Florida Supreme Court Attaches Causation Requirement to Cause of Action for Insurer Bad Faith

By Daniel P. Mitchell, Board Certified Civil Trial Lawyer

In Perera v. U.S. Fidelity and Guaranty Co.,35 So. 3d 893 (Fla. 2010), the Florida Supreme Court, answering a certified question from the 11th Circuit Court of Appeals, held that an insurer’s bad faith must cause damage to the insured, or expose the insured to liability in excess of all available policy limits. There, the insured had two primary policies (a CGL and a worker’s compensation/employer’s liability policy) with limits of $1 million over substantial deductible and SIR amounts, as well as a $25 million excess policy. When the claimant’s decedent was killed in an on-the-job accident, his widow sued, and USF&G, one of the primary carriers, denied coverage based on an intentional acts exclusion. The other primary insurer (Cigna), the excess insurer (Chubb), and the insured subsequently settled with the claimant for an amount exhausting the insured’s deductible/SIR amounts, Cigna’s primary policy, and an amount from Chubb that did not come close to its policy limit. The settlement also included a $5 million consent judgment against the insured that could be satisfied only via a judgment against USF&G.

The claimant then sued USF&G for breach of contract and bad faith. The U.S. District Court found against USF&G on the breach of contract claim, and ultimately on the bad faith claim, and USF&G appealed. The 11th Circuit certified the question concerning causation to the Florida Supreme Court, which concluded that the insured had no viable bad faith claim against USF&G, because there was other insurance available to the insured (via Chubb’s excess policy) through which the consent judgment might be satisfied.

The case is important because, in addition to the affirmation of the causation requirement, the Florida Supreme Court also (1) concluded that an insurer under an indemnity policy had a duty of good faith, and could be the subject of a Coblentz agreement, despite the fact that the insurer had no duty to defend; (2) affirmed a primary insurer’s duty of good faith to an excess carrier, even in the absence of an assignment from the insured; and (3) stated that an excess judgment is not a prerequisite to an action for bad faith against an insurer, as long as the insurer’s bad faith damaged the insured in some legally cognizable way.

NOTE: a causation requirement is implicit in cases like Fidelity and Casualty Ins. Co. of N.Y., 462 So. 2d 459 (Fla. 1985); however, no previous Florida Supreme Court case had overtly announced that causation was required. Can you provide me with a cite?

Furthermore, Cope and its progeny merely said that damages to the insured was a necessary element of the cause of action. In Cope, the claimant satisfied the excess judgment against the insured before the insured assigned the bad faith cause of action. One wonders if the logic of Cope and Vigilant Ins. Co. v. Continental Casualty Co., 33 So. 3d 734 (Fla. 4th DCA 2010), survive the impact of Perera. Indeed, it could be argued in the wake of Perera that even in a situation where the insured assigned the cause of action before receiving satisfaction of judgment, the release of the insured necessarily eliminated proximate cause and therefore destroyed the bad faith claim. This presumably unintended consequence may be far-reaching. In the next bad faith case I defend where the excess judgment has been satisfied, or where the insured has been released, I intend to make an argument based on Perera.