Florida Courts have confronted consent judgments with a covenant not to execute in cases in which liability carriers have refused to defend their insureds. The judgment can only be enforceable against the carrier if it is not infected with an unreasonable amount and with bad faith (stand-ins for the traditional disqualifying conditions of "fraud and collusion") in the negotiations that produced it.
A Federal appellate Court has defined the "bad faith" prong of the disqualifying set of "unreasonable and in bad faith," in these terms:
Under Florida law, such agreements are unenforceable against insurers if tainted by fraud or collusion. To determine whether fraud or collusion exists, we look to whether the settlement amount was unreasonable and whether the negotiations were conducted in bad faith. Substantial evidence exists to support the district court's determination, after a bench trial, that the negotiations were conducted in bad faith when [the policyholder] agreed to stipulate to a judgment in an amount of [the claimant's] choosing so long as [the claimant] agreed never to execute against it. We thus affirm the district court's judgment that the settlement agreement cannot be enforced against Travelers.
Sidman v. Travelers Cas. & Sur. Co., No. 15-15197, 2016 WL 6803034, *1 (11th Cir. November 17, 2016) (emphasis added).
The italicized language was conclusive on the subject of bad faith, and bad faith alone was enough for the Federal appellate Court. "[W]e affirm on the ground that the settlement agreement was negotiated in bad faith, without the need to consider whether the settlement was reasonable in amount."
On another note, the appellate court held that even though The Travelers was aware of the impending consent judgment and its covenant not to execute, nonetheless the liability carrier could challenge the agreement:
Thus, an insurer may challenge a Coblentz agreement as fraudulent or collusive notwithstanding its prior notice of and opportunity to challenge the agreement. The district court properly applied the Coblentz framework in considering whether the settlement was unreasonable in amount and negotiated in bad faith—proxies for fraud or collusion—and did not err in allowing Travelers to challenge the settlement agreement.
Sidman v. Travelers Cas. & Sur. Co., No. 15-15197, 2016 WL 6803034, *7 (11th Cir. November 17, 2016).
Parenthetically, Federal Courts like the one which decided this case typically name such agreements "Coblentz agreements" after the case in which they first appeared in Federal Court. Florida State Courts do not use that name very often, ordinarily preferring to describe such an agreement in terms of what it is: an agreement for a consent judgment between a claimant and an insured where the carrier has refused to defend the insured. As a part of their agreement, the claimant and the insured also agree to a covenant not to execute the consent judgment upon the insured. The claimant pursues the insured's assigned rights against the liability carrier.
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