Deciphering ‘Good Faith’ for Insurers Defending Coblentz Agreements in Florida

Since the 1969 seminal case of Coblentz v. Am Surety Co. out of the Fifth Circuit Court of Appeals that found an insurer that breaches its duty to defend must pay the amount of damages stipulated to between the claimant and insured unless there is “fraud or collusion,” courts have mandated that an enforceable Coblentz agreement must be reasonable in amount and entered in “good faith.”

However, there is no comprehensive definition of “good faith” in Florida as stated in the 2006 case of Chomat v. N. Ins. Co. Therefore, the full extent of the meaning of “good faith” remains unresolved as courts analyze varying degrees of conduct that amount to a showing of “good faith” – or lack thereof.

The Eleventh Circuit has provided the most comprehensive definition of “good faith” in the 2016 case of Jimenez v. Gov’t Employees Ins. Comp. where it required that an enforceable Coblentz agreement must be free from: bad faith; fraud; collusion; and entered with efforts to minimize liability

Nonetheless, recent court decisions like Beaubrun v. GEICO Gen. Ins. Co. out of the Southern District of Florida create more ambiguity than clarity around the meaning of “good faith.” This leaves practitioners and insurers to question what type of evidence suffices to demonstrate that a Coblentz Agreement should not be enforced for lack of “good faith.”

While practitioners often disagree about who carries the burden of proof in these cases, the courts unequivocally confirm that the party seeking to recover under a Coblentz Agreement must prove that it was entered into in “good faith.”

The Beaubrun decision was entered in the context of an order on an insurer’s motion for summary judgment—meaning, a request by the insurer for the court to rule that the Coblentz agreement was unenforceable as a matter of law. The claimant brought a wrongful death action as the personal representative of the decedent who was involved in a car accident with the insured, in which they both died. The claimant also filed under oath a statement of claim in the deceased-insured’s probate action, liquidating the value of the wrongful death action to $1 million. Ultimately, the claimant and the administrator ad Lltem for the deceased-insured’s estate entered a Coblentz agreement for a quadrupled amount of $4 million.

This figure was to represent the value of the wrongful death action. However, the contradiction between that quadrupled figure and the previous $1 million dollar statement of claim figure triggered the insurer’s argument that the Coblentz agreement was not entered in “good faith” based on the requirements in Jimenez.

The insurer also argued that the settlement figure was not negotiated, nor did the administrator ad litem verify the legitimacy of the figure by engaging in at least some rudimentary inquiry about the value of the decedent’s estate. The portions of the administrator ad litem’s deposition quoted by the court show that the administrator could not recall what, if any, negotiation took place about the settlement figure, and admitted that he did not know anything about the decedent, despite agreeing to a settlement figure that should represent the value of the decedent’s wrongful death.

This testimony tends to show that the agreement was not entered in “good faith” and that no effort was made to minimize liability, similar to conduct that the Middle District and Eleventh Circuit courts recognize bar enforceability.

However, the Beaubrun court found that there was a question of fact on this issue because the administrator testified that he entered the settlement to cap the damages against a potential larger jury award, and that he considered whether the amount would be fair to the heirs of the decedent’s estate.

This is curious, in light of the administrator ad litem’s admission that he did not know anything about the decedent. However, it is apparent that at least in the Southern District the degree of conduct surrounding the attorney ad litem’s admissions do not demonstrate lack of “good faith” as a matter of law. Further, because the court did not specifically analyze the “effort to minimize liability” requirement, we are left to guess what bearing this had – or is to have in the future – on the “good faith” analysis for enforceability.

Prior to the Beaubrun opinion, courts have found Coblentz agreements unenforceable at the summary judgment stage when there is evidence that the agreement was entered with disregard for any one of the “good faith” requirements. For example, the Jimenez court, and courts in the Middle District of Florida in the cases of Travelers Indem. Co. of Conn. v. Attorneys Title Ins. Co. and Bradfield v. Mid-Continent Cas. Co., have found lack of “good faith” in the form of collusion and absence of effort to minimize liability in the following types of scenarios:

• No exchange of any information between the parties to a Coblentz agreement regarding a decedent’s work-life expectancy or the financial situation of a decedent
• The insured chose not to engage in even the most rudimentary discovery
• The record was void of any evidence of how and when an insured negotiated for any reduction in a settlement proposal to minimize liability
• Where the claim involved both covered and non covered damages the claimant failed to meet their burden of showing that only covered damages were allocated to the settlement.

Nonetheless, as Beaubrun shows, discrepancies still arise in practice due to the loose analysis of the enforceability terms established in Jimenez. Specifically, Beaubrun leaves in question what type of evidence is enough to rise to the level of proving that a Coblentz agreement is unenforceable for lack of “good faith,” and whether the court’s analysis of some enforceability terms, to the exclusion of others, mean that the excluded term is no longer a requirement of “good faith.”

Perhaps the Beaubrun decision comes as no surprise, based on a previous Southern District of Florida decision in Chicken Kitchen USA, LLC v. Maiden Specialty Ins. Co., in which the insureds each provided an affidavit confirming that the claimant presented a single settlement figure that they “simply accepted” without “give and take negotiations” or an “evaluation of reasonableness of the settlement amount.” It is hard to imagine any clearer evidence that could exist to show that a Coblentz agreement was not entered in “good faith,” than an insured’s own sworn stipulation amounting to an admission that they did not do so.

However, the court disagreed in Chicken Kitchen USA, LLC and found that the plaintiff’s “self-serving” statements about the reasonableness of the agreement was sufficient to deny summary judgment.

Although the Southern District tends to take a claimant-friendly posture to Cobletnz agreements in the summary judgment context, it took an insurer-friendly position in the discovery context in December 2017 in Kehle v. USAA Cas. Ins. Co.

Kehle was a case of first impression because it involved issues not previously decided. In that case, the claimant objected to the insurer obtaining discovery on whether a Coblentz agreement for over $8 million was reasonable and entered in “good faith,” because a third-party arbitrator was used to determine the damages. The court did not agree that the use of an arbitrator to determine damages conclusively established that the Coblentz agreement was reasonable and entered in “good faith,” and relied on Jimenez as authority for why the insurer should be entitled to broad discovery in the settlement agreement.

In sum, although the claimant carries the burden of proof to enforce a Coblentz agreement, the extent of conduct that an insurer is required to show in its lack of “good faith” defense, remains unclear. In particular, there does not appear to be any ceiling or floor to conduct bearing on the “efforts to minimize liability” requirement of the “good faith” analysis.

Nonetheless, the trend in the Southern District of Florida is requiring insurers to bring their Coblentz agreement defenses before a jury, instead of ruling on the issue as a matter of law. In the context of discovery, however, given that even an arbitration-reached settlement figure is not presumed to be reached in “good faith,” insurers can still expect broad latitude to obtain the discovery it needs to defend against the enforceability of a Coblentz agreement.

Topics Florida Carriers