By Jay Wasserman
In a large share of serious Florida injury cases, liability is not the hard part. The other driver ran the red light, the police report says so, and the injuries are documented: a fusion surgery, a year out of work, a permanent impairment. The hard part is arithmetic. The case is worth several hundred thousand dollars or more, and the at-fault driver carries $10,000 or $25,000 in bodily injury coverage and owns little that a judgment could reach.
Most people assume the policy limit is the ceiling on the case. Often it is. But Florida law puts a duty on the liability insurer to protect its own policyholder from a judgment above the limits, and when the insurer fails to handle the claim in good faith, it can become responsible for the entire judgment, including the portion above the policy. That is third-party bad faith, and in serious underinsured cases it is frequently the difference between a token settlement and full compensation.
It is also widely misunderstood, and it changed in 2023. This article explains how it works, what a policy limits demand is actually for, and why the way the claim is handled in the first few months decides whether that path exists at all.
First, find every dollar of coverage
Before anyone talks about bad faith, the job is to find out what insurance actually exists. The policy the adjuster mentions on the first phone call is frequently not the only one.
Fla. Stat. § 627.4137 requires a liability insurer, on written request of the claimant, to disclose within 30 days, under oath, the name of the insurer, the name of each insured, the limits of each policy, a statement of any policy or coverage defense the insurer reasonably believes is available, and a copy of the policy. The disclosure has to cover known policies that may apply, including excess and umbrella coverage. It should be the first letter sent in any serious case, and a sloppy or late response is itself worth noting.
The other places coverage tends to hide:
- An umbrella or excess policy over the driver’s auto or homeowner’s coverage, which may be several times the size of the primary policy.
- The vehicle owner, if someone else was driving. Florida’s dangerous instrumentality doctrine makes the owner vicariously liable for a permissive driver, subject to the caps for individual owners and rental and leasing companies in Fla. Stat. § 324.021(9)(b), discussed in our guide to drunk driving accident claims.
- An employer, if the driver was working. A commercial auto policy typically carries far higher limits than a personal one; see our guides to truck accidents and rideshare accidents.
- Other defendants whose conduct contributed: a bar that served a habitually intoxicated patron, a property owner, a road contractor, a vehicle or component manufacturer.
- Your own uninsured/underinsured motorist coverage, and household policies, which step in above whatever the at-fault driver carries. The sequencing rules matter, because settling with the liability carrier without the UM carrier’s written consent can forfeit the UM claim. Our guide to uninsured and underinsured motorist claims explains how that works.
Only once all of that is known does it make sense to ask whether the available coverage is inadequate, and whether the insurer’s handling of the claim might open up more.
What a liability insurer owes its own policyholder
A liability policy gives the insurer control. It decides whether to settle, when, and for how much, and it controls the defense. Florida law has long held that this control carries a corresponding duty to the insured.
The leading case is Boston Old Colony Insurance Co. v. Gutierrez, 386 So. 2d 783 (Fla. 1980). The Florida Supreme Court held that an insurer handling a claim against its insured must use the same degree of care and diligence that a person of ordinary care and prudence would exercise in managing their own business. That includes a duty to advise the insured of settlement opportunities, to advise of the probable outcome of the litigation, to warn of the possibility of an excess judgment and the steps the insured might take to avoid it, to investigate the facts, to give fair consideration to a reasonable settlement offer, and to settle, if possible, where a reasonably prudent person faced with the prospect of paying the total recovery would do so.
Two refinements matter in practice.
The insurer does not get to wait for a demand. In Powell v. Prudential Property & Casualty Insurance Co., 584 So. 2d 12 (Fla. 3d DCA 1991), the court held that where liability is clear and the injuries are so serious that a judgment in excess of the policy limits is likely, the insurer has an affirmative duty to initiate settlement negotiations. The absence of a formal offer from the claimant is not a defense to an insurer that sat on an obviously limits-level claim.
The question is the totality of the insurer’s conduct. In Harvey v. GEICO General Insurance Co., 259 So. 3d 1 (Fla. 2018), the Florida Supreme Court reinstated a bad faith verdict and reaffirmed that the focus is on whether the insurer, under all the circumstances, handled the claim with the care and diligence Gutierrez requires, including its duty to communicate with its own insured. The case involved an insurer that did not promptly relay to its insured a request for information that could have led to settlement. Whether the claimant made a demand, and whether a particular deadline passed, are part of that picture, not the whole of it.
