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News Room

SPECIAL BAD FAITH UPDATE

August 21, 2015

SPECIAL BAD FAITH UPDATE

Dear Ladies and Gentlemen:

This correspondence is to advise you of an important recent decision by the Eleventh Circuit United States Court of Appeals which vacated a final judgment finding that the United States District Court for the Southern District of Florida erred as a matter of law and abused its discretion in denying the admission of evidence in a bad faith case of: 1) the development of Florida law with respect to whether an insurance policy covered a motor vehicle accident and 2) the exclusion of evidence of earlier decisions of the district court which rejected the theory on which the Plaintiff relied on to argue that coverage existed.  In Esperanza Garcia v. Geico General Insurance Company, No. 13-15788 (11th Cir. August 19, 2015), the Court concluded that an insurance carrier’s reliance on existing Florida law to deny coverage was relevant to determine the reasonableness of the carrier’s coverage decision and the fact that the district court had agreed with the carrier before the Florida Supreme Court decided Chandler v. Geico Indem. Co., 78 So. 3d 1293 (Fla. 2011) was also relevant.  Additionally, the Court rejected the contention that admitting this evidence would constitute improper bolstering of the carrier’s expert witness’ credibility.

FACTS AND PROCEDURAL HISTORY

This matter involved a lawsuit filed by a third-party against Geico alleging that Geico acted in bad faith in denying coverage to its insured based on a Coblentz agreement entered with Geico’s insured.  On December 14, 2006, Miguel Baena had rented a motor vehicle from Enterprise Rent-a-Car (“Enterprise”).  The rental agreement expressly denied permission to anyone other than Mr. Miguel Baena to operate the rental vehicle and stated that if this provision was violated, the rental agreement would be void.  Mr. Miguel Baena went out one night with his brother, Edgar Baena and while on their way home, Mr. Edgar Bena drove the rental vehicle.  They were involved in a motor vehicle accident with Paola Penafiel which caused her to sustained fatal injuries (the “Subject Accident”).  At the time of the Subject Accident, Mr. Edgar Baena was insured under an automobile insurance policy issued by Geico which provided coverage to him for collisions where he was the driver of his own vehicle or the vehicle of another with that person’s consent.  Specifically, while operating another’s vehicle where the “use [was] with permission, or reasonably believed to be with permission, of the owner and within the scope of that permission.”

Geico determined that there was no coverage for the Subject Accident because Mr. Edgar Baena did not have Enterprise’s permission to use the vehicle and there was no basis, which indicated that Mr. Edgar Baena reasonably believed he had permission.[1]  Esperanza Garcia, as Personal Representative of the Estate of Paola Penafiel filed a wrongful death action against Mr. Edgar Baena in State Court.  Mr. Edgar Baena entered into a Coblentz agreement with Ms. Garcia for a $5 million dollar judgment.  Ms. Garcia then filed a complaint against Geico alleging bad faith in denying coverage.  Geico removed to the United States District Court for the Southern District of Florida and filed a declaratory judgment action seeking a declaration that the Geico policy did not provide coverage for the Subject Accident.  The lawsuits were consolidated and the bad faith action was stayed pending the determination of coverage at trial.

Ms. Garcia’s theory at trial was that under Florida law, a vehicle owner’s permission to use a vehicle could be imputed to an insured third party where the person given permission to operate the vehicle grants permission to the third party.  The case went to trial several times with the first two trial resulting in mistrials.[2]  At the third trial, the jury returned a verdict in Geico’s favor which established that Mr. Edgar Baena did not reasonably believe he had permission to drive the vehicle.  Ms. Garcia moved for judgment notwithstanding the verdict which the district court denied relying on Geico Indem. Co. v. Shazier, 34 So. 3d 42 (Fla. Dist. Ct. App. 2010), quashed sub nom. Chandler v. Geico Indem. Co., 78 So. 3d 1293 (Fla. 2011), which rejected the implied consent doctrine as a matter of law.  A judgment was entered in Geico’s favor on the coverage issue and Ms. Garcia appealed that judgment.  The Eleventh Circuit United States Court of Appeals reversed the district court’s decision and remanded the case based on a new 2011 Florida Supreme Court’s decision in Chandler v. Geico Indem. Co., 78 So. 3d 1293 (Fla. 2011) which applied the implied consent doctrine even in circumstances where the owner had placed limits on the initial use of the vehicle.  On remand, the district court entered judgment on the coverage issue in Ms. Garcia’s favor and the bad faith case proceeded to trial.

