Making a Statutory Case for Bad Faith
In making a case for a bad faith handling of your insurance claim, you do not have to prove that the way the insurance company treated you was the insurance company’s general business practice.
To make a bad faith claim, other than where the insurer is not registered, you must give the state department of insurance and the insurance company 60 days’ written notice of the violation. The department will also provide notice to the company.
The notice must be on a form supplied by the department and must include:
- The statutory provision, including the statutory language, which you allege the insurer has violated
- The facts and circumstances which comprise the alleged violation
- The names of any individuals involved in the alleged violation
- Any specific language from your policy relevant to the alleged violation, if any. If you are claiming as a third-party claimant, that is, it is not your policy, you do not have to reference language in the policy if the issuer has declined your written request for a copy of the policy.
- A statement that you are giving the notice to perfect your right to pursue the remedy for a bad faith insurance claim according to Florida law.
Florida Common Law on Bad Faith Handling of Insurance Claims
The common law does not come from a statute; rather, it arises from court decisions relating to controversies in a particular area of law. In Florida, the courts recognize that a third party injured by the bad faith handling of an insurance claim has a cause of action directly against the insurance company because that third party is the real party in interest. That third party should not waste time, money, and judicial resources suing the insurance policy owner for the company’s bad faith conduct.
In a common law bad faith claim, the underlying conduct can entail:
- Delaying, withholding, or denying benefits based on legitimate claims filed on valid policies
- Failing to investigate a claim promptly and carefully
- Refusing to pay a claim fairly or completely
- Refusing to settle a case or reimburse for the entire loss at issue
- Failing to defend or settle a claim against you within the policy limits and exposing you to personal liability
As you will see, these are similar to but not the same as the statutory bases for the claim. They both, however, boil down to failing to act in good faith toward you.
The Standard for Deciding Your Case
The Florida standard for evaluating a bad faith claim for either first or third parties under common and statutory law is whether the insurer acted fairly and honestly toward its insured with appropriate regard for the insured’s interests. The court will examine the insurance company’s actions under a totality of the circumstances viewpoint.
Factors the court may consider, whether the case involves a first or third party or statutory or common law, include but aren’t limited to:
- Insurance company’s effort to resolve the case promptly or otherwise limit prejudice against the claimant
- The substance of any coverage disputes and the existing law on the coverage issue
- Insurance company’s diligence and thoroughness in investigating the coverage issues
- Insurance company’s efforts to settle despite the coverage dispute
The finder of fact will evaluate an insurance company facing a coverage issue or a denial of a claim on essentially the same basis it would decide the original case between the parties based on:
- Whether the insurer obtained a reservation of rights to deny coverage
- Any prompt efforts to resolve the coverage dispute and limit prejudice against the claimants
- The substance of the coverage dispute and the existing law
- Insurer’s efforts in investigating the facts relevant to coverage
- Insurer’s efforts to settle despite the dispute
Given these standards, under Florida law, the insurance company has a limited window in which it must:
- Acknowledge coverage and assume the defense without a reservation of rights
- Give the insured written notice of its refusal to defend
- Obtain a non-waiver agreement after disclosing the relevant coverage defenses
- Send a reservation of rights letter and appoint mutually agreeable defense counsel.
Preventing the Case for Bad Faith
The insurance company can end your case by paying the damages within 60 days of your notice or by correcting the circumstances to create the violation. The company must file a notice with the payment or corrective action with the insurance department.
At this point, you will receive payment on the original claim, but not any other damages you might have succeeded in recovering had the insurance company paid the claim. Of course, your likelihood of victory in a bad faith claim is very probably an influential factor in your insurance company taking this step precisely to avoid that bad faith claim.
Damages Available for Bad Faith Claim Handling
Damages that you claim for a bad faith insurance claim must be reasonably foreseeable consequential damages. These damages may exceed the policy limits of the underlying policy. Damages can include attorneys’ fees and costs, interest, and additional damages resulting from the insurance company’s acts relating to your claim.
The damages you can recover include:
- Value of the initial claim – Assuming your initial claim was valid, you are still entitled to your damages
- Recovery of any consequential costs – Any costs arising out of the delay, including your costs for the bad faith claim
- Compensation for emotional distress – If you can prove it resulted directly from the bad faith claim
Punitive Damages for Bad Faith Claim Handling
The court can only award punitive damages in your case if the acts look like the insurance company’s general business practices.
The actions must also be:
- Willful, wanton, and malicious
- In reckless disregard of your rights as an insured
- In reckless disregard of your rights as a beneficiary under a life insurance policy
If you want to maintain a case for punitive damages for a bad faith claim under Florida law, you will have to post discovery costs in advance. If you fail in your claim for punitive damages, the insurance company will receive the costs.
Mere Denial Does Not Establish Bad Faith
Just because your insurer denies your claim or pays a lesser amount does not bring an instant finding of bad faith. The party claiming bad faith must prove that the insurance company’s actions were in bad faith as defined under common law or the statute.
Florida courts recognize that insurance companies have a right to reject claims where they believe in good faith that they don’t owe benefits on the claim. Even if a court or arbitration panel later finds that the denial was a mistake, there is no cause of action if the insurance company denied the claim in good faith. Good and bad faith decisions are facts and circumstance issues and the fact-finder in a case usually determines them.