Florida Alert: Can a Liability Carrier be Sued for Bad Faith when Its Insured Was Not Exposed to Liability In Excess of the Policy Limits?

The Third District Court of Appeals finding recently held that in certain circumstances, a third party can maintain a bad faith claim against an insurer even if the insured is not exposed to liability in excess of the policy limits.  The insurer, claiming that the decision is in direct contradiction to established Florida Supreme Court precedent and other precedential decisions, petitioned the Florida Supreme Court to review the decision.  See Infinity Indemnity Insurance Company v. Delia Reyes, et al., Case No. SC17-659 (Florida, April 26, 2017).

The bad faith lawsuit arose out of an auto accident case.  Delia Reyes was involved in a car accident with Jorge Arroyo, Jr., who is now deceased.  Reyes filed a personal injury lawsuit against Arroyo’s estate in circuit court, rather than probate court.  The Arroyo estate tendered the lawsuit to its liability insurance company Infinity. Infinity declined to defend the lawsuit. Three years after the filing, Reyes entered into a consent judgment agreement with the Arroyo estate assigning its claim against Infinity for any bad faith in failing to defend the lawsuit, among other agreements. Reyes then proceeded to sue Infinity for bad faith.

After a round of procedural issues including Infinity’s intervention in the probate matter, the lower court granted summary judgment for Infinity which the Third District then reversed. Infinity has now petitioned the Florida Supreme Court for review, arguing that the Third District’s opinion is in direct contradiction with Florida precedent and alters long standing Florida law that a third party cannot bring a suit against an insurer unless their insured was subject to liability in excess of the policy limits.

Infinity’s initial premise is that a third party cannot maintain a bad faith claim when the insured was not exposed to liability above the policy limits. Infinity argues that because a two year statute of limitation under Florida Statute § 733.710 barred any claim in the probate court, and the consent agreement was entered three years after the decedent’s death, the estate was immune from any claim. As such, the estate, as the insured, was not exposed to liability above the policy limits and Reyes was precluded from filing a bad faith claim.

The Third District found this argument unpersuasive. The Court had held that while Reyes could not recover from the estate in probate court because the limitations period had expired, this limitation period did not apply to the circuit court, where the personal injury suit was brought and the consent judgment agreement entered.  Thus the Court held Reyes’ claim against Infinity was not time barred. Additionally, the Court held that Infinity’s failure to defend the estate in the underlying circuit court suit meant Infinity waived any right to assert a statute of limitations defense.

The decision authored by Judge Rothenberg was a 2-1 decision, and accompanied by a lengthy dissent from Judge Salter much more in line with Infinity’s arguments. The Florida Supreme Court has not yet opined, but their decision will likely impact the availability of third party bad faith causes of action where an insured has not been exposed to liability in excess of the policy limits.