September 26th, 2017
By Justin M. Thomas, Esq.
Earlier this month, majority of Floridians experienced the passing of Hurricane Irma. Unfortunately, the risks associated with living in the state of Florida include tropical weather such as hurricanes and tropical storms. In Southwest Florida, those risks and the ensuing damaging resulting from those risks are now readily apparent. As the area and the state begin to recover, it is important not to forget about the steps commonly taken to insure against the losses associated with unexpected and catastrophic events, like Hurricane Irma. Namely, insurance for real property, personal property and loss of business or business interruption.
A large majority of Floridians have purchased an insurance product to protect their most valuable investment, their home. In addition to insuring the structure from loss, the property contained inside is also likely insured up to a certain limit. If structural or property damage was sustained, the following steps should be taken:
- Locate your insurance policy and read the coverages afforded under it.
- In the event of recognized damage, immediately place your insurer on notice of the loss.
- Document all damages to your home and property, as this will be requested from your insurer. Photographs and an inventory of damages are a simple way to keep track of the loss and quickly provide to your insurer when requested.
- Follow up with your insurer to make sure that your claim is opened and being processed so as to quickly begin the steps forward to recovering from this unfortunate event.
- If your property is in danger of sustaining further loss, seek the permission of your insurer to employ efforts to mitigate further loss.
- In the event that your insurer fails to respond to your attempts to initiate a claim or respond to your inquiries, contact the state of Florida Department of Insurance Consumer Helpline at (1-877-693-5236) and consider seeking the advice of competent legal counsel experienced with handling similar claims.
Commercial Property and Business Interruption Coverage
The losses associated with serious weather events, such as Irma, do not just damage homes and impact the personal lives of Floridians. Mother Nature’s powerful force has unyieldingly damaged the property of Florida’s economic base of small businesses as well. Commercial property insurance is the product device to protect a business’s real and personal property. An additional coverage available for businesses is that of business interruption insurance. This insurance provides coverage to a business for the losses sustained due to the inability or reduced ability of a business operate in the event of disaster or loss.
While no business owner can forecast the future, those that have purchased commercial property insurance and business interruption insurance are not without support to recover from Irma’s recently inflicted loss. The steps outlined above with respect to homeowners insurance will apply equally to a commercial property claim. In addition, consider the following:
- Identify all available coverages for both property and if applicable, inventory maintained by the business.
- Confirm the notice requirements in the policy in the event of a loss and immediately report the loss or potential loss to your carrier.
- Maintain accurate records of the events leading up to the disaster, during the disaster and following the event so as to be able to provide the insurer with the necessary information to evaluate and adjust the loss.
In closing, although the recent events associated with Irma have inevitably disturbed the lives and damaged the property of many Floridians, recovering for those losses from your insurer is one positive step towards returning to some sense of normalcy.
August 14th, 2017
INSURER CANNOT HAVE ITS CAKE AND EAT IT TOO: FLORIDA SUPREME COURT INTERPRETS “AT OUR REQUEST” LANGUAGE IN THE ADDITIONAL PAYMENTS PROVISION
By Meagan R. Cyrus, Esq.
As insurance policies changed from, historically, ones of indemnity to those of liability, insurers commanded a greater control over settlements and the defense of the insured in the third-party context. Logically, as the insurers would ultimately pay the price of the defense and indemnity, it follows that insurers would accordingly find such control necessary to protect their own interests. Notably, this control takes form in the commonly included “Voluntary Payment Provision”, barring an insured from unilaterally settling a claim.
The Supreme Court of Florida recently recognized this control over defense and settlement in its July 13, 2017 decision, in GEICO v. Macedo, No. SC16-935. The Court affirmed the First District Court of Appeal in holding that the Additional Payments section of the policy covered costs and attorneys’ fees awarded against the insured. Following an automobile accident, the third-party claimant filed suit against the insured and later served the insured with a proposal for settlement that was rejected. After a verdict was entered in favor of the claimant, fees and costs were also awarded pursuant to Section 768.79, Florida Statutes.
