35
So.3d 893

Supreme
Court of Florida.

Pamela
PERERA, Appellant,

v.

UNITED
STATES FIDELITY AND GUARANTY COMPANY, Appellee.

No.
SC08-1968.

May
6, 2010.

 

*894 Charles P. Schropp and Charles M. Schropp of Schropp
Law Firm, P.A., Tampa, Florida, and Dennis G. Diecidue of The Diecidue Law
Firm, P.A., Tampa, Florida, for Appellant.

 

Jack R. Reiter and Jordan S. Kosches of Adorno and Yoss,
LLP, Miami, Florida, for Appellee.

 

Mark Hicks, Dinah Stein, and Brett C. Powell of Hicks,
Porter, Ebenfeld and Stein, P.A., Miami, Florida, on behalf of Florida
Insurance Council; George N. Meros, Jr. and Andy Bardos of GrayRobinson, P.A.,
Tallahassee, Florida, and Robin S. Conrad, Washington, D.C., on behalf of Florida
Justice Reform Institute and Chamber of Commerce of the United States of
America; and William D. Horgan of Quintairos, Prieto, Wood and Boyer, P.A.,
Tallahassee, Florida, and Laura A. Foggan of Wiley, Rein and Fielding, LLP,
Washington, D.C., on behalf of American Insurance Association and Complex
Insurance Claims Litigation Association, as Amici Curiae.

PARIENTE, J.

This case, pending in the federal court, involves
interpretation of Florida law on third-party bad-faith causes of action in
insurance cases. We have jurisdiction because the Eleventh Circuit Court of
Appeals certified two questions,1 which are *895 “determinative of
the cause and for which there is no controlling precedent.” Art. V, § 3(b)(6),
Fla. Const.

 

Although in this case the Eleventh Circuit has asked us
broad questions regarding common law bad-faith cause of actions under Florida
law, we have determined that, based on the unique circumstances of this case,
the answer to whether the appellant, Pamela Perera (“Perera”), has an
actionable bad-faith case against appellee, United States Fidelity and Guaranty
Company (“USF & G”), allows for a more narrow framing of the question:

 

MAY A CAUSE OF ACTION FOR
THIRD-PARTY BAD FAITH AGAINST AN INDEMNITY INSURER BE MAINTAINED WHEN THE
INSURER’S ACTIONS WERE NOT A CAUSE OF THE DAMAGES TO THE INSURED OR WHEN THE
INSURER’S ACTIONS NEVER RESULTED IN EXPOSURE TO LIABILITY IN EXCESS OF THE
POLICY LIMITS OF THE INSURED’S POLICIES?

 

The jury in this case found that USF & G acted in bad
faith and that finding is not controverted. The issue raised by the rephrased
certified question is whether the insured sustained recoverable damages as the
result of the bad faith. We answer the rephrased certified question in the
negative because, based on the facts of this case, the insurer’s actions
neither caused the damages claimed by the insured nor resulted in exposure of
the insured to liability in excess of the policy limits of the insureds’
polices.

 

FACTS AND PROCEDURAL HISTORY 2

 

Perera’s husband, Mitchell Perera, an employee of Estes
Express Lines Corporation (“Estes”), was crushed to death by a piece of
equipment during the course of his employment. As the personal representative
of his estate, Perera filed a wrongful death suit against Estes and specified
named employees of Estes (“employees”) in Hillsborough County Circuit Court
(“state trial court”).

 

At the time of Mitchell Perera’s death, Estes maintained
three insurance policies: a commercial liability policy (insuring only the
employees of Estes) issued by Cigna Property and Casualty Insurance Company
(“Cigna”) with a limit of $1 million, subject to a $500,000 deductible; an
excess worker’s compensation employer’s liability policy (insuring only Estes)
issued by USF & G with a limit of $1 million after Estes’ self-insured
retention of $350,000; and an umbrella excess liability policy (insuring both
Estes and its employees) issued by the Chubb Group of Insurance Companies (“Chubb”)
with a limit of $25 million. All three policies required Estes to provide its
own defense.

