Insurer Must Act to Protect its Insured

Insurer Committed Fatal Sin by Sitting Back and Doing Nothing

Failure to Conduct a Full and Thorough Investigation to Protect the Insured Caused a Bad Faith Judgment in Favor of one Insurer Against Another

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Every liability insurer is obligated to conduct a thorough and prompt investigation and if liability is clear must pay to resolve the claim to protect the insured. Failure to do so, where a $40 to $50 million potential verdict was faced by three insurers with a $1 million limit and an offer to settle for $2 million, two insurers paid and a third sat on its rights and did nothing forcing an insurer who was excess to pay to avoid a $50 million verdict at trial.

In American Builders Insurance Company v. Southern-Owners Insurance Co, No. 21-13496, United States Court of Appeals, Eleventh Circuit (January 4, 2023) the excess insurer sued the primary for bad faith refusal to settle under the concept of equitable subrogation.


Ernest Guthrie fell from a roof and became paralyzed from the waist down, never to walk again. Within months, his medical bills climbed past $400,000, and future costs projected into the millions.

The primary insurer for Guthrie’s company was SouthernOwners Insurance Company. SouthernOwners refused to pay any amount to Guthrie to settle the claim, and American Builders and Evanston ponied up a million dollars each.

American Builders then sued Southern-Owners for common law bad faith under Florida’s doctrine of equitable subrogation. The record does not reflect that Southern-Owners did anything, other than request extensions.

On December 17, after internal discussions, American Builders decided to tender its limit. American Builders’ counsel notified SouthernOwners of the November 18 demand letter. Since Southern-Owners was listed as the primary insurer, counsel believed that Southern-Owners had a primary obligation to pay, so he reached out to give Southern-Owners a chance to step up before American Builders did. American Builders paid the policy on December 19, and Guthrie provided a release for Beck Construction, American Builders, and Evanston the next day. At that point, Southern-Owners – having only conducted one interview with Beck – ended its investigation.

After the close of all evidence, the jury returned a verdict in favor of American Builders, and the district court entered final judgment for $1,091,240.82.


The first and most significant issue in this appeal is whether American Builders proved a bad faith claim. Taking the evidence in the light most favorable to American Builders, a reasonable jury could have found (as it did) both that Southern-Owners acted in bad faith and that its bad faith caused American Builders to pay its policy.


The bad faith conduct must directly and in natural and continuous sequence produce or contribute substantially to producing such damage, so that it can reasonably be said that, but for the bad faith conduct, the damage would not have occurred.

The Eleventh Circuit concluded that a bad faith inquiry is determined under the “totality of the circumstances” standard and the court must focus not on the actions of the claimant but rather on those of the insurer in fulfilling its obligations to the insured. That said, a claimant’s actions – such as a decision not to offer a settlement – remain relevant in assessing bad faith.

The Eleventh Circuit concluded that there was enough evidence to allow the jury to reasonably find that Southern-Owners acted in bad faith because it delayed acting on its duty to investigate and settle Guthrie’s claim.

That body of evidence could lead a reasonable jury to conclude that Southern-Owners delayed its investigation instead of attempting to resolve the coverage dispute promptly or using diligence and thoroughness. In that delay, a jury could reasonably find that Southern-Owners completely neglected its affirmative duty to initiate settlement negotiations while Guthrie’s hospital bills climbed due to his traumatic injury.

A reasonable jury could also find that Southern-Owners’ bad faith caused American Builders’ damages. When American Builders informed Southern-Owners of Cohen’s November 18 demand, Southern-Owners refused to pay because it was still investigating the claims. Evanston had already tendered its $1 million policy on December 10, but the demand requested $2 million, so the next million needed to come from either Southern-Owners or American Builders. After Southern-Owners balked, American Builders had no choice but to tender payment or face defense costs and a potential $50 million verdict. Southern-Owners’ delay in investigating and settling led to its inability to tender an offer on December 18. As a result, a reasonable jury could find (as it did) that American Builders’ damages stemmed directly and naturally from Southern-Owners’ bad faith.

Southern-Owners’ contract with Beck Construction provided that “[n]o insured will, except at the insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.” “[T]his language requires the insured to obtain the insurer’s consent before settling.” Am. Reliance Ins. Co. v. Perez, 712 So.2d 1211, 1213 (Fla. 3d DCA 1998). The Florida Supreme Court requires an insurer to establish three things in order to succeed on this affirmative defense:

  1. a lack of consent;
  2. substantial prejudice to the insurer; and
  3. diligence and good faith by the insurer in attempting to receive consent.

The first element has a few exceptions. Even if the insured was obliged to obtain consent, the failure to do so is not an affirmative defense unless the insurer also establishes substantial prejudice and evinces good faith in bringing about the cooperation of the insured. Southern-Owners failed to fulfill this requirement

A reasonable jury could (and did) plainly find that Southern-Owners did not “show that it [had] exercised diligence and good faith.” American Builders did everything when it came to investigating Guthrie’s claim and deciding whether the insured should make a payment, all while Southern-Owners sat back and watched it co-insured act in good faith to the insured.


The key sin an insurer can commit is sit back and watch others react while its insured is faced with a multi-million dollar claim. Southern Owners sinned and was punished by the Eleventh Circuit. It is essential to every claim investigation that it be conducted promptly, thoroughly and in good faith. Sitting back and waiting for the insured, the claimant or co-insurers to act is a clear and unambiguous failure to deal fairly and in good faith to the insured, the contractor claimed to be responsible for Guthrie’s injuries.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at and

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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