Opinion ID: 1782164
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Heading: Common Law Third-Party Bad Faith Claim

Text: When handling claims against its insured, an insurer has a duty to use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business. Boston Old Colony Ins. Co. v. Gutierrez, 386 So.2d 783, 785 (Fla. 1980). More specifically, the Court explained in Gutierrez that when the insured has surrendered to the insurer all control over the handling of the claim, including all decisions with regard to litigation and settlement, then the insurer must assume a duty to exercise such control and make such decisions in good faith and with due regard for the interests of the insured. This good faith duty obligates the insurer to advise the insured of settlement opportunities, to advise as to the probable outcome of the litigation, to warn of the possibility of an excess judgment, and to advise the insured of any steps he might take to avoid same. The insurer must investigate the facts, give fair consideration to a settlement offer that is not unreasonable under the facts, and settle, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so. Id. at 785 (citations omitted); see also Allstate Indem. Co. v. Ruiz, 899 So.2d 1121, 1125 (Fla.2005) (Under liability policies . . . insurance companies took on the obligation of defending the insured, which, in turn, made insureds dependent on the acts of the insurers. . . . This placed insurers in a fiduciary relationship with their insureds . . . [and] courts began to recognize that insurers `owed a duty to their insureds to refrain from acting solely on the basis of their own interests in settlement.') (first alteration in original) (quoting State Farm Mut. Auto. Ins. Co. v. Laforet, 658 So.2d 55 (Fla.1995)); Berges v. Infinity Ins. Co., 896 So.2d 665, 672 (Fla.2004) (It has long been the law of this State that an insurer owes a duty of good faith to its insured. See Gutierrez, 386 So.2d at 785. Thus, `[t]he insurer must investigate the facts, give fair consideration to a settlement offer that is not unreasonable under the facts, and settle if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so.' Id. ) (alteration in original). In Thompson v. Commercial Union Insurance Co., 250 So.2d 259, 264 (Fla.1971), we recognized the right of an injured third party to maintain an action against the insurer under the common law to recover the amount of an excess judgment, based on the insurer's alleged breach of the duty of good faith in handling the insurance claim. Although a third party was allowed to bring a common law bad faith cause of action directly against an insurer, the Court later clarified that its decision in Thompson was not meant to change either the basis or theory of recovery regarding such actions: We did not extend the duty of good faith by an insurer to its insured to a duty of an insurer to a third party. The basis for an action remained the damages of an insured from the bad faith action of the insurer which caused its insured to suffer a judgment for damages above his policy limits. Thompson merely allowed the third party to bring such an action in his own name without an assignment. Fidelity & Cas. Co. v. Cope, 462 So.2d 459, 461 (Fla.1985). However, this common law cause of action arose only in the third-party context, and did not authorize common law first-party actions by an insured against its own insurer for failing to act in good faith when settling a claim brought by the insured against its insurer, such as in the uninsured motorist context or other claims for first-party benefits. If an insurer acted in bad faith in settling a claim filed by its insured, the only common law action available to the insured was a breach of contract action against the insurer in which damages were limited to those contemplated by the parties in the insurance policy. See Talat Enters., Inc. v. Aetna Cas. & Sur. Co., 753 So.2d 1278, 1281 (Fla.2000).