In recent months, the Eleventh Circuit has addressed two claims of insurers’ alleged bad faith failure to settle following the rejection of a time-limited demand. These decisions tell a cautionary tale for insurers.

In Moore v. GEICO General Ins. Co., the district court granted summary judgment in favor of GEICO in a case where GEICO alleged that it was the victim of a bad faith set-up. Claimant’s counsel conditioned his offer to settle for policy limits on receipt of affidavits of the insureds that they had no other insurance and a precisely worded release; he then treated GEICO’s transmittal of non-complying documents as a rejection of the policy limits settlement demand. He sued GEICO for bad faith after a $4 million verdict was returned for claimants. In granting summary judgment, the district court found that GEICO’s conduct was “sloppy” and “bordering on negligent,” but that it did not rise to the level of bad faith.

The trial court concluded that counsel had attempted to manufacture an artificial bad faith claim by creating unnecessary obstacles to settlement and that it was counsel’s conduct that resulted in the failure to settle.

In an unpublished opinion, the Eleventh Circuit reversed, finding that there was evidence both supporting and contradicting the allegations of bad faith and that the district court had improperly focused its analysis on the conduct of claimant’s counsel, when it should have focused on the conduct of the insurer in fulfilling its obligations to its insured. The Eleventh Circuit held that the test is whether, under the “totality of the circumstances” the insurer managed the claims against its insured with the same degree of care and diligence it would have used in managing its own business (633 Fed. Appx. 924 [11th Cir. Feb. 19, 2016]). Noting the conflicting evidence, the court held that a jury must decide whether GEICO failed in bad faith to settle.

On July 7, 2017, the Eleventh Circuit affirmed an award of over $8 million in favor of a deceased motorist’s estate based on Nationwide’s failure to settle the estate’s claims against Nationwide’s insured, who ran a red light, killing the decedent (Camacho v. Nationwide Mutual Ins. Co., Fed. Appx., 2017 WL 2889470 [July 7, 2017]). The estate made a time-limited demand to settle the wrongful death and estate claims of the decedent’s surviving family members for policy limits in exchange for a limited liability release that would have protected the insured from personal liability, except to the extent that other insurance coverage was available from which the estate could seek additional recovery. Nationwide did not respond timely to the offer, and while it ultimately offered to settle for limits, it required a full general release that the estate refused to accept. The Eleventh Circuit’s opinion, a mere two paragraphs, found the district court’s final order rejecting all of Nationwide’s arguments to be “thorough and well-reasoned” (Id. See Camacho v. Nationwide Mutual Ins. Co., 188 F. Supp.3d 1331 [2016]).

These cases hold several important lessons for insurers. First, in states where time-limited policy limits demands are recognized, insurers ignore or belatedly respond to such demands at their own peril in cases of clear liability and special damages exceeding the policy limits. Failure to respond timely or to accept a limits demand that would later preclude an excess judgment may be viewed by a court as failure to give equal consideration to the insured’s financial interest and thus may constitute bad faith. Second, the insurer’s insistence on a general release in the face of a time-limited demand when a plaintiff would accept a limited liability release may constitute bad faith if a limited liability release would be sufficient to protect the insured from the possible exposure of an excess verdict. Third, while conduct of the claimant and his counsel is likely relevant to an insurer’s defense of bad faith set-up and should be raised as a defense, the Eleventh Circuit has admonished trial courts to focus on the insurer’s conduct to determine if it fulfilled its obligations to the insured, rather than on the claimant’s conduct in “setting up” the insurer. In responding to time-limited demands and demands that impose unreasonable conditions upon settlement of an underlying case, an insurer will serve its insured and itself well by being proactive, responsive, and reasonable in its dealings with claimants and counsel.

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Sharon Stuart is a partner in the litigation practice group of Christian & Small LLP in Birmingham, Alabama, where she handles complex and class action business, insurance, and product liability cases in the state and federal courts and in arbitration. Sharon is president of the Alabama Defense Lawyers Association, a member of the International Association of Defense Counsel, and a fellow of the American Bar Foundation and the Alabama Law Foundation.