Florida Appellate Court Holds Unauthorized UM Settlement Did Not Void Coverage Where Tortfeasor Was Likely Insolvent

In Progressive American Insurance Co. v. Heimler, Florida’s Fourth District Court of Appeal affirmed a partial final judgment denying Progressive’s request to rescind an underinsured motorist policy after the insured settled with the tortfeasor without Progressive’s consent.

On April 30, 2022, Randall Marc Heimler was in a motor vehicle accident with Leon Kingston. Liberty Mutual insured Kingston with a $10,000 liability limit. Progressive insured Heimler with $500,000 in uninsured and underinsured motorist (UM/UIM) coverage.

Before filing suit against Progressive, Heimler entered a “bodily injury release” with Liberty Mutual and agreed to discharge Liberty Mutual from all claims in exchange for the $10,000 policy limit. Liberty Mutual deposited the funds into a trust account for Heimler’s benefit. After the settlement, Heimler retained new counsel.

New counsel realized the previous counsel did not obtain Progressive’s consent or a waiver of subrogation, and tried to unwind the settlement. Heimler’s attorney sent Progressive a letter advising of the policy-limit tender and asking Progressive to waive its subrogation rights so Heimler could pursue the UM/UIM claim. The firm also sent Liberty Mutual a $10,000 check from its trust account.

Heimler then sued Progressive for UM/UIM benefits. Progressive answered and raised affirmative defenses, including that Heimler failed to obtain a waiver of subrogation or permission to settle under Florida Statutes section 627.727. Progressive moved for summary judgment on that ground. The circuit court denied the motion, finding genuine issues of material fact as to whether Kingston was insolvent and whether Progressive was prejudiced.

The court bifurcated the case. The first trial was limited to whether the release had been rescinded and whether Progressive had been prejudiced. A second trial on negligence, comparative negligence, causation, permanency, and damages was set only if necessary.

At the first trial, Kingston testified that she lived with her husband and two children and owned a hairstyling business. She said the vehicle she used to travel to clients was totaled in the accident, and she could no longer visit clients because of her injuries. About a year after the accident, she bought her mother’s vehicle for $7,000, later sold it, and bought a used vehicle for $5,500. She reported income of $19,926 in 2023 and “probably 20 something” in 2024. The Kingstons also made about $2,000 to $3,000 with part-time work from DoorDash. Notably, Kingston testified that she had about $125,000 as of April 2023 per a bank statement, which came from a $250,000 settlement she received for her own injuries in the accident.

Of the proceeds from the settlement, Kingston testified it was used to pay lawyers, satisfy personal debt, and buy her business for about $10,000. Her monthly bills were around $3,500. She had no credit card debt. After the accident, Kingston bought a home with a mortgage. In 2022, she sold land in Vero Beach she had owned since 2015, netting $60,000, which she used for living expenses.

On the business, Kingston testified that 2022 revenue was about $10,537, with $2,500 in profit. In 2023, revenue of around $12,000. In 2024, around $5,400. Kingston “hoped” to make $25,000 in 2025. She estimated business assets of about $9,000.

Kingston’s husband testified that he worked at Walmart earning $35,000 a year, had no other savings, and owned a 2011 Buick worth about $5,000. He confirmed the family received about $120,000 from the settlement and had spent it.

On those facts, the trial court entered a partial final judgment finding the settlement had not been rescinded but that Heimler’s failure to obtain Progressive’s consent and a subrogation waiver did not prejudice Progressive because of Kingston’s apparent and probable insolvency. Progressive appealed.

On the appeal to the Fourth District Court of Appeal, the court acknowledged that the parties agreed Heimler was required, by statute and by the policy, to obtain Progressive’s waiver of subrogation before settling and that he did not do so. In addition, the court noted that section 627.727(6)(a) required Heimler to provide written notice of a proposed settlement, by certified or registered mail, to Progressive, and to give Progressive 30 days to authorize the settlement or retain its subrogation rights.

However, the question turned to whether Progressive was actually prejudiced by Heimler’s failure to comply with the statute. The district court noted that case law out of the Fourth District Court of Appeal held that an unauthorized settlement bars recovery if the insurer is prejudiced and that the settlement creates a rebuttable presumption of prejudice. Thus, the burden would be on Heimler to show a lack of prejudice

In a previous case, Muth v. AIU Insurance Co., the court held that “probable insolvency” of the tortfeasor can be enough to overcome the presumption. The court rejected the argument that this was a different standard from cases in other districts, which addressed whether the tortfeasor “is and will remain judgment proof.” The court said those opinions were not creating a new standard. The question is still whether the insurer was prejudiced, and the insured has the burden to show it was not.

To measure that prejudice, the court said the inquiry is counterfactual. That is, if the insured had complied, would a reasonably prudent insurer have approved the settlement, or rejected it and pursued the tortfeasor expecting to come out ahead. Based on previous cases, the court held that a judgment that is not worth the cost of getting is not a real loss, and a technical or illusory loss cannot forfeit coverage.

Ultimately, the appellate court deferred to the trial court’s broad discretion in deciding whether an insurer would rationally accept a settlement instead of paying to chase a judgment. The court can look at whether assets would be easily collectable or instead tied up by homestead or bankruptcy exemptions, and at the gap between the cost of collection and any expected recovery, compared with the settlement on the table.

Here, the court determined that reasonable minds could disagree about the evidence, but the court could not say no judge could have ruled as the trial court did in finding the tortfeasor was probably insolvent and thus no prejudice to Progressive.  Accordingly, the court concluded the trial court did not err in denying rescission.