What is the Difference Between First-party and Third-party Bad Faith Law Suits in Florida?

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

Florida statute §624.155 creates a bad faith cause of action, known as a first-party bad faith claim. The statute provides that an insured may bring an action against their insurer if the insurer does not make a good faith attempt to settle a claim against the insured when “under all the circumstances, it could and should have done so, had [the insurer] acted fairly and honestly” with respect to the insured’s best interest. Generally speaking, this statute allows an insured to sue its own insurance company when the insurance company acts in bad faith in the handling of the claim.  The language “could have and should have” is instrumental in these claims. Typically, an insurer will be deemed to have acted in bad faith when it was reasonable for the insurance company to settle a claim but did not. The words “could have” typically refers to a situation in which a settlement offer within the policy limits was made to the insurance company, which they could have accepted but did not. The words “should have” typically means that, based on all the facts and circumstances of the claim, it would have been reasonable for the insurance company to accept the settlement. In personal injury cases, this usually refers to a situation in which the facts reasonably indicate the insured is liable. In property insurance cases, this typically refers to a situation in which the damages sustained by the insured are reasonably likely to be covered by the insurance policy.

What is the difference between first-party and third-party bad faith law suits in Florida?

Prior to the enactment of Florida Statute §624.155 the state of Florida only recognized third-party bad faith lawsuits against an insurer. In other words, an insurance company may have been liable for acting in bad-faith only to individuals that had a claim against the insured. By way of example, let’s assume that an insured motorist is in a car accident for which the insured is liable. The driver of the other vehicle has a claim against the insured motorist for damages totaling $20,000, and the insured motorist has policy coverage for $10,000. Let’s further assume that the injured driver offered to settle the case for $10,000 but the insurance company refused to settle the case. The injured driver then sues the insured motorist and receives a judgment in her favor for $20,000. Given these facts, the injured driver may have a third-party bad-faith cause of action against the insured motorist’s insurance company for failing to settle the claim when it reasonably could have and should have done so, which in turn exposed the insured motorist to a judgment in excess of the policy limits. Moreover, the injured driver may recover from the insurer the excess $10,000 even though the insured’s policy limits were less than the judgment.

First-party bad faith lawsuits work much the same way. The only real difference is that in a first-party bad faith suit, it would be the insured motorist that has a cause of action against her own insurance company. This is because the insurance company failed to settle the claim when it had the opportunity, thus exposing the insured motorist to an excess judgment. As stated, before the enactment of §624.155, only third-party bad faith law suits were recognized in Florida. Moreover, just as the third-party claimant, the first-party claimant may also recover an amount in excess of the policy limits. After all, had the insurance company settled the claim for the policy limits when it was reasonable to do, there would not have been an excess judgment to begin with.

When may the first-party claimant recover in a bad faith lawsuit?

Before a first-party claimant can recover in a bad faith lawsuit, both liability and damages must be established. A bad-faith lawsuit is a separate and distinct cause of action from the original action from the original claim, but the original claim is deemed a condition precedent to bringing a bad-faith action. Thus, in our example above a first party bad-faith claim will not accrue unless and until liability and damages have been established, typically by a court judgment, in favor of the injured driver. An attempt to bring a bad-faith suit before that happens is premature and will result in a dismissal or a stay of the action. Similarly, a case that is pending appeal is not considered to be a final resolution of the underlying claim, so the bad-faith claim will not be entertained until the appeal is complete.

Civil Remedy Notice

One of the principal differences between third-party and first-party law suits, aside from the type of claimant bringing the suit, is the statutory requirement for a civil remedy notice. In a first-party bad faith law suit, a civil remedy notice is a condition precedent to bringing a bad faith suit. In a third-party bad faith action there is no such requirement. Florida statute §624.155 requires a claimant to give its insurance company, as well as the Florida Department of Financial Services, a written notice of the insurer’s contractual violation at least 60 days written notice before filing suit. This 60 day window is meant to give the insurance company a chance to cure any violations, either by paying the damages or by correcting the situation. If the insurer cures, then the violation is moot and the bad faith action cannot be maintained. However, if the insurer fails to respond to the notice within the 60 day window, Florida courts hold that a presumption arises that the insurance company acted in bad-faith, and the burden is on the insurance company to come forth with a reasonable explanation as to why it did not cure the violation. A failure to do so will typically result in liability on the part of the insurance company to pay the insured the judgment in excess of the policy limits imposed against the insured.  If you are having trouble recovering on your claim, you may have a viable bad faith action against your insurance company. An experienced insurance bad faith attorney knows how these actions work and can help you deal with your insurance company if your claim has not been handled in good faith.

You can reach Miami Bad Faith 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].