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A recent Florida case sounds like an ominous warning for carriers. The issue was whether or not a carrier’s insistence on protecting a lienholder on a $10,000 settlement check provided sufficient grounds for an $8 million bad faith award. For a Jacksonville, Florida jury, the answer was an emphatic “Yes.”
While this trial court decision in January 2018 is subject to post-trial motion practice and then potentially an appeal, Whitney v. Mercury Insurance nevertheless serves as a warning for carriers doing business in Florida.1 The issue it raises: How can a carrier tender a policy limit in a timely way and protect a lienholder’s rights without being in bad faith?
The case had tragic facts. In 2011, Plaintiff Kevin Whitney, 23 and a new father, was riding in the backseat of a car with friends. The front-seat passenger Aaron Ensley jerked the wheel and caused a crash that rendered Whitney paralyzed.
Ensley’s insurer, Mercury, issued a check for the $10,000 limit to Whitney and his counsel within a month of the crash. Whitney then discharged his counsel, with his mother receiving the case file. She signed the release and asked Mercury if she could cash the check. Instead, Mercury re-issued the check to Whitney and the lien-protected public hospital where he had received treatment.
Whitney’s mother wrote to Mercury and asked that the hospital’s name be removed from the check, stating that Medicaid was paying for her son’s care. Mercury responded that while it could take the hospital’s name off the check, it still could be asked to protect the Medicaid lien. (Whitney’s mother later disputed being told this.) She then returned the check and filed suit against Ensley. That personal injury case ended in 2015 with an $8 million consent judgment.
In 2016 a law firm brought a bad faith suit on behalf of Kevin Whitney. These lawyers argued that Mercury acted in bad faith by not protecting Ensley from the exposure in 2011, and by putting the public hospital's name on the check because it knew that under Florida law a lienholder could only recover the policy limit, in this case $10,000. Further, the plaintiff's firm argued that because Ensley had limited assets, Mercury should have focused on protecting its insured from Whitney’s claim as this was the greatest exposure.
In response, Mercury argued that the letter from Whitney's mother in 2011, which sought the hospital’s name be removed from the check, was not a demand but a question. In addition, because the plaintiff had already signed and returned the release in 2011, Mercury thought the case had in fact been settled. Damages recoverable under the bad faith suit include recovery of the excess judgment.
The decision in January 2018, that Mercury acted in bad faith and there were sufficient grounds for an $8 million bad faith award, serves as a good reminder for those faced with problematic issues in difficult venues. With that in mind, we recommend our clients revisit these three reminders for good claims management:
1. Treat the claim file as a business record. Business records may be discoverable in a future bad faith suit. Document all conversations with policyholders and claimants. Follow up in writing on all settlement demands and offers. Refrain from making disparaging remarks about any person, and keep all descriptions objective.
2. Engage competent counsel to represent your company in any case in which you feel bad faith exposure exists. Know what you don’t know. Seek the expertise you need; don’t be pennywise with loss adjustment expense and pound foolish with bad faith exposure.
3. Keep a log of all Time-Limited Demands (TLDs) and the deadlines under which to respond. Make sure claims management oversees maintenance of that log - and that senior managers are directly involved in all TLD cases that carry excess exposure.
Simple processes not regularly checked can be problematic. As always, please reach out with any questions or to share your thoughts about this case.
