Claims Vendors Are Not a Substitute for Legal Bad-Faith Judgment

GoAuto Insurance Company v. 2B Claims Services Inc. is an unpublished Eleventh Circuit decision that offers a practical lesson: an insurer cannot shift its own bad-faith risk-management decisions to an outside claims vendor.

The case arose from a four-car accident with low policy limits and multiple potential claimants. Two claimants made a time-limited policy-limits demand requiring settlement checks to be in hand by a stated deadline. The Insurer agreed to pay policy limits but insisted on signed releases before sending the checks, missed the checks-in-hand deadline, and later settled the threatened bad-faith exposure for more than policy limits. 

The insurer then sued its claims vendor, arguing that the vendor should have warned it about bad-faith exposure. The Eleventh Circuit affirmed summary judgment in the vendor’s favor, holding that advising an insurer about the legal risk of excess bad-faith liability requires legal judgment and was outside the ordinary role of a claims adjuster on that record. The court also emphasized causation: only GoAuto had authority to send the checks, and The Insurer’s decision not to send them caused the settlement to fail. 

For insurers, the lesson is operational. Outside adjusters can investigate, evaluate, and communicate, but the insurer must make the decision when a demand creates potential excess exposure. When a demand includes a rigid performance condition (e.g. checks in hand by date requirement) the carrier should involve counsel early and decide whether compliance is required to protect the insured.

Takeaways:

• Do not assume an adjusting vendor will identify legal bad-faith exposure.
• Escalate time-limited demands with mechanical performance requirements immediately.
• Document who has settlement authority and check-writing authority.
• Treat "release first, payment later" positions as high-risk when a demand requires payment by a deadline.

Jim Pattillo is a leading litigation counsel for insurance, product, and commercial clients and is based in the firm’s Birmingham, Alabama, office. Mr. Pattillo represents numerous commercial and personal insurers in matters involving bad faith, extra-contractual exposure, coverage litigation, and a variety of declaratory judgment actions. He also works closely with large SIU investigations on fraud-related matters. Mr. Pattillo focuses exclusively on litigation and trial work. He has a twenty-year trial record in the courtroom that is extensive and successful, including numerous seven and eight-figure exposures with results routinely exceeding client expectations.

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