Client Advisory PDF & Printable Version

A Florida appellate court has recognized a new statutory bad faith cause of action in medical malpractice claims. In Rogers v. Chicago Ins. Co.,1 the fourth district court of appeal held that an insured has a private cause of action under section 627.4147, Florida Statutes, which requires that settlement offers be made in good faith and in the best interests of the insured.

In Rogers, a medical doctor sued his professional liability insurer for failing to properly investigate the malpractice claim filed against him, as required by section 766.106,2 Florida Statutes. He alleged that the insurer had acted in bad faith under section 627.4147 by settling a completely defensible claim, causing him damages such as his inability to obtain medical malpractice insurance, which limited his practice.

In 1985, the Florida Legislature enacted section 627.4147, titled “Medical malpractice insurance contracts.” Subsection 627.4147(1)(b) provides that it is against public policy for any insurance policy to contain a clause giving the insured the exclusive right to veto a settlement offer within the policy limits. It also provides that “any offer of admission of liability, settlement offer, or offer of judgment made by an insurer or self-insurer shall be made in good faith and in the best interests of the insured.”

The trial court found that that neither section 766.106 nor section 627.4147 created a private cause of action. The trial court further found that although an insurer has a common law duty to exercise good faith in the settlement of claims,3 the Florida Supreme Court’s opinion in Shuster v. South Broward Hosp. Distr. Physicians’ Prof. Liab. Ins. Trust precluded the doctor’s action against his insurer.4 In Shuster, the court held that an insurer’s duty to exercise good faith in the settlement of claims can be contractually limited by a provision that permits the insurer to settle claims as it “deems expedient” or in its self-interest. Relying on Shuster, the trial court found that the insurer’s settlement within policy limits precluded the insured’s action for bad faith.

The appellate court disagreed, noting that the Shuster court did not determine the effect of section 627.4147, because the policy in Shuster was issued prior to the statute’s enactment. The Rogers court reasoned that section 627.4147 could not be construed as “securing the safety or welfare of the public,” which would generally preclude a private right of action. Rather, section 627.4147 regulates insurance policies between medical malpractice insurers and their insureds. The statute requires the insured to accept a policy giving the insurer the exclusive authority to settle claims within policy limits. In return, the insurer must exercise its authority in the best interests of the insured, not in its own self-interest.

The Rogers court concluded that a medical malpractice insurer has a duty to settle within the policy limits in the best interests of the insured. The court noted that in the context of a claim for medical malpractice, it may not always be in the best interests of the insured to concede liability, where none is present, and settle the claim within policy limits. Finally, the court found that an insured can enforce the insurer’s failure to act in the insured’s best interests by a private cause of action under section 627.4147.