American Builders Insurance Company v. Southern-Owners Insurance Company—(J. Marcus; 11th Circuit; 1/4/23). Judge Marcus did a brilliant job in summarizing the case.
- Ernest Guthrie fell from a roof and became paralyzed from the waist down, never to walk again. Within months, his medical bills climbed past $400,000, and future costs projected into the millions. Three insurance companies potentially provided coverage for Guthrie. This appeal is a battle between two of them.
The primary insurer for Guthrie’s company was SouthernOwners Insurance Company. At the time of the accident, Guthrie was performing subcontracting work for Beck Construction, which had a policy with American Builders Insurance Company and an excess policy with Evanston Insurance Company. American Builders investigated the accident, assessed Beck Construction’s liability, and evaluated Guthrie’s claim. Southern-Owners, in contrast, did little to nothing for months. When push came to shove, SouthernOwners refused to pay any amount to Guthrie to settle the claim, and American Builders and Evanston ponied up a million dollars apiece instead.
American Builders then sued Southern-Owners for common law bad faith under Florida’s doctrine of equitable subrogation. Along the way, Southern-Owners moved for summary judgment, but the district court denied the motion. A federal trial jury heard the case and found in favor of American Builders. After the entry of final judgment, Southern-Owners sought judgment as a matter of law, or, in the alternative, a new trial. The district court denied those motions, too. On appeal, Southern-Owners 3 challenges the denials of its summary judgment and post-trial motions.
The first and most significant issue in this appeal is whether American Builders proved a bad faith claim and did not breach the contract, which might have relieved Southern Owners of its contractual duties. Under controlling Florida law, “the critical inquiry in a bad faith [action] 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. Additionally, any “damages claimed by an insured in a bad faith case ‘must be caused by the insurer’s bad faith.’” That is, the bad faith conduct must “directly and in natural and continuous sequence produce or contribute substantially to producing such [damage], so that it can reasonably be said that, but for the bad faith conduct, the [damage] would not have occurred.” The bad faith inquiry “is determined under the ‘totality of the circumstances’ standard,” and we focus “not on the actions of the claimant but rather on those of the insurer in fulfilling its obligations to the insured.” That said, a claimant’s actions—such as a decision not to offer a settlement -- remain relevant in assessing bad faith. Insurers have obligations “to advise the insured of settlement opportunities, to advise as to the probable outcome of the litigation, to warn of the possibility of an excess judgment, and to advise the insured of any steps he might take to avoid [the] same,” as well as to “investigate the facts, give fair consideration to a settlement offer that is not unreasonable under the facts, and settle, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so.” These “obligations…are not a mere checklist,” however, and, as the Florida Supreme Court has explained, “[a]n insurer is not absolved of liability simply because it advises its insured of settlement opportunities, the probable outcome of the litigation, and the possibility of an excess judgment.” Moreover, insurance companies occasionally have an affirmative duty to offer settlements. “Bad faith may be inferred from a delay in settlement negotiations which is willful and without reasonable cause.” Thus, “[w]here liability is clear, and injuries so serious that a judgment in excess of the policy limits is likely,” the insurer must “initiate settlement negotiations.” “In such a case, where ‘[t]he financial exposure to [the insured] [i]s a ticking financial time bomb’ and ‘[s]uit c[an] be filed at any time,’ any ‘delay in making an offer under the circumstances of this case even where there was no assurance that the claim could be settled could be viewed by a fact finder as evidence of bad faith.’” Southern-Owners’ delay in investigating and settling led to its inability to tender a timely offer. As a result, a reasonable jury could find (as it did) that American Builders’ damages stemmed directly and naturally from Southern Owners’ bad faith. Southern Owners argued that American Builders breached its contract by failing to obtain Southern Owners’ consent to settle. The Florida Supreme Court requires an insurer to establish three things in order to succeed on a lack-of-consent affirmative defense: (1) a lack of consent; (2) substantial prejudice to the insurer; and (3) diligence and good faith by the insurer in attempting to receive consent. The first element has a few exceptions. The insured may settle without obtaining consent if the insurer “wrongfully refused to provide [the insured] with a defense to a suit,” or offers a conditional defense that the parties cannot agree upon. Moreover, even if the insured was obliged to obtain consent, the failure to do so is not an affirmative defense unless the insurer also establishes substantial prejudice and evinces good faith in bringing about the cooperation of the insured. As the Florida Supreme Court put it, the lack of cooperation must be material and the insurance company must show that it was substantially prejudiced in the particular case by failure to cooperate. Furthermore, the insurer must show that it has exercised diligence and good faith in bringing about the cooperation of its insured and must show that it has complied in good faith with the terms of the policy. Southern Owners failed to satisfy the test in light of its lack of diligence. The court rejected the claim that the trial court abused its discretion in denying the motion for new trial, and the court actually declined to entertain a third argument because the Eleventh Circuit has a rule that a party may not appeal an order denying summary judgment—even if it is a pure issue of law—after a jury trial. 4
The case was affirmed. https://media.ca11.uscourts.gov/opinions/pub/files/202113496.pdf