 

After learning of Perera’s lawsuit, USF & G denied
coverage, asserting that the intentional acts exclusion contained in the USF
& G policy precluded coverage of Perera’s claim against Estes.3
In March 2001, Perera formally demanded $12 million *896 to settle the case.
About a week later, Perera, Estes, and the three insurance companies met to
mediate the case. During mediation, when USF & G insisted on its coverage
defense and refused to tender its policy limits of $1 million, USF & G was
asked to leave the mediation. At mediation, Cigna offered $500,000
(representing the policy limits of $1 million minus Estes’ $500,000
deductible), Estes offered $750,000, and Chubb offered $1.25 million. However,
the last demand from Perera was $8 million, and the case failed to settle at
mediation.

 

In the months that followed, Chubb took an active role in
handling the settlement negotiations. According to trial testimony and
correspondence written by Chubb, after mediation Perera had demanded $8 million
in total to settle the case and Chubb offered $3.5 million. There is some
indication that USF & G was willing to participate in a settlement by
contributing $100,000 but that it continued to rely on its coverage defense in
declining to offer its policy limits. Then, in early August 2001, Perera
demanded $7 million in total and Chubb offered $4.25 million for a global
settlement to settle the entire case, provided that the right to seek
indemnity, contribution, or reimbursement from USF & G be preserved.

 

In late August 2001, Perera, Estes, and its employees
entered into a “Stipulation to Settle” for $10 million.4 The
stipulation provided that Estes and its employees would pay $5 million and
provide a written waiver of the workers’ compensation lien. Although not stated
in the stipulation, the negotiated settlement provided that the $5 million
would be paid as follows: $750,000 from Estes,5 $500,000 from Cigna,
and $3.75 million from Chubb. The remaining $5 million was to be sought in a
lawsuit against USF & G, which Estes agreed to either bring or assign to
Perera. Perera agreed in the settlement not to execute or record the judgment
pending resolution of the lawsuit against USF & G. Perera further agreed
that she would issue a satisfaction of judgment at the conclusion of the
lawsuit, even if the suit did not result in the recovery of any additional
proceeds.

 

In accordance with the provisions in the stipulation, the
state trial court held a limited evidentiary hearing for the purpose of
determining that the stipulation was entered “in good faith” and that the
amount of the settlement was reasonable. After finding that the settlement was
in good faith and that the amount of the settlement was reasonable, the state
trial court approved the stipulation. Pursuant to the terms of the stipulation,
a final judgment was then entered in the amount of $10 million against Estes
and its employees.

 

After the approval of the settlement and the entry of the
judgment, Perera was paid $5 million total by Estes, Cigna, and Chubb, each in
accordance with the amount previously agreed to as part of the settlement.
Perera executed a release of any further claims against Chubb.

 

In March 2002, Perera, as Estes’ assignee, brought suit in
the state trial court against USF & G for the remaining $5 million of the
consent judgment, asserting two causes of action: breach of contract (seeking
recovery of the $1 million policy *897 limits) and bad faith (seeking recovery
of the remaining balance). USF & G removed the case to federal court, after
which the federal district court granted summary judgment in favor of Perera on
the breach of contract claim, requiring USF & G to pay its policy limit of
$1 million. USF & G has not challenged the decision regarding coverage and
has paid $1 million, leaving $4 million of the consent judgment outstanding.

 

With regard to the bad-faith cause of action, the federal
district court found that no bad-faith action existed because Estes still had
over $21 million in insurance coverage from Chubb at the time of settlement.
The district court entered summary judgment in favor of USF & G, holding
that without an excess judgment there can be no cause of action for bad faith.
Perera appealed the district court’s decision to the United States Court of
Appeals for the Eleventh Circuit. The Eleventh Circuit determined that the
threshold factual issue of whether USF & G acted in bad faith held the
potential to moot the case and remanded to the federal district court to have a
jury consider that limited issue.

 

At trial in the federal district court, the jury
instructions contained stipulated facts, including that the $10 million consent
judgment was reasonable in amount. The jury was instructed that “[a]n insurance
company acts in bad faith in failing to settle a claim when, under all of the
circumstances, it could and should have done so, had it acted fairly and
honestly toward its insured with due regard for its interests.” The jury was
given the following factors to evaluate in determining whether USF & G
acted in bad faith: (1) “the efforts taken by USF & G to resolve the
coverage dispute promptly or in such a way as to limit any potential prejudice
to Estes”; (2) “the substance of the coverage dispute or the weight of legal
authority on the coverage issue that existed at the time of the dispute”; (3)
“USF & G’s diligence and thoroughness in investigating the facts
specifically pertinent to coverage”; and (4) “efforts made by USF & G to
settle the liability claims in the face of the coverage dispute.” The jury was
instructed that coverage had been determined to exist, but that factor was not
controlling on the question of bad faith. However, with regard to the issue of
damages, the jury was instructed that should it find USF & G liable for bad
faith, “the issue of any damages will be decided at a later date.” The jury
found that USF & G acted in bad faith.