GEICO contended, however, that the policy did not cover the fees awarded in the underlying action, because the Additional Payment section only made reference to costs incurred by an insured at GEICO’s request.
ADDITIONAL PAYMENTS WE WILL MAKE UNDER THE LIABILITY COVERAGES
- All investigative and legal costs incurred by us.
. . . .
- We will upon request by an insured, provide reimbursement for the following items:
. . . .
(c) All reasonable costs incurred by an insured at our request (emphasis added).
The Court disagreed, holding that not only was the section ambiguous, giving rise to an interpretation in favor of coverage, but that such an interpretation did not account for the “Voluntary Payment Provision” in which an insurer has the sole authority to settle a claim on behalf of an insured. Therefore, GEICO’s interpretation failed to construe the policy as a whole. Wash. Nat’l Ins. Corp. v. Ruderman, 117 So. 3d 943, 948 (Fla. 2013).
Because GEICO, under the policy, had the sole discretion to settle the case, and failed to do so, it did not have to “request” that the insured accept or reject the settlement offers. Furthermore, the insured did not even have the option to grant such a request, as the Voluntary Payment Provision granted GEICO complete control over the settlement process. Accordingly, “[i]t follows that any cost or fee incurred as a result of GEICO exercising its authority and control is something that it intended to pay.”
The Macedo decision further emphasizes the control wielded by the insured in the context of settlement. An Insurer justifiably cannot choose to exercise its control over settlement and simultaneously argue that it is not in control.
May 16th, 2017
By, Alex Brockmeyer, Esq.
“Mend the hold.” The phrase originates from wrestling parlance where it meant “to get a better grip (hold) on your opponent.” Harbor Ins. Co. v. Continental Bank Corp., 922 F. 2d 357, 362 (7th Cir. 1990). The first appearance of the phrase in a judicial opinion occurred in a case where the Supreme Court held a party in a contract suit could not justify its nonperformance with a defense it did not raise prior to the commencement of litigation:
[w]here a party gives a reason for his conduct and decision touching any thing involved in a controversy, he cannot, after litigation has begun, change his ground, and put his conduct upon another and a different consideration. He is not permitted thus to mend his hold. He is estopped from doing it by a settled principle of law.
Railway Co. v. McCarthy, 96 U.S. 258, 267-68 (1877). Estoppel and waiver form the underlying basis for this doctrine, which at its most basic level precludes a party from changing its defense to performance of a contract in the middle of litigation. E.g. Baquero v. Lancet Indem. Risk Retention Group, Inc., 2013 WL 5237740, *6 (S.D. Fla. Sept. 17, 2013) (citing Harbor Ins. Co. v. Continental Bank Corp., 922 F. 2d 357, 362-65 (7th Cir. 1990)).
The “mend the hold” doctrine is particularly suited for insurance disputes where an insurer changes its reason for denying a claim. Id. In fact, some commentators have observed that courts have expressed a willingness to apply the “mend the hold” doctrine out of “an intolerance for insurers to adjust legal positions like chameleons adjust their color.” Michael Laurato, Mending the Hold in Florida: Getting a Better Grip on an Old Insurance Doctrine, 4 FLA. A&M U. L. REV. 73, 74 (2009) (citing Eugene R. Anderson & Nadia V. Holober, Preventing Inconsistencies in Litigation With a Spotlight on Insurance Coverage Litigation: The Doctrines of Judicial Estoppel, Equitable Estoppel, Quasi-Estoppel, Collateral Estoppel, “Mend the Hold,” “Fraud on the Court,” and Judicial and Evidentiary Admissions, 4 CONN. INS. L.J. 589, 692 (1997-98)).
Application of the doctrine has yielded two approaches. Robert Stikoff, “Mend the Hold” and Erie: Why an Obscure Contracts Doctrine Should Control in Federal Diversity Cases, 65 U. CHI. L. REV. 1059, 1059-60 (1998). The minority approach precludes a party from changing its position during litigation from its pre-suit position absent a good faith justification for the change in position. Id. at 1062-71. The majority approach limits the nonperforming party’s defenses in litigation to those provided pre-suit at the time it refused to perform. Id.
