The third-party bad-faith lawsuit environment in Florida could have added more than $800m to motor liability claims in 2013, according to a new report titled Third-Party Bad-Faith in Florida’s Automobile Insurance System from the Insurance Research Council (IRC), an industry-backed body. The IRC asserted that this averaged out at about $79 per insured vehicle in the state.
According to the report, there was a significant increase in bodily injury liability claim frequency, as well as an overall increase of 68% in the size of average claim payments per insured vehicle between 1995 and 2013.
The report noted that in other large states where no-fault is in operation, but which do not authorise third-party bad-faith lawsuits against insurers, there had been marked declines in liability claim frequency. There had also been much smaller increases or even, in some cases, declines in payments per insured vehicle.
Senior vice president of the IRC Elizabeth Sprinkel said that "the virtually unrestricted ability to file a third-party bad-faith lawsuit against an insurance company poses a serious threat to Florida’s auto insurance system", adding that "the possibility of winning large bad-faith settlements and court judgments creates powerful incentives for potential claimants and their attorneys to file auto liability insurance claims that otherwise would not be filed."
The IRC claims that, in other no-fault states, the frequency of liability claims for bodily injury is relatively low because in those states there is a limit on the number of liability claims that are filed in exchange for access to no-fault reimbursement. However, in Florida last year the bodily injury claim frequency rate was higher than the claim frequency rate of most US states that did not have no-fault coverage. It was higher than the liability claim frequency rate throughout the US, despite the main aim of no-fault systems being to reduce the level of court disputes.
A third-party bad-faith lawsuit refers to a situation where a person who has filed a liability insurance claim alleging injury caused by another driver sues the other driver’s insurance company claiming that it failed to settle the person’s liability claim in good faith. Many US states do not allow third-party bad-faith lawsuits against motor insurers.