 

After the case returned to the Eleventh Circuit, the
Eleventh Circuit agreed with the federal district court that there was no
excess judgment against the insured because, as of the time the settlement
agreement was negotiated, Estes had $1 million in coverage from the Cigna
policy, $1 million in coverage from USF & G’s policy, and $25 million from
the Chubb policy, but the judgment entered was for only $10 million. Perera,
544 F.3d at 1275-76. The Eleventh Circuit further reasoned that Estes was never
exposed to liability in excess of its policy limits because any such exposure
was covered by the Chubb insurance, which had limits of $25 million. Id.
After determining that Estes faced no liability above its existing policy
limits (and accordingly no excess judgment), the Eleventh Circuit stated that
it was not clear whether an excess judgment is a necessary part of a claim for
bad faith under Florida law. Id. at 1276.

 

The Eleventh Circuit then noted that USF & G made an
alternative argument that even if an excess judgment is not required, Perera’s
bad-faith claim was barred because the insured was never exposed to liability
in excess of the limits of the policies. Id. at 1277. The court
considered *898 Perera’s sole argument on this point, which was that Estes was
required to advance sums for which it would not otherwise have been liable in
order to persuade Chubb to contribute to the settlement, even though the $1
million USF & G limit had not been paid. Id. This argument was
rejected for two reasons: first, the record was clear that Chubb was committed
to settling and did not refuse to do so before USF & G’s $1 million was
paid; and second, even if Estes had paid the $1 million, it would have imposed
on Estes an exposure of only $1 million. Id. The Eleventh Circuit, after
rejecting Perera’s arguments, concluded that “Estes was never exposed to
liability in excess of the limits of its several polices, because any exposure
above USF & G’s limits was covered by the Chubb coverage with limits of $25
million.” Id.6

 

The Eleventh Circuit held that Perera had waived two
arguments. First, it noted that Chubb, the excess carrier in the instant case,
had not asserted a bad-faith claim against USF & G and did not assign any
such claim to Perera, and Perera did not argue entitlement to assert any rights
of Chubb by virtue of subrogation or otherwise. Id. at 1277 n. 2. Thus,
the Eleventh Circuit held that any such argument was deemed abandoned. Id.
Second, it noted that Perera could have raised a potential factual issue of
liability for punitive damages, but that any such argument had been waived. Id.
at 1277 n. 4.

 

ANALYSIS

 

We begin with a brief overview of the relevant and
well-established bad-faith law in this State. We then discuss the types of
circumstances that have been recognized by case law as giving rise to a
third-party bad-faith cause of action.7 Finally, we examine the
application of the law of bad faith to the facts of this case.

 

Review of Relevant Case Law

 

123 We start with the basic proposition that when an insurer
is handling claims against its insured, it “has a duty to use the same degree
of care and diligence as a person of ordinary care and prudence should exercise
in the management of his own business.” Berges v. Infinity Ins. Co., 896
So.2d 665, 668 (Fla.2004) (quoting Boston Old Colony Ins. Co. v. Gutierrez,
386 So.2d 783, 785 (Fla.1980)). This duty includes an obligation to settle
“where a reasonably prudent person, faced with the prospect of paying the total
recovery, would do so.” Boston Old Colony Ins. Co., 386 So.2d at 785.
Breach of this duty may give rise to a cause of action for bad faith against
the insurer.

 

*899 4 Although this case involves an indemnity policy,
which requires the insured to undertake the defense of a claim,8 the
law imposes the same obligations regarding settlement as set forth in Boston
Old Colony. It was the emergence of standard form liability policies that
gave rise to the common law cause of action for bad faith, see Laforet,
658 So.2d at 58; however, the duty of good faith in all respects, other than
the duty to defend, also exists when the insurance policy is an indemnity
policy. Thus, while an indemnity policy insurer’s duty of good faith does not
encompass a duty to defend, it does include a duty of good faith when
evaluating any settlement offers. That basic duty is not contested.

