Camp v. St. Paul Fire & Marine Ins. Co., 79712

• Decision Date: 04 February 1993
• Docket Number: No. 79712,79712
• Court: Florida Supreme Court
• Parties: 18 Fla. L. Week. S94 Anna Rue CAMP, et al., Plaintiffs-Appellants, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, Defendant-Appellee.

Page 12

616 So.2d 12

18 Fla. L. Week. S94

Anna Rue CAMP, et al., Plaintiffs-Appellants, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY Defendant-Appellee.

No. 79712.

Supreme Court of Florida.

Feb. 4, 1993.

Rehearing Denied April 13, 1993.

Talbot D'Alemberte, Adalberto Jordan and Jonathan Sjostrom of Steel, Hector & Davis, Miami, for plaintiffs-appellants.

Elmo R. Hoffman of Brownlee, Hoffman & Jacobs, P.A., Orlando, and Gus H. Small, Jr. and William James Reedy of Small, White & Morani, P.C., Atlanta, GA, for defendant-appellee.

Joel S. Perwin of Podhurst, Orseck, Josefsberg, Eaton, Meadow, Olin & Perwin, P.A., Miami, amicus curiae, for The Academy of Florida Trial Lawyers.

McDONALD, Justice.

In Camp v. St. Paul Fire & Marine Insurance Co., 958 F.2d 340, 344 (11th Cir.1992), the United States Court of Appeals for the Eleventh Circuit certified the following questions of law:

(1) WHETHER, AS A MATTER OF LAW, A NAMED INSURED'S BANKRUPTCY AND DISCHARGE FROM LIABILITY PRIOR TO EXPOSURE TO AN EXCESS JUDGMENT, SUCH THAT THE NAMED INSURED WAS NEVER PERSONALLY LIABLE FOR ANY AMOUNT OF THE JUDGMENT, PRECLUDES AN INJURED PARTY'S OR BANKRUPTCY TRUSTEE'S SUBSEQUENT BAD FAITH CAUSE OF ACTION AGAINST AN INSURANCE COMPANY.

(2) WHETHER, AS A MATTER OF LAW, THE LANGUAGE OF A BANKRUPTCY CLAUSE IN A PARTICULAR INSURANCE POLICY, SUCH AS THE LANGUAGE AT ISSUE IN THIS CASE, CAN AUTHORIZE AN INJURED PARTY'S OR BANKRUPTCY TRUSTEE'S BAD FAITH ACTION AGAINST AN INSURANCE COMPANY, NOTWITHSTANDING THE FACT THAT THE NAMED INSURED WAS NEVER PERSONALLY LIABLE FOR ANY AMOUNT OF AN EXCESS JUDGMENT DUE TO THE NAMED INSURED'S BANKRUPTCY.

We have jurisdiction pursuant to article V, section 3(b)(6) of the Florida Constitution. We conclude that a named insured's bankruptcy does not bar a bad faith action by the bankruptcy trustee.

This case arose out of a medical malpractice suit filed in late 1984 by Anna Rue Camp, the injured party, against Dr. Fariss Kimbell, the insured. St. Paul Fire and Marine Insurance Company issued a medical malpractice insurance policy to Dr. Kimbell with a policy limit of $250,000 per person injured. The policy contained the following language:

Once liability has been determined by judgement or by written agreement, the party making the claim may be able to recover under this policy, up to the limits of your coverage. But that party can't sue us directly or join us in a suit against the protected person until liability has been so determined. If the protected person or his or her estate goes bankrupt or becomes insolvent, we'll still be obligated under this policy.

In July 1986, Dr. Kimbell filed a Chapter 7 bankruptcy case in the United States Bankruptcy Court for the Northern District of Florida. Subsequently, Mrs. Camp's state lawsuit was halted pursuant to the automatic stay required by 11 U.S.C. Sec. 362 (1988).

Between the time that Mrs. Camp filed her malpractice suit in 1984 and the time that Dr. Kimbell filed his bankruptcy case in 1986, Mrs. Camp twice offered to settle with St. Paul for Dr. Kimbell's policy limits. Although St. Paul was aware of Dr. Kimbell's deteriorating financial position, it rejected both of Mrs. Camp's settlement offers. On September 19, 1986, after Dr. Kimbell actually filed for bankruptcy, St. Paul refused Mrs. Camp's third offer to settle.

The bankruptcy court granted a discharge order on November 26, 1986 that shielded Dr. Kimbell from any personal liability for claims pending against him as of the date of his bankruptcy filing. In April 1987, the bankruptcy court authorized Mrs. Camp to proceed with her suit for the purpose of liquidating her claim in the bankruptcy case. At the same time, however, the bankruptcy court specifically ruled that Dr. Kimbell would be not personally liable for any judgment Mrs. Camp obtained against him in her state court lawsuit.

In May 1987, Mrs. Camp tendered her fourth offer to settle for the policy limits, but St. Paul agreed to settle only for an amount lower than the $250,000 policy limit. When the settlement negotiations failed, the case proceeded to trial and the jury returned a verdict in Mrs. Camp's favor for more than three million dollars. ¹ The bankruptcy court issued an order that allowed the excess judgment to be classified as a general, non-priority unsecured claim against Dr. Kimbell's bankruptcy estate. Pursuant to section 55.145, Florida Statutes (1991), ² the state trial court granted Dr. Kimbell's motion for an order canceling and discharging the three-million-dollar judgment against him.

Mrs. Camp and Dr. Kimbell's bankruptcy trustee, John Venn, filed a bad faith action against St. Paul in state court, alleging that St. Paul failed in its obligation to settle the medical malpractice claim in good faith. The bad faith suit was ultimately removed to the United States District Court for the Northern District of Florida, and the district court granted summary judgment in favor of St. Paul. On appeal the United States Court of Appeals for the Eleventh Circuit found that this case involved issues of first impression under Florida law and, therefore, certified the questions now before us.

An insurer who assumes the defense of the insured also assumes a duty to act in good faith and with due regard to the interests of the insured. Boston Old Colony Ins. Co. v. Gutierrez, 386 So.2d 783 (Fla.1980). More specifically, in actions by third parties against the insured, the insurer must act in good faith and be diligent in its effort to negotiate a settlement. Auto Mutual Indemnity Co. v. Shaw, 134 Fla. 815, 184 So. 852 (1938). The insurer breaches its duty if it fails to act in good faith and the third party obtains a judgment against the insured for an amount in excess of the policy coverage. Id.

In the instant case, St. Paul contends that its alleged bad faith liability is extinguished because Dr. Kimbell was never harmed by or liable for the excess verdict. According to St. Paul, Dr. Kimbell was not affected by the excess...