During the litigation proceedings of the bad faith case, Geico’s expert witness[3] submitted a report and was scheduled for deposition.  In his report and deposition, he addressed Florida case law on the implied consent issue at the time that Geico denied coverage and the district court’s orders rejecting the implied consent doctrine prior to the appeal and the Shazier and Chandler decisions.  Ms. Garcia moved to exclude discussion of these decisions by Geico’s expert contending that the decisions were issued after Geico’s coverage determination and had no bearing on the substance of the coverage dispute and Geico’s decision to deny coverage.[4]  Additionally, Ms. Garcia argued that allowing the decisions to be admitted would constitute improper bolstering of the expert’s testimony.  The district court agreed and ordered that Geico’s expert could not discuss any of the decisions.

At trial, Ms. Garcia argued that at the time GEICO denied coverage, Florida law had recognized the implied consent doctrine, that such law was well-settled, and that GEICO ignored the well-settled law when it denied coverage.  Ms. Garcia’s expert also testified on this issue.  Geico objected arguing that Ms. Garcia had opened the door to evidence regarding the excluded decisions but the court overruled the objection.  During Geico’s expert’s testimony, Ms. Garcia elicited testimony that the district court had, prior to the jury trial, determined coverage in Mr. Edgar Baena’s favor. However, Geico’s expert was not permitted to explain that the decision came only after Chandler was issued.  The jury found in Ms. Garcia’s favor, and the district court entered judgment for Ms. Garcia. GEICO moved for a new trial based on the evidentiary exclusion. The district court denied that motion and Geico appealed.

UNITED STATES COURT OF APPEALS DECISION

The Eleventh Circuit United States Court of Appeals vacated the final judgment and remanded for a new trial finding that the district court’s ruling in denying the admission of evidence of the development of Florida law with respect to whether the Geico insurance policy covered the Subject Accident and the exclusion of evidence of earlier decisions of the district court which rejected the theory on which Ms. Garcia relied on to argue that coverage existed were legal errors and the district court abused its discretion.

The Court first determined whether Geico’s conclusion that coverage did not apply based on existing Florida law was relevant in the case.  The Court found that this was relevant and went to the “reasonableness” of Geico’s decision and the coverage dispute that the district court agreed with Geico before the Florida Supreme Court decided Chandler.  The Shazier decision also supported Geico’s argument that Florida courts did not recognize the implied consent doctrine prior to Chandler or, at a minimum, there was a reasonable basis for making that determination.  It was also noted that the Chandler decision was also relevant as it established when Florida law recognized the implied consent doctrine which was the cause of the reversal of the first judgment in Geico’s favor.

The Court disagreed with Ms. Garcia with respect to the interpretation of the court’s decision in Harbison.  The Court of Appeals explained that the Harbison Court did not hold that previous decisions in a litigation were irrelevant to the bad faith question or that such decisions cannot be admitted into evidence on the issue.[5]  With respect to the issue argued by Ms. Garcia that admitting the evidence would constitute improper bolstering, the Court stated that the evidence Geico sought to admit did not go to the witness’ credibility.  The Court explained that a court may exclude evidence as improper bolstering when the purpose of the evidence is to vouch for the witness’ credibility.

Lastly, the Court concluded that where “the weight of legal authority on the coverage issue and the reasonableness of the coverage decision are at issue… opinions considering, applying, and clarifying such legal authority [are] relevant.”  Since the evidence was relevant and the basis for the district court’s exclusion was insufficient as a matter of law, the exclusion was an abuse of discretion.  Therefore, the final judgment was vacated.

We hope you find the above-referenced case helpful and insightful.  Should you have any questions with respect to the foregoing, please do not hesitate to contact the undersigned at your earliest convenience.

Very truly yours,

JOHN BOND ATKINSON

VERONICA RUBIO

[1] Mr. Edgar Baena never responded to Geico’s inquires as to whether he reasonably believed he had permission to use the vehicle.

[2] After the first trial, the district court had directed a partial verdict in favor of Geico finding that Enterprise did not consent to Mr. Edgar Baena’s use of the vehicle.

[3] Note that Mr. John Bond Atkinson, Founding Partner at Atkinson & Brownell, P.A., was Geico’s expert and testified as to good faith claims handling for GEICO.

[4] In support of Ms. Garcia’s proposition, she cited to Harbison v. American Motorists Insurance Co., 636 F. Supp. 2d 1030 (E.D. Cal. 2009).

[5] The Eleventh Circuit explained that in Harbison the Court denied a motion for summary judgment which stated that “a prior decision in favor of [the insurer’s] motion for summary judgment does not preclude a finding of bad faith.”  Harbison v. American Motorists Insurance Co., 636 F. Supp. 2d at 1043.  However, the court did not exclude evidence of the ruling at trial. Id.  Second, the court did not give the prior decision the dispositive effect since California law clearly provided coverage under the circumstances of that case.  Lastly, there was no indication in Harbison that the prior decision relied on case law that was later abrogated, overruled, or clarified by intervening state court decisions.  Id.