 

We now turn to an examination of the recognized
circumstances under Florida case law that may be relevant to this case, in
which an insured or the third-party claimant, either on its own behalf or as
the insured’s assignee, may bring a common law third-party bad-faith claim
against an insurer for damages sustained as a result of the insurer’s bad
faith.9 Unless otherwise indicated, these circumstances apply
regardless of whether the insurance policy at issue is an indemnity policy or a
liability policy.

 

5 The first widely recognized circumstance is the classic
bad-faith situation where an excess judgment is entered against the insured.
Under Florida law, it is clear that an insured or a third-party claimant may
bring a third-party bad-faith cause of action when an insurer has breached its
duty of good faith and that breach results in an excess judgment being entered
against its insured. Berges, 896 So.2d at 668.

 

An excess judgment, however, is not always a prerequisite to
a bad-faith action. The second recognized circumstance involves stipulations
known as Cunningham10 agreements under Florida law. These
agreements involve the situation where there is not a previous excess judgment
but an insurer and a third-party claimant enter into an agreement and stipulate
to try the bad-faith issues first. The parties further stipulate that if no bad
faith is found, the third-party claimant will settle for the policy limits, thus
protecting the insured from exposure to an excess judgment. Cunningham
agreements have been held by this Court to be the “functional equivalent” of an
excess judgment. Cunningham, 630 So.2d at 182. This Court has explained:

In Cunningham, we simply approved a procedure in
which the parties could avoid the time and expense of going through a trial to
obtain a final judgment. In following that procedure, the parties agree and the
courts recognize that a stipulated final judgment has the same force and effect
as a final judgment reached through the usual judicial labor of a trial when
the parties agree that it shall.

 

United Servs. Auto. Ass’n v. Jennings,
731 So.2d 1258, 1260 (Fla.1999). Under a Cunningham agreement, the
insurer’s actions protect the insured against an excess judgment.

A third recognized circumstance also involves a settlement
agreement but one that is entered into between the insured *900 and the
third-party claimant. The opportunity for a settlement without the agreement of
the insurer traditionally has occurred where an insurer breaches its duty to
defend, leaving the insured “to its own devices” to settle the case or proceed
to trial. In those circumstances, the insured is left unprotected and may enter
into a reasonable settlement agreement with the third-party claimant and
consent to an adverse judgment for the policy limits that is collectable only
against the insurer. Coblentz v. Am. Surety Co. of N.Y., 416 F.2d 1059,
1063 (5th Cir.1969); Steil v. Fla. Physicians’ Ins. Reciprocal, 448 So.2d
589, 591 (Fla. 2d DCA 1984) (“By refusing to defend Steil’s claim, the carrier
left Walker to his own devices to protect himself in the best way possible.”); see
also Chomat v. N. Ins. Co. of N.Y., 919 So.2d 535, 537 (Fla. 3d DCA 2006); Gallagher
v. Dupont, 918 So.2d 342, 348 (Fla. 5th DCA 2005). These agreements are
known as Coblentz agreements, based on the United States Fifth Circuit
Court of Appeals case.

 

Florida courts have also extended the reasoning of Coblentz
to allow agreements by the insured to a judgment in excess of the policy limits
against an insurer who wrongfully refuses to defend and acts in bad faith. See
Shook v. Allstate Ins. Co., 498 So.2d 498 (Fla. 4th DCA 1986). No Florida
case, however, has reached the issue of whether and under what circumstances a Coblentz
agreement is valid and enforceable when an indemnity policy that does not
include the duty to defend is involved. Cf. U.S. Fire Ins. Co. v. Hayden
Bonded Storage Co., 930 So.2d 686, 690 (Fla. 4th DCA 2006) (recognizing an
issue of whether a Coblentz agreement may be enforced when there is no
duty to defend but deciding that the issue was moot because the insurer did not
breach its duty to indemnify). Implicit in these decisions is a recognition
that the insured would not have entered into the consent judgment but for the
bad faith of the insurer and that the insured would otherwise have been exposed
to personal liability as a result of the insured being left to “its own
devices.”

