Insurance
— Automobile liability — Bad faith — Failure to settle — District court did
not err in excluding from evidence offered in support of bad faith claim a
settlement opportunity letter which would have required insurer to enter into
consent judgment in excess of policy limits — Insurer’s duty of good faith
under Florida law does not include a duty to enter into a consent judgment in
excess of policy limits

ROBERT KROPILAK, NICOLE COLLINS, Plaintiffs-Appellants, v.
21ST CENTURY INSURANCE COMPANY, f.k.a. New Hampshire Indemnity Company, Inc.,
Defendant-Appellant. 11th Circuit. Case No. 14-13837. November 18, 2015. Appeal
from the U.S. District Court for the Middle District of Florida (No.
8:12-cv-01816-EAK-TGW).

(Before
TJOFLAT and HULL, Circuit Judges, and BARTLE,* District Judge.)

(BARTLE, District Judge.) This is an appeal from a judgment
in favor of an insurance company on a claim against it for bad faith. The
question before the Court is whether the District Court erred in withholding
evidence from the jury as a result of its grant of a motion in limine
and thus ruling as a matter of law that the insurer had no duty to enter into a
consent judgment in excess of the policy limits.

I.

The following facts are undisputed. On October 7, 2008,
Robert Kropilak (“Kropilak”) and Nicole Collins (“Collins”) were involved in a
vehicle collision in Pasco County, Florida, after Collins improperly made a
left-hand turn in front of Kropilak’s motorcycle. Kropilak, who was injured,
was transported by helicopter to a hospital. Collins remained at the scene of
the accident where she was cited by a responding police officer.

Collins was insured under an automobile liability insurance
policy issued by 21st Century Insurance Company, f.k.a. New Hampshire Indemnity
Company, Inc. (“21st Century”). Her policy had a liability limit of $10,000 per
person and $20,000 per accident. On the day the crash occurred, Collins
reported it to 21st Century. At the time, she did not know Kropilak’s identity.

Two days after the crash, Tracy Schwager (“Schwager”), a
21st Century claims adjuster, sent a letter to Collins introducing herself and
reiterating the policy limits. Schwager also made clear that Collins could be
subject to liability in excess of those limits and that 21st Century would not
be responsible for any such excess liability. Schwager also advised in the
letter that Collins had the right to retain personal counsel at her own
expense.

On October 14, 2008, Schwager learned that the police report
concerning the collision was ready for pickup. She communicated this to her
supervisor in an email labeled “high importance,” but for reasons which are not
clear, 21st Century never sent a representative to pick up the police report.
21st Century, however, did obtain the report a few days later on October 20,
2008, when Kropilak’s attorney mailed a copy of it to 21st Century along with a
letter of representation requesting insurance information. The next day, 21st
Century came into possession of an additional copy of the police report through
a third-party vendor. It was from this report that 21st Century first learned
Kropilak’s identity.

On October 20, 2008, the hospital where Kropilak was being
treated for his injuries faxed Schwager a hospital lien in the amount of
$33,880. Kropilak received a copy of the lien around the same time. At a later
deposition, he testified that his receipt of the lien prompted him to conclude
that he would not accept an offer of Collins’ policy limits to settle his
claims against her.

21st Century responded to Kropilak’s attorney in a letter
dated November 10, 2008. It provided the insurance information requested and
asked the attorney to contact Schwager if she was open to discussing the
possibility of settlement. Schwager thereafter learned of the extent of
Kropilak’s injuries from State Farm Insurance Company, through which Kropilak
held uninsured motorist coverage. Unsolicited, on November 13, 2008-37 days
after the accident — 21st Century mailed to Kropilak’s attorney a check for
$10,000, the amount of Collins’ policy limits, in settlement of Kropilak’s
claim. Kropilak’s attorney received the check on November 17, 2008. Kropilak
refused to accept the policy limits and did not cash the check.

The next day, November 18, 2008, Kropilak filed suit against
Collins in a Florida state court. Collins was served with the complaint on February
6, 2009. In a letter dated March 9, 2009, 21st Century explained to Collins
that it was aware of the lawsuit and that her liability in that action could
exceed her policy limits. 21st Century also retained an attorney, Jeff Worman
(“Worman”), to represent Collins. On March 18, 2009, Worman advised 21st
Century in writing that Kropilak’s “damages well exceed [Collins’] policy
limits of $10,000.” A jury verdict in Kropilak’s suit against Collins, Worman
predicted, “could reasonably be expected to fall within [$]150,000 and
$300,000.”

