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Legal Updates for Florida Coverage and Property Litigation

Failure to settle compensatory damages claim for policy limit, despite carve-out for punitive damages claim, amounts to bad-faith under totality of the circumstances standard.

Safeco Ins. Co. of Illinois, Appellant v. Rebecca L. Heikka, Appellee, Fla. 4th DCA, Nos. 4D2022-2969 and 4D2023-1916, Nov. 6, 2024; Consolidated Appeals from Circuit Court for 17th Judicial Cir., Broward Co., Judge C.A. Rodriguez, Case No. CACE 07-008440

December 1, 2024

by Seth B. Altman

In the first phase of these consolidated appeals, Safeco appealed the final judgment following a directed verdict in Heikka’s favor in her bad-faith claim against Safeco. 

Heikka had been a passenger on a motorcycle that was rear-ended by Safeco’s insured, who was later convicted for driving under the influence of alcohol and leaving the scene of an accident. Heikka suffered severe injuries. 

Safeco’s insured had a policy with a $25,000 limit for bodily injury. Prior to Heikka filing a lawsuit, her attorney and Safeco’s adjuster had been in communication regarding tender of the policy limit and a settlement release. The adjuster sent a release of all claims and a check for $25,000 to plaintiff’s counsel. However, plaintiff’s counsel wanted the release to make an exception for punitive damages or claims against anyone else; therefore, Heikka could not accept the release by Safeco without the requested carve-outs/exceptions as the insured’s policy did not cover punitive damages, and any uninsured or underinsured motorist claim would have been brought against Heikka’s own insurer and not against Safeco. Heikka’s attorney returned the release with the requested revisions. According to Heikka’s attorney, Safeco agreed to his changes. Safeco denied ever receiving the release. 

Heikka’s attorney cashed the check and later filed suit against Safeco for compensatory damages as a predicate to amending to seek punitive damages. Safeco retained counsel for the insured, who advised the insured of his exposure and options. Safeco, believing Heikka agreed to the original release, moved to enforce settlement. In turn, Heikka’s attorney demanded his version of the release—which excluded punitive damages and any other parties—be honored per the prior agreement. He also warned, if his amended release was not accepted, a bad-faith suit would be filed. 

Safeco sought to enforce its release in a declaratory action. The court found no settlement as there was no meeting of the minds, and Heikka was allowed to proceed on both compensatory and punitive damages. 

At trial, the jury returned a verdict of $1,169,292.83 in compensatory damages but did not award punitive damages. Heikka then moved to amend her complaint to add statutory and common law bad-faith claims. 

A trial on the bad-faith claim then ensued, and a directed verdict was entered in favor of Heikka.

On appeal, Safeco argued it could not settle with a carve-out and leave punitive damages open against the insured because its policy did not cover punitive damages. The Fourth District Court of Appeal disagreed with Safeco under the “totality of circumstances” standard. The obligation to settle in good faith requires an insurer to do more than just initiate settlement discussions. Had Safeco analyzed their insured’s potential exposure to a punitive damage claim versus the exposure on a compensatory damage claim and put itself in the shoes of its insured, it would have agreed to settle with the carve-out. The District Court concluded, “Safeco failed to fulfill its duties to act in good faith in accordance with Boston Old Colony [Insurance Co. v. Gutierrez, 386 So. 2d 783 (Fla. 1980)] when it refused Heikka’s offer to settle her compensatory damages claim for the policy limits, subject to a carve-out for punitive damages. In doing so, Safeco increased the exposure of its insured, as he faced the possibility of both an excess compensatory damages judgment and punitive damages judgment against him.” The directed verdict and judgment were affirmed.

In the second phase of these consolidated appeals, Safeco also appealed the denial of its disqualification motion and the subsequent granting of Heikka’s motion for attorney’s fees and costs. 

Safeco had moved to disqualify Judge Rodriguez following the directed verdict based on the judge’s inappropriate conduct during the trial. The trial court denied the motion and then awarded attorney’s fees and costs to Heikka’s attorneys. 

On appeal, the Fourth District Court of Appeal ruled that Safeco’s motion should have been granted and then reversed the attorney’s fees and costs judgment entered after the erroneous denial of the motion to disqualify. Although Judge Rodriguez engaged in certain conduct which required disqualification, the District Court ruled that reversal of the directed verdict itself was not required. It reviewed the verdict de novo, removing any perceived bias/taint from Judge Rodriguez, and upheld the directed verdict. However, any subsequent proceedings, such as the motion for attorney’s fees and costs, required assignment of a new judge. 

The court also noted that Judge Rodriguez’s assessment of attorney’s fees and costs for the underlying tort litigation was error as a matter of law as Sec. 624.155 does not provide for a plaintiff to recover its own fees for prosecution of the tort suit. Therefore, Judge Rodriguez’s award of $825,000 in fees/costs was reversed, and the court directed a successor judge be appointed to hear all subsequent issues, including the attorney’s fees and costs, but not for the underlying tort litigation. 

 

Legal Update for Florida Coverage & Property Litigation – December 2024 is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We would be pleased to provide such legal assistance as you require on these and other subjects when called upon. ATTORNEY ADVERTISING pursuant to New York RPC 7.1 Copyright © 2024 Marshall Dennehey, all rights reserved. No part of this publication may be reprinted without the express written permission of our firm. For reprints or inquiries, or if you wish to be removed from this mailing list, contact tamontemuro@mdwcg.com.

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Ch. 2506 appeal, therefore res judicata could not be triggered to apply to the § 1983 action. Additionally, Sheetz moved to certify the issue to the Ohio Supreme Court, citing differing results between the second and sixth districts on this same issue. Centerville approached the question, not from a claim preclusion standpoint, but from the holding in Grava v. Parkman, Twp which states that a final judgment rendered on the merits bars all subsequent action based on the same transaction or occurrence.  In yet another approach, an objector argued that claim preclusion was satisfied because Sheetz could have raised its damages claims in the administrative appeal – Sheetz disagrees. In their analysis, the Supreme Court of Ohio broke down the elements of a claim preclusion analysis: 1) a prior final, valid decision on the merits by a court of competent jurisdiction; (2) a second action involving the same parties, or their privies, as the first; (3) a second action raising claims that were or could have been litigated in the first action; and (4) a second action arising out of the transaction or occurrence that was the subject matter of the previous action. The Court held that R.C. Ch. 2506 does not permit a party to argue damages as R.C. Ch. 2506 limits the common pleas jurisdiction as if it were sitting on appeal, and therefore can only affirm, reverse, vacate, or modify the appealed order, or can remand the case to the administrative body. Further, the Court held that Grava’s conclusion that a final judgment precludes additional litigation for different relief is inapplicable under this fact pattern because it was meant only to apply to those matters in which the plaintiff brings the exact same case twice, but for new relief. The Court found Grava was inapplicable because Sheetz could have requested damages or declaratory relief in the R.C. 2506 appeal. Therefore, Grava would be nothing more than dicta if it even did apply. Going further, the Ohio Supreme Court disavowed Sixth Circuit precedent which, in reliance on Grava and other district court decisions, permitted an owner to seeking relief under 42 U.S.C. § 1983 alongside an administrative appeal. See Moore v Hiram Twp., 988 F.3d 353 (6th Cir.2021). The Ohio Supreme Court found that the Sixth Circuit had disregarded a critical decision in Community Concerned Citizens, Inc. v. Union Twp. Bd. of Zoning Appeals, 1993-Ohio-115, which clearly held that a R.C. 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