlying contract action was properly dismissed. In opposition, the insureds argued the insurer remained liable for any damages that are the proximate result of the insurer's "bad-faith." After considering each argument, the lower court issued an order prohibiting the insureds from attempting to collect any damages that would have been precluded under their previously dismissed contract claim. The insureds appealed.

On appeal, the appellate court found that the insureds' policy is a fire insurance policy governed by the one-year statute of limitations. Despite this, the court reversed the trial court's order regarding "bad-faith" damages and held as follows:

[W]e have concluded that in a first-party bad-faith action, an insurer is liable to the insured for any damages which are the proximate result of the insurer's bad-faith, including damages otherwise recoverable in a breach of an insurance contract action. We have concluded that even though the one-year statute of limitations on the [insureds'] contract claim passed before this action was commenced, the [insureds] are not barred from pursuing and recovering damages on their bad-faith claim, including damages otherwise recoverable in a breach of an insurance contract action. The [insureds] are allowed to recover any damages that are the proximate result of [the insurer's] alleged bad-faith, if bad-faith is established at trial.[FN48]

Instructively, the Wisconsin Supreme Court noted:

As two separate claims, they appropriately lead to recovery of separate, but not necessarily exclusive, damages. It would be inconsistent, therefore, to prohibit pursuit of some bad-faith damages because of application of the statute of limitations for a breach of insurance contract claim.[FN49]

Consequently, the Wisconsin Supreme Court ruled that the breach of contract damages were prohibited from recovery by the statute of limitations, however, the first-party "bad-faith" action breathed life into the potential recovery of these damages despite this fact.


The measure of these damages still remains difficult for both the insured to prove and the insurer to value. There is no universal formula as to what damages are applicable in each case. Most jurisdictions seem to agree that first-party "bad-faith" damages will include damages that are contemplated, or foreseeable, by the parties at the time of contractual execution. Exactly what these "bad-faith" may be, however, is not precise. More importantly, it is usually difficult, if not impossible, for insureds to identify any quantifiable "bad-faith" damages. Thus, insurers and their attorneys should insist that insureds be responsive and detailed in their discovery responses on this issue of "bad-faith" damages – the "Achilles' Heel" of most first-party "bad-faith" claims.


FN1. It is important to note that even punitive damages are limited to a single digit multiple of actual compensatory "bad-faith" damages. See State Farm Mutual v. Campbell, 538 U.S. 408 (2003); Crossing The Line: Punitive Damages And The Supreme Court, John J. , Mealey's Litigation Report: Insurance Bad Faith, May 15, 2002 (Vol. 16, # 2); The Campbell Cap, John J. and William R. Lewis, Mealey's Litigation Report: Insurance Bad Faith, May 21, 2003 (Vol. 17, # 2); but see Punitive Damages And Hip-Hop, John J. and Eric W. Dickey, Mealey's Litigation Report: Insurance Bad Faith, September 7, 2004 (Vol. 18, # 9); Detours: Campbell Stops At The Willow Inn, John J. and Eric W. Dickey, Mealey's Litigation Report: Insurance Bad Faith, April 20, 2005 (Vol. 18, # 24); and Piece of Mind: The Utah Supreme Court's Response to Campbell, John J. and John V. Garaffa, Mealey's Litigation Report: Insurance Bad Faith, January 18, 2005 (Vol. 18, # 18).

FN2. See McLeod v. Continental Ins. Co., 591 So. 2d 621, 623 (Fla. 1992); See also Jones v. Secura Insurance Company, 249 Wis.2d 623, 638 N.W.2d 575 (Wis. 2002).

FN3. See McLeod v. Continental Ins. Co. at 623 (Fla. 1992)(stating "[a] first-party action is one in which the insured is also the injured party who is to receive benefits under the policy... [and] a third-party action is one in which a third-party injured, not the insured, is entitled to the benefits under the policy as a result of the insured's tortious conduct."); See also Florida's First Party Bad-Faith Law, John J. , Mealey's Litigation Report: Insurance Bad Faith, October 19, 2004 (Vol. 18, # 12)(in depth discussion of first party "bad-faith" in Florida).

FN4. Florida Statutes § 624.155(4) provides: "(4) No punitive damages shall be awarded under this section unless the acts giving rise to the violation occur with such frequency as to indicate a general business practice and these acts are: (a) Willful, wanton, and malicious; (b) In reckless disregard for the rights of any insured; or (c) In reckless disregard for the rights of a beneficiary under a life insurance contract. Any person who pursues a claim under this subsection shall post in advance the costs of discovery. Such costs shall be awarded to the insurer if no punitive damages are awarded to the plaintiff."; Compare The Continuing Need for De Novo Review of Punitive Damage Awards – Liggett Group, Inc. v. Engle, John V. Garaffa, Mealey's Litigation Report: Insurance Bad Faith, July 7, 2004 (Vol. 18, # 5)(in depth discussion of the de novo standard of review for punitive damages).

