Immediate Offer of Policy Limits Rejected by Plaintiff’s Lawyer Seeking a Bad Faith Case
Prompt Offer of Policy Limits is Good Faith Claims Handling
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Posted on September 27, 2021 by Barry Zalma
After a serious auto vs. motorcycle the auto’s insurer promptly offered to settle a bodily injury claim for the $50,000 policy limits within weeks of the accident. Pointing to overbroad language in a suggested release form, which the insurer made clear it was willing to modify, the claimant rejected the offer and insisted on a trial. After a stipulated judgment of $14,900,000 the plaintiffs sought to enforce the judgment against the insurer. In Raul A. Pelaez, as Limited Guardian of the Person and Property of John Poul Pelaez, ward, and Michael Adam Conlon, Jr. v. Government Employees Insurance Company, No. 20-12053, United States Court of Appeals, Eleventh Circuit (September 20, 2021) the Eleventh Circuit determined that good faith claims handling resolves claims of the tort of bad faith.
FACTS
On April 13, 2012, Michael Conlon had just turned eighteen and was driving his mother’s car to the high school prom when he turned into a median and in front of John Pelaez who was on a motorcycle. The motorcycle hit Conlon’s car with such force that it spun the car 180 degrees, and the impact injured Pelaez seriously enough that he was airlifted to the hospital. GEICO had issued Conlon’s mother a policy covering her car and Conlon as an additional driver. From the scene, Conlon reported to GEICO that there had been an accident damaging the car and it needed to be towed. He didn’t report at that time there had been any injuries.
On April 23, which was ten calendar days after the crash and seven days after GEICO assigned an adjuster to work the claim, it received a letter of representation from Pelaez’s attorney. On April 24, the very next day and only eleven days after the crash, GEICO decided to proactively tender to Pelaez its bodily injury policy limit of $50,000, even though it had not received a settlement demand from Pelaez’s attorney.
The next day, April 26, which was thirteen calendar days (nine business days) after the accident, a GEICO field adjuster hand delivered to Pelaez’s attorney’s office a bodily injury claim “tender package.” The package contained: a cover sheet that listed the package’s contents and described an enclosed check as “representing tender of the per person policy limit under Bodily Injury Liability coverage”; a $50,000 check inscribed with the notation “[t]ender of per person BI limits”; and a proposed form release of “all claims.”
In his letter rejecting the settlement offer, Pelaez’s attorney told GEICO that Pelaez and his parents had decided to sue Conlon and his mother instead of settling because GEICO had tried to take advantage of the Pelaez family with an overbroad release. He noted the “GEICO approved form release” was for “all claims” instead of just “the claims that [GEICO was] paying for” because it didn’t contain a “reservation for property damage,” despite GEICO’s sophistication and ability to draft narrower release language.
GEICO received the rejection letter the following Monday, May 7, and on May 8 told Conlon’s mother its efforts to settle with Pelaez had been unsuccessful. On May 9 GEICO responded to the rejection letter, expressing confusion about why the Pelaez family and their attorney thought its tender of the $50,000 bodily injury policy limit also included the property damage claim when the company had “made multiple attempts” by phone and in writing “to ascertain the location” of Pelaez’s motorcycle so that it could estimate the damage and adjust that claim but had never “received a call back with the motorcycle’s location” or even any acknowledgement of its “communication attempts.”
Five months after the crash the Pelaez family sued Conlon and his mother. A month after that, Pelaez and GEICO agreed to settle the property damage claim for $7,283.06. Three-and-a-half years later, while the negligence litigation was ongoing, GEICO declined to enter a stipulated judgment with the Pelaez family, Conlon, and Conlon’s mother.
Nearly two years after that, on the fifth day of the negligence trial involving the collision, the court entered a final judgment that Pelaez and Conlon had consented to. The judgment awarded Pelaez $14,900, 000 against Conlon but stipulated that Pelaez “shall not” record the judgment or try to collect it from Conlon; instead, Pelaez would “seek satisfaction . . . solely from insurance proceeds, including from claims of ‘bad faith’ or extra-contractual damages.”
