Florida’s New Good Faith Duty on an Insurer Not to Settle

A liability insurance company must carefully handle multiple claims that could exhaust its insured’s policy limits. It can’t settle too quickly, leaving other legitimate claims with no coverage. In the Farinas case, the insurer settled with some claimants quickly, leaving insufficient coverage for others. The court ruled that the insurer could be liable for settling too quickly and not coordinating a global settlement to minimize exposure for its insured. The insurance company had a duty to defend its customer in a lawsuit. After settling with some accident victims, the insurer tried to avoid further responsibility. The court said the insurer had a duty to investigate all the claims, try to settle as many as possible, and not leave the insured at risk of big judgments. The court decided that a jury should decide if the insurer did a good job. In the case of Farinas, the court made a decision based on a rule established in the Harmon v. State Farm case from 1970. This rule says that an insurance company can settle some claims, even if it uses up all the policy money and leaves other people without coverage. As long as the settlements are fair, the insurance company has the right to decide which claims to settle. The court in the Farinas case said that insurance companies should have the power to settle claims without having to evaluate every claim first. This is because it encourages quick settlements and compromises. However, the plaintiffs argued that insurance companies have a duty to not settle claims too quickly and to try to get the best settlement for their insured. In another case, the court said that when there are multiple claims against the insured, the insurance company should try to settle as many claims as possible before using up all the policy funds on one claim. In the Farinas case, the plaintiffs argued that an insurance company has a duty not to settle claims too quickly and must try to settle all claims at once to protect its insured. This creates problems because some settlement offers have time limits and the insurance company may not be able to promptly settle valid claims. If the insurance company waits for all claimants to agree on how to split the money, it could be sued for not settling claims within the policy limits. The court in the Farinas case imposed a new duty on insurance companies, which some say is the job of the Legislature, not the courts. The Harmon rule is being abandoned, which goes against the duties that insurers have under the law. The legislature has made it clear that insurers have to settle claims in good faith, but they are not required to settle all possible claims at once or prioritize settlements in a certain way. By imposing the new Farinas rule, insurers may not be able to accept individual settlement offers or mediate individual claims. This creates tension between the law and the new rule. The insurance company is worried because a court case has made it easier for people to sue for more money than their insurance policy covers. This means that even if someone has the minimum amount of insurance, they could end up having to pay a lot more if someone sues them. The insurance company might try to offer the policy limits to everyone who has a claim, but if not everyone agrees, they might have to pay out more than they planned for. The insurance company might then have to go to court to try to avoid having to pay more than the policy limits. The court found that the insurance company did everything right in handling multiple claims against their policyholder. They asked for and got specific information from each person making a claim, then offered the full policy amount to both of them. When the claimants couldn’t agree on how to split the money, the insurer waited several months before finally settling with them. The court said the insurer did a good job of keeping their policyholder informed throughout the whole process and ruled in favor of the insurance company. However, there are still risks for insurers in these situations because it can be hard to know which claims are the most serious, and there could be claims the insurer doesn’t even know about. If the insurer makes a mistake in handling the claims, they could be sued for acting in bad faith. So, dealing with multiple claims is still a tricky and risky business for insurance companies. The court was asked if an insurance company has to investigate all claims, keep the insured informed, and try to minimize excess judgments in a car accident with multiple claims and not enough insurance. The court declined to answer the question. The plaintiffs argued that the insurance company did not keep their insured informed, ignored a seriously injured victim’s attempts to get payment, and did not pay claims in a reasonable order. In Florida, an insurance company must quickly start settlement negotiations and settle reasonable claims, even without a demand. An insurer may be liable for not settling a claim, even if there is a potential second claim. Courts cannot change an insurance contract to provide more coverage. The insurance company cannot use interpleader to figure out how to distribute the policy limits. The federal court and the state court have different views on these issues, so an insurance company might prefer federal court if they have a choice. Frederick T. Hawkes and Alfred J. Saikali are lawyers who work at a law firm in Florida. They specialize in insurance and appellate law, which involves handling cases on behalf of clients who are appealing court decisions. They received their law degrees from different universities and have been practicing law for many years. This article was written on behalf of a section of lawyers in Florida, with the goal of promoting the principles of duty and service to the public, improving the justice system, and advancing the study of law.

Source: https://www.floridabar.org/the-florida-bar-journal/floridas-new-good-faith-duty-on-an-insurer-not-to-settle/