FN5. See State Farm Mutual v. Campbell, 538 U.S. 408 (2003)(reversing a $145 million dollar punitive damages award on constitutional grounds, the United States Supreme Court held: "Compensatory damages are intended to redress a plaintiff's concrete loss, while punitive damages are aimed at the different purposes of deterrence and retribution. The Due Process Clause prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor... Punitive damages awards serve the same purpose as criminal penalties... Thus, this Court has instructed courts reviewing punitive damages to consider (1) the degree of reprehensibility of the defendant's misconduct, (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damage award, and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases."); See also Piece of Mind: The Utah Supreme Court's Response to Campbell, John J. and John V. Garaffa, Mealey's Litigation Report: Insurance Bad Faith, January 18, 2005 (Vol. 18, # 18 p. 25)(examines the constitutionality of punitive damages); and, Punitive Damages And Hip-Hop, John J. and Eric W. Dickey, Mealey's Litigation Report: Insurance Bad Faith, September 7, 2004 (Vol. 18, # 9 p. 27).

FN6. Citing Hanna v. Martin, 49 So. 2d 585, 587 (Fla. 1950).

FN7. Id.

FN8. See McLeod v. Continental Ins. Co. at 623-624 & 626; Accord Imhof v. Nationwide Mutual Insurance Co., 643 So. 2d 617, 619 (Fla. 1994)("The damages recoverable by the insured in a first-party bad-faith action are those amounts that are the consequence of the insurer's bad-faith.").

FN9. Providing for an award of attorney's fees as a compensatory "damages" in a bad faith action seems irrelevant based on the fact that the insured would already be entitled to, and most likely has already received, attorney's fees in the underlying breach of contract action due to the operation of Fla. Stat. § 627.428.

FN10. See Jones v. Secura Insurance Company, 249 Wis.2d 623, 638 N.W.2d 575 (Wis. 2002).

FN11. See Danner v. Auto-Owners Insurance, 245 Wis.2d 49, 629 N.W.2d 159 (Wis. 2001) and DeChant v. Monarch Life Ins. Co., 200 Wis.2d 559, 547 N.W.2d 592 (Wis. 1996).

FN12. See Allied Processors, Inc. v. W. Nat'l Mut. Ins. Co., 246 Wis.2d 579, 629 N.W.2d 329 (Wis. App. 2001).

FN13. See Harriman v. Norfolk & Dedham Mut. Fire Ins. Co., 172 A.D.2d 585, 568 N.Y.S.2d 820 (N.Y.A.D. 2 Dept. 1991).

FN14. Id.

FN15. See Real Asset Management, Inc. v. Lloyd's of London, 61 F.3d 1223 (5th Cir. 1995).

FN16. When the Louisiana legislature amended § 22:658(B)(1) to remove attorney's fees, they also increased the penalty from 10% to 25%. Arguably, this increase was the legislature's determination that a reasonable attorney fee should be no more than 25% of the recovery.

FN17. See General Star Indem. Co. v. Bankruptcy Estate of Lake Geneva Sugar Shack, 215 Wis.2d 104, 572 N.W.2d 881 (Wis. App. 1997).

FN18. See FN13 (citing Harriman v. Norfolk & Dedham Mut. Fire Ins. Co., 172 A.D.2d 585, 568 N.Y.S.2d 820 (N.Y.A.D. 2 Dept. 1991)).

FN19. Id.

FN20. See Martin v. Metropolitan Prop. & Casualty Ins. Co., 238 A.D.2d 389, 390, 656 N.Y.S.2d 318, 319 (2d Dept.1997).

FN21. See Butchikas v. Travelers Indemnity Co., 343 So. 2d 816, 819 (Fla. 1976)("The rule in Florida has been that, absent a physical injury, a plaintiff can recover damages for mental anguish only where it is shown the defendant acted with such malice that punitive damages would be justified."); Compare Recovery of Damages for Emotional Distress in Tort, Contract and Statutory Bad Faith Actions, Lee Craig and J. Pablo Caceras, Mealey's Litigation Report: Insurance Bad Faith, July 21, 1998 (Vol. 12, # 6)(analyzing the recovery of emotional distress damages in "bad-faith" actions). The Florida Supreme Court's holding in Butchikas was reinforced in McLeod v. Continental Ins. Co., 591 So. 2d 621 (Fla. 1992).

FN22. See Time Insurance Company v. Burger, 712 So. 2d 389 (Fla. 1998)(awarding compensatory damages for emotional distress as well as punitive damages in a statutory "bad-faith" action).

