Appellate Court Affirms Summary Judgment in Powell Claim and Strictly Construes “Clear Liability” Standard

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In the recent Welford decision, the Eleventh Circuit Court of Appeals affirmed an important order regarding a “Powell claim”, and thereby construed the “clear” liability prong of the Powell test fairly strictly and not how it had been applied previously.

By way of background, the general rule in Florida is an insurer is not liable for bad faith conduct in the absence of an offer to settle. Put another way, insurance companies, in general, will not be liable for an excess verdict if there is no offer of settlement. See e.g. Seward v. State Farm Mut. Auto. Ins. Co., 392 F.2d 723, 728 (5th Cir. 1968); see also Davis v. Nationwide Mut. Fire Ins. Co., 370 So. 2d 1162, 1163 (Fla. 1st DCA 1979).

In Powell, however, the appellate court held that “an offer to settle is not a prerequisite to the imposition of liability for an insurer’s bad faith refusal to settle, but is merely one factor to be considered.” Powell v. Prudential Prop. & Cas. Ins. Co., 584 So. 2d 12, 14 (Fla. 3d DCA 1991). The appellate court went on to state that an insurer may have an affirmative duty to initiate settlement negotiations where 1) liability of the insured is clear, and 2) the injuries are so serious that a judgment in excess of the policy limits is likely.

Powell claim” is thus used to describe lawsuits for third-party bad faith where the injured party never offered to settle at or below the applicable coverage limits.

In Weldorf, briefly, the facts involved a motorist who struck three pedestrians who were wearing dark clothes and walking near the middle of a lane when she was attempting to pass another vehicle. The coverage at issue belonged to a car that sped up a couple of times to block the motorist who struck the pedestrians from passing it (hereinafter “subject defendant”). Two of the pedestrians died and the third was injured as a result of the crash. Among other things, the police officer who investigated the accident stated that he had nothing to implicate the subject defendant.

A few months after the crash, the insurer offered to settle within the policy limits, but the subject plaintiff rejected the offer. The subject plaintiff then filed a lawsuit that went to trial. The jury found that the driver of the car that struck the pedestrian was 7% at fault, the driver of the subject defendant which sped up to prevent the other car from passing it was found to be 38% at fault, and the subject decedent was found to be 55% at fault (for walking in the road at night).

Thereafter, the subject plaintiff filed a complaint against the insurer alleging it acted in bad faith by failing to investigate and make a timely offer to settle, seeking recovery in excess of the $10,000 liability coverage limit. The insurer removed the case to federal court and moved for summary judgment, which the District Court granted. In analyzing Powell, the District Court noted:

On its face, Powell does not obligate insurers to initiate settlement negotiations whenever an insured is involved in a crash and has some potential liability. Indeed, if that were the law, insurers would have that obligation in virtually every accident case as it is almost always possible that an insured may be found at least partially liable for an injury.10 But that is not what the Powell Court said. Rather, at the risk of repetition, Powell speaks specifically about an insurer’s responsibility when its insured’s liability is clear, which generally means: “Free from doubt; sure. Unambiguous.” See Black’s Law Dictionary (10th ed. 2014); Dianderas v. Florida Birth Related Neurological, 973 So.2d 523, 527 (Fla. 5th DCA 2008) (providing other dictionary definitions of “clear,” including “obvious; beyond reasonable doubt; … plain; evident; free from doubt or conjecture, unequivocal”).

Welford v. Liberty Ins. Corp., 190 F. Supp. 3d 1085, 1096 (N.D. Fla. 2016).

Therefore, the District Court concluded that “Powell holds that an insurance company is obligated to initiate settlement discussions in a probable excess case even if there is no formal demand, but that obligation exists only if ‘liability is clear.’” Id. at 1098.

As it pertained to the case, the District Court explained that it was not necessary for it to determine what constitutes “clear” liability in percentage terms, and that it only needed to know that on the facts of the case, liability was not “clear” because “the FHP officer investigating the crash, the investigator employed by [the subject plaintiff’s] original attorney, and his own expert witness all expressed serious doubt and misgivings about [the subject defendant’s] liability for the accident (not to mention that [the defendants] each denied fault outright). Consequently, [the Court] conclude[s] as a matter of law that Liberty did not commit bad faith by failing to initiate settlement discussions after the May 7th call.” Id.

On appeal, the Eleventh Circuit held that summary judgment was properly granted in favor of the insurer. The appellate court explained that the insurer was at best negligent, and the standard for determining liability in an excess judgment case is bad faith rather than negligence. Moreover, while the insurer made no pre-suit settlement offer, there was no affirmative duty to do so, and even if there was, “such a duty would have been inapplicable because [the subject defendant] was not clearly liable for the accident.” Welford v. Liberty Mutual Ins. Co., 2017 WL 5899784 *4 (11th Cir. 2017).

This interpretation of “clear” liability is stricter than how the standard has been previously applied. In the past, carriers had generally considered the liability analysis in light of the available coverage. Therefore, parties should proceed cautiously with Powell claims.

Citations: Eleventh Circuit’s Decision: Welford v. Liberty Mutual Ins. Co., 2017 WL 5899784 (11th Cir. 2017); District Court’s order: Welford v. Liberty Ins. Corp., 190 F. Supp. 3d 1085 (N.D. Fla. 2016).

(This post was prepared by Karina D. Rodrigues, Esq. For more information, please contact Karina at kdr@kulaw.com or 954-522-6601).