A Florida appellate court, applying Florida law, has held that an insured may not veto an insurer's settlement of an underlying claim within policy limits absent an allegation of prejudice to a pending counterclaim of the insured or exposure of the insured to additional damages above policy limits arising from the claim being settled. Freeman, M.D. v. Cohen, 2007 WL 4124604 (Fla. Dist. Ct. App. Nov. 21, 2007).

Two physicians insured with the same medical malpractice insurer sought coverage for an underlying negligence suit. The insurer negotiated a settlement within the combined limits of the policies issued to the insureds. At about the same time that the plaintiffs accepted the settlement offer, one doctor sent a letter to the insurer purporting to release it from its obligations under the policy. Subsequently, the doctor sent a second letter canceling the policy and revoking the insurer's authority to negotiate a settlement on his behalf. When the doctor learned of the settlement, he sought leave to file a counterclaim against the plaintiffs and moved to block the settlement.

The appellate court affirmed the trial court's rejection of both motions. In accordance with a Florida statute, the policy contained a clause stating that the insurer "is authorized to compromise any claim hereunder without consent of the Insured, including any offers for admission of liability, settlement or judgment, unless such offer and compromise is in excess of the applicable limits of liability under this policy." Although he asserted that the insurer did not settle the underlying case in good faith, the doctor did not allege that the settlement prejudiced any counterclaim or subjected him to liability in excess of the policy limits.

The appellate court noted that Florida law requires that any settlement by an insurer be undertaken in the best interests of the insured's rights under the policy, "not some collateral effect unconnected to the claim." As such, an action for bad faith settlement of a claim only exists where a settlement prejudices a pending counterclaim of the insured or exposes the insured to damages above policy limits based on the settled claim. Higher future insurance premiums or alleged harm to an insured's reputation do not support a bad faith claim. Accordingly, the court rejected the doctor's challenge to the settlement and affirmed the trial court.