Perera v. United States Fid. And Guar. Co., SC08-1968.

• Decision Date: 06 May 2010
• Docket Number: No. SC08-1968.,SC08-1968.
• Citation: 35 So.3d 893
• Parties: Pamela PERERA, Appellant,v.UNITED STATES FIDELITY AND GUARANTY COMPANY, Appellee.
• Court: Florida Supreme Court

35 So.3d 893

Pamela PERERA, Appellant,v.UNITED STATES FIDELITY AND GUARANTY COMPANY, Appellee.

No. SC08-1968.

Supreme Court of Florida.

May 6, 2010.

Charles P. Schropp and Charles M. Schropp of Schropp Law Firm, P.A., Tampa, Florida, and Dennis G. Diecidue of The Diecidue Law Firm, P.A., Tampa, Florida, for Appellant.

Jack R. Reiter and Jordan S. Kosches of Adorno and Yoss, LLP, Miami, Florida, for Appellee.

Mark Hicks, Dinah Stein, and Brett C. Powell of Hicks, Porter, Ebenfeld and Stein, P.A., Miami, Florida, on behalf of Florida Insurance Council; George N. Meros, Jr. and Andy Bardos of GrayRobinson, P.A., Tallahassee, Florida, and Robin S. Conrad, Washington, D.C., on behalf of Florida Justice Reform Institute and Chamber of Commerce of the United States of America; and William D. Horgan of Quintairos, Prieto, Wood and Boyer, P.A., Tallahassee, Florida, and Laura A. Foggan of Wiley, Rein and Fielding, LLP, Washington, D.C., on behalf of American Insurance Association and Complex Insurance Claims Litigation Association, as Amici Curiae.

PARIENTE, J.

This case, pending in the federal court, involves interpretation of Florida law on third-party bad-faith causes of action in insurance cases. We have jurisdiction because the Eleventh Circuit Court of Appeals certified two questions,¹ which are “determinative of the cause and for which there is no controlling precedent.” Art. V, § 3(b)(6), Fla. Const.

Although in this case the Eleventh Circuit has asked us broad questions regarding common law bad-faith cause of actions under Florida law, we have determined that, based on the unique circumstances of this case, the answer to whether the appellant, Pamela Perera (“Perera”), has an actionable bad-faith case against appellee, United States Fidelity and Guaranty Company (“USF & G”), allows for a more narrow framing of the question:

MAY A CAUSE OF ACTION FOR THIRD-PARTY BAD FAITH AGAINST AN INDEMNITY INSURER BE MAINTAINED WHEN THE INSURER'S ACTIONS WERE NOT A CAUSE OF THE DAMAGES TO THE INSURED OR WHEN THE INSURER'S ACTIONS NEVER RESULTED IN EXPOSURE TO LIABILITY IN EXCESS OF THE POLICY LIMITS OF THE INSURED'S POLICIES?

The jury in this case found that USF & G acted in bad faith and that finding is not controverted. The issue raised by the rephrased certified question is whether the insured sustained recoverable damages as the result of the bad faith. We answer the rephrased certified question in the negative because, based on the facts of this case, the insurer's actions neither caused the damages claimed by the insured nor resulted in exposure of the insured to liability in excess of the policy limits of the insureds' polices.

FACTS AND PROCEDURAL HISTORY ²

Perera's husband, Mitchell Perera, an employee of Estes Express Lines Corporation (“Estes”), was crushed to death by a piece of equipment during the course of his employment. As the personal representative of his estate, Perera filed a wrongful death suit against Estes and specified named employees of Estes (“employees”) in Hillsborough County Circuit Court (“state trial court”).

At the time of Mitchell Perera's death, Estes maintained three insurance policies: a commercial liability policy (insuring only the employees of Estes) issued by Cigna Property and Casualty Insurance Company (“Cigna”) with a limit of $1 million, subject to a $500,000 deductible; an excess worker's compensation employer's liability policy (insuring only Estes) issued by USF & G with a limit of $1 million after Estes' self-insured retention of $350,000; and an umbrella excess liability policy (insuring both Estes and its employees) issued by the Chubb Group of Insurance Companies (“Chubb”) with a limit of $25 million. All three policies required Estes to provide its own defense.

After learning of Perera's lawsuit, USF & G denied coverage, asserting that the intentional acts exclusion contained in the USF & G policy precluded coverage of Perera's claim against Estes.³ In March 2001, Perera formally demanded $12 million to settle the case. About a week later, Perera, Estes, and the three insurance companies met to mediate the case. During mediation, when USF & G insisted on its coverage defense and refused to tender its policy limits of $1 million, USF & G was asked to leave the mediation. At mediation, Cigna offered $500,000 (representing the policy limits of $1 million minus Estes' $500,000 deductible), Estes offered $750,000, and Chubb offered $1.25 million. However, the last demand from Perera was $8 million, and the case failed to settle at mediation.

