Wednesday, February 2, 2011

Bad Faith Set-Up: Florida Bar Article

This month's Florida Bar Journal has a feature article on insurance bad faith, "The Good Faith, Bad Faith, and Ugly Set-up of Insurance Claims Settlement." Written from the perspective of defense attorneys, the article has this set-up paragraph:

The current imbalance in Florida’s bad faith statute can be exploited to create bad faith claims where they otherwise would not exist.  This practice is commonly referred to as the “bad faith set-up,” and the various tactics used to set up bad faith claims have been well-documented by courts and commentators alike. Simply put, the “bad faith set-up” is “nothing more than an attempt to induce the insurer to commit a tort in order to explode the policy limits.
As is appropriate, the article quotes from the famous dissenting opinion of Charles Wells,* Justice of the Florida Supreme Court, in Berges v. Infinity Ins. Co. (Fla. 2005).  The authors state that Justice Wells argued:

that the deadlines set by the plaintiff for Infinity to pay the claims were part of a “strategy which consists of setting artificial deadlines for claims and the withdrawal of settlement offers when the artificial deadline is not met,” the goal being to “convert a policy purchased by the insured which has low limits of insurance into unlimited coverage.” According to Justice Wells, the strategy worked exceedingly well in both the plaintiff’s and the insured’s favors, as “the $20,000 purchased by the insured has been converted into insurance which will pay $1,893,066 to cover the claims plus $616,200 for attorneys’ fees plus interest. It also worked well for the insured, who paid for $20,000 of insurance and was given by the majority’s opinion the benefit of more than $2.5 million of insurance.
The article is available on the Florida Bar's website at this link: The Good Faith, Bad Faith, and Ugly Set-up of Insurance Claims Settlement.

* Today, Charles Wells serves as Chair of GrayRobinson's Appellate Practice Division, and is in the firm's Litigation Division.

Perry Cone practices insurance, compliance and government law, and provides consulting to in-house counsel, from the Tallahassee office of GrayRobinson. He writes from his perspective as a former general counsel, executive, and leader in the Florida insurance industry.
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