Meanwhile, 21st Century followed up on several occasions
with Kropilak’s attorney to inquire about the $10,000 check mailed in November
2008. On December 11, 2008, Schwager telephoned Kropilak’s attorney about the
settlement offer but received no response. 21st Century again contacted
Kropilak’s attorney on April 1, 2009. It noted that the $10,000 check had not
been cashed and asked, “[w]ill you advise your intention with the check?”

On March 5, 2010, over a year and three months after 21st
Century had tendered the policy limits, Kropilak’s attorney sent Worman a
“settlement opportunity” letter. The letter began: “This correspondence will
address the claims conduct issues as regarding [21st Century’s] failure to
settle this claim.”1 The letter went on to propose an
agreement between 21st Century, Collins, and Kropilak. The agreement, according
to Kropilak’s attorney, would protect Collins “from financial ruin, but
preserve[ ] all issues regarding [21st Century’s] claims conduct.”
Specifically, Kropilak’s lawyer offered a settlement with a consent judgment
against Collins for $150,000. The parties would then “look solely to the
determination of [21st Century’s] liability for the recovery of damages over
the policy limits.” 21st Century could defend “in the face of a known
reasonable amount of harm that was done to [Collins] by a breach of the duties
of good faith, if any.” Under such an agreement, the letter stated, the
insurance company “could settle the personal exposure of [Collins] without
hurting [21st Century’s] interests. After all, we all know that a lawsuit
against [21st Century] is going to be filed; it is just a matter of when and
for how much.” The letter continued:

Obviously, if [21st Century]
has done nothing wrong, then the interest of [21st Century] is tremendously
benefitted by our proposal to a consent judgment and covenant not to execute.
Specifically, [21st Century] can obtain protection of the insured, avoid
litigation expenses in defending the current case and promptly move forward to
defend [21st Century’s] claims conduct.

The offer remained open for 30 days.

Worman advised Collins of the settlement proposal contained
in the letter. He also forwarded the letter to David Zawrotny (“Zawrotny”), a
21st Century adjuster assigned to the matter. According to his deposition
testimony, Zawrotny believed that the $150,000 judgment amount proposed by
Kropilak’s counsel was “in the reasonable range” of the value of Kropilak’s
lawsuit and that Kropilak’s pain and suffering injury values alone were likely
between $120,000 and $150,000. Worman subsequently prepared a pre-trial report
for Zawrotny in which he predicted that Kropilak’s lawsuit would result in a
directed verdict in Kropilak’s favor on “liability for the crash, causation of
injury and permanency of that injury” and a potential verdict of between
$150,000 and $200,000. Nonetheless, 21st Century did not accept the proposal.

Kropilak’s negligence lawsuit against Collins thereafter
proceeded to trial. On August 6, 2010, a jury returned a verdict in Kropilak’s
favor in the amount of $173,097.07. In partial satisfaction of this judgment,
21st Century paid Kropilak the $10,000 policy limits and $2,500 for property
damage. This left Collins personally liable for a balance of $160,597.07. In a
letter to Collins dated October 27, 2010, Zawrotny conveyed this information
and reiterated that “[a]ny additional money required to settle this judgment
will be your responsibility.”

Kropilak and Collins then entered into an agreement
concerning the unpaid balance of the judgment against Collins. She assigned to
Kropilak the proceeds she might receive from any action against 21st Century
“arising out of, or in any way relating to, the events which [were] the subject
of” Kropilak’s negligence action against her. Collins further agreed to
cooperate with Kropilak in pursuing such an action. Kropilak, for his part,
agreed that he would not record, execute on, or initiate garnishment or
collection proceedings in relation to the judgment against Collins. He also
stipulated that enforcement of liability created by the judgment would be
stayed pending the outcome of the bad-faith claim and that the judgment against
Collins would be considered satisfied at the conclusion of any bad-faith
lawsuit, whatever the outcome.