In the months that followed, Chubb took an active role in handling the settlement negotiations. According to trial testimony and correspondence written by Chubb, after mediation Perera had demanded $8 million in total to settle the case and Chubb offered $3.5 million. There is some indication that USF & G was willing to participate in a settlement by contributing $100,000 but that it continued to rely on its coverage defense in declining to offer its policy limits. Then, in early August 2001, Perera demanded $7 million in total and Chubb offered $4.25 million for a global settlement to settle the entire case, provided that the right to seek indemnity, contribution, or reimbursement from USF & G be preserved.

In late August 2001, Perera, Estes, and its employees entered into a “Stipulation to Settle” for $10 million.⁴ The stipulation provided that Estes and its employees would pay $5 million and provide a written waiver of the workers' compensation lien. Although not stated in the stipulation, the negotiated settlement provided that the $5 million would be paid as follows: $750,000 from Estes,⁵ $500,000 from Cigna, and $3.75 million from Chubb. The remaining $5 million was to be sought in a lawsuit against USF & G, which Estes agreed to either bring or assign to Perera. Perera agreed in the settlement not to execute or record the judgment pending resolution of the lawsuit against USF & G. Perera further agreed that she would issue a satisfaction of judgment at the conclusion of the lawsuit, even if the suit did not result in the recovery of any additional proceeds.

In accordance with the provisions in the stipulation, the state trial court held a limited evidentiary hearing for the purpose of determining that the stipulation was entered “in good faith” and that the amount of the settlement was reasonable. After finding that the settlement was in good faith and that the amount of the settlement was reasonable, the state trial court approved the stipulation. Pursuant to the terms of the stipulation, a final judgment was then entered in the amount of $10 million against Estes and its employees.

After the approval of the settlement and the entry of the judgment, Perera was paid $5 million total by Estes, Cigna, and Chubb, each in accordance with the amount previously agreed to as part of the settlement. Perera executed a release of any further claims against Chubb.

In March 2002, Perera, as Estes' assignee, brought suit in the state trial court against USF & G for the remaining $5 million of the consent judgment, asserting two causes of action: breach of contract (seeking recovery of the $1 million policy limits) and bad faith (seeking recovery of the remaining balance). USF & G removed the case to federal court, after which the federal district court granted summary judgment in favor of Perera on the breach of contract claim, requiring USF & G to pay its policy limit of $1 million. USF & G has not challenged the decision regarding coverage and has paid $1 million, leaving $4 million of the consent judgment outstanding.

With regard to the bad-faith cause of action, the federal district court found that no bad-faith action existed because Estes still had over $21 million in insurance coverage from Chubb at the time of settlement. The district court entered summary judgment in favor of USF & G, holding that without an excess judgment there can be no cause of action for bad faith. Perera appealed the district court's decision to the United States Court of Appeals for the Eleventh Circuit. The Eleventh Circuit determined that the threshold factual issue of whether USF & G acted in bad faith held the potential to moot the case and remanded to the federal district court to have a jury consider that limited issue.

At trial in the federal district court, the jury instructions contained stipulated facts, including that the $10 million consent judgment was reasonable in amount. The jury was instructed that “[a]n insurance company acts in bad faith in failing to settle a claim when, under all of the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured with due regard for its interests.” The jury was given the following factors to evaluate in determining whether USF & G acted in bad faith: (1) “the efforts taken by USF & G to resolve the coverage dispute promptly or in such a way as to limit any potential prejudice to Estes”; (2) “the substance of the coverage dispute or the weight of legal authority on the coverage issue that existed at the time of the dispute”; (3) “USF & G's diligence and thoroughness in investigating the facts specifically pertinent to coverage”; and (4) “efforts made by USF & G to settle the liability claims in the face of the coverage dispute.” The jury was instructed that coverage had been determined to exist, but that factor was not controlling on the question of bad faith. However, with regard to the issue of damages, the jury was instructed that should it find USF & G liable for bad faith, “the issue of any damages will be decided at a later date.” The jury found that USF & G acted in bad faith.

After the case returned to the Eleventh Circuit, the Eleventh Circuit agreed with the federal district court that there was no excess judgment against the insured because, as of the time the settlement agreement was negotiated, Estes had $1 million in coverage from the Cigna policy, $1...