By Jonathan B. Noyes, Wilson Kehoe Winingham
James Harvey was involved in an automobile collision that killed John Potts. After analyzing Mr. Harvey’s exposure, his insurer, GEICO, quickly realized that Mr. Harvey was at fault for the collision and that his $100,000 policy limits were inadequate to compensate Mr. Potts’ widow and three children for their damages. GEICO informed Mr. Harvey that he was potentially underinsured for the collision and tendered his policy limits to Mr. Potts’ estate. Then came the problems.
When the estate requested that GEICO confirm no other policies existed and allow Mr. Harvey to provide a statement regarding the extent of his assets, GEICO refused. When the estate followed up and made a second request, GEICO did not respond. Mr. Harvey informed GEICO that he had hired his own attorney to provide the answers to the estate’s questions, but GEICO never told the estate. With Mr. Harvey’s assets and other insurance policies undefined, the estate returned the tendered $100,000 limits and filed suit against Mr. Harvey. At trial, the jury found Mr. Harvey 100% at fault and awarded the estate 8.47 million dollars.
Mr. Harvey sued GEICO for bad faith. He argued that GEICO did not work quickly enough to settle his case and caused him to incur an excess judgment. The estate’s representative and attorney each agreed that they would have settled Mr. Harvey’s claim for the limits of his liability policy had GEICO informed them that Mr. Harvey had no other policies and insignificant assets. This failure, Mr. Harvey, argued was bad faith.
The Supreme Court of Florida agreed. The court recognized that in exercising control over its insured’s defense, the insurer owes a fiduciary duty to avoid exposing the insured to an excess judgment. It explained that “the critical inquiry in a bad faith is whether the insurer diligently, and with the same haste and precision as if it were in the insured’s shoes, worked on the insured’s behalf to avoid an excess judgment.” Moreover, although Mr. Harvey may have not been perfect in representing his own interests, the court held that GEICO’s conduct was a cause of the excess judgment. The court’s majority, thus, upheld a jury verdict holding GEICO responsible for the excess judgment.
The majority’s opinion was sharply criticized by the dissent. It argued that the majority was turning mere negligence into bad faith and the opinion constituted “a vast and unwarranted expansion of liability.”
Read the full opinion here.
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