1. Florida’s Bad Faith Firing Squad Takes Aim at State Farm – Again

Markuson v. State Farm, __ So.3d __ (Fla. Dist. Ct. App., Feb. 28, 2024).

Takeaway: Florida’s bad faith law requires careful navigation. Here, State Farm may be liable

for an above-limits consent judgment even though it had no obligation to accept Plaintiff’s

above-limits demand, potentially converting a $300,000 policy into $3,000,000 in extracontractual obligations. The limit can be “opened” even outside a policy limit demand.

Examples of suggested behavior: advise insured of demand, possible excess judgment, etc.

In 2008, Markuson sued Saterbo for damages suffered in a car accident. Saterbo’s policy limits

with State Farm were $300k. State Farm made an initial offer to settle, which was rejected.

Markuson later made two settlement offers on condition that State Farm tender its limits,

authorize a consent judgment of $1.9 million, and further authorize the Saterbos to assign their

claims against the insurance agent to Markuson. State Farm did not agree and eventually a $3

million consent judgment was entered by Markuson against the Saterbos.

In the ensuing coverage action, State Farm succeeded at the trial court, but the court of appeal

remanded for further proceedings, finding rejection of the above-limits demand was not bad

faith, but it may have committed bad faith in other ways. In most jurisdictions, rejecting a limits

demand is essential to find a carrier liable above limits. However, in Florida, bad faith “is

determined under the ‘totality of the circumstances.’” For example, the insurer might commit

bad faith by failing “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.”

2. Colorado: Notice-Prejudice Applies to First-Party Occurrence Cover

Gregory v. Safeco Insurance, 2024 CO 13 (Colo. 2024).

Takeaway: Insurers should document prejudice caused by late notice in real-time, such as

impairment of investigation and settlement. Here, Colorado reversed prior precedent and

applied the notice-prejudice rule to occurrence-based, first-party homeowners’ property

policies. The decision continues Colorado’s trend to require prejudice under occurrence-based

policies, i.e., where the happening rather than the claim triggers coverage. The Court expressly

distinguished claims-made policies where “date-certain notice requirement defines the scope

of coverage”; these reporting obligations remain in force. Claims-made insurers may consider

including notice requirements in the insuring grant for the avoidance of doubt.

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Serving up your favorite or coverage litigation updates from the California bar, best enjoyed with coffee or tea.

Homeowners reported hail damage to their homes after the one-year notice periods set out in

their homeowners’ insurance policies. The insurers denied coverage because notice was given

late. The trial and intermediate appellate courts upheld the denials of coverage, applying

Colorado’s “traditional approach” to notice provisions for first-party claims under insurance

policies covering property. Under the “traditional approach,” compliance with a notice provision

in a policy was a condition precedent to the right of a policyholder to recover under their policy.

In a major shift, the Colorado Supreme Court overturned the appellate courts and opted to apply

a notice-prejudice rule. If the insured’s notice was timely or any delay was reasonable, coverage

survives. If not, the insurer must show prejudice by a preponderance. The Court based its decision

on several public policy considerations: the purpose of the notice is to permit investigation of the

claim (rather than the trigger of coverage), the adhesive nature of insurance contracts,

compensating tort victims, and avoiding insurer windfall on a technicality.

These considerations are in contrast to those in play when “the date-certain notice requirement

defines the scope of coverage.” “[T]o excuse late notice in violation of such a requirement would

rewrite a fundamental term of the insurance contract.” The notice obligation remains in force on

these claims-made policies.

Insurers writing claims-made policies should consider including reporting requirements in the

insuring clause to remove any doubt that timely notice is a fundamental part of the insurance.

All insurers, but especially insurers writing occurrence-based policies, should document prejudice

resulting from delayed notice, e.g., changed evidence now incapable of complete forensic review.

3. Ninth Circuit Upholds Rescission Due to Misrepresentations

Hughes v. First National, Hughes v. General Insurance (9th Cir. Mar. 20, 2024)

Takeaway: Courts are friendly to carrier recessions due to misrepresentations on insurance

applications across coverage lines. Insurers can bolster their position by taking examinations

under oath to cement testimony and prevent a later creative reconstruction of evidence.

The Ninth Circuit recently affirmed summary judgment based on the insured’s misrepresentations

on her insurance application for a residential property in Malibu, California. The insured

represented she had no losses in the last five years and there was no “business on the premises.”

When she submitted a claim for fire and theft amounting to $1 million in contents, the insurers

discovered evidence the property was operated as a short-term rental and uncovered three prior

claims omitted from the application. The carriers denied coverage based on these

misrepresentations. Summary judgment was granted on the carriers’ counterclaims for rescission.

The insured stated in her declaration that she had never run a business at the property, but the

panel rejected the declaration because it contradicted her earlier examination under oath. The

panel also rejected the insured’s argument that, due to a language barrier,she did not understand

the meaning of the application. A material misrepresentation during an application (as opposed

to a claim) entitles an insurer to rescind regardless of whether it was intentional or not. The panel

also disagreed that the insured could justify the answers based on her subjective understanding,

i.e., that only losses reported to the two insurers had to be disclosed.

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