Together, Kropilak and Collins then initiated the instant
action in state court. They sought the amount of the underlying judgment in
excess of Collins’ policy limits on the ground that 21st Century had acted in
bad faith toward Collins, its insured. They articulated two theories of bad
faith. First, they asserted what is known as the Powell theory, that is
that 21st Century had improperly “failed to tender its policy limits to settle
the claims of [Kropilak] against [Collins] within a reasonable period of time
under the circumstances.” See Powell v. Prudential Prop. & Cas. Ins.
Co., 584 So. 2d 12 (Fla. Dist. Ct. App. 1991). Second, they maintained that
21st Century had “unreasonably refused to settle under” the terms proposed by
Kropilak’s counsel in the March 5, 2010 settlement opportunity letter.

21st Century removed the case to the United States District
Court for the Middle District of Florida on the basis of diversity of
citizenship pursuant to 28 U.S.C. § 1332. Thereafter, 21st Century filed
motions seeking protective orders barring Kropilak and Collins from taking the
depositions of 21st Century’s corporate representative and of one of its
management-level employees on the subject of plaintiffs’ second theory of bad
faith. That theory, as noted above, rested on 21st Century’s decision not to
enter into the settlement proposed by Kropilak’s counsel. 21st Century argued
it had no duty under Florida law to participate in such an agreement. The
Magistrate Judge heard argument on the motions and subsequently ruled in favor
of 21st Century.

After the Magistrate Judge granted 21st Century’s motions
for protective orders, the District Court denied the motion of 21st Century for
summary judgment and allowed both theories of liability advanced by Kropilak
and Collins to proceed. On the first day of trial, the District Court,
reversing itself, granted a motion in limine filed by 21st Century and
excluded any evidence concerning the March 5, 2010 settlement opportunity
letter. It accepted 21st Century’s argument that “the proposed agreement bears
no relevance on the issues, and that any potential relevance is substantially
outweighed by the danger of unfair prejudice.” The Court further noted that the
Magistrate Judge had previously issued a protective order relating to that
evidence. In accordance with the District Court’s order, the jury heard
evidence only on the plaintiffs’ Powell theory. While the jury found
that 21st Century had acted in bad faith in failing to tender the policy limits
until 37 days after the collision, it also found in favor of 21st Century on
its affirmative defense that there was no realistic possibility of settling
Kropilak’s claim within the policy limits. Accordingly, the court entered
judgment in favor of 21st Century.

Kropilak and Collins have timely appealed the District
Court’s ruling on the motion in limine precluding their second theory of
bad faith.

II.

Kropilak and Collins argue that the judgment in 21st
Century’s favor must be reversed because the District Court improperly excluded
evidence related to the March 2010 settlement opportunity letter. According to
Kropilak and Collins, our standard of review is de novo because we are
reviewing “both questions of law and a district court’s application of law to
the facts.” See Reich v. Davis, 50 F.3d 962, 964 (11th Cir. 1995).

21st Century counters that because the appeal involves a
lower court’s ruling on a motion in limine, we must review that ruling
for an abuse of discretion. See, e.g., Al-Amin v. Smith, 637 F.3d 1192,
1195 (11th Cir. 2011) [22 Fla. L. Weekly Fed. C1939a] (citing Mercado v.
City of Orlando, 407 F.3d 1152, 1156 (11th Cir. 2005) [18 Fla. L. Weekly
Fed. C473a]). The district court retains “wide discretion in determining the
relevance of evidence produced at trial.” Cabello v. Fernández-Larios,
402 F.3d 1148, 1161 (11th Cir. 2005). Under the abuse-of-discretion standard,
we may reverse a decision of the district court only if the court “applies an
incorrect legal standard, follows improper procedures in making the
determination, or makes findings of fact that are clearly erroneous.” Klay
v. United Healthgroup, Inc., 376 F.3d 1092, 1096 (11th Cir. 2004) [17 Fla.
L. Weekly Fed. C732a] (quoting Martin v. Automobili Lamborghini Exclusive,
Inc., 307 F.3d 1332, 1336 (11th Cir. 2002) [15 Fla. L. Weekly Fed.
C1102a]).

III.

