Under the liability coverage provision of an automobile insurance contract, the insurance company, or carrier, owes a duty to defend the consumer, or insured, from pending litigation resulting, in part, from a covered motor vehicle accident. For example, John Williams’ auto insurance coverage provides him with liability limits of $10,000 per person, or $20,000 per occurrence. In the absence of coverage defenses or exclusions, if John Williams is at fault, in part or in whole, for an auto accident, and other individuals have sustained bodily injuries or property damage, those individuals with injuries or damage may make a claim against John Williams’ auto policy. However, if three or more people make a claim against John Williams’ policy and demand $10,000 each (the per-person limit), the policy would not cover all three demands (i.e., 3 x $10,000 = $30,000) as the maximum liability coverage is $20,000 per occurrence.
In Florida, the passing of the Tort Reform bill supplied the carrier with a way in which to avoid bad faith claims through an interpleader action pursuant to Fla. Stat., Section 624.155(6)(a). Pursuant to the statute, when the carrier is notified of multiple competing claims against the insured’s policy, and the total of these competing claims may exceed the available policy limits, the carrier may, within 90 days after receiving notice of said competing claims (the “Safe Harbor period”), file an interpleader action under the Florida Rules of Civil Procedure. Ultimately, the intent of such an interpleader action is for the trier of fact to determine if the respective claimants’ pro rata entitlement to the insured’s liability limits. As such, the carrier tenders, or surrenders, the insured’s policy limits to the court, and all potential claimants pursue some portion of those policy limits. In filing an interpleader action, the statute explicitly insulates the carrier from potential bad faith liability based on an alleged failure to tender policy limits. But does the interpleader action protect the insured? The short answer is no.
During the Safe Harbor period, the carrier may work to resolve all claims against the insured’s policy within the liability limits. One such way is through a global settlement conference. The global settlement conference attempts to bring all known claimants, and any potential claimants, together in an effort to resolve or settle, any bodily injury or property damage claims within the insured’s policy limits. In exchange for a portion of the policy’s proceeds, the claimant is required to sign a release wherein the insured is absolved from any future claims for personal liability (i.e., liability over and above that which is covered by insurance) related to bodily injuries or property damage flowing from that particular motor vehicle accident. In the example above, in a successful global settlement conference between the insured, the carrier, and the 3 claimants demanding $10,000 each against John Williams’ policy, the 3 claimants would not receive their respective $10,000 demands, and would instead likely receive some agreed-upon split of the $20,000.
However, not all claims settle within the Safe Harbor period. When this happens, the carrier will generally file an interpleader action. Using the example above, the carrier would first file an interpleader action and, upon court approval, deposit $20,000 in the court’s registry. As discussed previously, the filing of the interpleader action ultimately protects the carrier from potential bad faith liability (as described above); however, John Williams remains exposed to potential claims over and above his $20,000 liability limits. The carrier may still work on resolving the claims after the interpleader action is filed, and, if a settlement is reached without the finder of fact apportioning the policy’s proceeds, the insured will likely still receive a release. If, however, the finder of fact ultimately apportions John Williams’ policy proceeds, there is no out-of-court settlement and, as such, no requirement for a claimant to execute a release in order to receive the policy proceeds. Without this release, John Williams remains exposed to potential claims for personal liability until such time as the statute of limitations runs on those claims (generally, 2 years).
Although the carriers’ duty to defend the insured remains pursuant to the policy, even after the proceeds are deposited into court, the insured could be subject to personal liability on any claims that result in a money judgment. In Florida, some assets are protected from a money judgment, such as Florida Homestead (see Florida’s Constitution, Article X, Section 4), however, not all assets are protected, or judgment proof. If you find yourself in a situation with a money judgment against you, there are asset protection attorneys who will be able to advise you.