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Big win for insurer on the issue of “bad faith” in federal court

Bad FaithBy: Heath Gelman, Esq.

A five million dollar award to the estate of a gentleman who perished in an automobile accident caused by a Geico Indemnity Company (“Geico”) policyholder will not have to be paid by the insurer per a ruling by the United States Eleventh Circuit Court (Robles v. Geico Indemnity Company, 20-14651, U.S. Court of Appeals for the Eleventh Circuit).

The Decision

The Court determined that the estate failed to show that the insurer didn’t act in the best interest of the driver. The Court affirmed the district court’s ruling in the third-party lawsuit between Geico and the estate over certain language of a hold harmless agreement. The Court determined that the language did not rise to the level of bad faith, and suggest that Geico “might improve” its processing of claims.

The Court opined that “when viewed as a whole . . . it is difficult to see how (the adjuster) put Geico’s interest before the insured’s,” and suggested that at worst, the facts at bar show ways in which Geico might improve the processing of claims.

The fact that the Court felt the conduct fell short of a demonstration of bad faith is a major win for the insurance carrier in an often hotly contested segment of personal injury litigation. 

Case background

The accident itself occurred back in 2008 wherein Miguel Mercado was unfortunately killed when his truck was rear-ended by Aaron Swanson. Swanson was insured by Geico with an automobile insurance policy with $10,000 bodily injury limits.

Thereafter, Geico and the estate agreed to settle the claim for the full $10,000 insurance limits plus additional monies for property damage. However, before the hold harmless release language could be agreed upon, counsel for the estate filed a wrongful death action against Swanson, and ultimately (eight years later) a jury awarded almost five million dollars in damages. The estate contended that Geico rejected its 2009 settlement offer and in doing so, breached its duties to its insured, Swanson. Geico argued that it acted diligently and that there was “no reasonable opportunity for settlement.” The District Court agreed with Geico and granted its Motion for Summary Judgment. 

Did Geico act in bad faith?

As often these alleged bad faith cases go, it was argued that Geico did not act in Swanson’s interests when it did not agree “in strict compliance” with settlement terms. The Court disagreed.

The Geico claims adjuster faxed the estate’s attorney a proposed hold harmless release and a blank affidavit in response to the estate’s demand letter. Further, Geico informed Swanson of his potential liability if the claim was not settled. The settlement draft was issued for personal property and the policy limits. The adjuster followed up with the estate’s attorney seven times before receiving a rejection in regards to the agreement language.

The Court further determined that even though Geico did not immediately accept all conditions of the demand letter, the three judges noted that the adjuster offered the claimant’s attorney the opportunity to strike out any language they did not find satisfactory.

Federal and state court view bad faith differently

Geico has been involved in other litigation regarding alleged bad faith in one state court case (the above-referenced claim involved a Federal Appeals Court) and the Florida Supreme Court. In the case of Harvey v. Geico, Case No. SC17-85, 2018 (Fla.S.Ct. September 20, 2018) ruled in a divided opinion that Geico “failed to act as if the financial exposure to Harvey (its insured) was a ticking financial time bomb” and  “. . . failed to fulfill its obligation to Harvey 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.'”

The state case involved $100,000 in bodily injury coverage wherein a Geico insured caused an accident that killed the other driver. The case ultimately went to a jury trial with the jury awarding over nine million dollars to the estate. The jury found that Geico acted in bad faith. Geico appealed the decision. The Court of Appeals overturned the verdict and held that while Geico didn’t act perfectly, its inaction was not in bad faith.  The case was appealed to the Florida Supreme Court. The facts show how two different courts — one federal and one state — can come down with opposite rulings on cases with similar, albeit not exact fact patterns (this case turned on the issue of the carrier failing to inform the estate’s attorney that their insured was working with a personal attorney with regard to the request for a statement); on the issue of whether there was “bad faith.”

Insurers needing representation or having questions regarding bad faith issues may reach me at heath.gelman@henlaw.com or by phone at 239-344-1273.

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