In Florida, excessive judgment is when the judgment in the case exceeds the limits of the policy. The excess judgment rule requires an aggrieved plaintiff to obtain excess judgment before pursuing a bad faith claim against an insurer. Injured plaintiffs have turned to the courts to find out whether a settlement agreement that exceeds police limits can satisfy the excessive judgment rule. In the earlier Eleventh Circuit decision in Cawthorn v. Auto-Owners Ins. Co., No. 18-12067, 2019 WL 5491557 (11th Cir. Oct. 25, 2019), the court ruled that a jury verdict was a prerequisite for excessive judgment. However, in important news for insurers, the Eleventh Circuit recently reversed its earlier reasoning by hawthorn and hold in Erika L. McNamara, Willard F. Warren and Kenneth Bennett against GEICO, US Application 2022. LEXIS 9090 (11th Cir. Apr. 5, 2022) that a settlement agreement can satisfy the rule of excessive judgment.
The Earlier Eleventh Circuit Reasoning
In Capine, the validity of the aggrieved plaintiff’s bad faith claim depended on whether a $30 million consent judgment exceeding the insurer’s $3 million policy limits satisfied the excessive judgment rule. the hawthorn The court ruled that excessive judgment required a verdict by an investigator, not a stipulated consent judgment accepted by the parties. the hawthorn The court ruled that a contrary ruling would eliminate the protection afforded to insurers by the treachery rule and allow aggrieved parties to collude to undermine the insurance company‘s policy. the hawthorn The ruling was a clear victory for Florida insurers because it limited Florida’s bad faith excessive judgment rule to jury verdicts.
Eleventh Circuit’s broader view of what constitutes ‘overjudgment’
In Mc Namarathe Eleventh Circuit reversed its earlier reasoning in hawthorn and ruled that excess judgment may be based on a consent judgment that commemorates a private settlement agreement. the Mc Namara The court held that while demonstrating the existence of excessive judgment from a jury verdict is usually the easiest way to prove causation of bad faith, there is no unique to prove causation. the McNamara The court found that requiring a verdict as a precondition to excessive judgment would only encourage litigation and in direct violation of Florida public policy favoring settlement. the Mc Namara The decision is a victory for aggrieved parties because it expands Florida’s bad faith overjudgment rule to include agreed-upon settlements.
Takeaways for insurers
The Eleventh Circuit emphasizes the Mc Namara ruling will not leave insurance companies unprotected because the plaintiff in a bad faith action must still prove that the insurer breached its duty by acting in bad faith. In addition, a consent judgment will only be enforced against an insurer to the extent that the amount of the judgment is not unreasonable and is not tainted by bad faith on the part of the insured. Insurers should be prepared to investigate any bad faith claims based on consent judgments that exceed policy limits to ensure that the consent judgment resulted from an arm’s length compromise and was reached without the use of collusive measures.