Claims And Issues

FLORIDA UM DAMAGES DETERMINATION BINDS BAD FAITH ACTION.

In a ground-breaking decision of an unsettled question of law, the Supreme Court of Florida has held that the determination of damages in an underlying uninsured motorist (UM) action sets the measure of at least one element of damages in a later bad faith action:

[A]n insured is entitled to a determination of liability and the full extent of his or her damages in the UM action before filing a first-party bad faith action. That determination of damages is then binding, as an element of damages, in a subsequent first-party bad faith action against the same insurer so long as the parties have the right to appeal any properly preserved errors in the verdict. The history of first-and third-party bad faith actions, this Court's precedent, and the legislative intent to eliminate the distinction between first- and third-party bad faith claims all support our conclusion. We also conclude that the trial court in this case did not err in retaining jurisdiction to allow the filing of a bad faith cause of action.

Fridman v. Safeco Ins. Co., 185 So. 3d 1214, 1216 (Fla. 2016).

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WHEN INFORMATION ASYMMETRY IS EMBEDDED IN INSURANCE.

Information asymmetry is a term that sounds like it belongs to elites.  It doesn't.  It affects everyone.

Information asymmetry is a crucial part of understanding many kinds of insurance coverages and insurance relationships, meaning relationships between insurance carriers and their policyholders.

Information asymmetry is really simple:  It means that one person has more information than others have.  Usually, it also implies that the one person with the greater amount of information has an advantage over the many other people who do not have as much information.

This concept has been embedded in insurance law for a long time now.  Not much work has been done on it recently concerning insurance, but I first came across this concept in a ground-breaking study of how uninsured/underinsured motorist (UM/UIM) claims were resolved based on 2,223 "closed claims" in 38 States in 1992.  That study involved 61 insurance carriers which at the time held 70% of the UM/UIM premium business in the United States.

The evidence is uncontradicted:  The information asymmetry or "unbalanced information" in the UM/UIM relationship, in which the 61 UM/UIM carriers involved all pretty much knew a whole lot more about how they handled UM/UIM claims than policyholders did, resulted in favorable outcomes which tended to favor the carriers settling "bad faith" claims in those cases.  The carrier-favorable outcomes especially stand out when they are contrasted with claims which might go to judgment in simple and basic terms.  I have written about this before.  E.g., 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 9:1 (Third Edition and 2017 Supplement in process, Thomson Reuters West); Dennis J. Wall, § 2:11, in Catastrophe Claims:  Insurance Coverage for Natural and Man-Made Disasters (Thomson Reuters West and 2017 Supplement in process).

Now information asymmetry has been recognized in health insurance.  In that business, unbalanced information has been called out by economists who point out that, in economic theory, competition will theoretically lead to "lower prices and higher quality" only when buyers are "able to compare the quality of offerings of different sellers."  Instead of asking how many angels can dance on the head of a health insurance plan, in other words, the reality that frames every question about health insurance coverage is that people do not ordinarily know the coverages available for treatments they might need now or in the future.

Add to this reality mix that health insurance policies, like many kinds of insurance policies, are "notoriously complex and technical," and what you have is reality displacing theory:

Consumers simply cannot make informed quality comparisons in this industry.

Robert H. Frank, "Economic View / What Comes Next for Obamacare?  The Case for Medicare for All" (New York Times Online, posted March 24, 2017) (subscription may be required at www.nytimes.com).

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WHEN COVERAGE IS NOT ENOUGH, CAN BAD FAITH PREVENT REMAND?

In Alber v. GEICO General Ins. Co., No: 6:17-cv-160-Orl-31KRS, 2017 WL 1045504 (M.D. Fla. March 20, 2017) (Presnell, J.), a U.S. District Court denied a plaintiff's motion to remand because the plaintiff had filed a bad faith claim in addition to his claim for uninsured motorist (UM) coverage.

Under the UM contract claim, the plaintiff in this case conceded that he was seeking recovery of $40,000.00 in UM benefits.  That left $35,000.00 in order to reach the $75,000.00 federal jurisdictional limit in this case.

