By Rory Jurman and Vanessa Alvarez
As appeared in Law360 Expert Analysis on September 26, 2018
In 2009, the United States Court of Appeals for the Eleventh Circuit affirmed a summary judgment in favor of an insurance company, holding that there was insufficient evidence that the insurance company acted in bad faith to proceed to a jury. In Johnson, Geico tendered the $10,000 policy limits within 33 days of the car accident and soon after learning that the claimant had died as a result of the accident. However, under ostensibly similar facts, in an unpublished but persuasive decision nine years later, the United States Court of Appeals for the Eleventh Circuit affirmed a district court’s denial of an insurance company’s motion for judgment as a matter of law and motion for a new trial, holding that a reasonable jury could have concluded that the insurance company acted in bad faith. In Bannon, Geico tendered the $250,000 policy limits within 26 days of the accident and soon after learning that one of the claimant’s medical bills had surpassed $300,000.
At first glance, the two cases are irreconcilable. However, upon closer inspection, Bannon is distinguishable from Johnson and, more importantly, is a cautionary tale for insurance companies relying on existing bad faith case law. This article aims to shed light on what led to different results in Johnson and Bannon and what insurance companies should take away from such seemingly strikingly different result.
Bannon v. Geico General Insurance Company
The underlying case originates from an accident on Oct. 27, 2010, between Thomas Bannon and Margaret Randall, the claimants who were on a motorcycle, and Melissa Servold, who was driving a sedan. Geico insured the sedan, which was owned by Beverly Allen, Servold’s mother.
Geico was first notified of the claim on Nov. 2, 2010, when their insured, Beverly Allen, reported the accident. Allen informed Geico that her daughter, Servold, made a left turn in front of the motorcycle that was being driven by Bannon, resulting in a collision between the sedan and the motorcycle.
More importantly, Allen informed a Geico representative that she believed the motorcycle did not have its headlights on at the time of the accident.
It is important to note that Geico’s log notes from this call indicate that the Geico representative advised Allen that Geico was “agreeing to pay for damages because her daughter had the greater duty to make sure that the path was clear before proceeding” and addressed that, if the other vehicle did not have its headlights on, Geico would argue for comparative negligence. Therefore, the claimants would later argue, from the very beginning, Geico was aware that there would be, at least, some liability on their insured.
In sum, at this point, Geico was aware that liability would likely fall on Servold. However, because Allen did not have any information regarding the injuries of the people on the motorcycle, Geico had no information regarding extent of the injuries.
Roma Henning, a field representative for Geico, obtained the police report on Nov. 4, 2010, which was immediately forwarded to the assigned adjuster. The narrative of the police report provided Geico with additional information regarding liability and the injuries of the claimants.
The police report stated that Servold failed to yield to the motorcycle, further establishing liability against Geico’s insured. In addition, Geico learned the names and phone numbers of the claimants, Bannon and Randall. The biggest takeaway from the police report, however, was that the passenger of the motorcycle, Randall, had been partially ejected off the motorcycle and had been airlifted with head trauma from the accident scene in Key West to the Ryder Trauma Center at Jackson Memorial Hospital in Miami, Florida.
Although the police report did not indicate that Servold was cited for causing the accident, the police report further established liability more firmly on Servold.
By Nov. 5, 2010, Geico apparently gained enough information about the severity of the injuries sustained by Randall because the assigned adjuster, Cyrena Delgado, submitted a control file alert, which is a process put in place by Geico when there is an accident involving catastrophic injuries. The control file alert stated that the adjuster, Delgado, had spoken to the adverse carrier, Progressive, who informed Delgado that Randall’s brain injury resulted in a coma but that Randall was breathing on her own and still treating at the Ryder Trauma Center.
According to opinion by the Eleventh Circuit, it is by this date that Geico should have been aware that the injuries sustained by Randall were so catastrophic as to trigger Geico’s obligation to tender their insured’s $250,000 policy limits. Geico learned that Randall had been in a coma and hospitalized for at least 10 days. Additionally, Geico should have been aware that, if it turned out that the motorcycle’s headlights were on, their insured would be 100 percent liable for those injuries.
The following week, on Nov. 11, 2010, Geico was provided with additional information regarding the extent of Randall’s injuries, which the claimants argued further supported Geico’s obligation to tender the $250,000 policy limits. Henning, the Geico field representative, had spoken with Bannon, who was the driver of the motorcycle and Randall’s husband. Henning’s log notes state that Randall was going to have surgery to remove fluid from around her brain; that Randall has a stomach tube and a trachea in place; and that “they” think all of the bones in her face were broken in the accident.
By Nov. 15, 2010, liability apparently laid 100 percent on Servold based on the information the adjuster received during the recorded statement of an eye witness to the accident. The witness informed the adjuster that the sedan driven by Servold had no headlights on and only the sedan’s left turn blinker was on immediately before the accident. The witness also informed the adjuster that, as a result of the accident, Randall flew off the motorcycle hitting the front of the sedan and was lying face down in a pool of gurgling blood at the scene.