 

6 A fourth recognized circumstance involves a claim not of
the insured or the third-party claimant, but of the excess carrier, which may
bring a bad-faith claim against a primary insurer by virtue of equitable
subrogation under certain circumstances where the primary insurer has not acted
in good faith. Under the doctrine of equitable subrogation, an excess insurer
has the right to “maintain a cause of action … for damages resulting from the
primary carrier’s bad faith refusal to settle the claim against their common
insured.” U.S. Fire Ins. Co. v. Morrison Assurance Co., 600 So.2d 1147,
1151 (Fla. 1st DCA 1992) (citing Ranger Ins. Co. v. Traveler’s Indem. Co.,
389 So.2d 272 (Fla. 1st DCA 1980)).

 

7 The reasoning of the equitable subrogation cases is that
the primary insurer is “held responsible to the excess insurer for improper
failure to settle, since the position of the latter is analogous to that of the
insured when only one insurer is involved.” Id. In other words, the
excess insurer “stands in the shoes of the insured,” to whom the primary
insurer directly owes a duty to act in good faith. U.S. Fire Ins. Co.,
600 So.2d at 1151. Accordingly, when the primary insurer’s bad-faith refusal to
settle causes the excess insurer to pay an amount greater than it would have
had to pay if the primary insurer had acted in good faith, the excess insurer
is entitled to maintain a common law bad-faith claim against the primary
insurer. See Ranger, 389 So.2d at 277. In this circumstance, there is an
explicit requirement of a causal connection between the primary insurer’s
bad-faith *901 actions and the loss or damage suffered by the excess insurer. See
id. at 276-77; see also Vigilant Ins. Co. v. Cont’l Cas. Co., 33
So.3d 734, 738 (Fla. 4th DCA 2010) (“[T]he insured, or the excess insurer
standing in the shoes of the insured, is damaged because it has paid the
judgment. It has paid money that it should not have been required to pay,
absent the primary insurer’s bad faith.” (emphasis added)).

 

Although an excess judgment is not always a prerequisite to
bringing a bad-faith claim, the existence of a causal connection is a
prerequisite-in other words, the claimed damages must be caused by the bad
faith. These principles are further illustrated by the case of North
American Van Lines v. Lexington Insurance Co., 678 So.2d 1325 (Fla. 4th DCA
1996), which involved indemnity policies. In North American, according
to the allegations in the complaint,11 the insured claimed that both
the primary insurer and the excess insurer failed to act in good faith in
attempting to settle the claim against the insured.

 

The insured was covered by two insurance policies, one
primary and one excess. Id. at 1327. Both policies were indemnity
policies, which obligated the insured to handle all claims. Id. After an
injured third party brought suit against the insured, the primary insurer
repeatedly refused to tender its policy limits and the excess insurer also
refused, claiming that exhaustion of the primary insurer’s limits was a
condition precedent to its liability. Id. at 1328. The primary insurer
eventually tendered its policy limits, provided that the insured advance $1
million. Id. On the eve of trial, the injured third party made a
settlement demand exceeding the primary insurer’s limits but within the excess
insurer’s limits; however, the excess insurer still refused to authorize
settlement. Id. The insured was faced with “near certainty of a large
judgment against it, exceeding all available coverage” and was forced to
contribute the balance of the funds necessary to settle the litigation, subject
to a reservation of its rights against its insurers-the total cost to the
insured was $7 million. Id. The insured then brought suit against its
insurers for claims of breach of contract, bad faith, and other claims. Id.
The trial court held that “an excess judgment was a requirement for any
action against an insurer arising from a refusal to settle” and dismissed the
lawsuit in its entirety, including the breach of contract claims. Id.

 

On appeal, the Fourth District Court of Appeal reversed and
reinstated all counts of the complaint, holding that under the facts of the
case an excess judgment was not necessary to assert the causes of action
alleged. Id. at 1327. The Fourth District reasoned that neither insurer
could “arbitrarily reject a reasonable settlement…. If they arbitrarily
rejected a reasonable settlement, they breached their policy provisions,
entitling [the insured] to settle the case and to seek reimbursement.” Id.
at 1332-33. The Fourth District concluded that “under the facts of this case an
excess judgment is not necessary to assert the causes of action alleged,” id.
at 1327, “because the insured has paid an obligation for which the insurers
should have been liable, had they not breached the contract.” Id. at
1333.12 Accordingly, the circumstances *902 in North American
involve a situation where the insured alleged that both the primary and the
excess insurer repeatedly failed to tender their limits, the settlement demand
exceeded the primary insurer’s limits, and the insured was faced with “near
certainty of a large judgment against it, exceeding all available coverage.” Id.
at 1328. Further, the insured alleged it had paid funds to settle the case
under an indemnity policy that it would not otherwise have had to expend
because the insurer acted in bad faith by refusing to settle.

