Insurers Beware of Form Releases- GEICO Dodges Bad Faith Verdict in 11th Circuit

Written by: Stephen D. Delk, Esq.

Nearly all insurers, both as a matter of habit and perhaps in effort to curb expenses, routinely use form releases in settling cases. Although some standing operating procedures in claim handling may often times be a positive, at least for purposes of uniformity and consistency, all insurance carriers should be aware of the potential pitfalls in relying upon generic form releases.

A case that appeared on the radar of those monitoring insurance coverage issues last year (due to a favorable result to the insurer upon re-trial) has reappeared in an unpublished opinion out of Florida last week. Moore v. Geico Gen. Ins. Co., No. 17-13655 (11th Cir., December 14, 2018). The U.S. Court of Appeals for the 11th Circuit upheld a district court judge’s decision to abolish a bad faith jury verdict, which resulted in a defense verdict in the new trial.

The underlying lawsuit stemmed from a 2010 automobile accident that resulted in several significant injuries and a fatality. The plaintiff in the underlying matter sent a policy limits demand to both insurers involved in the subject accident. The terms of the demand contemplated releases for ONLY the insureds and also required affidavits confirming no additional coverage existed for each defendant. One insurer complied with the terms of the demand and settled for its policy limits. GEICO submitted a generic form release (along with allegedly insufficient affidavit(s) regarding coverage) that included a release of “all officers, directors, agents, or employees of the foregoing [named insureds], their heirs, executors, administrators, agents, or assigns,” in addition to its insured. Such language would have conceivably released any claims against GEICO itself, so the demand was rejected by plaintiff’s counsel and suit was filed. The outcome in the underlying case in 2013 was a $45M verdict, $4.4M of which was apportioned to the GEICO insured.

The GEICO insured filed a bad faith lawsuit a month after the aforementioned verdict, alleging GEICO botched the opportunity to resolve the matter for its policy limits. GEICO claimed it was unable to coherently interpret the settlement conditions laid out by the plaintiff in the underlying matter and that the plaintiff never intended to settle for policy limits—this is where the district court’s evidentiary rulings come into play. In the initial bad faith trial, the court allowed evidence regarding the other insurance carrier’s handling of the subject demand, particularly the fact that the other carrier complied with the demand terms and settled for its policy limits. The admission of such evidence struck at the heart of GEICO’s defense, ultimately resulting in a verdict of $5.1M in the initial bad faith trial ($4.4M plus interest).

GEICO moved for a new trial based on the denial of its motion in limine to exclude the evidence of the claim handling by the other insurance carrier. The crux of GEICO’s argument revolved around: (1) the weighing of probative value against prejudicial effect; (2) distinguishing the fact the other carrier only had the requisite property damage coverage; whereas, GEICO had both property damage coverage and bodily injury coverage. In granting GEICO’s motion for new trial, the district court judge determined the evidence regarding actions of the other insurer “distracted the jury” from the heart of the issue at hand—GEICO’s conduct. More specifically, the prejudice against GEICO outweighed any probative value. As noted above, the new trial on the bad faith claim (absent the prior evidence relating to the other insurance carrier) resulted in a defense verdict in favor of GEICO.

The GEICO insured appealed, alleging error in both granting a new trial and barring the evidence related to the other insurance carrier. The appellate court upheld the district court’s ruling. However, the appellate opinion noted that it reviewed the matter using an abuse of discretion standard, inferring that the ruling handed down may have differed if the standard of review would have been de novo because the probative value of the evidence at issue was a close call.

Lessons Learned:

(1) Exercise caution in utilizing generic form releases in the face of particular terms presented in a policy limits demand. Consider having defense counsel draft, or at a minimum review, all such responses to demands from plaintiffs. Failure to strictly comply to demand terms could result in a rejection by the claimant and lead to exposure beyond the policy limits.

(2) Insurers should be aware that a court may permit evidence of how another insurance carrier involved in an incident handled its claim, which could in turn highlight any alleged acts of bad faith against them.