IMPORTANT CASE FOR CLAIMS HANDLERS TO UNDERSTAND
By Susan Lerner, Esq. - August 2006

An insurer may be liable for bad faith by refusing to pay a reasonable settlement demand that releases only one of its two insureds: Contreras v. U.S. Security Insurance Co., 927 So.2d 16 (Fla. 4th DCA 2006).

In a case of first impression in Florida decided this spring, the Fourth District Court of Appeal in Contreras v. U.S. Security Insurance Co., 927 So.2d 16 (Fla. 4th DCA 2006) reversed a directed verdict in favor of the insurance company accused of bad faith for refusing to accept an offer to settle for policy limits (10/20 policy) in exchange for a release of the named insured/owner of the car only but not the additional insured driver who was the named insured’s fiancé.

The court reasoned that the insurer had an obligation to first attempt to obtain a release of both insureds but failing that, the carrier had a good faith obligation to accept the demand, pay the policy limits and obtain the release of the named insured:

Once it became clear that Contreras was unwilling to settle with Dale and give him a complete release, U.S. Security had no further opportunity to give fair consideration to a reasonable settlement offer for Dale. Since U.S. Security could not force Contreras to settle and release Dale, it did all it could do to avoid excess exposure to Dale.

927 So.2d at 21.

The court also pointed out that the carrier could thereafter safely invoke its policy provision that allowed it to cease defending the additional insured once it paid out its policy limits on behalf of the named insured. The court cited to an earlier decision, Underwriters Guarantee Ins. Co. v Nationwide Mut. Fire Ins. Co., 578 So.2d 34 (Fla. 4th DCA 1991) where:

A non-settling insured alleged that the insurer’s policy limits settlement on behalf of only one insured constituted a breach of the contract as to the non-settling insured. This court held that in that instance, the insured did not have a duty to defend the remaining, non-released insured. We reasoned that because the policy relieved the insurer of its duty to defend any suit once it had paid its policy limits, the insurer was not obligated by its contract to continue to defend the additional insured after payment of the policy limits in settlement for its named insured.

927 So.2d at 21.

To date, only one published decision has cited Contreras v. U.S. Security Insurance Co., 927 So.2d 16 (Fla. 4th DCA 2006). In St. Paul Fire & Marine Ins. Co. v. Lexington Ins. Co., 19 Fla. L. WeeklyFed.D 544 (S.D. Fla. 2006), Club Boca had a GCL policy with Lexington that also named Arbern and Stoltz as additional insureds. In an equitable subrogation action by Arbern and Stoltz’s CGL carrier St. Paul, the court cited Contreras for the proposition that “Lexington as the primary carrier here was obligated to conduct the defense of all of its insureds in good faith, and, at a minimum, to give notice to St. Paul as the following carrier of the critical aspects of the case as it progressed. St. Paul, through its right of equitable subrogation, may accordingly maintain this action to contest the reasonableness of Lexington’s refusal to defend and indemnify Arbern and Stoltz at a time when both were named as party defendants in the Silva lawsuit, and the policy limits of the Lexington policy were fully intact.”

Thus, just as in the context of multiple claimants where the Florida courts have placed a duty upon the carriers to employ a reasonable settlement strategy for resolving claims by multiple claimants, the Florida courts impose a duty upon the carriers to employ a reasonable settlement strategy in the context of multiple insureds. The best way to achieve this is for the adjusters to take a proactive approach. As the court in General Sec. National Ins. Co. v. Marsh, 303 F.Supp.2d 1321 (M.D. Fla. 2004) explained:

Florida law provides that where multiple claims arise out of one accident the liability insurer may exercise its discretion in how it elects to settle claims, “and may even choose o settle certain claims to the exclusion of others, provided [that] this decision is reasonable and in keeping with its good faith duty.” In order to satisfy these requirements the insurer must: (1) fully investigate all claims arising from a multiple claim accident; (2) seek to settle as many claims as possible within the policy limit; (3) minimize the magnitude of possible excess judgments against the insured by reasoned claim settlement; and (4) keep the insured informed of the claim
resolution process.

303 F.Supp.2d at 1323.

This proactive approach netted the carrier a summary judgment in its favor in a bad faith lawsuit in General Sec. National Ins. Co. v. Marsh. The aim is to adhere to these principles of reasonable settlement strategy in a way the best benefits the insured.


Susan Lerner, Esq. is board certified by the Florida Bar as a specialist in Appellate Practice. You may contact Susan Lerner, Esq. via email at ssl@josephsjack.com

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