Handling the Florida claimant’s demand for a financial affidavit
When an insurer receives a time-limit demand to settle a claim for the insured’s policy limits, liability is clear, and the damages clearly exceed the limits, it is a relatively easy decision to pay the limits to the claimant. The more difficult issue can be strict compliance with the demand’s non-monetary conditions, some of which are designed to prevent a settlement. One of the more problematic non-monetary conditions is a request that the insurer provide information about the insured’s financial condition in the form of a sworn affidavit. This information purportedly allows the claimant to ascertain whether the insured can pay an excess judgment and helps the claimant make an informed decision about whether to settle for the policy limits. Compliance with this condition rests exclusively in the insured’s control. As explained below, there is little incentive for the insured to disclose his assets or income to the claimant. However, the insurer’s inability to produce the insured’s financial information exposes the insurer to a bad faith claim and a potential excess judgment, particularly in a jurisdiction like Florida, where bad faith jurisprudence is more favorable to claimants than insurers.
Under Florida law, where the insurer controls settlement decisions, the insurer must exercise such control “in good faith and with due regard for the interests of the insured.” Boston Old Colony Ins. Co. v. Gutierrez, 386 So.2d 783, 785 (Fla. 1980). Specifically, the insurer’s good faith duty obligates it to: (1) investigate the facts of the claim; (2) give fair consideration to a settlement offer that is not unreasonable based on the facts; (3) advise the insured of settlement opportunities; (4) settle, if possible, where a reasonably prudent person, faced with a potential excess judgment, would settle; (5) advise its insured of the probable outcome of litigation; (6) warn its insured about the possibility of an excess judgment, and (7) advise the insured of any steps he might take to avoid an excess judgment. The Florida Supreme Court has held that the “the damages claimed by an insured in a bad faith case must be caused by the insurer’s bad faith. However, the focus in a bad faith case is not on the actions of the claimant but rather on those of the insurer in fulfilling its obligations to the insured.” Harvey v. GEICO Gen. Ins. Co., 2018 Fla. LEXIS 1705 (Fla. Sept. 20, 2018). In determining whether the insurer has acted in bad faith, a “totality of the circumstances” standard is applied, and the issue of whether the insurer acted in bad faith is ordinarily a question for the jury.
Claimants include financial disclosure from the insured as a condition in their demands because they know how cumbersome it can be for the insurer to coax the insured to disclose sensitive information. Merely warning the insured about a potential excess judgment may not be enough to overcome the insured’s concerns, particularly if the insured has collectible assets. Likewise, reminding the insured about its contractual duty to cooperate in the defense and settlement of claims will not force the insured’s hand. In reality, the insured has no exposure if it torpedoes the settlement by refusing to complete a financial affidavit. Thus, the claimant sues the insured, obtains an excess judgment in an indefensible case, and the insured assigns his bad faith claim against the insurer to the claimant in exchange for an agreement not to execute the excess judgment against the insured. The bad faith claim then alleges that the insurer breached its duty of good faith to the insured by missing the settlement opportunity that would have protected the insured from the excess judgment. Invariably, the insured gives favorable testimony for the claimant that the insured would have provided the affidavit had the insurer only explained its’ importance.
Three recent Florida bad faith cases illustrate the problems posed by requests for financial disclosure as a condition of settlement. In Diperna v. GEICO, Case No. 6:12-cv-687, 2013 U.S. Dist. LEXIS 163058 (M.D. Fla. 2013), a demand for the $10,000 policy limits required the insured to provide a financial affidavit within 21 days. The adjuster immediately tendered the policy limits to the claimant. She spoke to the insured that same day about the purpose of the affidavit. She mailed it and instructed him to return it directly to claimant’s attorney by the deadline. The adjuster testified that the insured told her that he had received the affidavit and mailed it back to claimant’s attorney on the same day that he received it. Claimant’s attorney, however, never received the affidavit. Claimant filed suit against the insured, who entered into a consent judgment for $625,000, and assigned his bad faith claim to the claimant. The claimant argued that the insurer acted in bad faith when it relinquished the responsibility of ensuring the affidavit was returned in time to the claimant’s attorney. The insured denied any discussion with the adjuster about the purpose of the affidavit, and denied that he told her it had been promptly completed and returned to claimant’s counsel. The court denied the insurer’s motion for summary judgment and faulted the adjuster for not following up with the claimant’s attorney to confirm the insured mailed the affidavit to the attorney. The bad faith case went to trial where the claimant prevailed and collected the excess judgment from the insurer.
