A consent judgment, entered by a court following an insured-claimant settlement, can be the basis for an insured’s bad faith claim against an insurer, the Eleventh Circuit recently held. This is so, even though a consent judgment may be entered without any findings of fact or conclusions of law by the court.
In McNamara v. Gov’t Emps. Ins. Co., 30 F.4th 1055 (11th Cir. 2022), the insureds brought a bad faith claim against their insurer to recover the excess judgment entered against them in an underlying auto accident case after the insurer did not settle it pre-suit. However, the “judgment” in the underlying case was a consent judgment, entered into after the insureds and tort claimant settled. In the bad faith action, the District Court awarded summary judgment to the insurer, holding that an “excess judgment must result from a verdict,” but a consent judgment instead follows a settlement. The Eleventh Circuit reversed and noted that under Florida law, the elements of a bad faith claim are (1) the insurer owed the insured a duty of care and (2) breach of the duty (3) causes (4) an injury. The Eleventh Circuit determined that any excess “judgment” – whether summary judgment, judgment after trial, or consent judgment – may satisfy the “injury” element. The Eleventh Circuit expressly overruled its unpublished decision in Cawthorn v. Auto-Owners Ins. Co., 791 F. App’x 60 (11th Cir. 2019) which had held to the contrary.
Following McNamara, insurers must be aware that a consent judgment following an insured-claimant settlement may be considered an “excess judgment” that can sustain a bad faith claim. However, insurers may still have good avenues to challenge a bad faith claim based on a consent judgment. For example, the insured must prove “causation,” meaning the insurer’s failure to settle caused the consent judgment to be entered. If the insured had a defendable underlying case but elected to settle, the causation element may not be satisfied. Similarly, if the insured enters into an unreasonably large settlement, the insurer’s failure to settle may not have caused the same.
Also notable, in McNamara, the insured sought and received approval from the insurer prior to settling with the claimant. By contrary, if an insured fails to seek such approval, the insured may be in breach of a consent to settle provision, which may bar a bad faith claim.
If you have any questions concerning the McNamara opinion or potential exposure to a judgment entered against an insured, please contact Seslee Smith or Ryan Burke of the firm’s Insurance Coverage and Bad Faith Defense team.