 

In focusing on the insurer’s bad-faith failure to settle,
forcing a payment of funds that would not otherwise have been expended had the
insurers acted in good faith, the reasoning of North American is
analogous to an equitable subrogation claim brought by an excess insurer.
However, in North American, as in the equitable subrogation cases, there
must be a causal connection between the damages claimed and the insurer’s bad
faith.

 

8 As can be seen under Florida law, an excess judgment is
not always a prerequisite before a bad-faith case can be brought against the
insurer. However, the damages claimed by the insured or its assignee must be
caused by the insurer’s bad faith.

 

Application of Law to Facts

 

We next review whether Perera, as assignee of Estes, can
claim the $4 million remaining on the consent judgment as damages caused by USF
& G’s bad faith. In our analysis, we review the application of bad-faith
law to the facts of this case.

 

First, we begin with the classic bad-faith case involving a
judgment in excess of the policy limits and conclude that in this case there is
no excess judgment because the consent judgment was within the limits of all
applicable policies. We reject Perera’s argument that the $4 million is an
excess judgment because the amount is in excess of Estes’ primary policy
limits. We have previously stated that “[a]n excess judgment is defined as the
difference between all available insurance coverage and the amount of the
verdict recovered by the injured party.” Jennings, 731 So.2d at 1259 n.
2 (citing McLeod v. Cont’l Ins. Co., 591 So.2d 621 (Fla.1992)). Clearly,
Estes had multiple policies, including excess coverage, because it wanted to
protect itself against liability for a verdict in excess of USF & G’s
policy limits. Therefore, the classic bad-faith cause of action is not
available to Perera as Estes’ assignee.

 

Second, this case does not involve a Cunningham
agreement where the insurer protects the insured by agreeing to try the
bad-faith issues first and stipulate to an amount of damages. In this case, USF
& G did not participate in any such agreement, and Chubb agreed to the
settlement but did not agree to pay $10 million contingent on a finding of bad
faith.

 

Third, we address the potential applicability of Coblentz.
Although Coblentz agreements have arisen in the context of liability
policies, where there is a breach of the duty to defend, we do not reject the
application of Coblentz to indemnity policies. Perera argues that under
Florida law, an insured is not required to put its personal assets on the line
to settle a case *903 in which its insurer acts in bad faith; rather, Perera
asserts, the insured may enter into a settlement that assigns to the plaintiff
the insured’s rights against the insurer in exchange for a release from
personal liability. As a general proposition, Perera is correct; however, it
does not apply to the facts of this case.

 

In this case, the insured was not actually “left to its own
devices” regarding settlement. The insured had in effect both an additional
primary insurer through Cigna and excess insurance in the amount of $25 million
through Chubb. At all times Cigna was willing to pay its policy limits and
Chubb was willing to negotiate settlement from its excess insurance policy even
without USF & G’s participation. In fact, Chubb took an active role in
settlement negotiations, ultimately paying only $3.75 million of the $10
million consent judgment, far below its policy limits of $25 million.

 

We next address the applicability of equitable subrogation,
where the excess carrier pays monies it would not otherwise have been obligated
to pay if the primary insurer had acted in good faith. This type of claim,
which may be assigned to a third-party claimant, is not applicable here. In
this case, Chubb did not assign to Perera any potential cause of action it may
have had against USF & G by virtue of equitable subrogation.13
In fact, under the terms of the agreement, Perera actually executed a release
of liability of any further claims against Chubb.

 

Finally, we address whether the facts of this case are
analogous to the facts in North American and conclude that the facts of
this case are distinguishable. Here, Perera is not claiming Chubb acted in bad
faith. In fact, Chubb actively engaged in settlement negotiations without
requiring the involvement of USF & G. Further, the other primary insurer
for Estes’ employees also remained willing to contribute its policy limits.