FN23. See Time Insurance Company v. Burger at 392-393 (noting Brown v. Cadillac Motor Car Division, 468 So. 2d 903 (Fla. 1985) and stating: "[T]his Court established the impact rule, which holds that in the absence of discernible physical injury a person cannot recover compensatory damages for mental distress or psychiatric injury. While we have concluded that [§]624.155 creates a statutory exception to this rule, at least in health insurance cases, we note that the statute does not specify the standard of recovery for damages for emotional distress.").

FN24. See White v. Blue Cross and Blue Shield of Greater New York, 146 Misc.2d 125, 549 N.Y.S.2d 598, (N.Y.Supp. 1989); Sweazey v. Merchants Mut. Ins. Co., 169 A.D.2d 43, 571 N.Y.S.2d 131 (N.Y.A.D. 3 Dept. 1991); Fleming v. Allstate Ins. Co., 106 A.D.2d 426, 482 N.Y.S.2d 519 (N.Y.A.D. 2 Dept. 1984), aff'd 66 N.Y.2d 838, 498 N.Y.S.2d 365, 489 N.E.2d 252, cert. denied 475 U.S. 1096, 106 S.Ct. 1493, 89 L.Ed.2d 894; and, Fiore v. State Farm Fire & Cas. Co., 135 A.D.2d 602, 603, 522 N.Y.S.2d 180 (N.Y.A.D. 1987).

FN25. See Dixon v. First Premium Ins. Group, 2006 WL 786781 (La. App. 1st Cir. 2006).

FN26. Id.

FN27. See Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 108 Cal. Rptr. 480 (Cal. 1973).

FN28. See Waters v. United Services Auto. Assn., 41 Cal. App. 4th 1063 (Cal. App. 2d Dist. 1996).

FN29. See Goodson v. American Standard Ins. Co. of Wisconsin, 89 P.3d 409 (Colo. 2004) and Ballow v. PHICO Ins. Co., 878 P.2d 672, 677 (Colo. 1994).

FN30. Goodson at 415.

FN31. See Chavers v. National Security Fire & Casualty Co., 405 So. 2d 1 (Ala. 1981) and Baker v. State Farm General Ins. Co., 585 So. 2d 804 (Ala. 1991).

FN32. Compare Independent Fire Insurance Company v. Lunsford, 621 So. 2d 977 (Ala. 1993)(stating damages for mental anguish can be awarded for a breach of contract and not the "bad-faith" action).

FN33. See Langston v. Bigelow, 820 So. 2d 752 (Miss. Ct. App. 2002).

FN34. Id.

FN35. See Florida Statutes § 624.155(4) (sets forth specific requirements to award punitive damages for "bad-faith" conduct).

FN36. See State Farm Mutual Insurance v. LaForet, 658 So. 2d 55, 58 (Fla. 1995)(noting the evolution of statutory "bad-faith").

FN37. Florida Statutes § 627.727(10) provides: "The damages recoverable from an uninsured motorist carrier in an action brought under [§]624.155 shall include the total amount of the claimant's damages, including the amount in excess of the policy limits, any interest on unpaid benefits, reasonable attorney's fees and costs, and any damages caused by a violation of a law of this state. The total amount of the claimant's damages are recoverable whether caused by an insurer or by a third-party tortfeasor."

FN38. See McLeod at 623, 624 & 626.

FN39. See Real Asset Management, Inc. v. Lloyd's of London, 61 F.3d 1223 (5th Cir. 1995).

FN40. Id.

FN41. See FN13 (citing Harriman v. Norfolk & Dedham Mut. Fire Ins. Co., 172 A.D.2d 585, 568 N.Y.S.2d 820 (N.Y.A.D. 2 Dept. 1991)).

FN42. See Patrick v. Maryland Casualty Co., 217 Cal. App. 3d 1566 (Cal. App. 1st Dist. 1990).

FN43. Id. at 1576 ("There was substantial evidence in this case... that [the insurer's] claims handling practices were shoddy, and that its handling of the claim sought by the [insured] was at times witless and inflicted with symptoms of bureaucratic inertia and inefficiency. However, after a review of the full record, we find no substantial evidence that its actions were malicious, fraudulent, or oppressive. While in other circumstances a consistent and unremedied pattern of egregious insurer practices might rise to the level of a malicious disregard of the insured's rights, we cannot find liability here for punitive damages based merely upon the insurer's inept and negligent handling of a claim.").

FN44. Id. at 1572 & 1575.

FN45. See Jones v. Secura Insurance Company, 249 Wis.2d 623, 638 N.W.2d 575 (Wis. 2002).

FN46. Id.

