When it comes to avoiding bad-faith judgments — words matter

“Be careful what you say,” is the advice many parents share with their children, “your words matter,” and never is this more true than when dealing with a claimant who has filed an insurance claim.

Be clear. Be nice. And most of all be reasonable.

Those are some keys to avoiding a bad-faith judgment, according to Cozen O’Connor insurance defense litigators Michael Melendez of San Francisco and Chad Pasternack of West Palm Beach, Florida.

They recently offered lessons learned from recent case law for a “Bad Faith 2021 Year in Review” webinar where they reviewed disputes from across the country — from Florida to California. They led with a Georgia case.

Following a Georgia Supreme Court opinion that said a trial judge and jury were legally authorized to award $2.7 million in a bad-faith case against Geico Insurance, the U.S. Court of Appeals for the Eleventh Circuit, which had asked the justices to weigh in, affirmed the award in May 2021. Geico had argued that it had been hit with a multimillion-dollar default judgment before it even knew a lawsuit had been filed.

The case involved a 2012 accident in Columbus when a borrowed pickup truck driven by Bonnie Winslett hit bicyclist Terry Guthrie, who was hospitalized and ran up about $10,000 in medical bills. The truck’s owner carried Geico coverage. Guthrie’s lawyer contacted the insurer, which in turn sent Winslett a letter saying it would “be handling this injury directly” with the attorney.

Lawyer Austin Gower sent Geico a demand letter for its $30,000 policy limit. Geico said it could never reach Gower to discuss a settlement, and he sued Winslett in Muscogee County Superior Court in Columbus. The next day, a deputy served her with a copy of the complaint, which she testified she “wadded up” and threw away.

Winslett never told Geico about the suit, and two months later Judge Beamon McBride III entered a default judgment for more than $2.9 million against her. Geico moved to have the judgment set aside, but McBride refused, and the Georgia Court of Appeals upheld his ruling.

Guthrie filed a petition for involuntary bankruptcy against Winslett, and her bankruptcy trustee, Fife Whiteside, sued Geico for bad-faith failure to settle. A federal jury awarded her $2.9 million as the measure of damages, apportioning Geico 70% of the liability, for a final judgment of more than $2.7 million, including accrued interest.

“In hindsight, the case provides lessons,” Melendez said. The letter saying the company would be handling the matter with the attorney gave Winslett a “false sense of security that she did not have to worry or take any further action regarding the claim.”

“The claim professional should think about the message that is conveyed by such a letter. The claim professional should also consider sending the insured a letter simply setting forth her duties to cooperate,” Melendez said. That could help show “the insurer was doing everything it could” to protect itself and its customer.

Pasternack used a Florida case, Julien v. United Property & Casualty, 311 So.3d 875 (Fla. 4th DCA 2021), to show the importance of making communications specific.

The court ruled that the bad-faith statute requires a claimant to “state with specificity” the alleged violations, Pasternack said. “The court concluded that the notice does not satisfy the specificity requirement. A civil remedy notice is meant to put the carrier on notice that it might be doing something wrong, and to give the carrier an opportunity to correct it.” A generic form notice is not enough.

In a California case, an insurance company won an important victory on the grounds of demonstrating reasonableness, Melendez said. That was the issue in Pinto v. Farmers Ins. Exchange, 61 Cal. App. 5th 676 (Cal. Ct. App. 2021). The court ruled the insurance company was not showing bad faith for simply refusing to meet a policy limit demand that came with conditions.

“Simply failing to settle does not mean bad faith,” Melendez said. “A reasonable demand might go unaccepted due to no fault of the carrier, such as an emergency preventing transmission of acceptance.”

The decision came down to reasonableness and a claims professional being able to document communications. “Those steps showed the court that the carrier was doing the right things, and that carried the day,” Melendez said.

In reviewing other cases, the lawyers emphasized the importance of responsiveness, communication and straightforward language avoiding ambiguity. Even if a bad claim results from the litigation, the insurance company at least can demonstrate reasonableness.

“Words matter,” Melendez said. “Be precise with your words. Plain English is preferred over jargon. Be professional, patient and pleasant.”

Related:

• Key considerations for addressing & resolving a catastrophic insurance case
• Court ruling finds adjusters can’t be held personally liable for denied claims