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HB 837: Florida Ushers in Changes to Bad Faith Law

by | Apr 19, 2023 | Insurance Defense

In the third article of our series, we are addressing the changes that Florida House Bill 837 (“HB 837”) made to the areas of bad faith law and negligent security. Similarly, to the other broad changes in tort law, these provisions will result in differences in many cases that are filed in Florida, as well as how they are litigated. This section will address the bad faith law and the changes that HB 837 has brought to Florida.

One of the larger changes to Florida law is the legal framework for bad faith cases. An insurer’s “toolkit” of options to try to avoid bad faith lawsuits has been expanded due to the legislation. The shorter statute of limitations may also have an impact, which was discussed in our first article.

Traditionally, Florida common law has clearly recognized that mere negligence or a mistake by an insurance company does not automatically equate to a finding of “bad faith” on the part of an insurance company. Now, HB 837 clearly and explicitly mandates that negligence alone, in and of itself, is insufficient to support a cause of action for bad faith, whether in the context of a statute-based or common law-based claim.

Florida’s bad faith law is in place to make certain that insurance companies operating within the state act appropriately, reasonably, fairly, and place the interests of an insured above those of the insurance company. With that in mind, bad faith actions focus on the actions or inactions of the insurance company, its adjusters, and its decision-makers.

In the sector of bad faith law, as with all provisions of the law, there is the potential for abuse and utilization of the law for consequences that were not intended originally. Florida has become known as a state where insurance carriers see “bad faith set-ups.” Those may be situations where counsel for claimants attempt to force insurance companies into early settlements for policy limits in which they must respond to unrealistic timed demands, often with incomplete information, and many times, there is a refusal to provide basic information for evaluation, which can include complete billing records, full medical records, prior medical records, or access to other data that would be important for decision making. Further, the setup scenario is also seen by creating other artificial claims-handling and/or settlement traps that are highly technical.

These paths have very little to do with an insurance company’s duties and obligations but are designed to lay the groundwork for an unwary company into a situation in which bad faith allegations can be made against it, often in an effort to unreasonably force that company to pay extra-contractual damages. This can be seen with timed demands that make specific requirements for check language, where checks are to be delivered, and rejection of settlement checks if they do not comply to the letter as to the time of delivery, the payee, and/or the exact method of delivery. Further, we also see this in practice when a timed demand states that a release can be signed by a claimant, but that it cannot include certain terms. Usually, such demands will also fail to provide a sample release. Many times, even when a release document is presented that omits what was requested by the claimant’s attorney, an argument will be made that the release did not comply with the demand and thus was a rejection, laying the groundwork for such a case in the future.

With HB 837’s changes, the focus is no longer solely on what the insurance company did or did not do, which is a key change. Instead, HB 837 also places a corresponding duty on claimants and claimants’ counsel to act in good faith when providing necessary information regarding a claim, issuing demands to companies, setting deadlines, and making any effort to settle a claim. The new provisions in the law seek to tame some of the abuses of the law and to avoid the situation where attorneys are creating circumstances that may lead to future bad faith when they have nothing to do with actual claims handling. Of key importance, if a claimant or insured does act unreasonably or unfairly in its own actions with respect to a given claim, those actions can be considered in conjunction with the actions of the company, and that insured’s ability to successfully prosecute a bad faith claim and to recover damages in that action may be compromised. In all types of bad faith claims, this evidence will be able to be considered.

This aspect of the new law codifies what was previously expressed under Florida common law, which has held that “to fulfill the duty of good faith, an insurer does not have to act perfectly, prudently, or even reasonably. Rather, insurers must refrain from acting solely on the basis of their own interests in settlement.” Novoa v. Geico Indem. Co., 542 F. Appx. 794, 796 (11th Cir. 2013) (internal quotations and citations omitted).

This change in the law due to HB 837 should be beneficial to insurance companies. Under the prior law, even minor errors in the claims processing practice could result in a bad faith case, which in turn would result in substantial time and expense to defend against those allegations.
HB 837 has amended Florida Statute Section 624.155, Civil remedy. Civil Remedy creates a safe harbor within which the insurer may correct alleged “bad faith acts” by attempting to settle a claim in good faith. As such, this is an immunity provision within Florida law that is available. Thus, an insurer is not liable for bad faith regarding a liability insurance claim (whether brought by statute or by common law) if an insurer:

  1. Tenders the lesser of the policy limits, or
  2. Tenders the amount demanded by the claimant within 120 days after receipt of the actual
    notice of claim.
  3. In the event there is a failure by the insurer to tender within the 120 days, it is not considered bad faith and is inadmissible in a bad faith action. Moreover, if failure to tender within 120 days, the applicable statute of limitations shall be extended for an additional 120 days.

HB 837 also addressed the complex problem of what to do when an insurance company is faced with a claim involving multiple claimants and insufficient policy limits to resolve all such pending claims on behalf of its insured. The prior answer to this problem was created through common law, and the precedent is Farinas v. Fla. Farm Bureau Gen. Ins. Co., 850 So. 2d 555 (Fla. 4th DCA 2003). Farinas provided the framework for how you handle those claims for almost two decades. Importantly, Farinas provided general guidance, but even if you followed the guidance of the case, there was no guarantee you would not see a bad faith action later. This has been an area that has been a dangerous pitfall for many years, but now clarity has been provided by the legislature, with clear guidance on what an insurance carrier should do.

HB 837 creates a clear protocol by which a liability company can distribute limited policy benefits when there are multiple claimants presenting competing claims stemming from a single occurrence or accident and the amounts being sought by those multiple claimants are in excess of the available policy limits. In those situations, the law is now as follows:

  • Where two or more third-party claimants have competing claims arising out of a single occurrence, which in total may exceed policy limits, the insurer does not act in bad faith by failing to tender, if within 90 days of receipt of competing claims it either:
  1. Files an interpleader action, or
  2. Pursuant to binding arbitration agreed to by the parties, the entire amount of the policy limits becomes available.

This provision should provide needed guidance and clarity to attorneys, as well as carriers, on what to do in situations where you simply have too many claimants and not enough funds for the claims, without the risk of bad faith. Too often in situations pre-HB 837, parties would attend global settlement conferences with limited information, and they would have to make a choice on what claims to settle and with what amounts. Typically, there would be infighting between multiple claimant attorneys to maximize each of their client’s recoveries (which is understandable), but this created an atmosphere of uncertainty about what the proper procedure was and how to best protect both the interests of the insureds and the carrier.

For more information on these topics or related matters, please contact Elizabeth Tosh,  elizabeth@zinoberdiana.com, 813-642-4229.

Insurance DefenseHB 837: Florida Ushers in Changes to Bad Faith Law