Bad faith is the idea that the insurance company purposefully doesn’t pay out a claim fairly. After a car accident, the insurance company should honor the insured’s policy and make a claim quickly and honestly. Bad faith is the term for the legal cause of action that accrues when the insurance policy doesn’t honor their contract. When there is bad faith, the aggrieved party has a legal claim against the insurance company.
In Florida, one critical part of any bad faith claim is excess judgment. An excess judgment must exist for the court to have jurisdiction to hear the bad faith insurance claim. Florida law specifies three situations where the court may have an excess judgment. In the Cawthorn v. Auto-Owners Insurance Company case, decided October 25, 2019, the U.S. Court of Appeals declined to state that an excess judgment exists in cases where the parties stipulate to a judgment exceeding insurance policy limits. Our Florida car accident attorneys explain excess judgments and the status of bad faith claims in light of the Cawthorn decision.
An excess judgment in Florida is when the judgment in the case exceeds the policy limit. When the judgment in the case is for a higher amount than the insured party has as an insurance policy limit, that’s an excess judgment.
An excess judgment leaves the defendant personally liable to the victim for their damages. It also fails to fully compensate the victim for their injuries because individual defendants often lack the resources to pay a claim.
An insurance company must settle a case where a reasonably prudent person would do so. Under Florida law, mere negligence is not enough to amount to bad faith. Bad faith requires a higher standard, as well as causation.
Under Florida law, there must be an excess judgment for the court to have jurisdiction and a live case and controversy to hear a bad faith claim. Florida courts call this requirement the excess judgment rule. Without a real case and controversy, the court has no power to decide the case.
Florida courts give three situations where an excess judgment exists:
When one of these types of excess damages exists, the Florida courts have jurisdiction and controversy to hear a bad faith claim.
In the Cawthorn vs. Auto-Owners Insurance Company case, the court examined whether to classify settlements as excess judgments. [4] The court decided that a mutually agreed-on settled amount cannot be an excess judgment because it is a settlement of the parties; it is not a judgment decided on by a jury. Although the insured claimed that a settlement was the equivalent to a judgment, and the court agreed that the terms are often used interchangeably, the court said that the distinction between a settlement and a judgment are significant.
The Cawthorn case involved a driver who fell asleep at the wheel. The passenger suffered injuries that left him paralyzed from the waist down. The victim brought a claim against the company that owned the vehicle. The vehicle owner had a $1 million liability policy and a $2 million umbrella policy. The victim alleged bad faith on the part of the insurance company in their handling of the claim. During litigation, the parties entered into a consent judgment.
The lower court issued summary judgment stating that the agreement was not an excess judgment. The insurance company, Auto-Owners, was not a party to the consent judgment. The court said that the consenting nature of the agreement and the absence of Auto-Owners as a party to the agreement made it distinguishable from a Cunningham agreement. The court noted that the three classifications of excess judgments are precise and defined. The Cawthorn court declined to extend the categories of excess judgments. The case provides clarification for litigants in the area of bad faith litigation.
Do you have questions about bad faith? Are you wondering how bad faith might impact your car accident case? Our Florida car accident lawyers can help. Bad faith is a complex issue in Florida. Call us today to talk about your case.