Florida follows a version of the majority approach. To apply the “mend the hold” doctrine in Florida, it appears that a party to contract must prove: (1) the insured detrimentally relied on the insurer’s conduct; and (2) the insurer had sufficient information at the time of its initial denial to have waived the additional defense it seeks to assert during litigation. Trovillion Const. & Development, Inc. v. Mid-Continent Cas. Co., 2014 WL 201678, *9 (M.D. Fla. Jan. 17, 2014); Square at Key Biscayne Condo. Ass’n, Inc. v. Scottsdale Ins. Co., 2014 WL 11946882, *4 (S.D. Fla. Dec. 15, 2014); Baquero, 2013 WL 5237740 at *6 Principal Life Ins. Co. v. Alvarez, 2011 WL 4102327, *6-7 (S.D. Fla. Sept. 14, 2011). Application of this doctrine also appears to be limited to instances where an insurer seeks a forfeiture of the policy as opposed to invoking a policy exclusion. Square at Key Biscayne, 2014 WL 11946882 at *4. The conclusion reached by these courts stems from Florida’s intermediate appellate courts utilizing estoppel and waiver principles in determining whether to permit insurers to engage in the very conduct prohibited by the “mend the hold doctrine.” See Salcedo v. Asociacion Cubana, Inc., 368 So. 2d 1337, 1339 (Fla. 3d DCA 1979) (citing McCarthy, 96 U.S. at 268); see also American States Ins. Co. v. McGuire, 510 So. 2d 1227 (Fla. 1st DCA 1987); Six L’s Packing Co., Inc. v. Fla. Farm Bureau Mut. Ins. Co., 268 So. 2d 560 (Fla. 4th DCA 1972).
As such, it appears the “mend the hold” doctrine has limited applicability. One such area where the doctrine seems particularly applicable is where an insurer attempts to invoke a condition precedent—such as a proof of loss or prompt notice of a loss—during litigation after not raising the issue pre-suit. Allstate Floridian Ins. Co. v. Farmer, 104 So. 3d 1242, 1246-50 (Fla. 5th DCA 2012). Failure to comply with a condition precedent results in a forfeiture of the policy. Id. at 1249-50. An insurer will certainly be able to raise these conditional defenses pre-suit and would know of an insured’s failure to comply with any condition precedent set forth in the policy. Finally, the insured’s detrimental reliance on its insurer’s failure to raise the condition precedent is easy: the insured relies on the insurer’s failure to raise the condition precedent pre-suit in determining its ability to file suit.
April 21st, 2017
By, Meagan R. Cyrus
It is well established in Florida that ambiguities in policy language are to be strictly construed against the insurer, and in favor of broader coverage for the insured. Auto-Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000). The Florida Supreme Court further expanded on this notion in Washington Nat’l Ins. Corp. v. Ruderman, 117 So. 3d 943 (Fla. 2013), again ruling in favor of policyholders, finding that insurers could not clarify an ambiguity through the use of extrinsic evidence. However, prior to the court’s determination as to the ambiguity of the language at issue, can extrinsic evidence be used to the advantage of the insured? The answer is possibly, and depending on the jurisdiction.
Interpretive and drafting history materials in the hands of the insurer can show that an insured’s interpretation is a reasonable one, creating ambiguity. It is difficult for an insurer to argue against an alternative interpretation that it itself considered in the writing of the policy. This battle is won at the discovery stage. The Middle District ruled in favor of the insurer on this issue, finding that an insured’s request for documents used to interpret the meaning of the policy were irrelevant to coverage issues, relying on Ruderman. Evanston Ins. Co. v. Frank’s Lab., Inc., No. 5:12–cv–603–Oc–UAMHPRL, 2013 WL 5556225, at *1 (M.D. Fla. Oct. 8, 2013). The Southern District, however, decided conversely, granting an insured’s discovery request for such materials: “[c]ontrary to [insurer’s] position, drafting history and extrinsic evidence of interpretive materials is discoverable at this early stage of the litigation when questions concerning ambiguity have not been resolved.” Viking Yacht Co. v. Affiliated FM Ins. Co., 07-80341-CIV-Marra/Johnson, 2008 WL 8715540, at *2 (S.D. Fla. Feb. 7, 2008).