Under the bad faith claim, "[a]ssuming," said the Court, that the bad faith claim "ripens," the plaintiff could theoretically seek to recover all the damages he incurred as a result of the UM carrier's coverage denial.  In this case, those damages, the Court said, include:

• “'[B]odily injury and resulting pain and suffering, disability, disfigurement, mental anguish, loss of capacity for the enjoyment of life, expense of hospitalization, medical and nursing care and treatment, loss of earnings, loss of ability to earn money, and aggravation of a previously existing condition'”;
• "[H]e also asserts that these injuries are continuing and that he expects to suffer more in the future."
• The plaintiff also "asserts that he suffers from serious pain in his back and neck, that he has undergone $15,000 in spinal injections and that he intends to have more in the future."
• The plaintiff's "orthopedic surgeon opined that if Alber's pain continues, he may be required to undergo a discogram to his spine for surgical planning."

In the Court's eyes, "[t]hose alleged damages, combined with the attorney's fees incurred in pursuing the instant case, could easily exceed $35,000, taking the amount in controversy beyond the jurisdictional minimum."  Alber v. GEICO General Ins. Co., No: 6:17-cv-160-Orl-31KRS, 2017 WL 1045504, at *2 (M.D. Fla. March 20, 2017).

However, consider that this same District Court has held that a bad faith claim in a UM case in Florida should be abated, because it will not be actionable unless UM coverage is determined in favor of the plaintiff in the first place.  See "FLORIDA UM BAD FAITH CLAIM ABATED UNDER SECTION 624.155," posted on Insurance Claims and Bad Faith Law Blog on March 24, 2016.  See in addition "REMOVAL DOES NOT REMOVE VALUE," posted here on March 1, 2017 (federal jurisdictional limit of $75,000.00 was met where record established that policyholder demanded $100,000.00 UM policy limit before removal).  That would seem to make the bad faith claim speculative at best, and so perhaps an uncertain ground on which to assert federal jurisdiction.

Further, the mention of attorney's fees being available under the bad faith claim ignores the fact that in Florida an insured prevailing on coverage can recover his attorney's fees anyway, even without the bad faith claim.  See Fla. Stat. § 627.428.

Using theoretically recoverable damages to ignore whether a bad faith claim is viable in the first place.  That is how this motion to remand came to an end.  Now, having retained federal jurisdiction over this UM case, the federal court will be in a position potentially to award $40,000.00 in contract damages and grant a future motion to dismiss or for summary judgment on the bad faith claim, thereby removing the bad faith claim from this case and simultaneously adjudicating the absence of federal jurisdiction.  In such an event, attorney's fees alone would most likely not make up all of the $35,000.00 shortfall in order to reach the $75,000.00 federal jurisdictional threshold in this particular case.

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MANY MOTIONS CAN BE RESOLVED BY GOOD FAITH.

"Many motions to dismiss can be avoided if the parties confer in good faith (as required by Local Rule 7-3), especially for perceived defects in a complaint, answer or counterclaim that could be corrected by amendment."  Miller v. Transamerica Life Ins. Co., No. CV 15-0583 FMO (PJWx), 2016 WL 7155779, at *1 (C.D. Cal. March 24, 2016) (Olguin, USDJ).

Westlaw just released this decision which was made in an ERISA case.  The words quoted above are universal.  They are not limited to ERISA cases.

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Related articles

Insurance Claims And Issues: NO GETTING AROUND IT. ERISA'S VACUUM LIKE POWERS ...

WASHINGTON MAY, OR MAY NOT, ALLOW ACTION UNDER IFCA.

"IFCA" is the State of Washington's Insurance Fair Conduct Act.  The Supreme Court of Washington has now ruled that IFCA does not permit a private cause of action.  In other words, the Supreme Court of Washington ruled that IFCA does not authorize an implied cause of action.  Perez-Crisantos v. State Farm Fire & Cas. Co., ___ Wash. __ ___, 389 P.3d 476 (2017).

Perez-Crisantos involved a lawsuit for coverage and alleged violation of IFCA by an underinsured motorist (UIM) carrier.  The Supreme Court held that IFCA allows such actions only where the record evidence displays allegations of an unreasonable denial of coverage or benefits, which is an area where the statute permits lawsuits to be filed to enforce its provisions.

The decision has already been distinguished in Washington.  Bauman v. American Commerce Ins. Co., NO. C15-1909 BJR, 2017 WL 635777 (W.D. Wash. February 16, 2017) (in which a U.S. District Judge inadvertently mis-labelled the Supreme Court's decision, "Perez-Cristanos").

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DETERMINATION FOR FLORIDA BAD FAITH LAWSUIT INCLUDES COVERAGE BELOW LIMITS.

In Florida, a determination of first-party coverage has been held to be a precondition to an action under Florida's Bad Faith Statute.  In Barton v. Capitol Preferred Ins. Co., 208 So.3d 239 (Fla. 5th DCA 2016), it was held in effect that a determination is a determination.

