Can a claim for bad faith be maintained against a decedent’s insurance company, where the claimant failed to file a timely creditor claim against the estate? A new Florida case says yes, the bad faith claim against the insurance company can be maintained without filing a timely creditor claim in decedent’s estate.
Do Deadlines for Creditor Claims in Florida Probate Apply to Bad Faith Insurance Claims?
The Florida Probate Code imposes a statute of repose restricting creditors to two years from the date of a decedent’s death the file a claim. Fla. Stat. § 733.710. In Arroyo v. Infinity, the Third District Court of Appeals was called upon to determine the application of this rule of law in a bad-faith action against an insurance company which an Estate (assuming the role of the insured) assigned to a crash victim.
The Third District reversed all three trial court orders rendered in favor of the insurance company. This article breaks down both the Majority opinion as well as the Dissent.
The sequence of events highlighted by the Majority are as follows:
- Decedent and Victim were involved in an accident which killed Decedent and left Victim permanently injured and incapacitated.
- Victim sued the personal representatives of Decedent’s estate for negligence in a civil action but did not file a creditor claim in the Estate.
- The Estate tendered the defense of the negligence action to Decedent’s insurer, Infinity, but Infinity declined to defend the claim.
- After Infinity refused to defend the claim, the Estate and Victim entered into a Coblentz agreement under which (i) the Estate agreed to entry of consent judgment; (ii) assigned to Victim any claim the Estate had against Infinity in a potential bad-faith action; and (iii) Victim agreed not to execute the judgment against the Estate.
- A “Coblentz Agreement” (named for Coblentz v. Am. Sur. Co. of N.Y., 416 F.2d 1059 (5th Cir. 1969)) is a settlement device which can be utilized only when an insurer refuses to defend an insured. The insured is permitted to take whatever steps necessary to protect itself from exposure to a claim. This protection includes the right to enter into a consent judgment which will bind the insurer. See http://www.floridainsuranceblog.com/2008/09/articles/claims-administration-statute/be-careful-about-settlements-and-coblentz-agreements/
- After entry of the consent judgment, Victim sued Infinity for bad-faith refusal to defend the Estate in the negligence action.
- Infinity moved for summary judgment in the bad-faith action, arguing that Victim’s failure to file a creditor claim in the decedent’s estate rendered the Estate immune from liability such that the Estate was not authorized to enter into the Coblentz.
- Infinity also posited that Victim could not prove the Estate ever had exposure beyond Decedent’s policy limits, which Infinity argued was essential to Victim’s bad faith claim. Infinity also moved to intervene in the estate proceedings seeking a determination that that the personal representatives lacked authority to enter into the Coblentz agreement because Victim’s failure to file a creditor claim in decedent’s estate conferred total immunity from liability upon the Estate.
The trial court granted all relief sought by Infinity in both the negligence action and in Decedent’s Estate. Victim appealed in both matters. After consolidation, the Third DCA handed Victim a sweeping victory, ruling that:
- Permitting Infinity to intervene in the Estate was error.
- The trial court erred in ruling that the personal representatives lacked authority to enter into the Coblentz Agreement.
- The trial court erred in granting summary judgment in the negligence action in favor of Infinity.
Intervention in Florida Probate Cases
The Arroyo Court first collectively addressed the probate court’s orders (i) permitting Infinity to intervene and (ii) determining that the Estate lacked authority to enter into the Coblentz agreement. In reversing, the Arroyo Court held that there were three reasons why the grants of intervention and resulting relief to Infinity were erroneous.
No Pending Adversarial Proceeding
First, the Court noted that Infinity’s request was premised on the Rule 1.230 of the Rules of Civil Procedure. Only some of these Rules apply as a matter of course in probate proceedings. In order to invoke application of the remaining Rules (other than Rule 1.525), an adversarial proceeding, as defined by the Florida Probate Rules, must be pending. The Court concluded that, because no adversarial proceeding was pending in the Estate when Infinity’s motion to intervene was filed, there was no basis to allow Infinity to intervene. Nevertheless, because Victim failed to argue below that Rule 1.230 did not apply, the Arroyo Court had to consider whether the order permitting invention was proper under Rule 1.230.
Rights Not At issue At Time Intervention Sought
Relying on the rule of law that the intervenor’s asserted interest must be at bar at the time intervention is sought, the Court found that the trial court should not have allowed Infinity to intervene. As stated above, there was no adversarial proceeding pending when Infinity moved to intervene. In fact, there was almost no activity at all in the Estate until Infinity sought to intervene. The Court noted that Infinity’s purpose and interest in intervening was to seek adjudication of a novel issue: Whether the personal representatives were authorized to enter into the Coblentz agreement.
Because Infinity’s rights were not at issue when intervention was sought, Infinity’s efforts injected a new issue into the Estate proceedings. The Arroyo Court held that Infinity’s need to inject new issues into a pending matter evinced its inability to intervene as a matter of law. The Court noted that because Infinity was barred from intervening, the trial court could not entertain, much less grant, subsequent requests for relief facilitated by the misplaced intervention.