The relevant inquiry at issue as to the discoverability and consideration of interpretative and drafting materials is whether or not the court has determined the policy to be ambiguous. If not, such materials are often crucial for an insured to prove an argument for reasonableness of interpretation. This is distinguishable from Ruderman, in which the court had made a determination of ambiguity, and the insurer sought to refute that finding.
December 4th, 2015
By: Matthew M. Jackson, Esquire
Boyle & Leonard, P.A.
It is a commonly held belief that Florida public policy forbids insurance coverage for punitive or exemplary damages, regardless of the policy language. However, a review of cases addressing the issue reveals that the public policy prohibition on coverage for punitive damages applies only to insureds who engage in active wrongdoing. It is clear that Florida’s public policy does not prohibit insurance coverage for punitive damages based on vicarious liability. The Florida Supreme Court has succinctly set forth the policy, and the reasoning behind it.
“Florida public policy prohibits liability insurance coverage for punitive damages assessed against a person because of his own wrongful conduct.” U.S. Concrete Pipe Co. v. Bould, 437 So. 2d 1061 (Fla. 1983). “The Florida policy of allowing punitive damages to punish and deter those guilty of aggravated misconduct would be frustrated if such damages were covered by liability insurance.” Id.
“However, it is generally held that there is a distinction between the actual tortfeasor and one only vicariously liable and that therefore public policy is not violated by construing a liability policy to include punitive damages recovered by an injured person where the insured did not participate in or authorize the act.” See Id., citing Sterling Insurance Co. v. Hughes, 187 So. 2d 898 (Fla. 3d DCA 1966). Common scenarios wherein an insured could face punitive damages based on vicarious liability include companies answering for the conduct of employees, and contractor-subcontractor relationships where the subcontractor’s actions provide the basis for a cause of action which supports punitive damages.
In cases where punitive damages are awarded based on vicarious liability, an analysis of the relevant policy language is necessary. Simply because public policy would allow for punitive damages based on vicarious liability does not mean that the language of the insurance policy actually provides coverage. For example, in First Specialty Ins. Co. v. Caliber One Indem. Co., 988 So. 2d 708 (Fla 2nd DCA 2008) the Second District Court of Appeal, held that while public policy did not forbid coverage of punitive damages based on vicarious liability, the language of the policy, which defined damages as “any compensatory amount”, did not provide coverage for punitive damages because punitive damages are not compensatory. In addition, the 2nd District held that the policy did not provide coverage, because it specifically excluded coverage for “penalties or fines” rendered against the insured. See Id. at 713. However, even a clause specifically excluding punitive damages was held to be insufficient justification for dismissing a complaint against an insurance company. See Schwab v. First Appalachian Ins. Co., 58 F.R.D. 615, 622 (Fla. 1973).
Additionally, the Florida Supreme Court has held that there must be some independent wrongdoing by the vicariously liable party to allow for punitive damages. See Mercury Motors Express, Inc. v. Smith, 393 So.2d 545, 549 (Fla. 1981). This appears to require negligence on the part of the vicariously liable party, or some other wrongful conduct- however, if the wrongful conduct of the vicariously liable party is itself the basis of a portion of the punitive damages, this would prevent recovery from insurance, at least as to the punitive damages based directly on the wrongful conduct, based on the public policy previously discussed.