At this point, on Nov. 15, 2010, with liability seemingly clear and the injuries clearly catastrophic, Geico still did not initiate settlement negotiations. nor did Geico provide the handling adjuster with any settlement authority.
The adjuster, Delgado, called the hospital on Nov. 18, 2010, and discovered that Randall’s hospital bill alone was $337,670.99. Following this, the log notes reflect that, during a meeting with the claims supervisors, the adjuster was instructed to send another assignment to Henning, the field representative, to meet with Bannon to discuss the nature and extent of Randall’s injuries “tomorrow or at his earliest convenience.”
That same day, Henning confirmed with the hospital that Randall was still hospitalized at Jackson Memorial Hospital. Henning then called Bannon, who advised her that Randall’s condition was about the same. According to the log note entry, Bannon then advised Henning that he had an attorney and would be meeting with the attorney that day.
The claimants would later argue that receiving this information essentially lit a fire under Geico. The next log note entry for Nov. 18, 2010, states that the claims supervisor gave Delgado authority to settle Randall’s claim for the $250,000 policy limits.
Bannon’s attorney filed a lawsuit against Allen and Servold on Friday, Nov. 19, 2010, in Key West, Florida, on behalf of the claimants. Later that day, Bannon’s attorney called Roma Henning to notify her of the lawsuit.
Finally, on Nov. 22, 2010, seventeen days after first learning about Randall’s injuries on Nov. 5, 2010, Geico tendered a check for the $250,000 policy limits by hand delivering the check to Bannon’s attorney. Not surprisingly, the next day, Bannon’s attorney mailed back the check and acknowledged his clients’ refusal of the tender.
Over the next four years, litigation ensued on the claimants’ negligence claim against Allen and Servold. During this time, the claimants made various settlement offers to Gecio and its insureds, as Geico's policy expressly required that it be part of any settlement agreement. On March 26, 2015, Geico gave permission for its insureds to enter into a proposed consent judgment for $2.95 million. In April 2015, the insureds entered into a stipulated final judgment wherein they agreed to a judgment against them in this amount and, importantly, assigned their rights to pursue a bad faith claim against Geico to the claimants.
On July 6, 2015, the claimants, through the assignment from Geico's insureds, filed a bad faith claim against Geico alleging that Geico acted in bad faith in handling the insureds’ claim and by not permitting their insured to enter into a consent judgment for four years. The case was tried before a jury from Nov. 29, 2016, through Dec. 8, 2016, after which the jury returned a verdict against Geico in the amount of $2,912,227.40.
After the verdict, Geico filed two post-trial motions, its motion for judgment as a matter of law and motion for new trial. In denying Geico’s motions, the District Court for the Southern District of Florida focused on the issue of whether the evidence supported the jury’s verdict that Geico acted in bad faith and, thus, whether Geico’s tender was timely. In doing so, the dstrict court dismissed Geico’s other arguments that the evidence, testimony and arguments presented during the trial on Geico’s post-tender conduct and the proposals for consent judgment prejudiced and confused the jury. According to the Southern District, the evidence in the record supported the jury's finding that Geico acted in bad faith because Geico knew or should have known that Randall’s injuries were likely well over the $250,000 policy limits and that, as a result, Geico’s failure or refusal to initiate settlement negotiations or to tender its policy limits until litigation commenced constituted bad faith.
Appeal to the Eleventh Circuit
On its appeal to the Eleventh Circuit, Geico focused its argument on two grounds: (1) that there was insufficient evidence presented to the jury that Geico’s tender was untimely, or that there was a delay in settlement negotiations that was willful and without reasonable cause; and (2) that the district court erred in admitting evidence regarding the proposals for a consent judgment in excess of the policy limits, which Geico was under no duty to consent to.
In its argument, Geico compared the current case to Johnson v. Geico. As stated above, in Johnson, Geico tendered the $10,000 policy limits within 33 days of the car accident and soon after learning that the claimant had died as a result of the accident. In its comparison, Geico stressed that the focus in Johnson centered on Geico’s obligation to investigate liability because the insured had disputed liability and, therefore, liability was not clear and there was no obligation to initiate settlement negotiations.
In the present case, Geico argued that it had not acted in bad faith because Geico had not yet made a determination on liability due to its insured’s allegation that the motorcycle had no headlights on at the time of the accident.
Ultimately, the Eleventh Circuit affirmed the lower court’s ruling. The Eleventh Circuit reasoned that, with the evidence presented, a reasonable jury could have concluded that, by Nov. 5, 2010, the cost of the medical expenses, including noneconomic damages, triggered Geico’s obligation to initiate settlement negotiations and, ultimately, to tender the $250,000 policy limit. Therefore, according to the Eleventh Circuit, a reasonable jury had enough evidence to conclude that Geico acted in bad faith based on Geico's delay in tendering the $250,000 policy limit.
