Florida Lawmakers Attempt to Rein in ‘Bad Faith Set-Ups’

By Denise Johnson | January 30, 2012

Florida lawmakers are hoping to rein in plaintiff attorneys’ attempts to trap insurance claims adjusters in bad faith situations.

A bill (HB 427) currently under review by Florida’s House of Representatives would require plaintiffs to give the insurer and state regulators 60 days advance written notice that they intend to file a bad faith claim.

The bill is a “well-intended effort” by the Florida legislature to address “bad faith set-ups,” according to Scott Kirschbaum, an insurance defense attorney and partner at the Florida-based Schwartz & Kirschbaum law firm.

Kirschbaum said that a ‘bad faith set-up,’ as it has come to be known, occurs when a plaintiff’s attorney sends a policy limits demand to an insured or its insurer containing a unilaterally-imposed deadline, typically 10 days, for the insurer to pony up its policy limits under threat of a bad faith action against it if an excess judgment is obtained.

The problem is that these demands do not give the adjuster enough information to evaluate the claim.

“These policy limits demands generally contain little to no supporting factual statements or documentation and usually state no supporting legal basis,” said Kirschbaum. “They have historically been sent to insurers prior to suit being commenced or at the very beginning stages of litigation, when there has been no ability to conduct formal discovery. This has been a practice that has been improperly condoned in my opinion for many years by numerous courts in Florida.”

According to Kirschbaum, Florida courts are beginning to recognize that “bad faith set-ups” put insurers between a rock and a hard place when it comes to negotiating fair settlements.

HB 427 would codify what courts are beginning to recognize. It would require that the party filing the action must first provide the Department of Insurance and the insurer prior written notification within a specified number of days.

The bill states, “As a condition precedent to bringing an action either under this section or based on the common law claim of bad faith, the department and the authorized insurer must be given 60 days written notice of the violation. If the department returns a notice for lack of specificity, the 60 day time period shall not begin until a proper notice is filed.”

The notice must contain:

1) The statutory provision or common law duty, including the statutory language, violated by the insurer.

2) A description of the facts and circumstances causing the violation and the amount of money the insurer failed to pay.

3) The names of persons involved in the violation.

4) The policy language relevant to the violation unless the action is brought by a third party claimant, then it shall not be required to reference the specific policy language if the insurer has not provided a copy of the policy pursuant to written request.

5) A statement the notice is given in order to perfect the right to pursue the civil remedy authorized by this section or by the common law.

The bill proposes that if the damages are paid or violations corrected in relation to bad faith allegations within 60 days of filing the notice, no action can be pursued and the insured is entitled to a general release from the claimant upon the insurer’s tender of the demanded amount in the notice or the applicable policy limits.

The period within which insurer must report on the disposition of the alleged violation remains the same. The statute of limitation tolls for 65 days by the mailing of the notice.

HB 427 is identical to Senate Bill 1224. That bill is also pending further review.

“I think overall, House Bill 427 is a step in the right direction towards a more even and level playing field in the area of Florida bad faith law,” Kirschbaum said. “It will hopefully curtail the policy limits demand practices of many plaintiff lawyers here in Florida. At a minimum, it will hopefully force them to be a little bit more intellectually honest about the demands they serve and more forthcoming with information to support them.”

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