Cost claims representatives are aware of the concept of punitive damages and that they are not to be routinely permitted in personal injury cases in addition to the customary recovery of non-economic and economic damages, i.e, compensatory damages. Punitive damages are permitted to punish the person who engages in willful and wanton conduct. Fortunately, punitive damages are rare.
Florida courts have long held that there is no insurance coverage for punitive damages.1 In the case of Nicholson v. American Fire and Casualty, the court rejected the argument that the policy language obliging the insurance carrier to pay “all sums which the insured shall legally become obligated to pay as damages because of bodily injury, sickness or disease” included an award for punitive damages.2 The court’s decision was based on public policy.3 The court noted that it would be improper “to shift the burden [of punitive damages] to an insurance company.”4 The court also noted that the injured plaintiff would be made whole for his injuries by the award for compensatory damages.5
Although there is no duty to pay for an award of punitive damages, the insurance company does have a duty to the insured to defend against the same once they are properly pled in the complaint.6 In the case of American Hardware Ins. Co., the insured was sued for malicious prosecution.7 Punitive damages were sought in addition to compensatory damages.8 The insurance company agreed to defend against the claim for malicious prosecution, but informed the insured that it would not provide a defense as to the punitive damage claim.9 The insured subsequently retained personal counsel to defend against the punitive damage claim.10 The insured then sued the insurance company to recover the attorney’s fees that it was required to expend in defense of the punitive damage issue.11 The trial court granted the insured’s motion for summary judgment and the appellate court affirmed.12 The court stated:
Where the complaint against the insured contains allegations which are partially within and partially without the scope of the insured’s coverage, then the insured must defend even those portions of the complaint which are outside the coverage.13
What is the claims representative’s duty toward the insured in evaluating claims where the value of the case is less than the policy limits, but the plaintiff’s attorney rejects a generous settlement offer due to the specter of a punitive damage award? Can the insured file a bad faith case against the insurance company if the verdict for compensatory damages falls within the policy limits, but there is an award for punitive damages?
A 1970 opinion from the United States Court of Appeals for the Fifth Circuit, Ging v. American Liberty Ins. Co., suggests that the answer is “yes.”14 Ging was a wrongful death case arising from an automobile accident that occurred in Florida in 1962.15 The insured was uncooperative and did not attend the trial.16 The jury awarded $14,695.00 for compensatory damages and punitive damages in the amount of $25,000.00.17 The trial court later reduced the compensatory award to $11,195.00. The insurance company paid that amount.18
Subsequently, the insured assigned all of his rights against the insurance company to Ging who then filed a bad faith lawsuit against American Liberty.19 The trial court granted the insurance company’s motion for summary judgment.20 However, the appellate court reversed and remanded the case back to the lower court for a jury trial on the bad faith issues.21 The appellate court was less concerned over the public policy issue regarding a punitive damages recovery from an insurance company than it was on the duty to defend the insured as vigorously on the matters that were not covered under the policy (punitive damages) as it did for the matters that were covered under the policy. In its analysis the court stated:
Once having undertaken the defense of a non-covered claim, the insurance company is under an obligation to act in good faith toward its insured to the entire extent of its undertaking.22
The appellate court found that there was sufficient evidence to submit the case to a jury on the issue of bad faith conduct of the insurance company through the insurance adjusters and defense counsel.23 The appellate court noted that the insured, who clearly failed to cooperate, was never informed that there was a strong probability that punitive damages would be awarded by the jury, that there had been settlement offers, including offers to settle for the policy limits, that the insured could contribute to the settlement damage claim, that the insured needed to attend the trial to offer counter evidence to the punitive damages concerning his poor financial condition, that no continuance was moved for when it was realized that the insured would not attend the trial in Florida, and finally that the insured was not informed as to the outcome of the trial until five and a half months after the same, which was thirteen days before the time to file a notice of appeal.24
In conclusion, the appellate court held that a duty existed to apprise the insured of settlement opportunities within a reasonable time after they were made, a duty to warn the insured of the pros and cons of the litigation even if the “cons” were not covered under the policy, a duty to timely advise the insured of the outcome of the litigation, a duty to advise the insured of actions by the insured to mitigate his own damages, and most importantly to conduct settlement negotiations in good faith including “where those interests might be divergent from the interests of the insurance company.”25
As noted at the outset, Ging is a 1970 opinion, and there have been no additional significant subsequent opinions on its holding. This is due, in part, upon the fact that punitive damages claims are encountered on an infrequent basis. It could also be due, in part, to good claims handling procedures by claims examiners, as well as vigorous defense tactics by defense attorneys when punitive damages are litigated.
The Ging decision was based on a federal appellate court’s interpretation of Florida law. No Florida state court has dealt with the concept advanced in Ging. However, courts in New York, California, and Colorado have held that the insurer is not liable for punitive damages to its insured when the insured may have acted in bad faith and exposed the insured to a judgment for punitive damages.
