Lawsuit Against An Insurance Company for Failure to Act In Good Faith In Settling a Claim

In North American Van Lines v. Lexington Insurance Co., 678 So. 2d 1325 (Fla. 4th DCA 1996), according to the allegations in the complaint, the insured claimed that both the primary insurer and the excess insurer failed to act in good faith in attempting to settle the claim against the insured. The insured was covered by two insurance policies, one primary and one excess. Id. at 1327. Both policies were indemnity policies, which obligated the insured to handle all claims. Id. After an injured third party brought suit against the insured, the primary insurer repeatedly refused to tender its policy limits and the excess insurer also refused, claiming that exhaustion of the primary insurer's limits was a condition precedent to its liability. Id. at 1328. The primary insurer eventually tendered its policy limits, provided that the insured advance $ 1 million. Id. On the eve of trial, the injured third party made a settlement demand exceeding the primary insurer's limits but within the excess insurer's limits; however, the excess insurer still refused to authorize settlement. Id. the insured was faced with "near certainty of a large judgment against it, exceeding all available coverage" and was forced to contribute the balance of the funds necessary to settle the litigation, subject to a reservation of its rights against its insurers--the total cost to the insured was $ 7 million. Id. The insured then brought suit against its insurers for claims of breach of contract, bad faith, and other claims. Id. The trial court held that "an excess judgment was a requirement for any action against an insurer arising from a refusal to settle" and dismissed the lawsuit in its entirety, including the breach of contract claims. Id. On appeal, the Fourth District Court of Appeal reversed and reinstated all counts of the complaint, holding that under the facts of the case an excess judgment was not necessary to assert the causes of action alleged. Id. at 1327. The Fourth District reasoned that neither insurer could "arbitrarily reject a reasonable settlement. . . . If they arbitrarily rejected a reasonable settlement, they breached their policy provisions, entitling the insured to settle the case and to seek reimbursement." Id. at 1332-33. The Fourth District concluded that "under the facts of this case an excess judgment is not necessary to assert the causes of action alleged," id. at 1327, "because the insured has paid an obligation for which the insurers should have been liable, had they not breached the contract." Id. at 1333.