When business owners or homeowners purchase liability insurance, they are securing their assets against the risk of litigation and a potential judgment.  The obligation owed by an insurance company under such a policy includes a duty to tender policy limits to avoid exposing an insured to personal liability.  However, an insured with multiple policies faces a greater risk of any one of the liability insurance carriers acting in bad faith because the failure to tender policy limits or negotiate a settlement in good faith is less likely to result in a judgment or settlement that exceeds the cumulative policy limits of the insured.

The Florida Supreme Court case of Perera v. USG&G demonstrates how an insurance carrier who engages in bad faith type practices can escape liability where the insured has other liability coverage.  Perera died when a piece of heavy machinery fell on him while working for his employer, Estes Express Lines Corp.  Perera’s wife pursued a wrongful death claim against Estes as the personal representative of the estate.

Estes had three separate liability insurance policies: (1) a worker’s compensation/employer liability policy through United States Fidelity and Guaranty Co. (USF&G) with a policy limit of a million dollars; (2) a commercial liability policy through CIGNA with a policy limit of one million dollars; and (3) an excess liability policy with Chubb Group of Insurance Cos. subject to a limit of 25 million dollars.  The claim was eventually settled between Perera and Estes, Chubb and CIGNA with USF&G not joining in the settlement of the claim for $10 million.  Estes paid $750,000, CIGNA $500,000 and Chubb $3.75 million.

Perera filed suit in the U.S. District Court against USF&G as the assignee of Estes’ claims for breach of contract and bad faith.  The District Court ruled in favor of Perera on a motion for summary judgment regarding coverage.  USF&G paid the one million policy limit based on the ruling that the claim was covered.  However, the District Court ruled in favor of USF&G on the bad faith issue.  The court ruled that Estes was never exposed to an excess judgment due to USF&G’s failure to tender the policy limits because the maximum settlement discussions were $10 million far below the $25 million limits available under the Chubb policy.  The District Court reasoned that there can be no insurance bad faith claim without an excess judgment against the insured.

Perera appealed the portion of the decision involving bad faith to the 11th Circuit, which remanded the case back to the District Court to evaluate whether the conduct of USF&G amounted to bad faith.  After a jury found that the conduct of USF&G constituted bad faith, the insurer appealed the ruling of bad faith.  The court of appeals certified two questions to the Florida Supreme Court, which the state’s highest court reframed as follows: “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 insurer’s policies?”

The Florida Supreme Court relied on the fact that Estes possessed coverage under a substantial excess policy.  The Court also noted that the carrier that provided the excess policy exhibited a willingness to negotiate without the involvement of USF&G.  The Court concluded that Estes never faced exposure to liability beyond the combined policy limits of the Estate's indemnity coverage because of the combined limits of the multiple policies.  Further, Chubb did not elect to initiate a claim for bad faith or assign such a claim to Perera.

You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].

J.P. Gonzalez-Sirgo
J.P. Gonzalez-Sirgo, P.A.
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