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In a ruling that could fuel a new push for legislation to restrict bad-faith lawsuits, the Florida Supreme Court has reinstated a $1.9 million verdict arising from a fatal 1990 auto accident. In a 4-3 decision last month in Berges v. Infinity Insurance Co., the state high court held that insurers need not wait until probate and guardianship issues are resolved before negotiating settlements in wrongful-death cases or cases where a minor is involved. The court also said that insurers must keep policyholders apprised of all settlement offers and developments. The justices ruled that the insurer “entirely ‘dropped the ball’ in its handling of this case,” and that “under the totality of the circumstances standard employed in Florida … there was competent, substantial evidence” to support the jury verdict that the insurer breached its duty to its policyholder. The ruling overturned a 2001 decision by the 2nd District Court of Appeal that was in conflict with the 1st DCA. Legal experts say the 2nd DCA decision had thrown bad-faith law into uncertainty throughout the state. But some observers predicted that the ruling would give insurers grist for their expected drive in the coming legislative session for tough restrictions on bad-faith lawsuits, which they failed to win last year. Indeed, in his sharp dissent, Justice Charles T. Wells suggested that the state establish an explicit time frame for insurers to make decisions on claims and issue payments, including guidelines for appointment of guardians. In addition, he suggested defined penalties for failure to meet these time requirements. In the majority opinion, written by Chief Justice Barbara J. Pariente, the court said the ruling follows Florida bad-faith jurisprudence dating back as far as 1938 and “reaffirms that an insurer owes a duty of good faith to its insured.” But in a dissenting opinion, joined by Justices Wells and Kenneth B. Bell, Justice Raoul G. Cantero III contended that the insurer in this case made mistakes but did not engage in bad-faith conduct. “Clearly mistakes and miscues do not meet this standard,” wrote Cantero, who formerly handled insurance defense cases. “An insurer does not act in bad faith when it fails to meet an arbitrary deadline.” In a separate dissent, joined by Cantero and Bell, Wells contended that the plaintiff attorneys in the original auto negligence case used “sophisticated legal strategies” to “create” a bad-faith claim against the insurer. “Perpetuating this kind of bad faith action is not only wrong on the basis of the claims handling facts in this particular case but is greatly detrimental to Florida’s liability insurance consumers because of the increases in their insurance costs,” Wells wrote. Pensacola, Fla., attorney Louis K. Rosenbloum, who argued Berges’ case before the Florida Supreme Court, declined to comment. Tracy Raffles Gunn, a partner at Fowler White Boggs Banker in Tampa, Fla., who represented Infinity, did not return calls for comment. But Philip Burlington, who helped draft a friend of the court brief on behalf of the Academy of Florida Trial Lawyers, said that with the state Supreme Court’s ruling, “we are back to where we believe it should have been all along.” George Vaka, a Tampa attorney who represents plaintiffs in bad-faith cases, said the ruling will undercut insurers’ arguments that they were set up for bad-faith claims by clever lawyering on the plaintiff side. “The whole notion that ‘You forced us into making this mistake’ will go right out the window, where it should be.” On the defense side, Robert Hurns, counsel for the Chicago-based Property Casualty Insurers Association of America, which represents insurers, agreed with Justice Wells’ dissent. “Now it looks like an unscrupulous insured would be able to get in the system and recover an amount far in excess of the coverage they actually purchased,” he said. INSURER ‘DROPPED THE BALL’ In March 1990, Barry Berges’ girlfriend was driving his car while intoxicated and got into an accident that killed a Hillsborough County, Fla., woman and critically injured her teenage daughter. The dead woman’s husband, James Taylor, offered to settle his wife’s and daughter’s claims for Berges’ $20,000 policy limit on his policy with Birmingham, Ala.-based Infinity Insurance. But according to the trial judge, Infinity “dropped the ball,” twice failing to secure the settlement and leaving Berges open to a big judgment. Taylor and Infinity initially agreed verbally to settle the claim for the amount of the policy, which would have released Berges from any further liability. Taylor drew up a letter giving Infinity 25 days to respond to the offer. An Infinity attorney wrote Taylor three days before the deadline to say the carrier would pay the policy limit as soon as Taylor was appointed personal representative of his wife’s estate and guardian of his daughter’s property interests. But the letter was sent to the wrong ZIP code and Taylor did not receive it until a month after the deadline had passed. Subsequently, Taylor’s lawyer, Dale Swope of Tampa, filed suit