A Florida appellate court recently recognized a new statutory cause of action for bad faith in the handling of medical malpractice claims. In Rogers v. Chicago Ins. Co., 2007 WL 1427041 (Fla. 4th DCA May 16, 2007), a medical doctor sued his professional liability insurer for failing to properly investigate a medical malpractice claim against him, as Florida’s medical malpractice statute, F.S. § 766.106, requires. The doctor also alleged that his insurer acted in bad faith under F.S. § 627.4147.
Section 766.106 requires a medical malpractice insurer to establish a procedure for the prompt investigation, review, and evaluation of claims and to conduct a pre-suit investigation of every claim within 90 days after its insured receives a statutory “notice of intent to initiate litigation” from the medical malpractice plaintiff. Pursuant to §627.4147, each medical malpractice policy must include a clause, which authorizes the insurer to settle claims within the policy limits without the insured’s permission. Further, it provides that “any offer of admission of liability, settlement offer, or offer of judgment made by an insurer or self-insurer shall be made in good faith and in the best interests of the insured.”
The doctor in Rogers claimed that the insurer had settled a completely defensible claim, rendering him unable to obtain medical malpractice insurance, and thereby significantly limiting his medical practice. In a decision that was reversed, the trial court held that neither F.S. § 766.106 nor § 627.4147 created a private cause of action for handling a medical malpractice claim in bad faith. It also held that, although an insurer has a common law duty to exercise good faith in claims’ settlements, Shuster v. South Broward Hosp. Dist. Physicians’ Prof’l Liab. Ins. Trust, 591 So. 2d 174 (Fla. 1992) barred the doctor’s action against his insurer. In Shuster, the Florida Supreme Court held that where the policy contains a provision permitting an insurer to settle claims as it “deems expedient” or in its self-interest, a bad faith cause of action will not lie for failure to defend or investigate a claim when the insurer has settled the claim for an amount within the policy limits.
The appellate court disagreed and distinguished Shuster. Noting that Shuster pre-dated the enactment of section 627.4147, the court held that, because section 627.4147 requires an insured to accept a policy giving the insurer the exclusive authority to settle claims within policy limits, an insurer must act in the best interests of the insured, not in its own self-interest, when deciding whether to settle claims. The court noted that settling a medical malpractice claim within policy limits, and thereby conceding liability even if none exists, might not be in the insured’s best interests. Finally, the court held that an insured is entitled to bring a private cause of action against its insurer under section 627.4147, if the insurer fails to act in the insured’s best interests.