Claims and Bad Faith Law Blog

THE DESPERATE DISTRACTION OF "COMPARATIVE BAD FAITH."

Research to date has not disclosed a single case of alleged insurer bad faith in settlement (or alleged insurer bad faith in anything else), in which a court held in favor of a defense of comparative bad faith.  (Florida and perhaps one other State has apparently tried to enact the defense by statute, but no reported cases have yet been found in which the statute(s) reached the courts.)

The reasons given by the courts have included (1) the nearly universal fact that an insured's breach of good faith gives rise to a contract claim against that insured; (2) various kinds of insured misconduct will void insurance coverage, in which event there would be no insurer bad faith in settlement because there would be no coverage under the policy at issue, and (3) if the insured's bad faith falls to the level of fraud, it gives rise to a lawsuit against that insured for fraud.  These are protections which the courts have generally recognized as belonging to liability insurance carriers in this country, even without a defense of so-called comparative bad faith.

Of all the decisions rejecting such a defense by carriers presumably weary not so much of their own bad-faith behavior in settlement, but of paying damages beyond policy limits, perhaps the best explanation that this defense simply does not and cannot exist is the explanation given by the Supreme Court of California in 2000 in the case of Kransco v. American Empire Surplus Lines Ins. Co.[1]:

          We observe that rejection of comparative bad faith in this context does not leave the insurer without remedies for an insured’s breach of the covenant of good faith and fair dealing. Evidence of an insured’s misconduct may factually disprove the insurer’s liability for bad faith by showing the insurer acted reasonably under the circumstances.  [Citations omitted.]   The insured’s breach of the covenant of good faith and fair dealing is also separately actionable as a contract claim.  [Citation omitted.]   Some forms of misconduct by an insured will void coverage altogether under the insurance policy. [Citation omitted.]  Of course, without coverage there can be no liability for bad faith on the part of the insurer. [Citation omitted.]  And, ... an insured’s fraudulent misconduct is separately actionable and can give rise to tort damages. These remedies adequately serve to protect an insurer from the insured’s misconduct without creating the logical inconsistencies and troublesome complexities of a defense of comparative bad faith.[2]

Case law on the issues discussed in this article is collected from third-party decisions in Volume 1 of the Third Edition of LITIGATION AND PREVENTION OF INSURER BAD FAITH § 5:27.50, Comparative Bad Faith (Thomson Reuters West Publishing Co., with 2025 Supplements in process), and in Volume 2, § 11:16.50, Comparative Bad Faith, collecting first-party cases.

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[1] Kransco v. Am. Empire Surplus Lines Ins. Co., 23 Cal. 4th 390, 2 P.3d 1, 97 Cal. Rptr. 2d 151 (Cal. 2000).

[2] Kransco, 23 Cal. 4th at 408, 2 P.3d at 13-14, 97 Cal. Rptr. 2d at 164-65 (emphasis by the Court).

 

THERE IS NO "BAD FAITH SETUP PROBLEM" ....

....THE "BAD FAITH SETUP PROBLEM" DOESN'T EXIST.  AND COMPARATIVE BAD FAITH IS NO SOLUTION. 

Sadly, the "bad faith setup" has always been a myth.  It is sad because some part-time legislators in various States are being convinced to vote for solutions written by insurance companies to solve a nonexistent problem.  They could spend their time actually doing good work, but they spend their time on this.

    A federal judge summarized the Florida law of bad faith precedent in terms almost universally descriptive of bad faith law in United States jurisdictions.  Juries and judges almost always take the insured's and the claimant's conduct into account in first-party and third-party bad faith cases alike:  

            This inquiry looks at the facts of each case and at the "totality of the circumstances." [Citations omitted.]  The proper focus of the inquiry is on the actions of the insurer rather than on the actions of the insured, the claimant, or the claimant's attorney.   Thus, when the evidence clearly establishes the insurer acted in bad faith, the insurer may not escape liability merely because the insured or the claimant may have contributed to the failure to settle the claim. [Citation omitted.]  At the same time, while the focus is on the insurer's conduct, the conduct of the insured or the claimant is relevant as part of the totality of the circumstance.[1]

Under Florida law the insurance carrier received a summary judgment of no bad faith under the facts of this case.  So it has been since bad faith law was imported into Florida no later than 1938.

This changed in 2023 in Florida, from which we will take our lead example.  This quotation represents a bygone era in the bad faith inquiry in Florida cases.  In future articles, we will take a look at the Florida example of inventing comparative bad faith in the legislature when no judge who confronted the idea ever did anything other than reject it. 

To be continued ....

[1] Wiseman v. Progressive Paloverde Ins. Co., No. 8:21-cv-2743-TPB-AAS, (M.D. Fla. Dec. 22, 2023 (italics by the Court, boldface added), app. voluntarily dismissed, No. 24-10187, 2024 WL 3436239 (11th Cir. May 7, 2024).

Please read the disclaimer.  ©2024 Dennis J. Wall.  All rights reserved.