Is a bad faith action still viable when an insured defendant files bankruptcy?

By Alfred Villoch, III, with Savage, Combs & Villoch, PLLC
Johnny Smith accidentally runs a red traffic light and slams his pick-up truck into a motorcyclist, Drew Lenders. Sadly, Drew was not wearing a helmet and suffered significant head trauma and memory loss.  Drew’s hospital bill alone is $50,000  He also missed 3 months from work and, therefore, lost about $12,000 in wages.  Drew hires an injury attorney and formally demands the $50,000 policy limits from Johnny’s auto insurance, ABC Insurance Co., within 30 days.  But believing that the motorcyclist should have been wearing a helmet, ABC Insurance allows Drew’s demand to expire and, instead, hires a biomechanical engineer to find out if Drew’s injuries would have been prevented had he worn a helmet. Meanwhile, Johnny files bankruptcy.
One year later, a jury awards $200,000 verdict against Johnny and in favor of Drew.  ABC Insurance pays the $50,000.  Because Johnny is not responsible for an excess judgment by virtue of his prior bankruptcy, is a bad faith claim against ABC Insurance even a viable cause of action?  The answer is “yes.”
Under Florida law, a bad faith action is a separate cause of action that does not arise until an insured is legally obligated to pay an excess judgment. Whritenour v. Thompson, 145 So. 3d 870 (Fla. 2d DCA 2014). A plaintiff must first obtain a judgment in a negligence action, like Drew did above, that determines liability and the amount of resulting damages because that determination is essential to a potential suit against an insurance company for its bad faith in handling a liability claim against its insured. An insured defendant’s bankruptcy filing and discharge, like Johnny’s above, does not change this procedure. The only difference is that the bankruptcy trustee brings the bad faith action against the insurance company.  Id.
If you have any questions about bankruptcy and how it intersects with other areas of the law, please contact Alfred Villoch, III, with Savage, Combs & Villoch, PLLC, at 813-200-0013.