Failure to Defend In Negligence Action
The Arroyo Court further evaluated the substance of Infinity’s efforts after intervention was granted. Specifically, the Court noted that Infinity’s position was premised upon arguments that it could have made in the negligence action which it had previously declined to defend. Relying on Florida law holding that an insurer’s refusal to defend an insured binds the insurer to the results of the case (including a settlement such as a Coblentz agreement) in a later proceeding, the Arroyo Court was unequivocal in stating:
Infinity was absolutely precluded from raising any defenses on behalf of its insured in the probate court’s proceedings that it could have raised had it chosen to defend the Estate from [Victim’s] negligence lawsuit.
Creditor Claim Deadlines Do Not Protect Insurance Company From Bad Faith Action
In its motion for summary judgment filed in the bad-faith action, Infinity argued, and the trial court agreed, that Victim (standing in the shoes of the Estate pursuant to the terms of the Coblentz agreement) could not prevail because the creditor claim provisions of the Probate Code immunized the Estate from any exposure.
As a natural consequence of the Majority finding that Infinity’s refusal to defend the Estate in the negligence action subjected it to the outcome of that case, the grant of summary judgment was reversed. Because judgment was entered against the Estate—via the Coblentz agreement—Infinity was not permitted to relitigate the negligence action by asserting defenses that were effectively waived when it refused to defend the Estate.
In reversing, the Arroyo Court also noted that the Probate Code permits an estate to waive time periods—even those which establish a statute of nonclaim—in separate actions brought outside the estate. See May v. Illinois National Insurance Co., 771 So.2d 1143, 1145 (Fla. 2000). The Arroyo Court found that Victim’s negligence lawsuit against the Estate was such an action and further found that the Estate’s willingness to execute the Coblentz agreement rather than litigate constituted a permissible waiver. The Court noted that even though the Coblentz agreement explicitly states that Victim cannot enforce the consent judgment against the Estate, Victim is still permitted to enforce the judgment in a separate action against Infinity.
The Dissenting Opinion
In a lengthy dissent, Justice Salter writes that that Victim’s failure to timely file a creditor claim in decedent’s estate is an absolute bar to bad faith claim relief against Infinity. The Dissent acknowledges a statutory carve-out identified by the majority under which a claimant can collect casualty insurance proceeds in the absence of a creditor claim pursuant to a policy for which a decedent is the insured but only to the extent of the policy limit. Fla. Stat. § 733.702(4)(b). The Dissent notes that this rationale is “eminently logical” since a claim of no more than the decedent’s policy limits does not economically expose an estate, as such a claim is substantively one against the policy/insurer rather than one against the estate. The Dissent reasons that, as a corollary, any claim which seeks more than the policy limits does require the filing of a creditor claim because it affects the interests of the beneficiaries.
Interestingly, the Dissent then highlights the circumstances surrounding the execution of the Coblentz agreement which the Majority did not address: (i) Decedent’s insurance policy with Infinity only had a $10,000.00 coverage limit; (ii) the timeline on which the Coblentz agreement was signed and consent judgment was entered is suspicious in light of the fact that Decedent died in 2009, the negligence action was filed in 2011, and the Coblentz agreement was signed in 2013; and (iii) the value of the agreed-to judgment in the Coblentz agreement was $30 million.
The Dissent assesses the case by reference to the Estate’s position at the time the Coblentz agreement was signed. Relying on May v. Illinois National Insurance Co., 771 So.2d 1143 (Fla. 2000), the Dissent writes that the Estate faced no exposure when the agreement was signed because Victim—having failed to file a creditor claim—waived the ability to pursue a claim for more than the $10,000.00 policy limit. The Dissent further posits that despite refusing to tender fact-based defenses which were available to it in the negligence action—i.e., those pertaining to causation, liability, or damages—Infinity was still capable of asserting a timeliness defense in the bad-faith action because Victim (standing in the Estate’s shoes) could not maintain the action on statute-of-nonclaim grounds.
The Majority and Dissent differ over one narrow legal question concerning the bad faith claim and creditor claims in Decedent’s estate: whether the negligence action which Victim filed against the Estate required the filing of a companion creditor claim in the Estate as a prerequisite to Victim receiving any more than the limit of Decedent’s casualty insurance policy.
The Majority in Arroyo adopted the view that the negligence suit and subsequent bad-faith proceedings did not fall within the ambit of the non-claim creditor statute (Fla. Stat. § 733.710) because that statute only applies to proceedings against estates and the agreement at bar explicitly barred Victim from enforcing the consent judgment against the decedent’s estate.
The Dissent adopts a more holistic view, suggesting that the Florida probate code cannot be interpreted to permit a scenario like the one at bar, where a time-barred claimant and Estate appear to have conspired to leave a third-party holding the bag.