Bad Faith Blog

A commercial vehicle was involved in a motor vehicle accident resulting in paralysis to a passenger. The commercial vehicle was insured under a Garage policy and a Commercial Umbrella policy, with a total amount of potential coverage of $3 million. In addressing the causation element of a bad faith claim under Florida law, the Court addressed the “excess judgment rule” and concluded a consent judgment is not an excess judgment for purposes of a bad faith claim and does not fall within the three exceptions to the general rule that an excess judgment is required.

The Seventh Circuit Court of Appeals concluded the mere possibility of liability against an insured is insufficient for an insurer’s duty to settle to arise under Illinois law.

American Physicians Assurance Corporation, Inc. and American Physicians Capital, Inc. (“APA”) issued a medical malpractice insurance policy to Surgery Center at 900 North Michigan Avenue, LLC (“Surgery Center”) with a $1 million limit of liability. APA defended Surgery Center for medical malpractice claims brought against it by Gwendolyn Tate for complications resulting from a surgery performed by Dr. Harrith Hasson at the Surgery Center. Dr. Hasson was an outside physician with privileges at Surgery Center but not its employee.

Summary: An employer’s excess insurer brought an action for bad faith against the primary insurer, which had defended the employer against a worker’s personal injury action that resulted in a settlement in excess of the primary insurer’s limits. The excess insurer alleged the primary insurer should have settled the case within the primary carrier’s policy’s limits. The trial court dismissed the claim finding it was not actionable when there was no excess judgment entered against the insured. The Court of Appeals reversed and remanded.

Summary: State Farm rejected an injured car driver’s $35,000 offer to settle against State Farm’s insured who admitted negligence. The trial resulted in a judgment for nearly $225,000, well above the $100,000 per person limit. The Delaware trial court dismissed the resulting bad faith claim on statute of limitations grounds, relying on an earlier unpublished superior court opinion. In a case of first impression, the Supreme Court of Delaware abrogated the unpublished decision and held that the bad faith action accrued when the excess judgment against the insured became final and unappealable.

Summary: The Virginia Supreme Court’s seminal case regarding bad faith failure to settle claims is State Farm Mut. Auto. Ins. Co. v. Floyd. That opinion defines bad faith failure to settle, clarifies the relationship between the insured and insurer, and determines the standard of proof required in such cases.