Florida High Court Clarifies Uninsured Motorist Bad Faith Principles

The Florida Fifth Circuit Court of Appeals issued a ruling that the determination of the full extent of damages in an uninsured motorist bad faith case should be adjudicated in the subsequent bad faith lawsuit rather than in the UM action itself. See Safeco Ins. Co. of Illinois v. Fridman, 117 So.3d 16, 19-20 (Fla. 5th DCA 2013). The Florida Supreme Court accepted review of the Fifth District Court of Appeals decision and found that the Court of Appeals decision conflicted with a long line of cases from the Florida Supreme Court holding that a determination of liability and the full extent of damages in a UM context is a prerequisite to a bad faith cause of action. See, e.g., Vest v. Travelers Ins. Co., 753 So.2d 1270, 1275 (Fla. 2000); Imhof v. Nationwide Mut. Ins. Co., 643 So.2d 617, 619 (Fla. 1994), receded from on other grounds, State Farm Mut. Auto Ins. Co. v. Laforet, 658 So.2d 53, 63 (Fla. 1995); Blanchard v. State Farm Mut. Auto Ins. Co., 575 So.2d 1289, 1291 (Fla. 1991).

The Florida Supreme Court in Fridman v. Safeco Ins. Co. of Illinois, 185 So.3d 1214 (2016) held that an insured was entitled to a determination of liability and the full extent of his or her damages in the uninsured motorist action before first filing a first party bad faith action. The determination of the insured’s full damages would then be binding, as an element of damages, in the subsequent first party bad faith action against the same insurer provided that the party had the right to appeal any properly preserved errors in the verdict.

The Court found that nothing in its prior precedent suggested that the eventual tendering of policy limits by the insurer would render a UM case moot. This was so because the UM trial involved more than just a determination of whether the insurer owed the insured the UM policy limits. The UM trial also includes a determination of whether the uninsured or underinsured driver is liable in the full extent of the insured’s damages. The Court in Fridman acknowledged that insureds were not obligated to obtain a determination of liability in the full extent of his or her damages through a trial and could utilize other means of doing so such as an agreed settlement, arbitration, or stipulation before initiation of a bad faith cause of action. The Court found that just because these alternatives are available does not change the insured’s entitlement to a determination of liability in the full extent of damages in the first instance. For that reason the Florida Supreme Court concluded that insureds are entitled to a determination of liability and the full extent of his or her damages in the UM case prior to the filing of a first party bad faith case.

The next issue addressed by the Court was the binding effect of the UM verdict or determination of damages on the first-party bad faith trial. The Court found it obvious that the UM verdict to which the insured is entitled was binding in the bad faith action.

Because a determination of the full extent of the insured’s damages is one of the prerequisites to a bad faith cause of action, to preclude a UM verdict in excess of the policy limits from being used in the bad faith case would force the parties to relitigate the issue of damages a second time prior to the bad faith trial. This would be an obvious waste of judicial and litigant resources. It would also result in serious, unintended consequences, such as “running the almost-certain risk of inconsistent verdicts; potentially raising comity issues between state and federal courts; creating a discrepancy … between first- and third-party bad faith claims; placing an inexplicable burden on plaintiffs to prove their cases twice; and causing a great deal of judicial inefficiency.”

The Court noted that if the amount of the UM verdict was not binding as an element of damages in the bad faith litigation, it would allow the insurer—or the insured, if the verdict were less than anticipated—a second bite at the proverbial apple.