Bad faith is not the same as a low offer. An insurer that investigates promptly, keeps its insured informed, evaluates the claim honestly, and tenders its limits when the exposure becomes clear has done its job, even if the claimant thinks the case is worth more than the policy. Bad faith cases arise from a different pattern: a clear-liability, catastrophic-injury claim where the insurer delayed, lowballed, ignored documentation, failed to tell its insured what was happening, or let a reasonable opportunity to settle within limits expire.
How an excess judgment actually gets paid
Florida’s nonjoinder statute, Fla. Stat. § 627.4136, generally prevents an injured person from suing the liability insurer directly until they have obtained a judgment against the insured. The bad faith claim therefore arrives in stages.
First, the claim against the at-fault party is tried or otherwise resolved, producing a judgment in excess of the policy limits. Second, the insurer’s handling of the claim is litigated in a separate action. Under Thompson v. Commercial Union Insurance Co. of New York, 250 So. 2d 259 (Fla. 1971), the injured judgment creditor may bring that action directly against the insurer; alternatively, the insured may pursue it or assign it to the injured party. If bad faith is proven, the insurer is liable for the full judgment, including the portion above the limits, along with interest and fees awarded in the underlying case.
The judgment is the anchor. In Perera v. United States Fidelity & Guaranty Co., 35 So. 3d 893 (Fla. 2010), the Florida Supreme Court held that a third-party bad faith claim requires damages caused by the bad faith, which ordinarily means an excess judgment, or a consent judgment or its functional equivalent. An insurer’s poor handling that ends in a settlement within limits, or that causes no excess exposure, does not support the claim.
Two related tools deserve mention.
Coblentz agreements. Where an insurer wrongfully refuses to defend or denies coverage, the insured may agree to a consent judgment with the injured party and assign its claims against the insurer. Named for Coblentz v. American Surety Co. of New York, 416 F.2d 1059 (5th Cir. 1969), these agreements are enforceable against the insurer only if the claimant proves coverage, a wrongful refusal to defend, and that the settlement was reasonable and made in good faith.
Proposals for settlement. A proposal served under Fla. Stat. § 768.79 and Rule 1.442 in the underlying case, and then beaten at trial by at least 25 percent, entitles the plaintiff to attorney’s fees from the date of service. Those fees become part of the judgment the insured faces, and part of what the insurer’s handling of the case put at stake.
What changed in 2023
House Bill 837, effective March 24, 2023, rewrote significant parts of Florida tort law, and it added three provisions to Fla. Stat. § 624.155 that govern bad faith failure-to-settle claims. They apply to cases filed after that date, and they apply to both statutory and common-law bad faith.
A 90-day safe harbor, § 624.155(4). An insurer is not liable for bad faith failure to settle if, within 90 days after receiving actual notice of a claim accompanied by sufficient evidence to support the amount of the claim, it tenders the lesser of the policy limits or the amount demanded. Two practical consequences follow. The insurer now has a defined window to evaluate and pay a limits-level claim. And the phrase “sufficient evidence to support the amount of the claim” puts the burden on the claimant to give the insurer a real claim package, not a one-paragraph letter. A thin submission gives the insurer an argument that the clock never started. Missing the 90-day window does not by itself establish bad faith; it means the safe harbor is not available and the insurer’s conduct will be judged under the traditional standard.
Negligence is not bad faith, and the claimant’s conduct counts, § 624.155(5). The statute now provides that mere negligence alone is insufficient to constitute bad faith. It also imposes a duty on the insured, the claimant, and their representatives to act in good faith in furnishing information about the claim, in making demands, in setting deadlines, and in attempting to settle. The trier of fact may consider whether they did so and may reduce the damages awarded against the insurer accordingly. The change is widely understood as a response to Harvey. After 2023, a demand engineered to be rejected is not just ineffective; it can reduce or defeat the claim it was meant to create.
