Do I Have a Bad Faith Claim Against My Insurance Company?
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Under Florida law, an insurance company owes a duty of good faith to its insured. This means that the insurance company “must investigate the facts, give fair consideration to a settlement offer that is not unreasonable under the facts, and settle, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so.” Bos. Old Colony Ins. Co. v. Gutierrez, 386 So. 2d 783, 785 (Fla. 1980). If you believe your insurance company failed to treat you fairly or failed to settle a claim against you within the policy limits, i.e., failed to act in good faith, then you may have a cause of action against the insurance company for bad faith.
What is Considered Bad Faith?
Some examples of conduct by the insurance company that may rise to bad faith include, the following:
- Not attempting in good faith to settle claims when, under all circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for her or his interest;
- Making claims payments to insureds or beneficiaries not accompanied by a statement setting forth the coverage under which payments are being made; and
- Failing to properly settle claims, when the obligation to settle a claim has become reasonably clear.
What is First-Party Bad Faith?
There are two causes of action for bad faith: first-party bad faith and third-party bad faith. A first-party bad faith cause of action arises when an insurance company fails to act in good faith in the processing of the insured’s own insurance claim. See Macola v. Gov’t Emps. Ins. Co., 953 So. 2d 451, 457 (Fla. 2006) (“[A] third-party bad faith cause of action arises when the insurer fails to act in good faith in handling a claim brought by a third party against an insured, whereas a first-party bad faith cause of action arises when an insurer fails to act in good faith in the processing of the insured’s own first-party claim.”). For example, if an insurance company wrongfully denies an insured’s own insurance claim, such as for damages to his or her property following a hurricane, then the insured may have a cause of action for first-party bad faith.
What is Third-Party Bad Faith?
On the other hand, a third-party bad faith cause of action arises when an insurance company fails to act in good faith in handling a claim brought by a third party against an insured. See Macola, 953 So. 2d at 457. For example, if an insurance company fails to settle a third party’s claim within the policy limits, such as for injuries he or she sustains in a car accident caused by the insured, then the insured or the third party may have a cause of action for third-party bad faith See, e.g., Fridman v. Safeco Ins. Co. of Illinois, 185 So. 3d 1214, 1220 (Fla. 2016) (“The third-party bad faith cause of action permits the insured or the injured third party to sue an insurer for failing to settle within the policy limits.”); Cunningham v. Standard Guar. Ins. Co., 630 So. 2d 179, 181 (Fla. 1994) (“[T]he essence of a third-party bad-faith cause of action is to remedy a situation in which an insured is exposed to an excess judgment because of the insurer’s failure to properly or promptly defend the claim.”).
As a general rule, a cause of action for third-party bad faith does not arise until there is an excess judgment against the insured. See Whritenour v. Thompson, 145 So. 3d 870, 873 (Fla. 2d DCA 2014) (“Under Florida law, a bad faith action is a separate cause of action that does not arise until an insured is legally obligated to pay an excess judgment.”). However, there are exceptions to this general rule. For example, when the insurer and the third-party claimant enter into a Cunningham agreement, wherein they stipulate to try the bad-faith issues first, and if no bad faith is found, the third-party will settle for the policy limits. See Perera v. U.S. Fid. & Guar. Co., 35 So. 3d 893, 899 (Fla. 2010). Another exception is the insured and the third-party claimant can enter into a Coblentz agreement, wherein the insurance company fails to defend, and the insured and the third-party claimant agree to a judgment in excess of the policy limits. Id. at 899-900.
Common Law vs. Statutory Bad Faith
A person may recover damages for an insurance company’s bad faith under either common law or statute. However, Florida only recognizes a common law cause of action for third-party bad faith, not first-party bad faith. See Demase v. State Farm Fla. Ins. Co., 239 So. 3d 218, 220 (Fla. 5th DCA 2018) (“A cause of action for first-party bad faith did not exist at common law.”).
On the other hand, under Section 624.155, Florida Statutes, “any person” may bring a civil action against an insurance company for bad faith. Accordingly, an insured (or third party) can bring either a common law or statutory cause of action for third-party bad faith, whereas an insured can bring only a statutory cause of action for first-party bad faith. However, the insured (or third party) cannot recover under both the common law and the statutory remedy. See Fla. Stat. § 624.155(8).
As a condition precedent to filing a lawsuit for statutory bad faith, the department of Financial Services and the insurer must have been given 60 days’ written notice of the violation. Following this notice, the insurance company is given an opportunity to “cure” its bad faith. If the insurance company cures its bad faith within the 60-day window, then there is no statutory cause of action for bad faith. See Fla. Stat. § 624.155(3)(c). However, if the insurance company fails to respond within the 60-day window, then there is a presumption that the insurance company acted in bad faith. See Fridman v. Safeco Ins. Co. of Illinois, 185 So. 3d 1214, 1220 (Fla. 2016).
Conclusion
If your insurance company wrongfully denied your claim, or you are or may be exposed to a judgment in excess of your policy limits because your insurance company failed to settle a claim against you within the policy limits, then you may have a cause of action for bad faith. If you believe your insurance company acted in bad faith, an experienced attorney can assist you in bringing a lawsuit against your insurance company for damages, including potentially your attorney’s fees as well. See Fla. Stat. § 624.155(4).