The Decline Of The Proposal For Settlement

By Ramy P. Elmasri and Erick R. Rodriguez

Introduction

In the four decades since the Florida Legislature passed the offer of judgment statute, Fla. Stat. § 768.79, the Proposal for Settlement (“PFS”) has become an indispensable part of many litigants’ toolkits. In concert with the Florida Legislature, the Florida Supreme Court sought to implement the procedural framework for the PFS through Fla. R. Civ. P. 1.442 to help achieve the intended goal of reducing litigation. New changes will dramatically alter the legal landscape.

Analysis

Proposals For Settlement May No Longer Contain Certain Nonmonetary Terms

The most recent amendment to Fla. R. Civ. P. 1.442(c)(2), set to go into effect July 1, 2022, states that “A proposal shall … exclude nonmonetary terms, with the exceptions of a voluntary dismissal of all claims with prejudice and any other nonmonetary terms permitted by statute,” eliminating the language in the rule discussing nonmonetary terms. In other words, non-monetary conditions, other than a dismissal of the lawsuit, will no longer be permitted to accompany a PFS under Rule 1.442. This amendment will have far-reaching implications, especially for private insurance companies defending first-party lawsuits.

The amendment’s new language forbidding nonmonetary terms in a PFS precludes conditioning acceptance of the PFS upon execution of a release. While dismissal of the litigation at hand would effectively preclude a future lawsuit based on the same scope of the loss, a resolution in this manner absent a global release as to the claim could permit future litigation over the same claim if supplemental damage was submitted thereafter. Likewise, if a civil remedy notice has been filed, the acceptance of settlement and dismissal of the litigation would not preclude a bad faith action because a bad faith cause of action does not accrue unless and until the insured’s underlying first-party action for insurance benefits is resolved favorably to the insured. Blanchard v. State Farm Mut. Auto. Ins. Co., 575 So. 2d 1289, 1291 (Fla. 1991).

In addition, the Florida Supreme Court has specifically stated that an insured is not obligated to obtain the determination of liability and the full extent of damages through trial, but may do so through other means, including a settlement. Fridman v. Safeco Ins. Co. of Ill., 185 So. 3d 1214, 1224 (Fla. 2016). Therefore, a proposal for settlement under the new rule greatly restricts the negotiation capabilities of a settling defendant because the PFS may not contain any nonmonetary conditions, including a release for a bad faith cause of action under the same claim. On the contrary, the PFS itself may serve as the very evidence a bad faith plaintiff would need to establish that the underlying action for insurance benefits resolved in favor of the insured.

Procedural Rules With Substantive Effects

The Florida Constitution empowers the Florida Supreme Court to adopt rules for the practice and procedure of Florida courts. See Kuhajda v. Borden Dairy Co., 202 So.3d 391, 394 (Fla. 2016). Considering the anticipated impact of this change in rule 1.442 begs the question of how this amendment amounts to mere procedural governance by the Florida Supreme Court. The Court’s justification for this change is that the “amendments are intended to align rule 1.442 with the substantive elements of Florida’s settlement proposal statutes. Fla. Stat. § 768.79 does not provide for the inclusion of nonmonetary terms in a proposal for settlement.” See In re Amends. To Fla. Rules of Civ. Proc., No. SC21-277 (Fla. 2022).

Whether the rules governing proposals for settlement are in fact substantive or procedural in nature has been the subject of myriad appeals producing mixed results throughout Florida’s appellate courts. In fact, the Florida Supreme Court previously affirmed the validity of a PFS that complied with Fla. Stat. § 768.79 but failed to include all the details listed by Fla. R. Civ. P. 1.442(c)(2). Kuhajda 202 So. 3d 391, 394 (Fla. 2016). However, six months earlier, the Fourth DCA concluded the exact opposite, holding that a PFS “could not form a basis for the attorney’s fees award” because it “failed to strictly comply with Fla. R. Civ. P. 1.442(c)(2)(F).” See Deer Valley Realty, Inc. v. SB Hotel Assocs. LLC, 190 So. 3d 203, 207 (Fla. 4th DCA 2016). Despite the conflict, the Kuhajda opinion does not explicitly overrule Deer Valley.

The Kuhajda Court considered “a circumstance in which Fla. R. Civ. P. 1.442(c)(2)(F) contains a requirement to include in a settlement proposal a specific element that § 768.79 does not require” and declined to invalidate a PFS “solely for violating a requirement in rule 1.442 that section 768.79 does not require.” Justice Canady artfully takes the position that “the procedural rule should no more be allowed to trump the statute here than the tail should be allowed to wag the dog. A procedural rule should not be strictly construed to defeat a statute it is designed to implement.” Kuhajda, 202 So. 3d 395-96. In fact, a long line of Florida Supreme Court opinions affirm that “the offer of judgment statute is procedurally buttressed by Florida Rule of Civil Procedure 1.442.” See Se. Floating Docks v. Auto-Owners Ins. Co., 82 So. 3d 73, 79 (Fla. 2012) (emphasis added).

Although the Florida Supreme Court drafted and ratified rule 1.442 and its amendments, the components of the rule with a substantive effect, such as the section permitting joint proposals for settlement, were struck down by the same court that implemented them. Justice Polston asserts in the Gorka dissent that, “joint proposals have become a trap for the wary and unwary alike,” warning that “the majority’s opinion ‘effectively eliminates the ability to make joint offers.’” Pancheco v. Gonzalez, 254 So. 3d 527 (Fla. 4th DCA 2018) (citing Attorneys’ Title Insurance Fund, Inc. v. Gorka, 36 So.3d 646, 654 (Fla. 2010) (Polston, J., dissenting).

Learning Point: Proposals for settlement are a well-known tool, with both litigators and their clients marking their calendars for the 91st day after a suit is filed to make note of when one may be served. As the legal landscape for the use of this tool changes, it is worth contemplating whether this amendment to rule 1.442 is substantive or procedural in nature. Moreover, the Florida Supreme Court’s rationale for the change remains altogether questionable. In particular, we are left to wonder how the mere absence of a provision in Fla. Stat. § 768.79 regarding the use of nonmonetary terms warrants the implementation of a “procedural” rule explicitly prohibiting the inclusion of nonmonetary terms in proposals for settlement.