In a multimillion-dollar dispute stemming from a traffic accident that badly injured a motorcyclist, a federal appeals court this week revived a Florida lawsuit alleging that an insurer acted in "bad faith" by not reaching agreement on a claim.

In 2015, a settlement was reached, with judgments of $4.74 million against McNamara and $474,000 against Warren.

McNamara and Warren in 2017 filed a bad-faith lawsuit against GEICO, alleging that they faced the "consent" judgments because the insurer had not reached agreement to pay the $100,000 in coverage limits to Bennett.

After the bad-faith case was moved to federal court, U.S. District Judge Steven Merryday in 2020 ruled in favor of GEICO. Merryday's ruling was based, at least in part, on a 2019 opinion by the 11th U.S. Circuit Court of Appeals that said what are known as "excess" judgments that underpin bad-faith cases must come through court verdicts — not in the type of settlement reached in the case involving McNamara, Warren and Bennett.

But in a decision Tuesday, a three-judge panel of the Atlanta-based court said the 2019 ruling "misinterpreted" Florida law. It said the GEICO case should go back to the lower court.

"A final judgment that exceeds all available insurance coverage — regardless of whether it results from a consensual settlement or a jury verdict — constitutes an 'excess judgment' that can satisfy the causation element of an insurer-bad-faith claim under Florida law," said the 15-page decision, written by Judge Kevin Newsom and joined by Judges Elizabeth Branch and Andrew Brasher.

The decision said McNamara and Warren are seeking in the bad-faith lawsuit to recover the amounts of money in the consent judgments that exceed the $100,000 in coverage limits under the policy.

"Here, Warren and McNamara's available coverage was $100,000," the decision said. "The final judgments entered against them in the amounts of $474,000 and $4,740,000, respectively, constituted excess judgments because they exceeded that coverage. Under Florida law, it doesn't matter that these judgments resulted from stipulated settlements instead of verdicts. Because Warren and McNamara were subject to excess judgments, they could prove causation in their bad-faith case."

In a brief filed in 2020, attorneys for Bennett, who intervened in the appeal, said the outcome of the case could affect many bad-faith lawsuits.

"The issue before the court is an important one, affecting hundreds if not thousands of cases across Florida where the injured claimant's damages exceed the available liability coverage," the brief said. "If Cawthorn (the name of the 2019 ruling) accurately states Florida law and a verdict is required to serve as an 'excess judgment' in the bad faith case, virtually every case will end up going to trial."

But GEICO attorneys last year argued that the appeal should be rejected and pointed to the 2019 opinion.

"In sum, the existence of an excess judgment or its functional equivalent is an essential element of a common law bad faith claim," the insurer's attorneys wrote. "In the instant matter (the case), there was no excess judgment or its functional equivalent to establish an essential element of the bad faith claim against GEICO."