More recently, in Mosley v. Progressive, Case No. 14-cv-62850, 2018 U.S. Dist. LEXIS 199078 (S.D. Fla. Nov. 25, 2018), although no demand had been received, the insurer tendered the $10,000 policy limits 17 days after the accident. The claimant then requested that the insurer provide the insured’s financial affidavit as a condition of settlement. The adjuster mailed the affidavit to the insured and instructed him to return it to the adjuster. The insured refused to complete the affidavit because he claimed he had immunity from a lawsuit as “a Sovereign Citizen of Moorish descent”. The adjuster logged the call but did not record the specifics. The claimant obtained an excess judgment of $22.6 million against the insured, who assigned his bad faith claim to the claimant. The insured testified that he did not recall the adjuster explaining the significance of the affidavit, but had he been informed that by not executing the affidavit he was exposing himself to an excess judgment, and that his immunity as a Moorish citizen might not protect him, he would have completed the affidavit. Unfortunately, in this case the insurer also failed to send the standard “excess letter” warning the insured about the potential for an excess judgment against him before the demand expired. This omission, coupled with the insured’s testimony about his newfound willingness to execute the affidavit, resulted in a denial of the insurer’s motion for summary judgment. The insurer settled with the claimant two weeks later for an undisclosed amount.
At least one Florida court has recognized that an insurer is not obligated to take additional steps to settle where the insured will not disclose his financial condition. In Knipper v. Allstate, Case No. 8:11-cv-742, 2012 U.S. Dist. LEXIS 40458 (M.D. Fla. Mar. 26, 2012), the insurer hired an attorney to assist the insured to complete the financial affidavit. The attorney wrote to the insured warning her that if she did not provide the affidavit, she would be exposed to an excess judgment. He met the insured twice and explained the affidavit’s importance. The insured refused to complete the affidavit because she was concerned about disclosing her private information. The attorney again warned her in writing that if she refused, she would prevent the settlement and expose herself to an excess judgment. The claimant obtained a $1.6 million judgment. In the bad faith case, the insured testified that she would have provided the affidavit if her privacy concerns were satisfied. The claimant argued that the insurer was obligated to ask the claimant for a confidentiality agreement that would have allayed the insured’s privacy concerns. The court rejected that argument, holding that “the law does not impose a duty on insurance companies to provide a solution for its insured whenever the insured has concerns regarding compliance with the terms of a claimant's settlement offer.” Ultimately, the court granted the insurer’s motion for summary judgment, finding there was no basis to hold the insurer liable for bad faith.
When settlement for the policy limits is conditioned on voluntary disclosure of the insured’s income and assets, the insurer’s fate is literally in the hands of the insured. Fortunately, the insurer can be proactive and attempt to insulate itself if the insured refuses to provide the affidavit and prevents a settlement for policy limits. It is good practice to have the affidavit hand-delivered to the insured, where its purpose and the consequences of refusing to provide the disclosure are explained in person. The insurer’s claim file should be well documented with notes and confirming letters showing that the purpose of the financial affidavit, and the time limit to return it, were explained in detail to the insured. If the insured’s refusal is the primary reason why settlement was impossible, the insurer should send correspondence to the claimant detailing the insurer’s efforts to obtain the requested information and spelling out the insured’s reasons for refusing to provide it. Such detailed documentation is key evidence supporting the insurer’s defense of the bad claim. It shows that the insurer was, at all times, placing the insured’s interests ahead of the company’s, and that the insurer was complying with its good faith duties owed to the insured under Florida law.