Many times, insurers find themselves in a bind when there are competing claims for the same insurance proceeds. A similar question always arises in these situations: how should a carrier go about distributing insurance benefits in an equitable fashion and meet the standards of good faith claims handling? This question is relatively easy to answer on claims that do not amount to more than policy limits. The question, however, gets more difficult when the total value of competing claims exceed policy limits.
Under Florida law, “it is generally held that where multiple claims arise out of one accident, the liability insurer has the right to enter reasonable settlements with some of those claimants, regardless of whether the settlements deplete or even exhaust the policy limits to the extent that one or more claimants are left without recourse against the insurance company.” Harmon v. State Farm. Mut. Auto. Ins. Co., 232 So. 2d 206 (Fla. 2d DCA 1970); see also Farinas v. Florida Farm Bureau Gen. Ins. Co., 850 So. 2d 555 (Fla. 4th DCA 2003). Whether these claims are to be treated one at a time or collected and evaluated together, is a choice solely within the discretion of the insurer with the risk, of course, also borne by the insurer. Harmon v. State Farm Mut. Auto. Ins. Co., 232 So. 2d 206 (Fla. 2d DCA 1970).
In order to satisfy the requirements for good-faith settlement of competing claims the insurer must: (1) fully investigate all claims arising from a multiple claim accident; (2) seek to settle as many claims as possible within the policy limit; (3) minimize the magnitude of possible excess judgments against the insured by reasoned claim settlement; and (4) keep the insured informed of the claim resolution process. Gen. Sec. Nat’l Ins. Co. v. Marsh, 303 F. Supp. 2d 1321 (M.D. Fla. 2004). Whether an insurer has met its good faith duty and undertaken a reasonable claims settlement strategy are generally questions for a jury to decide. Farinas v. Florida Farm Bureau General Ins., 850 So. 2d 555 (Fla. 4th DCA 2003).
Providing some guidance on potential settlement negotiations, a similar case presented in a Florida Federal District Court addressed a scenario where there were two claimants who made demands for policy limits. In Gen. Sec. Nat’l Ins. Co. v. Marsh, an automobile accident resulted in the death of one individual and the serious injury of another. 303 F. Supp. 2d 1321. The wrongful death claim would have exhausted policy limits. In facing a situation where two claims were made for policy limits, the insurer offered policy limits on a “global basis” and allowed the claimants to negotiate an agreement on how to divide the benefits. Once these negotiations broke down between the claimants, the insurer settled the wrongful death claim for policy limits because it “posed the greater risk for an excess judgment against its insured.” The Court entered summary judgment in favor of the insurer holding that as a matter of law, the insurer had acted reasonably and in good faith when it settled one claim to the exclusion of the other because it had taken the necessary steps to settle competing claims.
This strategy of negotiating claims on a global basis provides some insight on how insurers can approach competing claims, but is not the polestar by which all negations should proceed. Different factual scenarios present themselves constantly to insurers and, while the court’s guidance in Marsh is helpful, it is not a sure-fire way to avoid claims of bad faith.