Under Florida law, an insurer has a duty to defend its
insured against any claim and alleged facts within the terms of the policy and
to indemnify the insured up to the limits of the policy. See, e.g., Jones v.
Fla. Ins. Guar. Ass’n, Inc., 908 So. 2d 435, 442-43 (Fla. 2008) [30 Fla. L.
Weekly S581a]. The Florida Supreme Court has explained that “[a]n insurer, in
handling the defense of claims against its insured, 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.” Boston Old Colony Ins. Co.
v. Gutierrez, 386 So. 2d 783, 785 (Fla. 1980). Pursuant to this duty,

when the insured has
surrendered to the insurer all control over the handling of the claim,
including all decisions with regard to litigation and settlement, then the
insurer must assume a duty to exercise such control and make such decisions in
good faith and with due regard for the interests of the insured. This good
faith duty obligates the insurer 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. The insurer must investigate the facts, give
fair consideration to a settlement offer that is not unreasonable under the
facts, and settle, if possible, where a reasonably prudent person, faced with
the prospect of paying the total recovery, would do so.

Macola v. Gov’t Emps. Ins. Co.,
953 So. 2d 451, 455 (Fla. 2006) (quoting Boston Old Colony, 386 So. 2d
at 785)). Further, “[b]ecause the duty of good faith involves diligence and
care in the investigation and evaluation of the claim against the insured,
negligence is relevant to the question of good faith.” Boston Old Colony,
386 So. 2d at 785; see also Dadeland Depot, Inc. v. St. Paul Fire &
Marine Ins. Co., 483 F.3d 1265, 1276 (11th Cir. 2007). If the insurer on
behalf of its insured refuses in bad faith a demand to settle within the policy
limits, the insurer may be held liable for any excess judgment. See
generally Campbell v. Gov’t Emps. Ins. Co., 306 So. 2d 525 (Fla. 1974).
Whether an insurer acted “in good faith with due regard for the interests of
the insured” is generally a question for the jury. Boston Old Colony,
386 So. 2d at 785.

Kropilak and Collins do not challenge the verdict against
them on the Powell theory of liability. Instead, they argue that the
duty of good faith imposed upon insurers under Florida law includes a duty to
enter into settlement agreements like the one proposed by Kropilak’s counsel in
his March 2010 letter. According to Kropilak and Collins, the District Court
erred in excluding evidence of that agreement because the agreement constituted
an offer to settle Kropilak’s claims within the policy limits, albeit with the
addition of a consent judgment in excess of policy limits and the preservation
of the option of a bad-faith claim against 21st Century.

The District Court characterized the March 10, 2010 letter
as proposing a “Cunningham-type” Agreement. 21st Century has called the
proposal “a Cunningham Agreement.” These characterizations refer to Cunningham
v. Standard Guaranty Insurance Co., which concerned an insurance dispute
arising out of an automobile collision. 630 So. 3d 179 (Fla. 1994). The parties
in Cunningham entered into an agreement pursuant to which the injured
individuals would try a bad-faith action against the at-fault driver’s
insurance company before trying the underlying negligence claim. Id. at
180. Under the agreement, “if no bad faith was found, the [injured parties’]
claims would be settled for the policy limits, and [the at-fault driver] would
not be exposed to an excess judgment.” Id. Florida courts have since
characterized so-called “Cunningham agreements” as “the functional
equivalent of” an excess judgment and observed that such agreements permit
parties to “avoid the time and expense of going through a trial to obtain a
final judgment.” Perera v. U.S. Fid. & Guar. Co., 35 So. 3d 893, 899
(Fla. 2010) [35 Fla. L. Weekly S235a] (quoting United Servs. Auto. Ass’n v.
Jennings, 731 So. 2d 1258, 1260 (Fla. 1999) [24 Fla. L. Weekly S141b]).

Florida law is clear that an insurer has no duty to enter
into a Cunningham agreement. The Florida Supreme Court addressed this
issue in Berges v. Infinity Insurance Co., which involved a third-party
claimant’s bad-faith claims against an insurance company. 896 So. 2d 665,
668-69 (Fla. 2004) [29 Fla. L. Weekly S787c]. There, the Court summarily
rejected as without merit the claimant’s contention that the insurer had acted
in bad faith by failing to accept his proposal of a Cunningham
agreement. Id. at 671 n.1.

