The Florida Supreme Court has clarified the requirements of bringing a common law insurance bad faith claim in Florida. In Perera v. U.S. Fidelity & Guaranty Co., 35 Fla. L. Weekly S235a (Fla. May 6, 2010), the Court held that a plaintiff must allege either a judgment against an insured in excess of the insurance policy limits or a causal connection between an insurer’s bad faith and the insured’s damages. In other words, an excess judgment is not required if the insured’s damages are caused by the insurer’s bad faith.

The Court discussed some of the circumstances in which an excess judgment is not required to bring a bad faith claim:

  • when an insurer and a third-party claimant agree to try the bad-faith issues first and stipulate that if no bad faith is found, the third party agrees to an amount within policy limits (a Cunningham agreement)
  • when an insurer fails to defend the insured, leaving the insured “to its own devices” to settle the case or proceed to trial and the insured enters into an agreement with the third-party claimant and consents to an adverse judgment collectable against the insurer (a Coblentz agreement)
  • when an excess carrier pays monies it would not have been obligated to pay if the primary insurer had acted in good faith (i.e., equitable subrogation)
  • when an insurer arbitrarily rejects a reasonable settlement, requiring the insured to pay monies it would not have been obligated to pay in order to settle the case to avoid a near certain judgment exceeding its coverage  

The Details of Perera

In Perera, the plaintiff brought a wrongful death action against her deceased husband’s employer. The employer had three insurance polices: a $1 million primary commercial liability policy; a $1 million excess workers’ compensation liability policy; and a $25 million umbrella excess liability policy. The plaintiff’s highest settlement demand during the course of the litigation was $12 million. The excess workers’ compensation insurance carrier denied coverage. The employer and the remaining insurers settled the case for $10 million with the employer paying $750,000, the primary liability insurance carrier paying $500,000 and the excess carrier paying $3.75 million. The remaining $5 million was to be sought in a lawsuit against the excess workers’ compensation insurance carrier (assigned by the employer to the plaintiff). The plaintiff sued the excess workers’ compensation insurance carrier alleging breach of contract and bad faith.

The Florida Supreme Court, answering a certified question from the U.S. Eleventh Circuit Court of Appeals, held that the plaintiff could not maintain a bad faith claim against the excess workers’ compensation insurance carrier because there was no excess judgment and no causal connection between the insurer’s bad faith actions and the damages claimed. The Court noted that:

  • there was no judgment in excess of the total of all coverages
  • there was no Cunningham agreement
  • there was no Coblentz agreement
  • equitable subrogation did not apply because the umbrella excess insurer, who might have had a bad faith claim against the excess workers’ compensation insurer, did not assign any potential cause of action to the plaintiff
  • the insured/employer did not pay funds it would not have been obligated to pay, and never faced the near certainty of a judgment exceeding all available coverage  

The Court concluded that the actions of the excess workers’ compensation insurance carrier did not cause damages to its insured or expose the insured to liability in excess of all insurance policy limits.