Does the insurer act in bad faith when there is no excess judgment against the insured? Further, is there bad faith when the insurer's actions never resulted in the insured's increased exposure to liability for more than the policy limits? These two issues confronted the Eleventh Circuit in Perera v. United States Fidelity and Guaranty Co., No. 06-00688-CV-T-23 (11th Cir. Oct. 9, 2008).
Perera was crushed to death by a piece of equipment while on the job site. His employer, Estes Express Lines Corp., held three insurance policies: (1) a workers' compensation liability policy issued by United States Fidelity & Guaranty with a $1 million limit after an self-insured retention of $350,000; (2) a CGL policy issued by Cigna with a $1 million limit and $500,000 deductible; and (3) an excess liability policy issued by Chubb with limits of $25 million.
Perera's wife sued Estes. Perera, Estes, Chubb and Cigna eventually reached a settlement of $10 million. Five million of this was to come from a bad faith lawsuit against USF&G which Estes assigned to Perera. Perera sued USF&G for breach of contract and bad faith. The district court granted summary judgment to USF&G on the bad faith claim, holding that without an excess judgment against the insured, there was no cause of action for bad faith.
On appeal, the Eleventh Circuit agreed there was no excess judgment against the insured. To constitute an excess judgment, a judgment of more than $25 million would be required. The court noted at least two Florida cases indicated that an excess judgment is not an essential part of a bad faith claim. See N. Am Van Lines v. Lexington Ins., 678 S.2d 1325, 1333 (Fla. Dist. Ct. App. 1996); Swamy v. Caduceus Self Ins. Fund, Inc., 648 So.2d 758, 759 (Fla. Dist. Ct. App. 1994). Given the lack of clarity regarding the necessity of an excess judgment to a bad faith cause of action, the Eleventh Circuit sought guidance from the Florida Supreme Court. The following question was certified:
Can a cause of action for bad faith against an insurer be maintained when there is not an excess judgment against the insured?
USF&G also argued that even if an excess judgment was not required, Perera's bad faith claim was barred because Estes was never exposed to liability in excess of limits of liability in its several policies. Accordingly, a second question was certified to the Florida Supreme Court:
Even if an excess judgment is not always required, can a cause of action for bad faith be maintained when the insurer's actions never resulted in increased exposure on the part of the insured to liability in excess of the policy limits of the insured's policies?
We will watch for the Florida Supreme Court's response to these issues.