FN47. Wis. Stat. § 631.83(1)(a)(allows for a one year statute of limitation period in the context of breach of contract).

FN48. Id. at 649.

FN49. Id. at 646.

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

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

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

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

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January 26, 2015 PublicationRicky's Believe It Or Not

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

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

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

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

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

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

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

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

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

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

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

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

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

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May 22, 2014 PublicationBurden Of Proof Issues In Consent Judgments

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

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

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

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

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

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

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

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

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

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November 21, 2013 PublicationThis Mediation Is Confidential, Right?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Are all attorney-client communications contained in such claim files that were thought to be confidential now discoverable because the insurer lost the underlying first-party claim, litigation, or appeal

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

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

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

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

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

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

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

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

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

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

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

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

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December 22, 2011 PublicationA Wolf In Sheep's Clothing (Insurers Should Be Vigilant In Florida)

[ Editors note: Alan J. Nisberg, Esq., is a partner with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial and appellate attorney, specializing in extra-contractual, class action and complex coverage litigation. This commentary, other than the quoted material, expresses the authors opinions -  not the opinions of Butler or Mealey's. Copyright © 2011 by the author. Responses are welcome. ] 

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November 23, 2011 PublicationProximate Causation In Third-Party Bad Faith: Not Every Bad Decision Is A Bad-Faith Suit

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

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

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

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

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

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

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July 28, 2011 PublicationThe Insurer's Bill Of Rights (A Balance Of Power)

[Editor's Note: Alan J. Nisberg is a partner in the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial attorney and appellate lawyer, specializing in extra-contractual, class action, and complex coverage litigation. This commentary, other than the quoted material, expresses the author's opinions - not the opinions of Butler or Mealey's. Copyright#2011 by the author. Responses are welcome.] 

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June 23, 2011 PublicationChoice-Of-Law Principles Affecting Insurance Bad-Faith Claims

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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July 29, 2010 PublicationBad Faith - Variations On A Theme

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

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

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

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

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

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

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

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February 25, 2010 PublicationExtracontractual Recovery Without Bad Faith

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

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

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

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

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

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August 27, 2009 PublicationFairly Debatable?

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

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

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

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April 23, 2009 PublicationArbitrary and Capricious

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

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

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

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

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

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

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

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

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

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

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

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November 16, 2004 PublicationHospital Lien Laws and Personal Injury Settlements

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

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

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

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

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

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October 15, 2003 PublicationJuggling Multiple Claims With Inadequate Limits

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

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

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

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

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

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June 18, 2003 PublicationAppraising Windstorm Claims

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

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April 16, 2003 PublicationThe Current State of Comparative Bad Faith

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

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

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

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February 19, 2003 PublicationInstitutional Bad Faith: Individual Or Class Action Litigation (All For One? - Or - One For All?)

In 1844, Alexandre Dumas, one of the most famous French writers of the nineteenth century, shared his vision of comradery and unified ambition. In his classic, The Three Musketeers, set under the seventeenth century rule of Louis XIII, a small association of elite combatants swore their allegiance to a common purpose . . . and to each other: All for one, and one for all! Is this sense of nobility and uniformity present in the battle cry of plaintiff lawyers brandishing their swords in modern day litigation against the insurance industry?

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January 22, 2003 PublicationAnger And Punishment

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

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

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

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

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October 23, 2002 PublicationTime Bombs

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

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September 18, 2002 PublicationSpoliation As Bad Faith

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

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

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

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

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

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October 17, 2001 PublicationJustices: Please Take This Case!

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

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September 19, 2001 PublicationAdditional Insured Coverage And Bad Faith

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

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

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

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March 21, 2001 PublicationDiminished Value In Auto Damage Claims

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

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

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

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

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

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

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

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July 25, 2000 PublicationLevel The Playing Field: Abate Or Stay The Bad Faith Action Pending Resolution Of The Underlying Liability Or Coverage Case

Before resolution of a first-party action for coverage or a third-party action to establish an insured's liability, a plaintiff will often initiate an action for bad faith. By doing so, the plaintiff attempts to gain an unfair advantage in discovery and at trial. This article outlines some of the reasons why the bad faith action should be abated in its entirety or, at the very least, stayed pending resolution of the underlying claim.

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June 20, 2000 PublicationThe Public Adjuster's Perspective

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

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

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

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

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

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

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

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February 15, 2000 PublicationPerfunctory Defense

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

The Scenario

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

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December 21, 1999 PublicationMalicious Defense

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

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

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

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

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

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


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

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August 17, 1999 PublicationMultiple Claims Exceeding the Policy Limits

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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August 18, 1998 PublicationChoice of Law in Bad Faith Cases

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

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

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

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Key Points