The U.S. Court of Appeals for the Eleventh Circuit recently closed the book on litigation in which GEICO had been involved since 2010, holding that the granting of a retrial—which resulted in a GEICO victory after an initial verdict of more than $5 million had been rendered against the insurer—was warranted and appropriate. See Joshua Moore v. GEICO General Ins. Co., No. 17-13655 (11th Cir. Dec. 14, 2018). The story began with a rejected GEICO settlement offer following a multi-vehicle fatal auto accident, then moved into a trial against GEICO’s insured. Subsequent bad faith litigation ensued, consisting of an initial federal jury trial, a retrial, and a challenge to the district court’s decision to grant the new trial. In holding that a retrial of the bad faith claim was appropriate after unfairly prejudicial evidence of another insurer’s settlement was presented to the jury, the Eleventh Circuit solidified a positive final outcome for GEICO.

Road Rage Turns Tragic

Richard Waters was driving on a Florida highway while under the influence of both alcohol and opioids. Waters cut off Joshua Moore, a 21-year-old college student, then proceeded to drive away. Moore sped up in his truck to catch Waters, and eventually Waters swerved into Moore’s truck, causing Moore to lose control, cross over a median, and collide head-on into 30-year-old Amy Krupp and her 10-year-old son who were driving down the opposite side of the highway. As a result of the accident, Krupp sustained fatal injuries. Her son was left with lasting brain injuries, and Moore had internal injuries and a shattered right leg—all while Waters drove away physically unscathed.

The Underlying Claim

Waters was insured by Peak Property and Casualty Company (“Peak”) with only $10,000 in property damage coverage. The truck that Moore was driving was insured by Moore’s parents through GEICO, with bodily injury coverage of $10,000 per person/$20,000 per occurrence, and $10,000 in property damage coverage.

Seven days after receiving notice of the accident, GEICO authorized tender of the full $20,000 bodily injury limit. Counsel for the Krupp family stated that in order to settle the claim and release the insured from further liability, the insurer would need to submit a document releasing only the insured, and provide an affidavit swearing that there was no other available insurance coverage. GEICO provided a form release that was applicable as to not only the insured but also to all of GEICO’s “officers, directors, agents or employees.” The Krupp family attorney declined settlement with GEICO based on the language of the release document, taking the position that GEICO’s submission was a rejection of the settlement offer and a counter-offer on new terms. Meanwhile, Peak—as insurer of Richard Waters—settled the claims against its insured.

The Krupp family filed suit against Joshua Moore in August 2010. The trial against him resulted in a jury verdict of approximately $45 million; however, Moore was found to be responsible for only ten percent of the injuries suffered by Amy Krupp and her son. As a result, judgment was entered against the insured for approximately $4.5 million.

Bad Faith Litigation

Moore subsequently brought federal litigation against GEICO, alleging that the insurer had acted in bad faith by failing to settle with the Krupp family for coverage limits. GEICO took the position that it had no realistic opportunity to settle the subject claim within applicable policy limits. Specifically, GEICO’s defense was 1) that it did not act in bad faith, and 2) that even if it had, the multimillion-dollar judgment entered against the insured was not caused by bad faith, since the Krupp family had no intention of ever settling the claims against Moore for the nominal amount of coverage available.

Prior to the trial regarding the bad faith claim, GEICO filed a motion in limine requesting that Moore be prohibited from presenting evidence, testimony, or argument as to two discrete topics—the first being that “the underlying claim ‘could’ have been settled, that [the Krupps were] willing to settle, or that GEICO had an opportunity to settle the underlying claims because [the Krupps] settled with Peak.” GEICO also sought to prohibit reference to “Peak’s handling of a claim against [Richard] Waters.” GEICO’s motion was denied as to both topics, and the district court ruled specifically as follows:

While the Court agrees that the claimants’ willingness to settle the property damage claim may be quite different from their willingness to settle their large bodily injury claims, the Court cannot say that evidence of the property damage settlement is completely irrelevant or unfairly prejudicial. GEICO is free to vigorously cross-examine witnesses about the difference between such claims at trial.

During trial, Moore’s counsel repeatedly put on evidence regarding Peak’s ability to settle the property damage claim for limits of the applicable policy. Moore prevailed on his bad faith claim and the federal jury rendered a verdict against GEICO for over $5 million.

Prejudicial Effect of Evidence Warrants New Trial

This award did not stand, however. About two months after issuance of the final verdict, GEICO’s request for a new trial was granted after U.S. District Court Judge Susan Bucklew concluded that unfairly prejudicial evidence regarding Peak’s settlement had been presented to the jury. On retrial, the jury found that GEICO did not act in bad faith by failing to settle with the Krupp family. Moore challenged the district court’s decision to grant the new trial, but in December 2018, the U.S. Court of Appeals wrote the final chapter of this litigation saga, concluding that the district court had not abused its discretion in determining that it was error to allow evidence of Peak’s settlement and in determining that such an evidentiary error warranted the retrial.

In the December 2018 opinion, the Eleventh Circuit noted that Rule 403, which provides for the exclusion of relevant evidence “if its probative value is substantially outweighed by a danger of . . . unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence,” is committed to the district court’s discretion. The Eleventh Circuit further acknowledged that “[i]nherent in this abuse of discretion standard is the firm recognition that there are difficult evidentiary rulings that turn on matters uniquely within the purview of the district court, which has firsthand access to documentary evidence and is physically proximate to testifying witnesses and the jury.” Tran v. Toyota Motor Corp., 420 F.3d 1310, 1315 (11th Cir. 2005).

In assessing the district court’s analysis, the Eleventh Circuit noted that while evidence of settlement with Peak “certainly had some probative value,” this value was “diminished because the claim Peak settled was not identical nor even substantially similar to the claim GEICO was handling.” Specifically, the Peak policy provided only property damage coverage while GEICO’s applicable policy provided both property damage and bodily injury coverage.

With regard to the balance of probative value against unfair prejudice, the Eleventh Circuit found that “there was a danger the jurors would rely on evidence of the manner in which Peak handled the claims against its insured to find that any other manner of claims-handing . . . amounted to bad faith.” Specifically, “[t]here was a risk that jurors would find that, because Peak hired attorneys to draft a release that met claimants’ settlement demand, the fact that GEICO did not hire attorneys to draft such a release amounted to bad-faith claims-handling.” The Eleventh Circuit was therefore unable to conclude that the district court had abused its discretion in determining that the probative value of the Peak settlement evidence was substantially outweighed by the danger of unfair prejudice to GEICO.

The Eleventh Circuit also found that there had been no abuse of discretion by the district court in deciding that this evidentiary error warranted a new trial under Rule 59 of the Federal Rules of Civil Procedure. Noting that the admission of evidence warrants a new trial only when the erroneous admittance affects a “party’s substantial rights,” the Eleventh Circuit found that evidence of Peak’s settlement went directly to core, determinative issues of the case. Additionally, there had been no instructions issued to the jury to limit consideration of the Peak settlement evidence. In totality, the Eleventh Circuit held that the district court’s order for a new trial due to prior evidentiary error was not an abuse of discretion, and the decision to grant the new trial was affirmed.