United States: Florida Federal Court Denies Bad Faith Failure To Settle Claim Where Insured's Liability Was Unclear

Case:   Welford v. Liberty Ins. Corp.
             U.S. District Court for the Northern District of Florida
             No. 3:15-cv-333; 2016 U.S. Dist. LEXIS 84024 (N.D. Fla. June 2, 2016)

Recall, as reported in a prior edition of the Gulf Coast Legal Update, the Louisiana Supreme Court held that a firm settlement offer is unnecessary for an insured to sustain a cause of action against an insurer for a bad-faith failure-to-settle claim, because the insurer's duties to the insured can be triggered by information other than the mere fact that a third party has made a settlement offer. Kelly v. State Farm Fire & Casualty Co., 169 So. 3d 328 (La. 2015). Florida law is similar. In Powell v. Prudential Prop. & Cas. Ins. Co., 584 So. 2d 12 (Fla. Dist. Ct. App. 1991), a Florida court recognized, "The lack of a formal offer to settle [by the plaintiff] does not preclude a finding of bad faith. . . . Bad faith may be inferred from a delay in settlement negotiations which is willful and without reasonable cause. Where liability is clear, and injuries so serious that a judgment in excess of the policy limits is likely, an insurer has an affirmative duty to initiate settlement negotiations."

The Welford decision focused on what Powell itself cautioned, i.e., that the insurer's affirmative duty to initiate settlement negotiations will exist only "where liability is clear." Welford arose from an auto accident with unusual facts. Liberty Insurance Corporation insured Lisa Mottsey under an auto policy. The policy provided for bodily injury liability of $10,000 per person and $20,000 per accident, and it listed a 1992 Mercury Sable as a "covered vehicle." The Sable was owned and being used by Mottsey's daughter, Cassie Mayhair.

At the time of the accident, Mayhair and her boyfriend, John Middleton, were in the Sable and traveling north on a dark and rural two-lane road near Pensacola, Florida. Middleton was driving with Mayhair's consent. A vehicle being driven by Matthew Zisa, which was also traveling north, approached the Sable from the rear and tried to pass in the southbound lane in a marked passing zone. Middleton, however, sped up, after which Zisa returned to the northbound lane, and Middleton slowed back down. Shortly thereafter, Zisa got back in the southbound lane and tried to pass the Sable a second time. At that point, there were three pedestrians walking north in the southbound lane: Rachel Welford, Jeremy Shipley, and Jonathan Kane. They were walking side-by-side near the middle of the road. They were wearing dark clothes, had no flashlights, and one of them was listening to an MP3 player. Zisa's vehicle hit all three at full speed, killing Welford and Shipley and injuring Kane. The Sable did not hit or make any contact with Zisa's car or with the pedestrians. The Florida Highway Patrol concluded that the pedestrians were the cause of the accident and not Zisa.

The accident was first reported to Liberty two months later, after an investigator retained on behalf of one of the decedents contacted Mottsey. Mottsey then notified Liberty but advised only that Middleton and Mayhair were "witnesses" who gave statements, but they were not otherwise involved in the crash. Liberty took no action at that time.

A wrongful death suit was eventually filed against Zisa, Mayhair, Middleton and Mottsey. Liberty received a copy of the lawsuit and immediately wrote to Mottsey to advise her that a verdict for plaintiff might exceed her policy limits. Thereafter, Liberty initiated settlement discussions, offering the policy limits to all claimants, with a court mediator to determine the allocation of the proceeds. The claimants rejected all settlement overtures, even returning settlement checks that Liberty had later sent. Plaintiffs claimed, had they been approached to settle before litigation was filed, they would have accepted the policy limits, but refused to do so after proceeding with the suit.

The case went to trial and the jury awarded $1.3 million. The jury apportioned liability as follows: 55% on the decedent; 7% on Zisa; and 38% on Middleton (for speeding up and failing to let Zisa pass the first time). After an unsuccessful appeal, Liberty paid the $10,000 per-person policy limit, plus prejudgment interest, in partial satisfaction of the judgment. Mottsey assigned her rights against Liberty to Plaintiffs, after which they stepped into the insured's shoes and brought a bad faith action against Liberty. Plaintiffs asserted Liberty had breached its duty of good faith by failing to initiate settlement negotiations after they were first notified of the loss, prior to suit being filed.

Liberty moved for summary judgment on the bad faith claim. In granting the summary judgment and dismissing the claims against Liberty, the court reasoned as follows: "In Powell, the insured's liability was evaluated at being somewhere between 80-100%. In this case, by contrast, liability was not anywhere near as certain; in fact, it was debatable whether Middleton had any responsibility at all. Not only did Mottsey, Middleton, and Mayhair each dispute liability, but [the Florida Highway Patrol] found there was no contact with the vehicle [driven by Middleton]."

The court further noted "on its face, Powell does not obligate insurers to initiate settlement negotiations whenever an insured is involved in a crash and has some potential liability. Indeed, if that were the law, insurers would have that obligation in virtually every accident case as it is almost always possible that an insured may be found at least partially liable for an injury. But that is not what the Powell Court said. Rather,. . .Powell speaks specifically about an insurer's responsibility when its insured's liability is clear, which generally means: 'Free from doubt; sure. Unambiguous.'" 

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