It is important to note that even if an insurance policy clearly excludes punitive damages, or in cases where no vicarious liability is alleged and insurance coverage for punitive damages is obviously prohibited by public policy, an insurance company that defends an insured must act in good faith towards the insured, as to potentially covered claims and as to punitive damages claims. See Ging v. American Liberty Ins. Co., 423 F.2d 115, 116 (5th Cir. 1970). In Ging, the insured was grossly negligent, resulting in a car accident and the death of the driver of another vehicle. See Id. at 117. The insurance company defended the insured under a reservation of rights, and expressly stated that punitive damages were not covered. See Id. The insurer did not settle within policy limits despite an offer from the estate of the deceased driver to do so, did not inform the insured of the offer, did not forward correspondence from the estate to the insured despite requests by the estate to do so, and engaged in other bad faith conduct. See Id. at 117-118. After judgment was entered against insured for compensatory and punitive damages, the insurer paid in full the compensatory damages, and the estate took assignment of the insured’s bad faith claims and sued the insurer for bad faith, attempting to collect the judgment for punitive damages. In reversing summary judgment in favor of the insurer, the Ging court held:
“Because an insurance company actually did undertake the complete defense of its insured to a suit seeking both compensatory and punitive damages, the company had the duty of acting in good faith toward its insured as to the entire undertaking.” See Id. at 116
While there are several legal impediments, in some cases, insurance policies may indeed cover punitive damage, despite popular belief to the contrary. As always, the facts and the policy language will control the analysis, but when vicarious liability is alleged, insurance coverage for punitive damages becomes a possibility to be carefully evaluated.
August 19th, 2015
Recently, Florida’s Second District Court of Appeal in Florida Farm Bureau Gen. Ins. Co. v. Peacock’s Excavating Serv., Inc., 2015 WL 4497721 (Fla. 2d DCA 2015) addressed the issue of what constitutes a final appealable order under Rule 9.110(k), Florida Rules of Appellate Procedure. There, the insurer, Florida Farm Bureau Insurance Company (“Florida Farm Bureau”), and insured, Peacock’s Excavating Service, Inc., (“Peacock”), both filed competing declaratory actions that requested a determination of Florida Farm Bureau’s duty to defend and indemnify Peacock under several commercial general liability policies (“CGL” policy(ies)). The dispute centered on what triggered coverage under the CGL policy. Florida Farm Bureau contended that the manifestation of the injury triggered coverage whereas Peacock argued that the injury itself triggered coverage under the CGL policies. The trial court ultimately entered a partial final judgment that declared Florida Farm Bureau had a duty to defend Peacock under certain CGL policies. The partial final judgment did not address Florida Farm Bureau’s duty to indemnify Peacock under the CGL policies. Nevertheless, Florida Farm Bureau filed an appeal of the partial final judgment.
On appeal, the Second District dismissed the appeal for lack of jurisdiction. Because Florida Farm Bureau appealed from a partial final judgment, the appellate court’s jurisdiction hinged on whether Florida Farm Bureau could appeal the partial final judgment under Rule 9.110(k), Florida Rules of Appellate Procedure. Rule 9.110(k) provides:
Except as otherwise provided herein, partial final judgments are reviewable either on appeal from the partial final judgment or on appeal from the final judgment in the entire case. A partial final judgment, other than one that disposes of an entire case as to any party, is one that disposes of a separate and distinct cause of action that is not interdependent with other pleaded claims. If a partial final judgment totally disposes of an entire case as to any party, it must be appealed within 30 days of rendition.
Fla. R. App. P. 9.110(k). The court started its analysis by providing the framework with which litigants can use to determine whether a partial final judgment possesses the requisite finality to constitute an appeal order. Specifically, the court stated that the following three factors guide its jurisdiction analysis:
- Whether the claim disposed of by the partial final judgment could be maintained independently of the remaining claims;
- Whether one or more parties were removed from the action when the partial final judgment was entered; and
- Whether the claims could be separately disposed of based on the same or different facts.
With this framework in mind, the court proceeded to analyze each factor. As to the first factor, the court concluded that Florida Farm Bureau’s duty to defend was not a separate and independent cause of action from its duty to indemnify. In support of this reasoning, the court noted that the very function of a count for declaratory relief “is to afford an opportunity to obtain a final resolution of all aspects of a controversy between litigants in a single action.” Id. at *2. To bolster this conclusion, the court pointed to how both Florida Farm Bureau and Peacock file a single count of declaratory relief that encompassed Florida Farm Bureau’s duty to defend and indemnify. Accordingly, the court concluded the first factor did not weigh in favor of accepting jurisdiction.