Competing claimants, § 624.155(6). Where two or more claimants from a single occurrence have claims that together may exceed the policy limits, an insurer that, within 90 days after receiving notice of the competing claims, either files an interpleader action and deposits the limits with the court, or makes the entire limits available to the claimants in a binding arbitration, is not liable beyond its limits for failing to pay any particular claimant. In a multi-victim crash, that means the policy is likely to be divided, and an early, well-supported claim is not a guarantee of the whole limit.
What a good policy limits demand looks like
A policy limits demand is an offer to release the insured in exchange for the policy limits. Its purpose is to give the insurer a clear, fair, and fully supported opportunity to protect its insured, and, if the insurer lets that opportunity pass, to document that it did. After 2023, the claimant’s own good faith is part of the record, so the demand should read as though a judge will one day evaluate it, because one may.
The demands that hold up tend to share these features:
- A complete claim package. Medical records and bills, imaging reports, treating physicians’ opinions on causation and permanency, wage documentation, photographs, and the crash report. The package should be enough, on its own, for a competent adjuster to see that the claim exceeds the limits.
- A clear offer. The amount, what is being released, and who is being released. Ambiguity about whether the release covers only the named insured or also other drivers, owners, or entities is a common source of litigation over whether the demand was ever capable of acceptance.
- A reasonable time to respond, in light of the 90-day statutory window, the complexity of the injuries, and what the insurer needs to verify.
- Reasonable conditions only. Requests for a sworn statement that no other insurance exists, or for the § 627.4137 disclosure, are common and legitimate. Conditions the insurer cannot realistically meet, or cannot meet in the time allowed, invite a finding that the claimant did not act in good faith.
- A plan for liens. Health insurers, Medicare, Medicaid, hospitals, and workers’ compensation carriers may all assert rights against the recovery. A demand should address how those liens will be satisfied from the settlement proceeds rather than leaving the insurer to guess whether it is buying a lawsuit from a lienholder.
- Authority to settle. A demand is only as good as the claimant’s ability to deliver the release. In a death case, that means a personal representative appointed by the probate court. In a case involving a minor, it means accounting for the court approval and guardianship requirements that apply to settlements of a minor’s claim, an issue the Florida Supreme Court addressed in Berges v. Infinity Insurance Co., 896 So. 2d 665 (Fla. 2004). Our guide to Florida wrongful death claims covers the estate side.
- Coordination with every other carrier, including UM consent and notice to excess insurers, so that accepting the primary limits does not compromise another source of recovery.
What a demand is not is a trap. Florida courts have long been skeptical of so-called “setups,” and the 2023 statute gives that skepticism teeth. The best evidence of bad faith is an insurer that received everything it needed, understood what it meant, and still did not act.
When the insurer tenders
Often, the right result is simply that the insurer pays its limits early. A timely tender of limits, combined with the § 627.4137 disclosure, a sworn statement from the insured about assets and other insurance, and a correct resolution of liens, may be the best available outcome where the at-fault party has nothing else and no other defendants or coverage exist.
The decision to accept is not automatic. Before releasing the at-fault party, the questions are whether the UM carrier has consented or waived its subrogation rights, whether any other defendant or policy exists, and whether the insured has personal assets that justify pursuing an excess judgment. Those are questions to answer before signing, because a release ends the claim against that party permanently.
If you are the one being sued above your limits
This article is written mainly for injured people, but the same law protects the other side of the case. If you are a Florida driver or business being sued for more than your insurance covers, your insurer owes you the duties described in Gutierrez.
That means you are entitled to be told about any settlement offer, the risk of an excess judgment, and what you can do about it. If you receive a letter from your insurer warning that the claim may exceed your limits, that is a signal to consult your own attorney, separate from the defense lawyer the insurer assigned, who represents you but is paid by the carrier. Cooperate with reasonable requests for information, including financial affidavits, because your cooperation is part of the record if the insurer later fails to protect you. And if a case ends in an excess judgment, speak to counsel about whether the insurer’s handling created a claim you hold against it before you consider bankruptcy or any assignment.
A hypothetical
Hypothetically: a Palm Beach County electrician is broadside by a driver who ran a stop sign. The driver’s insurer confirms $25,000 per person in bodily injury coverage, and a § 627.4137 disclosure identifies no umbrella policy. The electrician undergoes a two-level cervical fusion and cannot return to trade work. His own UM coverage is $50,000.