 

Unlike North American, the facts do not reveal a
situation in which the insured faced the “near certainty of a large judgment
against it, exceeding all available coverage.”14 To the contrary,
the settlement demands made by Perera during the course of litigation to that
point-ranging from $12 million demanded just before mediation in March 2001 to
$7 million shortly before settlement in August 2001-always exceeded the limits
of the primary policies (Cigna’s $1 million limits and USF & G’s $1 million
limits) and were always well below the limits of the combined insurance
policies. There is absolutely no indication from this record that the case, had
it gone to trial, would have resulted in a jury verdict in excess of the
combined insurance policies.

 

This case is also unlike North American because Estes
did not pay funds that it would not have had been obligated to pay had USF
& G acted in good faith. No such damages have been claimed. Rather, Perera,
as Estes’ assignee, is seeking part of an unpaid consent judgment as damages.

 

As our review of the case law demonstrates, there must be a
causal connection between the damages claimed and the insurer’s *904 bad faith.
Perera appears to argue a causal connection by asserting that Estes and Chubb
intended to reduce Chubb’s coverage in exchange for a waiver of the $1 million
attachment point of Chubb’s policy.15 This, Perera claims, is a
direct result of USF & G’s bad-faith refusal to tender its $1 million
policy limits, by which USF & G created a “hole” in Estes’ coverage,
leaving it with the limited options of either paying $900,000 out of pocket
(representing the remainder of the USF & G policy since USF & G only
offered $100,000) in order for Chubb to settle or allowing a “dangerous and
deteriorating case to proceed to trial and judgment.” Thus, she argues, when
Chubb agreed to waive the $1 million attachment point in exchange for a
reduction in its policy limits, it was in Estes’ best interest to settle.

 

Perera’s argument fails because the record indicates that
Chubb was ready to settle even if the $1 million attachment point was not
waived. Chubb offered $1.25 million at mediation in March 2001, $3.5 million in
the months following mediation, and $4.25 million in August 2001, just prior to
when the parties entered into the settlement agreement. While at least one of
Chubb’s settlement offers was a global settlement in which Chubb reserved its
right to pursue USF & G for indemnity or contribution, there is no evidence
in the record that any of these offers were contingent upon USF & G’s $1 million
limits being exhausted. Nor was there evidence that the case was “dangerous and
deteriorating” in the sense that Estes was exposed to liability in excess of
the policy limits. Accordingly, the facts of this case do not support Perera’s
argument.

9 Estes, as a business entity, purchased both primary and
excess insurance policies to protect itself from personal liability.
Unquestionably, both the primary and excess carriers have obligations toward
their insured to act in good faith in evaluating settlement opportunities and
settling a case where, as the jury was instructed in this case-in conformity
with Florida law-“under all of the circumstances, it could and should have done
so, had it acted fairly and honestly toward its insured with due regard for its
interests.” Estes’ excess carrier, Chubb, and one of its primary carriers,
Cigna, honored their obligations to their insured and negotiated in good faith.
As found by the jury, USF & G did not.

 

However, in this case, regardless of whether USF & G
should have promptly paid its policy limits, there is no causal connection
between USF & G’s bad faith and the damages claimed. The following facts
are important to the resolution of this question: there was a substantial
excess policy protecting Estes, Chubb was willing to negotiate a settlement
without contribution from USF & G, Estes did not face exposure to liability
in excess of the combined policies, and Chubb did not choose to either bring a
bad-faith claim against USF & G or assign its claim to Perera.

CONCLUSION

 Based on the facts of this case, we conclude that USF &
G’s actions did not cause Estes to sustain the claimed damages of $4 million or
to be exposed to liability in excess of its policy limits. Accordingly, Perera,
as Estes’ assignee, is not entitled to recover the unpaid portion of the
consent judgment. We answer the rephrased certified question in the negative
and return this case to the Eleventh Circuit.

 

*905 QUINCE, C.J., and LEWIS, CANADY, LABARGA, and PERRY,
JJ., concur.

 

POLSTON, J., concurs in result.

