GEICO will pay a 9 million judgment because of bad faith

The Florida Supreme Court recently said that GEICO will pay over $9 million because it acted in bad faith when handling its insured’s claim.

The Underlying Story

A guy purchased car insurance through GEICO. His policy provided for $100,000 in bodily injury coverage. As a reminder, bodily injury coverage or BI, is the available insurance to pay the other party if you are at fault for an accident.

Well the GEICO insured caused an accident and killed the other driver. The other driver had a wife and 3 children, so the claim was certainly worth more than $100,000.

The lawyer for the other driver contacted GEICO immediately and requested that GEICO’s insured provide some financial information and provide a statement, so the lawyer could find out if there were any other insurances available to compensate the Estate of the person who died. The GEICO adjuster dropped the ball, did not timely communicate the request to the GEICO insured, and he ended up getting sued.

The Legal Battle

The GEICO insured gets sued and there is an excess judgment. The Estate of the Decedent brings a bad faith claim against GEICO. The jury finds that GEICO acted in bad faith and awarded over $9 million to the Estate. GEICO appeals the case and the Court of Appeals overturns the verdict, and said GEICO didn’t act perfectly, but GEICO’s inaction wasn’t in bad faith.

The Estate didn’t like the appellate court ruling so it files for the Florida Supreme Court to review the matter.

The Florida Supreme Court Ruling

A divided Florida Supreme Court reinstated the verdict for the Estate. What is important about this ruling is some of the statements about an insurance company’s relationship with its policy holders. Here are some of the statements:

An insured pays its insurance premiums with the expectation that the insurer will act in good faith in the investigation, handling and settling of claims brought against its insured.

Bad faith law is designed to protect insureds who have paid their premiums and fulfilled their contractual obligations.

The insurer has a duty to use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of its own business.

The insurer has to act in good faith.

The good faith duty obligates the insurer to advise the insured of settlement opportunities, to advise as to the probable outcome of the litigation, to warn of the possibility of an excess judgment, and to advise the insured of any steps he might take to avoid same.

An insurer owes a fiduciary duty to act in the insured’s best interests.

The Supreme Court Commented on the Evidence against GEICO and said:

GEICO failed to act as if the financial exposure to Harvey (its insured) was a ticking financial time bomb.

GEICO completely dropped the ball and failed to fulfill its obligation to Harvey to “use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business.

Instead of doing everything possible to facilitate settlement negotiations, GEICO’s claims adjuster… was a considerable impediment.

Conclusion

This may have been an isolated instance on GEICO’s part. GEICO has grown and taken up a greater market share of the auto insurance business in recent years. As consumers we are always conscious of price. GEICO’s advertisements have always been based on price. Typically, the advertisement will say something like “spend 15 minutes” and save…

Price is important when making your insurance purchases, but we purchase insurance for protection if the need arises. At least in this case, GEICO did not protect its insured.