November 6th, 2015

To assign or not to assign? The burning question for aggrieved policyholders throughout Florida

By, Justin M. Thomas, Esq.

Recently, Security First Insurance Company sought administrative review of the Florida Office of Insurance Regulation’s (“OIR”) denial of requested changes to their homeowner’s insurance policies issued in Florida, which operated to prohibit post-lost assignments without the company’s approval.  Security First Ins. Co. v. State of Florida Office of Ins. Reg. 2015 WL 36446925 (Fla. 1st DCA June 22, 2015).  The Court affirmed the decision of the OIR relying primarily on the storied history of Florida jurisprudence that approved of the exact conduct Security First sought to eliminate.

On rehearing, Security urged the First District Court of Appeal to certify conflict to the Florida Supreme Court.  Security First Ins. Co. v. State of Florida Office of Ins. Reg. 2015 WL 36446925 (Fla. 1st DCA October 26, 2015). The court declined this request based on Florida’s existing authority that permits assignment of post-loss rights. In doing so, however, the court acknowledged the existence of a narrow statutorily imposed exception to this general rule with regard to health insurance claims.   In the healthcare context, both Florida Courts and Legislature have acknowledged the existence of significant public policy considerations require a prohibition on the assignment of health care claims.  The Security First Court, however, recognized the distinction and elected not to extend the exception beyond the health insurance arena.

The Security First holding is consistent with the recent  Fifth District Court of Appeal of Accident Cleaners, Inc. v. Universal Ins. Co. 2015 WL 1609973 (Fla. 5th DCA April 10, 2015), which also recognized approved of the assignability of post loss claims. However, the Accident Cleaners Court went further in acknowledging that assignees are not required to have an insurable interest at the time of loss in order to sue the insurer. In doing so, the Accident Cleaners Court pronounced Florida’s long history in approving post loss assignments of insurance rights and the entitlement of the assignee to enforce the same:

[d]ating back to 1917, the Florida Supreme Court recognized that provisions in insurance contracts requiring consent to assignment of the policy do not apply to assignment after loss. W. Fla. Grocery Co. v. Teutonia Fire Ins. Co., 74 Fla. 220, 77 So. 209, 210–11 (1917)see Cont’l Cas. Co. v. Ryan Inc. E., 974 So. 2d 368, 377 n. 7 (Fla. 2008) (reaffirming the principle from W. Fla. Grocery Co. that the law is well-settled that anti-assignment provisions do not apply after loss); Lexington Ins. Co. v. Simkins Indus., Inc., 704 So. 2d 1384, 1386 n. 3 (Fla.1998) (“[A]n insured may assign insurance proceeds to a third party after a loss, even without the consent of the insurer.” (citing Better Constr., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 651 So.2d 141, 142 (Fla. 3d DCA 1995)). Furthermore, the right to sue for a breach of contract to enforce assigned rights was recognized early in Florida history. See Nationwide Mut. Fire Ins. Co. v. Pinnacle Med., Inc., 753 So.2d 55, 57 (Fla.2000) (“The right of an assignee to sue for breach of contract to enforce assigned rights predates the Florida Constitution.” (citing Robinson v. Nix, 22 Fla. 321 (1886)).

Id. at 2.  Interestingly, the utility of a policyholder’s post-loss assignment of policy rights hinges on the ability to enforce those acquired rights.  This importance is highlighted when an insured suffers a sudden loss from a covered peril, such as damage to an insured home from a severe storm, and in turn is able to use an assignment of rights under the policy to assign those rights to a contractor, that will assist the policyholder in repairing the loss.

In closing, Florida policyholders in accord with the decisions in Security First and Accident Cleaners, may still employ the assignment of post-loss rights under their insurance policies as an effective method to resolve and recover from an insured loss. Further, the foregoing decisions should provide comfort to assignees with respect to the validity and enforceability of assigned post-loss policy rights.  Lastly, it should be noted that the Court in Security First, unequivocally stated that the Florida Legislature should consider, and if necessary address, the public policy arguments raised by insurers—not the judiciary. . Only time will tell if Florida’s Lawmakers accept the invitation.

November 13th, 2013

THE DUTY TO SETTLE AND BAD FAITH

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.

 

 

 

 

 

 

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