Although a defendant’s ability to pay or otherwise satisfy a plaintiff’s judgment is always of paramount concern in litigation, this issue can be further complicated when the defendant files for bankruptcy during the pendency of a case. Indeed, although a defendant’s motor vehicle insurer is often obligated to pay all or some of a plaintiff’s recovery, the specter of a defendant’s insolvency and the legal rules that apply when bankruptcy proceedings are initiated can nonetheless still create confusion for plaintiffs. This sort of confusion is highlighted in the Second District Court of Appeal’s recent decision in Whritenour v. Thompson (PDF-embedded link).
The Whritenour case was commenced following a motor vehicle accident in July 2011. The plaintiff sustained bodily injury as a result of the accident and promptly brought a negligence action against the defendant in January 2012. The defendant had bodily injury liability insurance coverage that was capped at $300,000. The insurer obtained defense counsel, who advised the defendant to file for bankruptcy. Heeding the advice, the defendant filed for bankruptcy in September 2012 and listed the plaintiff’s personal injury claim in the bankruptcy petition. The bankruptcy court then issued an automatic stay of the negligence proceedings. In October, the plaintiff filed an emergency motion for relief from the stay of proceedings in the bankruptcy court. The bankruptcy court granted the motion and amended to the stay to permit the plaintiff to “to commence, prosecute, complete […] through final judgment […] claims against [the defendant], for the purpose of pursuing [the defendant’s] insurance carrier and not for the purpose of pursuing personal liability against [the defendant].” Thereafter, the personal injury litigation continued until the defendant filed a motion for summary judgment, which argued that the she had no personal liability, that the plaintiff’s maximum recovery was limited to the $300,000 policy limit, and that, despite an absence of sworn testimony to that effect, the bankruptcy trustee had no intention of pursuing a bad-faith action against the carrier that could increase the scope of the insurer’s possible obligation. The trial court granted the motion, holding that the plaintiff was not entitled to proceed to trial and, by effect, a determination of damages because the plaintiff failed to file an action for bad faith prior to the defendant being discharged in bankruptcy. The plaintiff then brought the current appeal.
In an unanimous decision, the Second District Court of Appeal reversed and held that the trial court erred in granting summary judgment to the defendant. First, the court noted the plaintiff’s right, pursuant to the Florida Constitution, to have a jury determine damages. See art. I, § 22, Fla. Const.. Next, the court turned to the defendant’s contention that the Florida Supreme Court’s decision in Camp v. St. Paul Fire & Marine Insurance Co. (PDF-embedded link) compelled the result granted by the trial court. On the motion for summary judgment, the defendant argued that, in accordance with Camp, the plaintiff needed to establish a bad-faith action prior to the bankruptcy discharge in order to maintain the action past summary judgment, since liability would otherwise be capped at the insurance policy limits. The Second District, however, found this reading of Camp to be too expansive and stated that the Supreme Court of Florida simply held that an insurer’s liability for bad faith is not extinguished when an insured defendant declares bankruptcy during the pendency of a personal injury action. See Camp, 616 So. 2d 15 (Fla. 1993).
In the Second District’s view, the bad-faith action need not be established prior to the discharge in bankruptcy. Instead, the bad-faith action and the negligence action are distinct causes of action, and the bad-faith action does not even accrue until the insured party is legally obligated to pay an excess judgment. See Cunningham v. Standard Guar. Ins. Co., 630 So. 2d 179, 181 (Fla. 1994) (noting that a plaintiff must ordinarily obtain a judgment against the insured in excess of the insured’s policy limits prior to asserting a bad-faith claim against the insured’s liability insurer). When the defendant has been discharged in bankruptcy, the plaintiff must compel the bankruptcy trustee to bring a bad-faith action against the insurance company. However, this alternation to the process does not serve as a ground for granting summary judgment, especially when, as is true in the current case, the bankruptcy trustee makes no sworn statement that he or she does not intend to pursue a bad-faith action in the event that liability is ascertained beyond the insurance policy limits. Indeed, the bankruptcy court permitted the plaintiff to pursue her action through final judgment, did not limit the plaintiff’s recovery to the insurer’s purported policy limits, and expressly provided instruction for the plaintiff to file a motion for relief if she wanted to proceed against the insurance company for an excess verdict. Accordingly, the Second District held that granting summary judgment was in error and remanded the case to the trial court for further proceedings.
Although the plaintiff will now likely have an opportunity to have a jury determine the full scope of her damages, the plaintiff’s recovery is still in jeopardy. Since bankruptcy has absolved the defendant of any personal liability, the plaintiff’s ultimate recovery will be limited to the insurance carrier’s obligation to pay. If the plaintiff acquires a judgment in excess of the policy limit, she will then need to succeed on a bad-faith claim to get compensation beyond the insurer’s policy limits.
This case demonstrates just one of the various issues that can arise when a defendant either files for bankruptcy or is otherwise unable to satisfy a plaintiff’s judgment. Given that it is difficult to assess a litigant’s financial solvency prior to litigation, someone injured as a result of another’s possible negligence should consider enlisting the aid of competent counsel prior to taking legal action. The South Florida motor vehicle negligence attorneys at Frankl & Kominsky have experience with motor vehicle accident litigation and are prepared to offer guidance through the various stages of the process. Feel free to contact us if you are interested in a free case consultation.