11th Circuit Strikes Again
Over the past several years, the Eleventh Circuit has been asked to issue opinions on impactful insurance issues, particularly those that arise under Florida law.
2020 is no different with the Eleventh Circuit recently issuing an opinion touching on the affirmative duty to settle, resolution of multiple claimant cases, and showing causation in a bad faith claim in the absence of a firm settlement offer.
Aldana v. Progressive Am. Ins. Co., 2020 WL 5843711 (11th Cir., Oct. 1, 2020)
Background
Aldana arose from a rear-end collision caused by Nathan Pyles. Aldana and her 4 minor children were severely injured and her youngest suffering a brain injury and likely paralysis. In addition, James Ang, the driver of another vehicle, suffered soft-tissue injuries.
At the time of the collision, Pyles was insured by Progressive with policy limits of $250,000/$500,000. Per the insurance contract, Progressive retained counsel for Pyles and Pyles retained his own personal counsel.
Claims Handling
Progressive recognized the severity of the damages early on and made a global offer of $500,000 to settle all the claims. Progressive asked that the claimants arrive at an agreed apportionment or participate in a global settlement conference if no agreement could be reached.
Given the significance of the Aldanas’ injuries, their counsel informed Progressive that he needed to investigate whether other sources of recovery existed and requested a financial affidavit from Pyles before considering a resolution. After these requests, Pyles’ retained counsel suggested Progressive either (1) evaluate each of the claims and make individualized offers, (2) reschedule a settlement conference for 30-60 days out, or (3) do nothing and revisit the situation in 20-30 days.
Progressive essentially chose option three and over the next six months sent a monthly letter to the claimants asking if a global settlement could take place and reiterating the $500,000 global offer. Progressive did attempt to have Pyles execute the requested financial affidavits but did not have any luck. In addition, the Aldana attorney responded to only one of Progressive’s letters by indicating they were not prepared at that time to settle their claims.
While Pyles did not return the affidavit, Progressive did not inform him of his significant excess exposure or any other claims handling issues. In addition, Progressive did not make any individual offers to the claimants prior to suit even though the claim of the youngest Aldana child was described as a “financial time bomb.” No individual demands were made by the Aldana family.
Underlying Lawsuit
About eight months after the collision, the Aldana family retained different counsel and moved forward with their lawsuit. After a trial, the jury awarded the Aldana family nearly $52 Million. Following the judgment, Pyles assigned any extra-contractual claims he might have to the Aldanas.
Extra-Contractual Lawsuit
The Aldanas quickly brought their extra-contractual lawsuit in state court and Progressive removed the action to the Florida federal court. Progressive moved for summary judgment in part arguing that there was no reasonable opportunity to settle the claims as the Aldanas made no settlement offers.
To oppose the motion, the Aldanas argued that Progressive failed to act with due regard and should have offered the full limits to the Aldanas as their claims presented the greatest threat. In addition, the Aldanas supplied affidavits from Pyles and his attorney stating that if Progressive had kept them completely informed of the claims then Pyles would have demanded Progressive pay everything to the Aldanas. In addition, Ms. Aldana and her attorney provided testimony that they would have settled their claims if Progressive had offered the Aldanas the entire $500,000 limit.
Finally, the Aldanas retained an expert who provided testimony that Progressive did not exercise the appropriate care and diligence in handling the claims. Specifically, he testified that that Progressive never individually evaluated each claim, did not advise Pyles of the value of each claim, and did not attempt to minimize the greatest liability by paying the Aldanas’ claims once their global settlement strategy had stalled.
The District Court disagreed with the Aldanas and granted Progressive summary judgment by concluding there was never a reasonable opportunity for Progressive to settle before suit was filed. That court also took note that the Aldanas’ counsel never responded to the global offer or made any other offer, never provided medical information, and Pyles never completed a financial affidavit which was an “absolute necessity” according to the Aldanas’ counsel. Finally, that court found that Progressive’s failure to advise Pyles of the claims handling conduct was not the cause of the excess judgment.
11th Circuit Appeal
The Eleventh Circuit reversed the grant of summary judgment finding that there was sufficient evidence for the jury to find that Progressive breached its duties to Pyles. In doing so the Court set out specific rules relating to the affirmative duty to settle, handling multiple claimant matters, and causation for an excess judgment in the absence of a demand.
Affirmative Duty to Settle
The Court reiterated the accepted rule that when liability is clear and damages are catastrophic, an insurer must proactively engage in settlement discussions. It is of no concern that the claimant has not made a demand as the focus is on whether the carrier fulfilled its obligations to the insured and not on the actions of the claimant.
In this specific circumstance, the court determined that Progressive offering its full limits for a global settlement was not a safe harbor from any extra-contractual claim. Progressive did not show sufficient haste in moving to protect Pyles especially when its global settlement strategy was proving unsuccessful. Instead, Progressive continued to send the same ineffective letter for six months rather than attempting individual offers or offering the Aldanas the entire policy limit.
Multiple-Claimant Issues
Florida has been clear that in a multiple-claimant situation the insurer must fully investigate all claims, keep the insured informed of the claims resolution process, and minimize the magnitude of an excess judgment by well-reasoned claims settlement. Generally minimizing the magnitude of an excess judgment will require settlement of the most excess claims in the event a global settlement is not possible.
The Court noted there was nothing wrong with Progressive initially attempting a global settlement and this could not be considered bad faith. However, Progressive did not change strategy when this failed. There was no evidence that all claims were fully evaluated or that any effort was made to settle the most significant claims. Further, Progressive did not inform Pyles of his excess exposure or of the relative value of the claims or of steps that could be taken to avoid or minimize an excess judgment.
Multiple claimant cases are difficult to handle but do not excuse poor claims handling. The guidance from both appellate courts and Missouri juries has been exactly what is described in Aldana. After a global settlement attempt has failed, the carrier must evaluate all claims and use the limited policy limits to extinguish as much excess liability as possible.
Causation
Finally, the Court noted that even if a carrier breaches its obligation, there must still be a showing that the breach caused an excess judgment. Progressive and the district court both argued there could be no causation as there was no reasonable opportunity/demand to settle from the Aldanas. Additionally, Progressive argued that Pyles’ failure to provide the requested financial affidavit requested by the Aldanas would have prevented any settlement from actually being finalized.
The Eleventh Circuit noted these concerns but held these were arguments for Progressive to make to the jury. The affidavits from Ms. Aldana, her counsel, and Pyles, created at least a triable issue of fact on causation of the excess judgment for the jury to consider.
Affirmative duty to settle states may not require a blown demand to hold a carrier liable for extra-contractual damages but making a demand is generally recommended. A missed opportunity to accept a demand will generally take causation, at least on summary judgment, off the table. Moreover, demands keep attorneys and clients from becoming witnesses as it relates to the willingness to settle and defuses the “bad faith set-up” charade.
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