The court easily determined the second factor did not weigh in favor of accepting jurisdiction because the partial final judgment did not “effectively remove” any party from the underlying trial court litigation. Finally, with regard to the third factor, the court concluded that facts necessary to Florida Farm Bureau’s duty to defend and duty to indemnify overlapped. As such, the duty to defend and duty to indemnify, while being separate legal duties, were not amenable to separate dissolution.
Accordingly, the court concluded the partial final judgment failed to meet the threshold indicators of finality and dismissed the appeal for lack of jurisdiction.
Peacock is significant for several of reasons. First, it clarified the law within the Second District Court of Appeal. Prior to Peacock, a split existed within the Second District. Some cases had held that a partial final judgment as to an insurer’s duty to defend was a final appealable order. Accord Transcontinental Ins. Co. v. Jim Black & Associates, Inc., 888 So. 2d 671 (Fla. 2d DCA 2004); Aetna Commercial Ins. Co. v. American Sign Co., 687 So. 2d 834 (Fla. 2d DCA 1996). Peacockclarified the applicability of Transcontinental and American Sign to scenarios where a partial judgment exists only as to an insurer’s duty to defend. Second, it removed the conflict that previously existed with the Fourth District Court of Appeal, which in Nationwide Mut. Ins. Co. v. Harrick, 763 So. 2d 1133 (Fla. 4th DCA 1999), held a partial final judgment that determines only an insurer’s duty to defend is not an appealable order. Id. at 1134. Finally, the Court noted that a partial final judgment addressing only an insurer’s duty to defend is neither reviewable under Rule 9.1130, Florida Rules of Appellate Procedure, nor by certiorari review.
November 13th, 2013
The Duty to Settle and Bad Faith
By Molly A. Chafe, Esquire
Boyle, Gentile, Leonard & Crockett, P.A.
Many policyholders are not fully aware that an insurance company (“insurer”) owes certain fiduciary duties to them. This not only encompasses first-party claims, but third-party claims as well. Generally, an insurer is required to defend its insured against any actions or proceedings brought against the insured that fall within the coverage of the policy. When an insurer becomes aware of a claim against one of its insureds, the insurer assumes certain fiduciary duties with regard to how the insurance company handles those claims. In assuming control, the insurer acquires a fiduciary duty toward the insured, with obligations to make decisions and otherwise act in the insured’s best interest and to exercise the utmost good faith in all aspects of handling the claim. Baxter v. Royal Indemnity Co., 285 So. 2d 652 (Fla. 1st DCA 1973).
In general, this duty of good faith toward an insured involves diligence and care in investigating the facts, evaluating the claim, and considering and negotiating a settlement. Williams v. Infinity Insurance Co., 745 So. 2d 573 (Fla. 5th DCA 1999). An insurer, in handling the defense of claims against its insured, has a duty to use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business. Boston Old Colony Ins. Co. v. Gutierrez, 386 So. 2d 783, 785 (Fla. 1980). For when the insured has surrendered to the insurer all control over the handling of the claim, including all decisions with regard to litigation and settlement, then the insurer must assume a duty to exercise such control and make such decisions in good faith and with due regard for the interests of the insured. Boston Old Colony, 386 So. 2d at 785.
This good faith duty obligates the insurer to advise the insured of settlement opportunities, to advise as to the probable outcome of the litigation, to warn of the possibility of an excess judgment, and to advise the insured of any steps he might to avoid the same. Boston Old Colony, 386 So. 2d at 785. The insurer must investigate the facts, give fair consideration to a settlement offer that is not unreasonable, and settle the claim, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so. Government Employees Ins. Co. v. Grounds, 311 So. 2d 164 (Fla. 1st DCA 1975), cert. discharged, 332 So. 2d 13 (Fla. 1976); Government Employees Ins. Co. v. Campbell, 288 So. 2d 513 (Fla. 1st DCA 1973), quashed, 306 So. 2d 525 (Fla. 1974); Baxter, 285 So. 2d 652, cert. discharged, 317 So. 2d 725 (Fla. 1975). Because the duty of good faith involves diligence and care in the investigation and evaluation of the claim against the insured, negligence is relevant to the question of good faith. Boston Old Colony, 386 So. 2d at 785.Moreover, where substantial injuries by the claimant and potential liability of the insured are obvious, the failure to tender modest policy limits constitutes bad faith. See Powell v. Prudential Property & Casualty Ins. Co., 584 So. 2d 12, 14 (Fla. 3d DCA 1991).