against Berges and Infinity. Berges was never informed of Taylor’s offer to settle or of the possibility of an excess judgment until a month after the deadline had passed. Then, before the auto negligence trial, Swope suggested that Berges file a bad-faith lawsuit against Infinity for failing to settle the case. Swope proposed that Infinity allow the bad-faith case to be tried before the wrongful death and personal injury suits. If Infinity won, Swope said, his client would again agree to settle for the policy limit. If Infinity lost, they would pay all damages awarded in the subsequent wrongful death and personal injury litigation, effectively getting Berges out of a mess he was in through no fault of his own. Infinity said no, and the negligence case proceeded. In 1995, a Hillsborough Circuit Court jury found Berges 100 percent liable and awarded the plaintiffs $1.9 million. Berges then sued Infinity in Hillsborough Circuit Court, alleging that the carrier acted in bad faith by failing to accept the settlement offer and by failing to keep him informed so that he could protect himself adequately. In August 1999, Berges won a $1.9 million jury award for bad faith — the entire amount of the excess judgment plus attorney fees and costs. Infinity appealed and the 2nd DCA reversed the bad-faith verdict. It held that Infinity could not have accepted Taylor’s settlement due to the timing of the deadline, which came before Taylor had received court approval to act as the representative of his wife’s estate and as his daughter’s guardian. The 2nd DCA called Taylor’s offer “merely an expression of his intent to settle once he became authorized to make the offer” and was not a “valid opportunity to settle,” since he was without authority to make a valid settlement offer to Infinity. Thus, it concluded, Infinity as a matter of law could not have acted in bad faith. The 2nd DCA also ruled that Infinity was not liable for failing to notify Berges of the settlement talks, nor was the carrier obligated to agree to litigate the bad-faith claim ahead of the tort claims. Thus, the court held, it couldn’t be held liable for acting in bad faith by rejecting Taylor’s offer. Berges appealed. “I was very surprised by the 2nd District’s decision,” said Michael Rywant, a partner at Rywant Alvarez Jones Russo & Guyton in Tampa who represented Berges in the bad-faith trial. “It seemed to me to go afield from at least one aspect of the law, insofar as the ability of an adult to make an offer to settle a minor’s claim.” In the wake of that decision, some lawyers handling bad-faith cases around the state put their cases on hold, uncertain of the law. Vaka said the 2nd DCA opinion established a precedent that insurance company lawyers effectively used in both state bad-faith cases and in federal cases governed by Florida law. Besides the issue of whether Taylor needed court approval to make a valid settlement offer, the state Supreme Court majority framed the issues as “(a) whether Infinity’s agreement to pay the policy limits precludes a finding of bad faith as a matter of law; (b) whether the trial court erred in instructing the jury on the insurer’s duty to advise of settlement opportunities in this case; and (c) whether, under the totality of the circumstances, competent, substantial evidence supports the jury verdict of bad faith.” After considering these issues, the majority reinstated the 1999 bad-faith verdict against Infinity. The majority concluded that “court approval is not a prerequisite to a valid settlement offer for a minor.” It also found that the 2nd DCA erred in finding that Infinity “did not breach its good faith duties to inform and advise Berges of settlement opportunities.” The high court said Infinity’s agreement to pay the claim before Taylor received court approval precluded a finding of bad faith as a matter of law and was correctly submitted to the jury for deliberation, and that the jury’s finding of bad faith was supported by “competent, substantial” evidence. In his dissent, Justice Wells argued that the majority opinion would lead to higher insurance premiums. In addition, he warned that insurers would have no choice but to pay judgments in excess of policy limits as a result of plaintiffs’ use of artificial and arbitrary deadlines. This would give consumers more coverage than they purchased, which he called a “free lunch.” But the majority noted that Wells did not cite any empirical data showing a direct correlation between bad-faith claims and higher premiums. “To the contrary,” Pariente wrote, “it is far more likely that the insurer’s knowledge of the potential consequences of placing its own interests over that of its insured has a beneficial effect on the handling of claims.” Vaka said the decision is important for Florida consumers because without strong bad-faith provisions, insurers “can run roughshod over their insureds. The ruling sends a very clear message that insurance companies have unambiguous obligations to their insureds, and if they don’t follow those obligations, there are consequences.”

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