Bad Faith Judgements & Settlements are Punishment not Damages
Barry Zalma
Nov 8, 2023
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The Florida Supreme Court was asked to resolve a certified question from a lower court about whether a personal injury damages award must be reduced by a payment the plaintiff received to settle a bad faith claim against his uninsured motorist insurance carrier.
In Alberta S. Ellison v. Randy Willoughby, No. SC2021-1580, Supreme Court of Florida (November 2, 2023) the Supreme Court answered the questions posed.
FACTS
Respondent/plaintiff Randy Willoughby was badly injured in a car crash. After the accident, he sued Petitioner/defendant Alberta Ellison, bringing a vicarious liability claim based on Ellison’s co-ownership of the other car in the crash. Willoughby also sued his own uninsured motorist insurance carrier to recover policy benefits and for statutory bad faith damages. Willoughby and his insurer settled before trial for $4 million. The subsequent trial against Ellison resulted in a $30 million jury verdict for Willoughby. Ellison then asked the trial court to set off the $4 million insurance settlement against the damages award, but the court denied the motion.
The Second District Court of Appeal affirmed the denial of the set off request. It also certified this two-part question as one of great public importance.
1. Is a settlement payment made by an uninsured motorist insurer to settle a first-party bad faith claim subject to set off under section 768.041(2) or
2. a collateral source within the meaning of section 768.76?
The court answered no to both parts of the question, holding that neither statute authorized a set off in this case. The Second District explained that, writing on a blank slate, it would have found Ellison entitled to a set off under section 768.041(2), but it decided that the Supreme Court’s case law precluded that result.
Based on the parties’ arguments and the Supreme Court’s review of the record, the Supreme Court determined that Ellison did not ask the trial court for a set off under section 768.041(2) and refused to consider the issue.
The Supreme Court rephrased the question posed to it to read: “Is a settlement payment made by an uninsured motorist insurer to settle a first-party bad faith claim a collateral source within the meaning of section 768.76(2)(a)2.?”
Although Willoughby sued his uninsured motorist insurance carrier both for the $10,000 limit allowed under his policy and for bad faith damages, his $4 million insurance settlement was undifferentiated (as to claims and categories of damages). Subject to certain exceptions, section 768.76(1) mandates damage award reductions for sums that the plaintiff has received from “collateral sources.”
The Supreme Court noted that bad faith damages are not “benefits” for purposes of the collateral source definition in section 768.76(2)(a)2.
First-party bad faith claims like Willoughby’s are a creature of statute, not of the underlying insurance contract between the parties. In particular, the damages recoverable in an uninsured motorist insurance bad faith claim are set out in a statute to be “the total amount of the claimant’s damages, including the amount in excess of the policy limits, any interest on unpaid benefits, reasonable attorney’s fees and costs, and any damages caused by a violation of a law of this state.”
The Florida Supreme Court characterized statutory bad faith damages as a penalty. By “extracontractual,” the Supreme Court meant that first-party bad faith damages are over and above the amount owed pursuant to the express terms and conditions of the policy after all of the conditions precedent of the insurance policy in respect to payment are fulfilled.
The Supreme Court answered its rephrased question with a “no” and concluded that a settlement payment made by an uninsured motorist insurer to settle a first-party bad faith claim is not a collateral source and the judgment could not be offset.
ZALMA OPINION
The $30 Million verdict was not offset by the $4 Million bad faith settlement. Randy Willoughby was entitled to collect, if possible, the full $34 million in damages and punishment damages. The Supreme Court wisely concluded that punishment damages were not damages for bodily injury and could not be used to reduce the trial court’s verdict in the bodily injury suit.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Happy Law Day
ZIFL – Volume 30, Issue 9 – May 1, 2026
Read the full article at https://www.linkedin.com/pulse/zalmas-insurance-fraud-letter-may-1-2026-barry-zalma-esq-cfe-2tywc, see the video at at and at https://zalma.com/blog plus more than 5300 posts.
THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
ZIFL – Volume 30, Issue 9 – May 1, 2026
Zalma’s Insurance Fraud Letter (ZIFL) continues its 30th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year and is written by Barry Zalma.
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BACKGROUND
In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.
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Read the full article at https://www.linkedin.com/pulse/fraud-make-same-claim-twice-barry-zalma-esq-cfe-c4g8c and at https://zalma.com/blog.
Chutzpah: After Being Paid for a New Roof Insured Makes Second Claim For Same Damages
Post number 5347
No One is Entitled to be Paid for the Same Loss Twice
In Mohammed Ali Khalili v. State Farm Lloyds, No. 14-25-00611-CV, Court of Appeals of Texas (April 30, 2026) Khalili maintained a State Farm Lloyds homeowners insurance policy for decades. In 2008 he filed a roof-damage claim; State Farm paid him to replace the entire roof (shingles and gutters). Khalili never replaced the roof and repeated his claim.
BACKGROUND
In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.
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A first party property policy does not insure property: it insures a person, partnership, corporation or other entity against the risk of loss of the property. Before an insured can make a claim for indemnity under a policy of first party property insurance the insured must prove that there was damage to property the risk of loss of which was insured by the policy. The obligation imposed on the insured ...