Pelaez and Conlon then sued GEICO and both sides eventually moved for summary judgment. The district court granted it to GEICO on two grounds, one of which was that no reasonable jury could conclude GEICO had acted in bad faith.
ANALYSIS
An insurer, in handling the defense of claims against its insured, has a duty to use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business. Florida’s bad faith law is designed to protect insureds who have paid their premiums and who have fulfilled their contractual obligations by cooperating fully with the insurer in the resolution of claims.
Where “liability is clear, and injuries so serious that a judgment in excess of the policy limits is likely, an insurer has an affirmative duty to initiate settlement negotiations. The focus in a bad faith case is not on the actions of the claimant but rather on those of the insurer in fulfilling its obligations to the insured. For that reason, a claimant’s actions cannot let the insurer off the hook when the evidence clearly establishes that the insurer acted in bad faith in handling the insured’s claim.
Not only did GEICO never require an overbroad release to settle but it offered to accept changes to the release or even let Pelaez’s attorney draft an entirely new one himself.
The district court agreed with GEICO that the overbroad release did not create a fact question under the totality of the circumstances of this case, and we agree with the well-reasoned holding of the district court. As the district court convincingly explained, what came before and after GEICO sent Pelaez’s attorney the overbroad release demonstrates that the company fulfilled its duty to act in good faith.
On behalf of the Pelaez family, their attorney rejected the tendered $50,000 check to settle the bodily injury claim, a check that was inscribed “Tender of per person BI limits.” And the check had come in a settlement package that included a cover sheet describing it as “representing tender of the per person policy limit under Bodily Injury Liability coverage.” Despite the fact that the settlement package emphasized that the language of the release was simply proposed, not insisted on, and told Pelaez’s attorney to feel free to send the company “any suggested changes, additions or deletions” he wanted or, if he preferred, to draft an entirely new release himself.
What the before, during, and after facts show here is that, as the district court aptly concluded, GEICO did not act in bad faith in sending the unsolicited proposed release with the tender of the $50,000 BI policy limits under the circumstances of this case. In this case GEICO not only offered to change any problematic language but to let Pelaez’s attorney re-draft the release if he preferred. It would have been a simple thing for the attorney to do, but it is also the last thing he wanted to do.
Pelaez’s attorney declined the offer to cure any problem with the release because he had higher goals to pursue. Pelaez’s attorney described what he saw as GEICO’s “taking advantage of people” using overbroad releases as “just wrong” and said his decision not to tell GEICO what he wanted in the release came from the Pelaez family’s desire “to effectuate change, do the right thing.” The wellbeing of humankind was the reason he and his clients rejected GEICO’s efforts to settle. Okay, but that does not establish that GEICO acted in bad faith.
The conduct of Pelaez and his attorney’s show how, in the totality of these circumstances, GEICO did fulfill its good faith duty to Conlon and his mother. They show how the failure to settle the lawsuit against the insureds did not result from bad faith of the insurer.
Because no reasonable jury could conclude that GEICO acted in bad faith before, during, or after sending the proposed release to Pelaez, summary judgment was appropriately entered for it.
ZALMA OPINION
This is a clear case of abuse of the tort of bad faith by a plaintiff and the plaintiff’s lawyer who attempted to create a bad faith action by claiming he was not acting for his client but for the world of people with claims against GEICO insureds. GEICO did everything it could to protect its insured, delivered a check for its full limits less than a month after the accident and offered to pay the property damage after counsel let GEICO see the damaged motorcycle, was an act of bad faith. Because of the conduct of counsel GEICO paid to defend its insured and was obviously damaged by the bad faith conduct of the plaintiff and its counsel. Such conduct should be punished but the tort of bad faith only goes in one direction.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.
He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.
He is available at http://www.zalma.com
and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
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