Primary Insurer’s Bad Faith Refusal to Settle Within Primary Limits Not Actionable Where Excess Insurer Could Not Prove It Would Have Accepted the Offer

The U.S. Court of Appeals for the Eleventh Circuit, applying Florida law, has held that an excess insurer could not prevail against a primary insurer for bad faith failure to settle when there was no evidence that the excess insurer would have agreed to the proposed settlement.  Westchester Fire Ins. Co. v. Mid-Continent Cas. Co., 2014 WL 2766764 (11th Cir. June 19, 2014).

A claimant sued an insured after suffering severe injuries while operating one of its concrete trucks.  The insured tendered the suit to its insurers, and its primary insurer provided it with a defense.  The primary insurer attempted to settle the underlying case within its $1 million policy limits, but it failed to do so.  Ultimately, after a jury trial, the claimant was awarded $1.7 million in damages and nearly $300,000 in costs.  At that point, the claimant offered to settle the case in its entirety for $1.6 million, but the primary insurer—without consulting an excess carrier—rejected the offer, apparently believing that the insured was entitled to a setoff for a greater amount than the discount on the judgment.  After the court ruled that the setoff did not apply, the excess carrier sued the primary insurer and alleged that the primary carrier acted in bad faith by failing to notify it of the post-verdict settlement offer.  In that suit between the insurers, the court found for the excess insurer and awarded it the difference between what it would have paid under the $1.6 million settlement versus what it was obligated to pay under the judgment of close to $2 million.

On appeal, the court reversed.  The appellate court determined that the district court erred in awarding the excess carrier damages without any evidence of causation—i.e., that it would have accepted the $1.6 million offer had it been properly informed of it.  The court held that, even assuming the primary insurer acted in bad faith, that bad faith was not actionable since it was not shown to have caused the harm at issue.