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Bad faith laws are in desperate need of reform, expert says; Plaintiff attorneys seek to extract settlements from insurers

By Vimbai Chikomo | Mar 31, 2016


TALLAHASSEE – Florida has developed a reputation of having an unfair legal system that does not favor businesses, partly because of the state's bad faith laws, which many legal experts agree need reform. 

This was highlighted in the 2015-2016 Judicial Hellholes report by the American Tort Reform Foundation (ATRF). 

“For years the Florida Legislature has failed to adopt reforms to address clear abuses of the state’s ‘bad faith’ insurance laws,” the report stated. “These laws were originally intended to protect insureds and the public from misconduct by insurers, but they have since been transformed by plaintiffs’ attorneys into a litigation tool for extracting money from insurers that act responsibly and in good faith while trying to settle claims fairly and efficiently.”

A third-party claim is filed when an insurer fails to settle a third party’s claim against the insured party within the applicable limits of the insurance policy, which leaves the insured susceptible to a judgment exceeding the policy limits.

“The third party bad faith reform issue is a problem that exists when there is low insurance policy limits, clear liability and extraordinary damages,” William Large, president of the Florida Justice Reform Institute, told the Florida Record recently. 

Large used an example of an insured individual who causes an accident, and as a result, severely injures or kills another motorist.

“In that case, there is clear liability; there (are) extraordinary damages," he said. "But if that individual has a policy limit like $10,000 or $25,000, what often happens is the plaintiff attorney is incentivized to bring a lawsuit on the liability case, get a big verdict and then bring a third-party bad faith action against the insurance company for failing to quickly settle the liability case."

Large said there are many cases where limits are offered very quickly and they are rejected because how quickly an insurance company tenders those limits can be used against the company in a bad faith lawsuit.

“So one of the things we are trying to do is to advocate for a clear time frame,” Large said. “If you offer the limits within 45 days, the insurance company cannot be held in bad faith.”

Florida is one of just a few states that allows an individual who is not a direct party to an insurance contract to sue another person’s insurer, alleging the insurer acted in bad faith by failing to settle a claim. A third-party claimant can initiate a lawsuit under state common law or statute, which can give a claimant a second opportunity to revive a failed lawsuit.

Unfortunately, some key reform legislation sponsored by state Rep. Kathleen Passidomo and introduced to the Florida Legislature with the hope of creating reform have been killed during the state’s legislative session year after year.

“(Passidomo) has been a strong advocate for civil justice reform and she is including the third party bad faith bill," Large said. "She is an extraordinary leader. I cannot say enough good things about Rep. Kathleen Passidomo. She is brilliant. She is a hard worker; she understands these issues; she understands what this means for consumers in terms of increased costs, increased litigation. She has been a strong advocate for civil justice reform measures.”

Since Florida’s legislative session ended earlier this month without much action on legal reform, any hope of reform will have to wait until next year.

“I am disappointed that no meaningful civil justice reform measures passed in 2016," Large said. "We’ll work again on these issues next year including assignment of benefit reform, accuracy in damages reform and third party bad faith reform."