An Insured should be Cautious when Receiving an Insurer’s Proposal for Settlement

As an insured, when you are suing an insurance carrier you are moving for attorney’s fees to the extent you prevail in the coverage lawsuit.  For an insurer to counteract your right to fees, the insurer may serve a proposal for settlement, which is a procedural vehicle for an insurer to preserve its right to obtain fees from the insured in the event the proposal for settlement is not accepted.  Be cautious when it comes to an insurer’s proposal for settlement because if the insurer prevails you could be liable for the insurer’s attorney’s fees.  Do not automatically assume the insurer’s proposal for settlement is without good faith.

In a property insurance coverage case, Mount Vernon Fire Ins. Co. v. New Moon Management, Inc., 43 Fla. L. Weekly D395a (Fla. 3d DCA 2018), the insured filed a coverage suit for water damage.  The insurer had denied the insurer’s claim due to coverage exclusions in the policy. After two years of litigation and discovery, the insurer served a proposal for settlement for $1,000.  The insured, of course, did not accept this nominal amount.  The insurer also moved for summary judgment and guess what? The insurer prevailed meaning it now had a basis to recover attorney’s fees based on the insured not accepting the proposal for settlement. The insured argued that the insurer did not make the proposal for settlement in good faith and the trial court agreed based on the $1,000 nominal amount.  

But, on appeal, the Third District reversed finding that after two years of litigation and discovery and moving for summary judgment shortly after serving the proposal for settlement, the insurer had an understanding of its risk exposure.  And, based on this risk exposure, the insurer found its risk limited hence the $1,000 proposal for settlement.  Stated differently, the Third District held that the insurer had a reasonable basis at the time it made its $1,000 offer to conclude that its liability was limited.  Based on this  reasonable basis, the Third District found that the insurer was entitled to its reasonable attorney’s fees against the insured. 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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