In that case, the determination was made when the carrier settled a sinkhole insurance coverage claim for less than policy limits.

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VOUCHERS: ACCIDENTS NEITHER EXPECTED NOR INTENDED, OR KNOWN LOSSES?

Vouchers take the place of public schooling so that people can pay for charter schooling.

Vouchers are paid by taking money from public school taxes.  This seems to be the trade-off for the prospect that the children of parents holding vouchers will perform well academically if they do not have to attend public schools but can choose to attend charter schools instead.

However, years of studies show that "private school vouchers may harm students who receive them." The most recent study reporting the same dismal results came in June from a proponent of school choice.  See also here.

This calls into question the availability of insurance coverage for those who enable or even mandate such choices.  Many kinds of insurance policies contain the equivalent of the Commercial General Liability or CGL "occurrence" definition, which many States including Florida equate with the standard CGL Exclusion 1:

There is to put it simply no coverage for an occurrence which is not an accident neither expected nor intended from the standpoint of the insured.

In the case of school vouchers, the relatively poor academic performance of voucherized students seems to qualify as an event that should not be covered by insurance.  This has ramifications on several different fronts.

Hedge Funds and other Investors in Charter Schools, and Charter School Administrators.  These people certainly have, or should carry, Errors and Omissions (E&O) or Directors and Officers (D&O) coverage or the equivalent.   If they push vouchers knowing of their consequences at this time, there seems to be a real insurance coverage issue over whether their choices could even potentially be covered as accidents neither expected nor intended from their standpoint.

School Boards and School Board Members.  Boards and their Members carry or should carry something like School Officials Professional Liability Policies, whatever the policies might be called.  Putting aside questions of immunity, if any, there is still a very real question of whether School Boards and their Members can claim insurance coverage in the face of years of such poor test results that choosing vouchers for children may not be capable of an argument that such choices, again, are accidents neither expected nor intended from the standpoint of the insured.

"Known Loss Doctrine" proponents.  Some judges and many lawyers have argued that insurance coverage is or should be "excluded" whenever the policyholder knows that a loss has happened for which the policyholder is now claiming coverage.  There is rarely any such exclusion written in any insurance policy, but the argument is made often, usually by people who do not practice insurance coverage law.

Insurance is not available however unless there is a risk to be covered.  In this situation, there does not seem to be much risk of the outcome with vouchers.  Once vouchers are chosen, the outcome seems to follow.  This may present another situation for the so-called "known loss doctrine," not as a supposed "exclusion" but simply because insurance arguably does not exist to cover known losses.

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REMOVAL DOES NOT REMOVE VALUE.

In Becker v. Progressive Am. Ins. Co., No: 6:17-cv-114-Orl-31TBS, 2017 WL 735404, at *1 (M.D. Fla. February 24, 2017) (Presnell, J.), a policyholder demanded Underinsured Motorist (UIM) policy limits of $100,000.00.  When the limits were not paid, she served a Civil Remedy Notice of Insurer Violation of Florida's Bad Faith Statute.

The Court quoted her counsel's letter to the UIM carrier:  "Plaintiff's counsel filed a civil remedy notice alleging bad faith on Progressive's part for its failure to pay the $100,000 policy limit, which he claimed was clearly warranted because Plaintiff's damages are 'far in excess of the minimal $100,000 policy limits.' (Doc. 9 ¶ 39.)"   Becker v. Progressive Am. Ins. Co., No: 6:17-cv-114-Orl-31TBS, 2017 WL 735404, at *1 (M.D. Fla. February 24, 2017).

Thereafter the policyholder filed suit in Florida State Court for breach of contract, declaratory judgment, and alleged statutory bad faith.

The UIM carrier removed the case to Federal Court, where one of the requirements was that the case must present an amount in controversy in excess of the jurisdictional limit of $75,000.00.  In many cases, policyholders dispute removal of their lawsuits to Federal Courts from the State Courts where they filed their bad-faith lawsuits by arguing that the amount in controversy has not been demonstrated in the record.

Holding that the amount in controversy requirement was met in this case, the U.S. District Court denied the policyholder's motion to remand her case back to Florida State Court.  The Court effectively held that the policyholder's demand for $100,000.00 UIM policy limits precluded any argument based on record evidence of the amount in controversy in this case:  "Speaking of bad faith, Plaintiff's counsel cannot, in good faith, contend that, under these circumstances, the value of this case does not meet the $75,000 jurisdictional threshold."

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