Policy Limits Tender And Excess Letter DO NOT Excuse Poor Claims Handling
A previous Bad Faith Update (Volume 4, Issue 8) discussed the common argument made by carriers that they cannot be liable for extra-contractual damages when the carrier has offered to tender its policy limits at some point during the pendency of the claim.
While the duty to settle/indemnify is certainly a vital part of the carrier’s obligation under the liability policy, the obligations owed to the insured are much greater. The Florida Supreme Court apparently acknowledged as much in its recent decision in Harvey v. GEICO, 2018 WL 4496566.
Harvey arose out of motor vehicle accident on August 8, 2006 in which Harvey, a Geico insured, hit and killed John Potts. At the time of the accident, Harvey carried a GEICO policy with a $100,000 per person liability limit.
A short time after the collision, the accident was reported to GEICO and assigned to claims adjuster Fran Korkus. The following timeline breaks down the relevant claims handling events:
The wrongful death lawsuit was eventually tried and resulted in a verdict of $8.47 million.
- August 10
GEICO acknowledges that Harvey is liable for the collision and his significant financial exposure.
- August 11
GEICO sends Harvey an Excess Letter and informs him of his right to hire personal counsel.
- August 14
Counsel for Potts’ Estate requests a statement from Harvey to determine his assets and other insurance coverage. This request is not forwarded to Harvey and Korkus allegedly denies the Estate’s request.
- August 17
GEICO sends a check for the policy limits to counsel for the Potts’ Estate, along with a proposed release and affidavit of coverage. Counsel for the Potts’ Estate sends Korkus a letter acknowledging receipt of the check and Korkus’ refusal to make Harvey available for a statement.
- August 31
Korkus receives the letter from Counsel for the Estate and forwards the letter to Harvey. This is the first time Harvey is aware of the request for his statement. Korkus also speaks with counsel for the Estate and again does not confirm that Harvey is available for a statement.
- September 1
Harvey called Korkus and informed her that he was planning on meeting with an attorney he personally retained to put together his financial information. After the call, Korkus noted that Harvey did not want the claimant’s attorney to think that he and GEICO were not acting fast enough and to let the claimant’s attorney know that they were working on putting the requested financial information together.
- After September 1
Korkus’ supervisor instructs Korkus to inform counsel for the Estate that Harvey is working on putting together the requested financial information. Korkus does not relay this message.
- September 13
Counsel for the Estate returns the check to GEICO and filed a wrongful death suit after receiving no communication from GEICO concerning the requested statement.
Bad Faith Claim
Following the verdict, Harvey filed a bad faith claim.
At the trial, the attorney for the Estate testified that he received no communication from GEICO following his August 31st letter and if he had known that Harvey essentially had no other assets before filing the wrongful death lawsuit, he would have recommended that the Estate settle for policy limits and would have delayed filing suit if he had known that Harvey had retained an attorney to put together the financial information requested. The representative of the Estate acknowledged that she would have taken her lawyers advice and settled the claim for the policy limits.
In addition, Korkus as well as GEICO’s expert acknowledged that it was reasonable for the Estate to request financial information concerning Harvey’s assets and that this is requested “all the time.” In addition, Harvey’s expert testified that a large loss such as this requires a sense of urgency and that GEICO should have informed counsel for the Estate that Harvey had retained an attorney to prepare the financial information that was requested.
Finally, evidence was presented that Korkus had subpar performance reviews for her years spent with GEICO. This included communication failures that led to low file quality ratings.
The jury ultimately found in Harvey’s favor and awarded $9.2 million in damages on the bad faith claim.
Supreme Court Decision
On GEICO’s appeal, The Supreme Court of Florida affirmed the jury’s verdict.
The Court noted that advising the insured of settlement opportunities, the probable outcome of the litigation and of excess exposure is relevant but does not preclude a finding of bad faith against the carrier. Instead the focus is on the totality of the circumstances and the carrier’s actions in preventing an excess judgment. When looking at the totality of the circumstances, the carrier’s actions are front and center and not those of the claimant and the insured.
The Court found there was sufficient evidence to warrant the jury’s verdict. The tendering of the policy limits in nine days was not sufficient given the other claims handling failures of GEICO. These included GEICO failing to promptly inform Harvey of the Estate’s request for a statement, initially denying the Estate’s request for a statement, and failing to inform the Estate of Harvey hiring an attorney to put together the requested information. The Court noted that an insurer’s obligations don’t end by tendering the policy limits and instead continue throughout the claims process in handling the defense of the claims against the insured.
In addition, the Court struck down GEICO’s claims that the actions of Harvey, in not reaching out to the Estate directly, were the cause of the excess judgment rather than the failures of GEICO. Instead, the Court reiterated that the focus is on the actions of the carrier, not the actions of the insured and the claimant. In any event, and like Missouri, the legal cause definition in the standard instructions only required the actions of GEICO to cause or contribute to cause the damage to the insured.
Harvey is another example of tribunals appropriately weighing the actions of a carrier in determining the issue of bad faith and rightfully refusing to create a per se rule that tendering the policy limits creates a safe haven from bad faith liability. Instead, the totality of the circumstances should be weighed with a specific eye towards all the obligations owed by the carrier to the insured. In addition, Harvey makes clear the focus should be on the carrier’s actions, not on those of the claimant or insured. This is of significant importance given the recent trend of carriers and certain experts to claim that every bad faith claim is the result of a “bad faith setup.” If the carrier is doing what it should, there should be no concern for being “set up” for bad faith.
United States Roller Works, Inc. v. State Auto, 2018 WL 4095058 (M.D. TN)
Company Policies and Procedures Relevant to
Roller Works involved a first party dispute in which the issue before the Court was the admissibility of State Auto’s claims handling manuals. State Auto objected to the admissibility of the manual claiming it was not part of the insurance contract and thus did not factor into State Auto’s liability on the contract. However, State Auto failed to consider that a claim for bad faith refusal to pay and punitive damages were being pursued.
In rejecting State Auto’s objection, the Court noted that “key to the question of bad faith is whether the insurer’s delay or refusal to pay can be attributed to something other than a genuine dispute as to the value” of the claim. While an insurer can claim the dispute centers on the value, if its actions are inconsistent with its own procedures and policies, the inconsistency can be viewed as suggestive of bad faith.
Similarly, while failing to adhere to company policies may not alone entitle the insured to punitive damages, the manuals/policies are relevant to showing a jury how a carrier should act in a particular situation. A deviation from these manuals/procedures could indicate a malicious mindset as well as bad faith.
The Roller Works Order and reasoning is not groundbreaking in the bad faith world but is a reminder to always look for deviations from the company procedures and manuals. These deviations were viewed by the Johnson v. Allstate Court, in the third party context, as substantial evidence of bad faith and should be closely evaluated in every case.