Breaking it All Down
A cause of action for bad faith arises when a tortfeasor's insurance company fails to "settle a claim when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for [the insured's] interests.”
In settling claims and conducting defenses, an insurer is obligated to (1) "advise the insured of settlement opportunities"; (2) "advise as to the probable outcome of the litigation"; (3) "warn of the possibility of an excess judgment"; (4) "advise the insured of any steps he might take to avoid the same"; (5) "investigate the facts"; (6) "give fair consideration to settlement offer that is not unreasonable under the facts"; and (7) "settle, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so."
The Florida Supreme Court applies a totality-of-the-circumstances standard in determining whether an insurer has acted fairly and honestly towards its insured and with due regard for his interests. The focus in bad faith cases is on the insured’s actions in fulfilling its obligations to the insured. An insurer cannot absolve itself of liability for bad faith based solely on the absence of a monetary demand or if the injured party rejected the insurer’s tender of the policy limits. Additionally, a formal offer to settle is not a prerequisite before liability can be imposed for an insurer's bad faith refusal to settle.
More importantly, “[w]here liability is clear, and injuries so serious that a judgment in excess of the policy limits is likely, an insurer has an affirmative duty to initiate settlement negotiations.” Additionally, the insurer has the burden of proof of showing that there was “no realistic possibility of settlement within the policy limits,” if it so claims.
However, the insurer has the right to investigate the scope of the claimant's injuries before initiating settlement discussions. Just because the accident and the related injuries appear serious does not automatically compel an insurer to tender its policy limits. The insurer's duty to initiate settlement negotiations when liability is clear and an excess judgment is likely does not strip an insurer of its duty and right to fully investigate claims.
In summary, an insurer has an affirmative duty to initiate settlement negotiations "when (1) liability is clear; and (2) injuries are so serious that a judgment in excess of the policy limits is likely."
In this case, Geico’s arguments centered on how soon after the accident it tendered (20 days after the accident was reported to them); that Geico was still determining liability; and that Geico was entitled to verify the injury information it was provided.
The Eleventh Circuit, however, focused on what Geico knew and when Geico knew it. Geico obtained the police report on Nov. 4, 2010, from which it learned that Randall had been airlifted from Key West to Miami due to a brain injury and that the police report narrative stated that their insured driver failed to yield the right of way. Geico learned that the brain injury resulted in a coma on Nov. 5, 2010. This was seventeen days before Geico ultimately tendered the $250,000 policy limits on Nov. 22, 2010.
As time passed, Geico received additional information that one could argue further established Geico’s obligation to tender the policy limits. On Nov. 8, 2010, 14 days before Geico tendered the policy limits, Geico set the reserves to the full $250,000 policy limits. On Nov. 11, 2010, 11 days before Geico tendered the policy limits, Geico learned that Randall was still in a coma, potentially had facial fractures, was going to undergo a brain surgery and was not breathing on her own. On Nov. 15, 2010, seven days before Geico tendered the policy limits, Geico spoke with an eye witness, who informed Geico that their insured driver had been the one without headlights on and that their insured driver possibly attempted to make an illegal left turn.
Additionally, in Bannon, from the day the claim was reported, Geico knew that its insured driver, Ms. Servold, would be found at least majority at fault for the accident. Geico knew that, if the allegation that the motorcycle did not have its headlights on were true, then Geico could only argue for comparative negligence because their insured driver had the greater duty to yield. This is what distinguishes Bannon from Johnson.
Johnson involved an accident caused when a driver ran a red light. The insured, in Johnson, specifically notified Geico that he believed he had not ran the red light. This was a situation where Geico’s insured was either going to be 100 percent at fault or 0 percent at fault — in other words, their insured either ran the red light or he didn’t. Moreover, the claimant based its bad faith case entirely on how the underinsured motorist, or UIM, claims the adjuster handled his UIM claim, since both Johnson and the claimant were insured by Geico. In Johnson, the claimant’s attorney provided the UIM adjuster with a substantial amount of injury information, which warranted the tender of the UIM policy limits. In contrast, the claimant’s attorney, in Johnson, provided the bodily injury claims adjuster with limited information. The district court, in granting summary judgment, held that liability did not become clear until Geico obtained the police report and that liability for bad faith could not be imposed on Geico based on an assumption that the information provided to the UIM adjuster was shared to the bodily injury adjuster.
Therefore, Bannon was not a situation where Geico was determining whether its insured was at all liable for the accident. Rather, Geico knew, or should have known, from the beginning that liability would lie primarily on its insured.