His attorney sends a demand for the $25,000 limit with the surgical records, the surgeon’s permanency opinion, wage records, and a proposed release of the named insured only, allowing 60 days and including a plan for the health insurer’s lien. The insurer responds with a $9,000 offer and a request for records from ten years earlier, which are provided within two weeks. The 90-day window closes without a tender. The insurer never tells its insured about the demand.
The case goes to trial, and the jury returns a verdict of $1.1 million. The UM carrier, which consented to the lawsuit, pays its $50,000. The remaining judgment against the driver far exceeds his limits. Whether the insurer is liable for it will turn on its handling: the clarity of liability, the documented severity of the injuries, the completeness of the demand, the reasonableness of the time allowed, the insurer’s failure to tender within 90 days, and its failure to communicate with its own policyholder. None of those facts can be created after the fact. All of them were decided in the first few months of the claim.
Deadlines
The underlying negligence claim is subject to the two-year limitations period that applies to negligence claims accruing on or after March 24, 2023 under Fla. Stat. § 95.11, and wrongful death claims have their own two-year period. The full set of rules is in our guide to Florida’s personal injury time limits.
The bad faith claim runs on a different clock. It generally does not accrue until the underlying case produces a final excess judgment, including the resolution of any appeal. But the conduct that decides it happens early, often within the first 90 days after the insurer receives a supported claim. The practical deadline for building a bad faith case is the demand, not the verdict.
Frequently asked questions
Is the at-fault driver’s policy limit the most I can recover? Not necessarily. Other policies, other defendants, your own UM coverage, and the at-fault party’s personal assets may all be available. And if the liability insurer handles the claim in bad faith and a judgment above the limits results, the insurer can be liable for the entire judgment.
What is third-party bad faith? It is a claim that a liability insurer failed to act in good faith toward its own policyholder in handling a claim against that policyholder, most often by failing to settle within the policy limits when a reasonably prudent insurer would have. If that failure causes a judgment in excess of the limits, the insurer can be required to pay the excess.
Can I sue the other driver’s insurance company directly? Not at the start. Florida’s nonjoinder statute generally requires a judgment against the insured first. After an excess judgment, the injured person may bring the bad faith claim directly under Thompson v. Commercial Union, or the insured may pursue or assign it.
What changed in 2023? Section 624.155 now gives insurers a 90-day safe harbor if they tender the lesser of the limits or the amount demanded after receiving a supported claim, provides that mere negligence is not bad faith, requires claimants and their lawyers to act in good faith in making demands and setting deadlines, and gives insurers a procedure for dividing limits among competing claimants. The changes apply to cases filed after March 24, 2023.
Should I send the policy limits demand myself? It is not advisable. The content of the demand, the scope of the release, the treatment of liens, coordination with UM and excess carriers, and the time allowed all affect whether the demand is capable of acceptance and whether it will later support a bad faith claim. After 2023, a flawed demand can also reduce the recovery against the insurer.
The insurer offered its limits. Should I accept? Possibly, but not before confirming that no other coverage or defendant exists, that the UM carrier’s consent has been obtained if needed, that liens are accounted for, and that the at-fault party has no assets worth pursuing. A release is permanent.
I am being sued for more than my coverage. What should I do? Read every letter from your insurer, consult a lawyer of your own in addition to the defense counsel your insurer provides, and cooperate with reasonable requests for information. Your insurer owes you a duty to protect you from an excess judgment where it reasonably can.
Talk to a Florida personal injury attorney
Underinsured cases are won or lost on work done before anyone files suit: sending the § 627.4137 request on day one, finding the umbrella, the owner, and the employer, protecting the UM claim, building a claim package that leaves no doubt about the value, and writing a demand that a court will later read as a genuine opportunity to settle.
KWBR’s personal injury, auto accident, and wrongful death practices represent injured people and families throughout Broward, Palm Beach, and Miami-Dade Counties, from our Boca Raton, Fort Lauderdale, and Orlando offices. If you were seriously hurt and the insurance on the other side looks inadequate, contact us before the first offer is accepted or the first demand goes out.
This article is for general informational purposes and is not legal advice. Statutes, case law, and insurance policy language vary with the facts, and every case turns on its own circumstances; consult a qualified Florida attorney about your situation.