35 So.3d 893, 35 Fla. L. Weekly S235

Footnotes

1The two certified questions are:

1. CAN A CAUSE OF ACTION FOR BAD FAITH AGAINST AN INSURER BE
MAINTAINED WHEN THERE IS NOT AN EXCESS JUDGMENT AGAINST THE INSURED?

2. EVEN IF AN EXCESS JUDGMENT IS NOT ALWAYS REQUIRED, CAN A
CAUSE OF ACTION FOR BAD FAITH AGAINST AN INSURER BE MAINTAINED WHEN THE
INSURER’S ACTIONS NEVER RESULTED IN INCREASED EXPOSURE ON THE PART OF THE
INSURED TO LIABILITY IN EXCESS OF THE POLICY LIMITS OF INSURED’S POLICIES?

Perera v. U.S. Fid. & Guar. Co.,
544 F.3d 1271, 1276, 1279 (11th Cir.2008).

2 In setting forth the facts, we rely on the Eleventh
Circuit’s opinion as well as facts in the trial court record from the bad-faith
case.

3 USF & G actually issued a reservation of rights letter
but its position was later found by the magistrate judge in the federal case to
be effectively a denial of coverage, not a reservation of rights.

4 There is absolutely no indication that this claim could
possibly have been settled within the limits of the primary insurance policies.

5 In addition to paying $750,000 toward settlement, Estes also
paid $609,317.78 in attorneys’ fees and costs (since it was obligated to
provide its own defense as all of the policies were indemnity policies),
$100,000 in worker’s compensation indemnity to Perera, $5000 in medical
payments, and $6,058.74 in expenses.

6  Although it appears that Perera claimed in the Eleventh
Circuit that Estes paid money it would not otherwise have paid had USF & G
acted in good faith, Perera is not seeking any such sums as damages, but rather
is seeking as damages the $4 million unpaid portion of the consent judgment.

   In addition, the $750,000 paid by Estes as part of the
consent judgment included the $500,000 deductible for the Cigna policy Estes
was required to pay. There is some indication in the record that the remaining
$250,000 was additional money paid by Estes in order to further settlement.
Whether Estes was required to pay all or part of the $250,000 is not clear
because it had a $350,000 self-insured retention under the USF & G policy,
of which a certain amount had already been expended for defense costs. However,
Perera is not claiming any portion of the $750,000 Estes paid as damages in the
bad-faith action.

7 We do not intend to limit the types of bad-faith claims that
may be brought in other cases to only the case law discussed in this opinion.
We discuss the case law only to determine whether the principles from prior
bad-faith case law may be relevant to the facts of this case.

8 See State Farm Mut. Auto. Ins. Co. v. Laforet,
658 So.2d 55, 58 (Fla.1995). In contrast, under liability policies, insurers
undertake the obligation to defend. Id.

9 Section 624.155(1)(a), Florida Statutes (2009), sets forth
additional grounds for bad faith, including unfair claims practices. These
additional grounds are not relevant to this case and are thus not discussed
further.

10 Cunningham v. Standard Guar. Ins. Co.,
630 So.2d 179, 182 (Fla.1994).

11 The Fourth District accepted the facts contained in the
complaint as true because it was evaluating an order dismissing a complaint for
failure to state a cause of action. Id. at 1327.

12 The Fourth District also opined, although it was not argued
by the parties, that the case presented an “excess situation” because although
the primary insurer actually tendered its policy limits, its delay required the
insured to expend additional funds in defending the case. Id. at 1333 n.
4. “Therefore,” the court concluded, “in a very real sense, the failure of the
insurance company to pay a reasonable settlement exposed the insured to
expenses of settlement and defense in excess of the policy amounts.” Id.
However, neither Estes nor Perera, as Estes’ assignee, claims that USF &
G’s bad-faith refusal to settle required Estes to expend additional attorneys’
fees. Thus, that issue is not before us in answering the certified question and
we do not reach it.

13 Had Chubb assigned a claim of equitable subrogation, Perera
may have been able to bring a bad-faith claim based on damages sustained by
Chubb in the amount of any difference between what Chubb actually paid and the
amount it would have paid had USF & G settled in good faith.

14 Although there was the possibility of punitive damages had
the case gone to trial, the Eleventh Circuit held this argument to be waived
and therefore we do not consider it.

15 Chubb’s policy provided that Chubb would not be obligated to
pay anything until the primary insurers’ policy limits were exhausted.