Florida's first-party uninsured motorist bad-faith doctrine needs a pit stop.

• Author: Hearn, Anthony

When an insurance company in Florida fails to handle a first-party insurance claim in accordance with its duty of good faith, F.S. [section]624.155 (civil remedy statute) provides the claimant a statutory private right of action to file suit against the offending insurer. This circumstance arises with some frequency in the context of uninsured motorist (UM) and underinsured motorist (UIM) claims. F.S. [section]627.727 (UM statute) governs uninsured motorist claims against insurers. Generally, the civil remedy statute provides a private right of action against insurers who run afoul of certain enumerated guidelines set forth in F.S. [section]624.155 (1) while the UM statute provides the damages available to a plaintiff who has prevailed in such a suit arising out of their UM/UIM motorist insurance. (2)

In a line of recent cases, insurers have asserted that their procedural due process rights to appellate review have been encumbered when a trial court allows the insured to bind the insurer to the damages determined in the UM breach of contract action. The insurers' arguments arise out of the interaction of longstanding Florida bad-faith doctrine, the UM statute, and limitations on appellate jurisdiction. Several courts have agreed with the insurers and held that damages must be tried in subsequent proceedings. Moreover, the Florida courts that have attempted to reconcile this area of the law in order to avoid a constitutional problem--and great inefficiency--have strained to set forth an analytical framework or rationale that convincingly preserves due process principles.

The situation is well deserving of attention from the Florida Legislature and the Florida Supreme Court. Florida practitioners should also beware of the unsettled legal terrain in first-party UM bad-faith proceedings. The diversity of rationales applied in cases binding insurers to predetermined damages in bad-faith proceedings means unpredictable results until the UM statute's language is altered, the Florida Supreme Court provides further guidance, or the Florida Rules of Civil Procedure are supplemented to include special provisions for these actions. This article begins by setting forth the relevant bad-faith doctrine, examining those cases finding a constitutional defect and the rationales of those courts that avoided the defect, and concludes that Florida courts should not grant preclusive effect to UM damages in subsequent bad-faith actions until the problem is resolved.

Accrual of a UM Bad-Faith Claim

In a typical UM claim, the driver who has been injured by an uninsured motorist files a claim with their insurer and the insurer will cover the insured's losses up to the UM policy limits. If the insurer challenges the insured's claim, the insured may bring a breach of contract action against the insurer. As part of the breach of contract action, the insured will make a case for their damages as a necessary component of their claim. If the insured prevails in the breach of contract action, the judge or jury will return a verdict that declares the dollar amount of the plaintiff's damages caused by the uninsured tortfeasor. If the verdict exceeds the policy limits, the verdict will be reduced to the policy limits contained in the claimants UM policy because the maximum amount of recoverable damages that can be awarded to the insured is the contract amount (i.e., the policy limits). (3)

Sometimes, while disputing the validity of a claim, the insurer behaves in a manner that runs afoul of its duty to perform the contract in good faith. The civil remedy statute enumerates several such acts that can give rise to insurer bad-faith liability. (4) When an insurer acts in bad faith and the insured's damages exceed the available UM/ UIM policy limits, the insured will be able to plead a prima facie bad-faith claim. In a bad-faith action, the plaintiff's damages are not limited by the insurance policy limits--the plaintiff may recover the full dollar amount of their damages caused by the uninsured tortfeasor. Specifically, the UM statute provides: [t]he damages recoverable from an uninsured motorist carrier in an action brought under s. 624.155 shall include the total amount of the claimant's damages, including the amount in excess of the policy limits, any interest on unpaid benefits, reasonable attorneys' fees and costs, and any damages caused by a violation of a law of this state. The total amount of the claimant's damages is recoverable whether caused by an insurer or by a third-party tortfeasor. (5)

Critically, the bad-faith action cannot commence, as a matter of Florida law, until the liability of the uninsured tortfeasor and the extent of the damages have been established. (6) This is the rule, irrespective of whether bad faith is alleged with the breach of contract action or brought separately. (7)

In third-party bad faith, the verdict from the underlying action is considered conclusive as to the measure of damages in the subsequent bad-faith action. In keeping with third-party claims, plaintiffs in first-party UM bad-faith claims have successfully utilized collateral estoppel and res judicata to bind insurers to the excess verdict awarded in the breach of contract action. (8) It is at this juncture of Florida law that a defect in Florida's UM bad-faith doctrine manifests itself. Because the breach action must precede the bad-faith action due to Blanchard v. State Farm Mut. Auto Ins. Co., 575 So. 2d 1289, 1291 (Fla. 1991), and because the verdict is reduced to policy limits in accordance with the common law of contract, when the excess verdict from the breach action is granted, preclusive effect in the subsequent bad-faith proceeding, the insurer is deprived of its due process rights to appellate review of the excess verdict. (9) The following caselaw illustrates the problem.

Bottini and its Progeny

In Geico v. Bottini, 93 So. 3d 476 (Fla. 2d DCA 2012), the Bottini estate was awarded $30,872,266 by the jury at its UM breach of contract trial. That verdict was reduced to Bottini's UM policy limit of $50,000 in accordance with general contract principles and prevailing bad-faith doctrine. (10) Geico appealed to the Second District, asserting five discrete points of reversible error, but the appellate body affirmed, per curiam. The summary opinion addressed only one of Geico's arguments--that reversible errors at trial contributed to the large jury verdict. The court reasoned, "[b]ased on the evidence presented, we are satisfied that even if Geico were correct that errors may have affected the jury's computation of damages, in the context of this case and the amount of the judgment, any such error were harmless." (11)

In the concurring opinion, Judge Altenbernd provided a deeper analysis of the court's rationale. He explained that harmless error analysis of the case addressed only those matters affecting the judgment, not the verdict. Judge Altenbernd further explained: this court is given power to review final judgments for reversible error. We can also write an opinion affirming a judgment as to issues that, if we were to reach an opposite result, would lead to a reversal of the judgment. But I am unconvinced that we have a scope of review that allows us to rule on issues that do not and cannot affect the judgment on appeal. (12)

Despite the constitutional limitation, reasoned Judge Altenbernd, the court was able to determine that any errors contained in the large verdict were harmless because Geico had conceded that the measure of damages could have reasonably reached $1,050,000. (13) "Accordingly, no alleged error raised by Geico can be a harmful error as to the judgment totaling $50,000." (14)

Finally, Judge Altenbernd addressed the gravity of the jurisdictional limitation in the context of the UM breach of contract setting, stating, "[t]his appeal is motivated by the lawsuit that both parties know will follow ... under section 624.155 [Civil Remedy Statute], Florida Statutes, for failure to settle this claim at an earlier time ....The statute does not explain how the finder of fact in the next lawsuit determines the 'total amount' of the claimant's damages." (15) Judge Altenbernd then speculated that the plaintiff would attempt to bind Geico to the multimillion dollar verdict, which, as a constitutional limitation on the appellate court's power, would not have been subject to appellate review.

The Middle District of Florida expressed similar concerns in King v. Geico, No. 8:10-cv-977-T-30AEP, 2012 WL 4052271 (M.D. Fla...