However, the case of Gutierrez v. Yochim has further strengthened an insurer’s duty to settle. 23 So. 3d 1221 (Fla. 2d DCA 2009). In Gutierrez, Ms. Gutierrez, who was insured by Dairyland, was driving her van when she made a left turn directly into the path of a motorcycle operated by Mr. Yochim, who sustained serious injuries. Id. at 1222. Ms. Gutierrez immediately reported the accident to Dairyland. Id. Within the month, the insurance company determined that Ms. Gutierrez was at fault and sent her a certified letter advising her that she would be personally exposed to an excess judgment for property damage and bodily injuries. Id. The insurance adjuster attempted to call Mr. Yochim but was unable to reach him but ordered an appraisal of the damage. Id. Within eight days of the accident, the adjuster learned that Mr. Yochim suffered an “incapaciting” injury. Id. The appraisal report indicated a total loss upon which Dairyland cautioned Ms. Gutierrez that it “will make every effort to resolve these claims within your insurance coverage. Due to the serious nature of the accident, this may not be possible….” Id. at 1223.
Roughly a month after the accident and after a telephone conversation with the plaintiff’s attorney informing the insurer of his client’s possible paralysis diagnosis, the adjuster set the reserves for the injuries and asked for the medical records. Id. Although plaintiff’s attorney had the medical records, he sent the medical authorization forms to insurer two months after the accident.Id. However, it was almost five months after the accident that Dairyland actually ordered the medical records. Id. After receipt of the medical records, Dairyland formally tendered the policy limits. Id. This was eight months after the accident. A stipulated judgment in excess of the policy limits was entered by agreement among the parties. Id. at 1224. As a result, Mr. Yochim filed suit against Ms. Gutierrez, and she filed a bad faith claim against Dairyland. Id. Trial court granted summary judgment on the bad faith action in favor of Dairyland based on its assertion that it orally offered to settle for policy limits within a day of receiving the medical records. Id.
The appellate court reiterated that an insurer has an obligation to properly defend its insured from claims that are covered within the policy of insurance and that it must exercise good faith in satisfying that obligation. Id. at 1225. The court dismissed Dairyland’s argument that the delay in tendering the policy limits was a result of the claimant failing to provide medical authorization in stating that Dairyland’s “fiduciary duty to timely and properly investigate the claim against the insured was not relieved simply because it was waiting to receive information from the claimant’s attorney.” Id. It further stated that because Dairyland knew within days of the accident that its insured was entirely at fault in causing the accident and was aware that damages exceeded the insured’s policy limit, it could not say, as a matter of law, that Dairyland satisfied its duty of good faith under the circumstances. Id. at 1226.
Some practitioners have suggested that the Gutierrez case has effectively resulted in an unreciprocal and uncooperative relationship between third parties and insurers. Specifically, the argument is that an insurer has an affirmative duty to initiate settlement negotiations while, at the same time, leaving the claimant with no duty to cooperate with such negations. However, throughout litigation, counsel for both sides should engage in cooperative communication so as to facilitate an action in good faith. But an insurer must also be aware of the duties owed, keep the insured involved and advised of the potential liability when an excess judgment is probable, and timely investigate cases involving serious injuries in order to prevent potential bad-faith claims. The duty to “settle” is not the duty to “tender policy limits.” Rather, the duty to settle encompasses the duty to use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his or her own affairs. This includes timely investigation which may lead to a tender of policy limits, but the terms are not synonymous.