Kropilak v. 21st Century Ins. Co., 806 F.3d 1062 (11th Cir. 2015).

Significance: 

The court held that Florida law does not impose a duty on insurers to agree to an injured claimant trying a bad-faith action against the tortfeasor’s insurer before trying the underlying negligence claim (i.e., a Cunningham[1] agreement).  The court also held that an insurer owes no duty to its insured to enter into a consent judgment in excess of the policy limits.

Facts: 

The claimant was injured in an automobile accident with the policyholder.  The policyholder was insured by the insurer under a policy with liability limits of $10,000 per person and $20,000 per accident.

The policyholder reported the accident to the insurer.  The hospital where the claimant was being treated sent a copy of a hospital lien to the insurer and the claimant.  At that time, the claimant concluded he would not accept an offer of the policyholder’s limits to settle his claims against the policyholder.  About three weeks later and 37 days after the accident, the insurer mailed an unsolicited check for $10,000 to the claimant’s attorney in settlement of the claim against the policyholder.  The claimant refused to accept the policy limits and did not cash the check. 

The claimant then sued the policyholder.  The insurer followed up with the claimant’s attorney on several occasions to inquire about the $10,000 check, but received no response.  Over a year and three months after the insurer had tendered the policy limits, the claimant’s attorney sent the policyholder a “settlement opportunity” letter.  The letter proposed an agreement between the claimant, the policyholder, and the insurer to:  (1) entry of a consent judgment against the policyholder in the amount of $150,000; and (2) determination of the insurer’s liability for the recovery of damages over policy limits.  The policyholder was advised of the offer, but the insurer did not accept the proposal. 

The case was tried, and a jury returned a verdict for the claimant in the amount of $173,097.07.  The insurer paid the $10,000 policy limit and $2,500 for property damage in partial satisfaction of the judgment.  The claimant and the policyholder then entered into an agreement where:  (1) the policyholder assigned to the claimants the proceeds she might receive from any bad-faith action; and (2) the claimant agreed not to execute the judgment against the policyholder.

The policyholder and the claimant then sued the insurer for bad faith.  They claimed that the insurer failed to tender policy limits within a reasonable time (i.e., a Powell[2] theory). 

They also asserted that the insurer had “unreasonably refused to settle under” the terms of the “settlement opportunity” letter. 

The trial judge excluded any evidence concerning the “settlement opportunity” letter because it agreed with the insurer’s argument that it had no duty under Florida law to participate in such an agreement.  The jury heard evidence only on the Powell theory.  The jury found that the insurer had acted in bad faith in failing to tender the policy limit until 37 days after the accident, but it found in favor of the insurer on the affirmative defense that there was no realistic possibility of settling the claim within policy limits.  Accordingly, the trial court entered judgment for the insurer.

Issues: 

The appellate court addressed two issues:  (1) whether an insurer has a duty under Florida law to accept an agreement to try a bad-faith action against the tortfeasor’s insurer before trying the underlying negligence claim; and (2) whether an insurer has a duty under Florida law to agree to enter into a consent judgment in excess of the policy limits.

Analysis: 

The Eleventh Circuit ruled that Florida law imposes no duty to enter into settlement agreements like the one proposed by the claimant.  The court explained that Florida courts refer to an agreement whereby an injured party sues a tortfeasor’s insurer before trying the underlying negligence claim as a “Cunningham agreement.”  The Eleventh Circuit noted that the Florida Supreme Court had made it clear that an insurer has no duty to enter into a Cunningham agreement. 

The court noted that the agreement at issue in this case went further than a Cunningham agreement because it required the entry of a consent judgment in excess of policy limits.  But the tortfeasor and the claimant could not explain why an insurer should be obligated to enter into the agreement proposed here when Florida law did not obligate insurers to enter into a Cunningham agreement.  The court held that an insurer “has no duty on behalf of its insured to agree to a consent judgment in excess of policy limits and then subject itself to a suit for bad faith for the amount in excess of the policy limits.”

The Eleventh Circuit then rejected the argument that the claimant’s proposed agreement was, in essence, an offer to settle within policy limits.  The court noted that the insurer had promptly tendered the policy limits a mere 37 days after the accident.  However, the claimant had continually refused to settle within the policy limits.

The appellate court summarized its holding as follows:  “an insurer owes no duty under Florida law to enter into a so-called Cunningham agreement and likewise owes no duty to its insured to enter into a consent judgment in excess of the limits of its policy.”