Does plaintiff have to make a settlement offer before an issue of bad-faith can arise?

NO! Florida courts have determined that a settlement offer from the plaintiff is not a prerequisite to a bad faith action. Powell v. Prudential Property & Casualty Insurance Co., 584 So.2d 12 (Fla. 3d DCA 1991). The formal settlement offer is only one relevant factor that should be considered when determining if the insurer acted in bad faith. The Powell court stated that when liability is clear and the injuries are so serious that it is likely a judgment will exceed the policy limit, the insurer has an affirmative duty to the insured to initiate settlement negotiations. An insurer also has the added burden to prove that it is highly unreasonable for a settlement within policy limits, and also the insured is unable to contribute to any kind of settlement. To illustrate how an action of bad faith against the insurer can arise without a settlement offer being produced by the injured plaintiff is the case of, Florida Farm Bureau Mutual Insurance Co. v. Rice, 393 So.2d 552 (Fla. 1st DCA 1980), where the court decided issues of liability for an excess verdict when the insurer refused to defend. From that case, it was determined that as long as a company has denied coverage and refused to defend, settlement offers aren’t a prerequisite to establish a cause of action for the excess. Many practitioners should be aware that strong liability and damages that will seemingly exceed the policy limits will not automatically avail the insurer to a bad-faith action. A good example of how this works is a case where the injured plaintiff offered to accept $50,000; the insured had only $25,000 policy limits; the insurer didn’t communicate the offer to the insured, who might have contributed the additional $25,000. The final verdict awarded a $250,000 judgment to the injured plaintiff. In spite of a formal offer being made, there is a good argument that the insurer acted in bad faith by not presenting the initial plaintiff’s offer to the insured. Also worth considering is that the offer doesn’t necessarily have to be in a written form. In Florida, the court has found an oral demand as sufficient in circumstances of clear liability and damages that are far in excess of the available liability limits. Hartford Accident & Indemnity Co. v. Mathis, 511 So.2d 601 (Fla. 4th DCA 1987).