Insurance companies wield immense power within their relationships with insureds. When settling claims by injured third parties, insurers control decisions that can have significant consequences, including exposing an insured to liability beyond her insurance contract’s policy limits. Like many states, Florida protects insureds from abuse of this power through the doctrine of good faith, which holds insurers liable for bad faith failure to settle third-party claims.
In the 2018 decision Harvey v. GEICO General Insurance Co., the Florida Supreme Court broadened Florida’s bad faith failure to settle standard. Under Harvey, an insurer may be extra-contractually liable if it fails to act with haste and precision in the insured’s best interest when investigating and settling a claim, even when its failures amount only to negligence, and even when the insured or claimant contributed to the inability to settle. But the Harvey decision incentivizes undesirable conduct by all parties involved. Insureds and third-party claimants may be tempted to hinder settlement in hopes of triggering bad faith (and thus damages beyond policy limits). And Harvey motivates insurers to offer premature or outsized settlements—prioritizing haste over precision—in an attempt to avoid bad faith litigation, a practice that results in increased loss costs ultimately passed along to all insureds. To address these incentives, the Florida legislature should amend Florida’s bad faith statute to explicitly direct courts to consider the conduct of each party involved when assessing bad faith liability, to clarify that bad faith involves more than mere negligence, and to establish procedures to protect both insurers and insureds in difficult claims circumstances involving multiple injured parties.