Supreme Court of Florida Holds Plaintiff’s Bad-Faith Settlement Does Not Qualify as Collateral Source

In Ellison v. Willoughby, the Supreme Court of Florida held that the plaintiff’s $4 Million settlement with his own auto insurer over his 2012 car accident did not qualify as a collateral source and therefore did not apply to set-off or reduce the plaintiff’s approximate $30 Million jury verdict award.

Ellison argued that the Court should reduce the $4 Million settlement pursuant to  Fla. Stat. § 768.76, which provides that a court must reduce a claimant’s damages award by the amounts paid to the claimant from “collateral sources,” and defines “collateral sources” in part as “automobile accident insurance that provides health benefits or income disability coverage; and any other similar insurance benefits […] ”

The Florida Supreme Court rejected Ellison’s argument and declined to trim the jury award because the $4 Million settlement stemmed from the Insured’s bad-faith claims against his insurer, which does not constitute benefits under the Policy. Chief Justice Carlos Muniz explained that the Florida Supreme Court has already previously found that bad faith damages are both penalties and extracontractual in nature, citing to State Farm Mut. Auto. Ins. Co. v. Laforet, 646 So. 2d 986 (Fla. 1995) and Talat Enters. v. Aetna Cas. & Surety Co., 753 So. 2d 1278 (Fla. 2000).

In reaching its decision, the Chief Justice explained the Court’s rationale as follows:

“First-party bad faith claims like Willoughby’s are a creature of statute, not of the underlying insurance contract between the parties […] We do not think it would be reasonable to interpret the term ‘benefits’ as encompassing a statutory penalty of this kind. Such a penalty does not fit within the ordinary meaning of the word ‘benefit’.”

Accordingly, the Court affirmed the lower appeals court decision and declined to reduce the jury award by the $4 Million settlement because the bad-faith settlement did not constitute a collateral source under Fla. Stat. § 768.76.