Kropilak and Collins urge that 21st Century did have a duty
to enter into the agreement proposed by Kropilak’s counsel because it was not,
in fact, a Cunningham agreement. It appears to be the position of
Kropilak and Collins that the cases concerning Cunningham agreements are
inapplicable to the matter at hand because the agreement proposed by Kropilak’s
counsel would have required the parties to stipulate to a consent judgment as
to Kropilak’s tort claim, rather than to litigate any claims against the
insured after trying the bad-faith claims. Even if what Kropilak and Collins
have proposed is different than a Cunningham agreement, Kropilak and
Collins have failed to explain why an insurer is obligated to enter into the
agreement proposed here when Florida law does not obligate insurers to enter
into a Cunningham agreement. The agreement proposed by Kropilak and
Collins, with its requirement for the entry of a consent judgment in excess of
the policy limits, would arguably extend the obligation of an insurer beyond
what would be required in a Cunningham agreement. In Cunningham,
the insurer simply agreed to try the bad-faith action in advance of the
underlying tort claim. 630 So. 2d at 180. While an insurer has a duty to act in
good faith to offer the policy limits under appropriate circumstances to avoid
exposing its insured to a judgment in excess of those policy limits, it has no
duty on behalf of its insured to agree to a consent judgment in excess of
policy limits and then subject itself to a suit for bad faith for the amount in
excess of the policy limits.

The argument of Kropilak and Collins is disingenuous to the
extent it asserts that the proposed agreement was, in essence, an agreement to
settle for the policy limits. They state in their appellate brief that the
proposal “offered to settle the claims against Collins within the
$10,000 policy limits,” and that “[t]he preservation of a bad faith claim
against 21st Century for liability above policy limits does not negate the
opportunity for 21st Century to have fully settled the claims . . . within
policy limits.” 21st Century, as noted above, had promptly tendered the policy
limits a mere 37 days after the accident by sending a check to Kropilak’s
attorney. Kropilak continually refused to cash the check and instead elected to
proceed to trial against Collins and then against 21st Century. It was
Kropilak, not 21st Century, who had refused to settle within the policy limits.

Kropilak and Collins rely heavily on Campbell v.
Government Employees Insurance Co. in support of their appeal. See
306 So. 2d 525 (Fla. 1974). This decision is inapposite. In Campbell,
the insurer, prior to the trial, had refused the settlement demand of the
claimant which was within the policy limits. Id. at 526. At trial that
claimant obtained a verdict against an insured in excess of the policy limits. Id.
After the trial, the claimant told the insurer that he would settle the matter
for the policy coverage limit plus an assignment of the insured’s right of
action against the insurer for failure to settle. Id. at 530. The
insurer refused and was sued for bad faith. Id. at 526. The Florida
Supreme Court agreed that the insurer had acted in bad faith by rejecting this
proposed agreement and by failing to communicate it to the insured. Id.
at 532.

Unlike the insurer in Campbell, 21st Century offered
the policy limits within a few weeks after the accident and before any
settlement demand was made. It is hard to fathom how any reasonable juror could
find that 21st Century acted in bad faith under the circumstances presented in
the record. In further contrast to this action, the insurer in Campbell
never informed the insured of the claimant’s settlement offer. Furthermore, the
claimant there never sought to have the insurance company enter into a consent
judgment against the insured in excess of the policy limits. There is simply no
support in Campbell for the proposition that the conduct of 21st Century
constituted bad faith.

In sum, an insurer owes no duty under Florida law to enter
into a so-called Cunningham agreement and likewise owes no duty to its
insured to enter into a consent judgment in excess of the limits of its policy.
The District Court was therefore correct in precluding Kropilak and Collins
from introducing evidence of the March 5, 2010 settlement opportunity letter in
support of their bad-faith claim. This conclusion holds true whether we apply
the de novo standard of review advocated by Kropilak and Collins or the
abuse-of-discretion standard asserted by 21st Century.

IV.

For the foregoing reasons, we affirm the judgment of the
District Court in favor of 21st Century.

AFFIRMED.

__________________

*Honorable Harvey Bartle III, United States District Judge
for the Eastern District of Pennsylvania, sitting by designation.

1This letter refers to AIG, not 21st
Century. It appears from the record that 21st Century was at one time a
subsidiary of AIG. 21st Century does not argue that this misnomer is material.

* *
*