Soto v. State Farm,was a New York case that held the same.26 Soto involved a wrongful death case arising from an automobile accident in which the defendant driver was legally blind, not wearing eyeglasses, and intoxicated. The insurance company was given an opportunity to settle the double-death case for the policy limits of $100,000.00. The insurer declined the settlement and defended on the basis of lack of permission and consent to use the vehicle by the driver who was the girlfriend of the insured. The jury awarded $420,000.00 in compensatory damages and $450,000.00 in punitive damages. The insurance company paid the excess verdict for compensatory damages, but declined to pay the punitive damage award. The insureds assigned their rights to proceed against the insurance company to the plaintiff. The plaintiff then sued the insurance company in an attempt to recover payment for the punitive damage award against its insureds. The insurance company filed a motion to dismiss, which was granted at the trial court level and affirmed by the appellate court. The basis for the appellate court’s affirmance was that the public policy of the state prevented reimbursement by an insurance company for punitive conduct.
A similar result was reached in the case of PPG Industries v. Transamerica Ins. Co. where a California court used similar public policy reasons to deny the insured’s recovery against its insurance company for the punitive damage award rendered against it.27 However, three out of seven appellate court justices dissented. Similarly, in the case of Lira v. Shelter Ins. Co., the Colorado Supreme Court reached the same conclusion as PPG and Soto for basically the same reasons.28 However, as in PPG, three out of the seven justices dissented.
What is the significance to the claims examiner faced with a punitive damage case when comparing the holding in Ging with the holding in Lira, PPG, and Soto? In practice, PPG, Soto, and Lira would have the same “persuasive” effect on a Florida state court judge as would Ging; i.e, all cases are from foreign jurisdictions and not binding on a Florida state court judge. Each would serve as persuasive authority to the trial judge and could be adopted or ignored. Given Florida’s long-standing public policy argument as discussed above in Nicholson v. American Fire and Casualty (the burden of punitive damages on the wrongdoer should not be shifted to the wrongdoer’s insurance company) one would expect a Florida judge to be more persuaded by the Lira trilogy than the holding in Ging. Notwithstanding, the holding of Ging might be enough persuasive authority to a Florida judge to deny a motion for summary judgment brought by an insurance company and to allow the matter proceed to a jury trial.
Although punitive damage cases are not commonplace in Florida, the prudent claims examiner should have a working knowledge of Florida Statute Section 768.72, which will not permit a plaintiff to bring a count for punitive damages in the initial complaint. This knowledge would be helpful in pre-suit negotiations where punitive damages are threatened by the plaintiff.
The claims examiner should have a working understanding of the limitation on punitive damages, especially paragraph (a) of Section 768.73. This will permit the claims adjuster to adequately place the insured on notice of its potential exposure to punitive damages as discussed in Ging. Furthermore, the claims examiner should be aware that a motion for statutory remittitur is available should a punitive damage award be entered against the insured.
The claims examiner should be aware that even though there is no requirement that the insurance company reimburse any insured for punitive damages rendered against it at the current time in the state of Florida, there is a duty to defend the same once the punitive damage claim is alleged in an amended complaint. The examiner should be aware that pursuant to the holding in Ging, the defense of the punitive damages should be as vigorous as the defense of the compensatory damages, including the hiring of an economic expert for the insured relative to the bad faith issue, if appropriate.
The claims examiner should also be aware of the other dictates elucidated in Ging. The insured should obviously be notified of the addition of punitive damages in the lawsuit and the fact that there is no insurance coverage available to pay for punitive damages. The insured should be given an assessment of the potential that punitive damages could be awarded against him by a jury. The examiner should be hypervigilant in notifying the insured of any and all settlement offers at all times, but especially when punitive damages are permitted. The insured should be advised that he or she is permitted to contribute his or her own funds to the settlement of punitive damage claim. The insured should be advised by a defense counsel that his or her participation in the punitive damage lawsuit is essential to establish his or her lack of net worth so that a jury would have a basis to adjust its award to one that would not bankrupt him. The insured should be immediately notified of the outcome of the jury trial when it pertains to punitive damages or otherwise. Finally, the claims examiner should conduct settlement negotiations in good faith and be open to paying settlement funds on the higher end of the settlement evaluation when punitive damages are present.
1 Nicholson v. American Fire and Casualty, 177 So. 2d 52 (Fla. 2d DCA 1965).
4 Id. at 54.
6 American Hardware Ins. Co. v. Miami Leasing and Rentals, 362 So. 2d 28 (Fla. 3d DCA 1978).
14 Ging v. American Liberty Ins. Co., 423 F.2d 115 (5th Cir. 1970).
26 Soto v. State Farm, 635 N.E. 2d 1222 (N.Y. 1994).
27 PPG Industries v. Transamerica Ins. Co., 975 P. 2d 652 (Cal. 1999).
28 Lira v. Shelter Ins. Co., 913 P. 2d 514 (Colo. 1996).
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