Editorial: Tinkering with bad faith puts citizens rights at risk
Jan 2, 2012
The following article was published in the Tampa Bay Tribune on January 2, 2012:
Tinkering with bad faith put citizens’ rights at risk
Granted, the nation has too much costly litigation, but citizens also should watch closely whenever lawmakers begin monkeying with their rights. Too often the politicians end up stacking the legal deck for special interests.
Legislation concerning “bad faith” in insurance is a case in point.
It seems reasonable to give a policyholder a deadline for suing an insurer who refused to settle a claim. But this law could make it very hard for citizens to challenge the industry.
Florida law now requires insurance companies to act in good faith when settling claims for their policyholders.
An insurer must accept a reasonable offer or else promptly tell the policyholder that it has turned down a settlement offer. If the company does not settle, the insured is liable for any damages that exceed the policy’s limits.
When damages are high and a proposed settlement is near policy limits, an insurance company would have little incentive to settle. If a later court judgment comes in even higher, the policyholder would be the one on the hook to cover the difference.
A large judgment could put the insured person out of business or take his personal savings.
Under current law, if a policyholder can prove that the insurance company acted in bad faith in refusing a reasonable offer, then the firm is held liable for the excess costs.
A bill offered by Rep. Kathleen Passidomo, a Naples Republican, would require someone claiming bad faith to notify the insurance company within 60 days of the alleged violation. The company could then address the violation and have a chance to negate the need for litigation.
This may sound reasonable, but a policyholder might not find out for several weeks that the insurance company refused a settlement offer. Lawyers also say it takes time for an individual to find out what has happened and contact an attorney. Then the lawyer needs time to find out whether the facts merit a legal challenge.
With the 60-day limit, citizens easily could lose the right to legal recourse before they even knew they have been wronged.
The bad faith provision, no doubt, is sometimes abused, driving up insurance companies’ costs.
Associated Industries of Florida, which supports the bill, calls the Florida civil justice system unbalanced and says, “One of the most egregious abuses in the system is denying a business and its insurers a reasonable time to settle a liability claim without litigation.”
The threat of litigation should not be interminable. But this legislative fix goes too far. The Florida Justice Association, which represents the legal profession, makes the more compelling case: “A policyholder should never face an excess judgment simply because the insurer failed to do the job it was paid premiums to do.”