Lessons to Take Away from Bannon
Although Bannon v. Geico General Insurance Company is an unpublished and, therefore, unbinding opinion, Bannon essentially sets a precedent that even two weeks may be too long to wait before tendering the policy limits. The holding in Bannon could make it more likely that an insurance company will not be able to win the case at the summary judgment stage — and, therefore, would have to face a jury — if the insurance company does not make a reasonable effort to determine basic information regarding the damages.
A key example of what could constitute a lack of reasonable effort is when Geico’s adjuster called the hospital on Nov. 18, 2010, and learned that Randall’s bills were $337,670.99 and that Randall had not yet been discharged. Geico offered no explanation, neither at trial nor in its motions, for why the adjuster did not or could not call the hospital sooner.
Furthermore, it appears that, even after learning that one of Randall’s bills exceeded the policy limits, the Geico supervisor assigned to the file still did not give the adjuster authority to negotiate settlement. Instead, the Geico adjuster was instructed to send the field representative to contact Bannon, Randall’s husband, to schedule a meeting to discuss the nature and extent of her injuries. During this call on Nov. 18, 2010, Hemming, the Geico field representative, first learned that Bannon had been in contact with an attorney. The claimants argued, and a jury could have inferred, that Geico provided the adjuster with authority to settle the claim for the policy limits only after Geico learned that Bannon had been in contact with an attorney.
In affirming the lower court’s decision, the Eleventh Circuit essentially expands the Florida bad faith standards. Before Bannon, and since the Third District Court of Appeal’s decision in Powell v. Prudential Property & Casual Insurance Company in 1991, an insurer had an affirmative duty to initiate settlement negotiations only where liability was clear and the injuries were so serious that a judgment in excess of the policy limits was likely. However, under Bannon, an insurer now has an affirmative duty to initiate settlement negotiations where it is clear that liability lies mostly with its insured and, as before, the injuries are so serious that a judgment in excess of the policy limits is likely. Moreover, Bannon leaves unclear what apportionment of fault must clearly lie with an insured before triggering an insurer’s duty to initiate settlement negotiations.
Going forward, insurers should be aware that the potential for third-party bad faith claims is always present in cases where the insurer is aware of severe injuries on the part of the claimant. Insurers can take steps to protect itself against third-party bad faith claims.Insurers should be on the lookout for signs of potential catastrophic injuries, such as, for example, accidents involving motorcycles and accidents were someone is airlifted to the hospital. When a claim does present with injuries that are likely to be deemed catastrophic, insurers can protect themselves through aggressive claims investigation within the first 30 days of a claim being reported.
In Florida, insurers should not wait until they receive a letter of representation before initiating settlement negotiations. As stated above, the claimants argued that the adjuster’s supervisor did not provide settlement authority to tender the $250,000 policy limits until after Geico learned that Bannon had been in contact with an attorney on Nov. 18, 2010. The jury could have put a lot of weight on why Geico would wait to tender the policy limits until just after being notified that Bannon had contacted an attorney.
This matter serves as another cautionary tale why insurer survival depends upon being paranoid in Florida. Florida is well known as being the land of Disney and orange juice, but we also manufacture bad faith claims.
Rory Eric Jurman is a shareholder and Vanessa Alvarez is a law clerk at Fowler White Burnett PA.
 Johnson v. Geico Gen. Ins. Co., 318 Fed. Appx. 847 (11th Cir. 2009).
 Bannon v. Geico Gen. Ins. Co., Case No. 17-14184, 2018 WL 3492111 (11th Cir. July 20, 2018).
 Fla. Standard Jury Instruction 404.4, Insurer's Bad Faith (Failure to Settle); see also Campbell v. Gov't Emps Ins Co. 306 So. 2d 525 (Fla. 1974).
 Boston Old Colony Ins. Co. v. Gutierrez, 386 So. 2d 783, 785 (Fla. 1980).
 State Farm Mut. Auto. Ins. Co. v. Laforet, 658 So. 2d 55, 62–63 (Fla. 1995); Talat Enters., Inc. v. Aetna Cas. & Sur. Co., 952 F. Supp. 773 (M.D. Fla. 1996).
 Berges v. Infinity Ins. Co., 896 So. 2d 665, 677 (Fla. 2004).
 Powell v. Prudential Prop. & Cas. Ins. Co., 584 So. 2d 12, 13–14 (Fla. 3rd DCA 1991).
 Id. at 14.
 Johnson v. Geico Gen. Ins. Co., 318 Fed. Appx. 847, 851 (11th Cir. 2009).
 Aboy v. State Farm Auto. Ins. Co., 394 Fed. Appx. 655, 657 (11th Circ. 2010).
 See Johnson, 318 Fed. Appx. at 851.
 Shin Crest PTE Ltd. v. AIU Ins. Co., 605 F. Supp. 2d 1234, 1240 (M.D. Fla. 2009) (citing Powell, 584 So. 2d at 14).