Cozen O’Connor: Georgia: No Bad Faith Trap Where a Policy Limits Demand Lacked a Response Deadline [Alert]

Georgia: No Bad Faith Trap Where a Policy Limits Demand Lacked a Response Deadline

March 15, 2019

On March 11, 2019, the Georgia Supreme Court provided a victory for insurers when it found that an insurer did not act in bad faith by failing to accept a policy limits demand that lacked a deadline to respond and was abruptly withdrawn after 41 days, even though the insurer had already determined that the insured’s likely exposure exceeded policy limits. First Acceptance Ins. Co. of Ga. v. Hughes, No. S18G0517, 2019 WL 1103831, at *1 (March 11, 2019). 

The court also addressed an insurer’s duties when it receives multiple demands upon its policy limits and there is not enough coverage available to pay all claims.  In that situation, the insurer may, but is not necessarily required to, settle the highest-exposure claim first, even though doing so will exhaust policy limits and leave the insured without coverage for the other claims. Id. at *6. 

On August 29, 2008, First Acceptance’s insured, Ronald Jackson, caused a multi-vehicle collision. Mr. Jackson, who later died from his injuries, and five others were injured. Id. at *1. The injuries of the other involved motorists included: a fractured skull, bleeding on the brain, and being comatose for four to five days of a minor; a neck injury and permanent scarring to the right arm of the mother of the minor; and multiple head, neck, back, and tissue injuries of others. Id

First Acceptance’s automobile insurance policy had bodily injury limits of $25,000 per person and $50,000 per accident. Id. at *1.  Early on, First Acceptance determined that Mr. Jackson was liable for the accident, that his policy provided coverage, and that his liability exposure exceeded policy limits. Id. After one less-seriously injured claimant made a policy-limits demand, First Acceptance sought to schedule a mediation that included all the claimants in an attempt to reach a global resolution. That claimant agreed to participate in mediation. Id. at *2.

The two most severely injured claimants, the minor and her mother, also advised First Acceptance by letter that they were willing to participate in mediation and alternatively demanded to settle for policy limits. Id. The claimants placed no deadline on their demand. Id. After 41 days, those claimants rescinded their demand and filed suit. Id. First Acceptance again sought the claimants’ participation in mediation with the other claimants, but they refused. 

On two occasions, First Acceptance offered to settle the lawsuit. Id. First Acceptance first offered $25,000 to the seriously injured minor and subsequently offered the minor and her mother each $25,000, which equaled the policy’s per person and per accident limits. The claimants rejected both offers. Id. The case went to trial, and a verdict exceeding $5.3 million was rendered for the seriously injured minor’s injuries alone. Thereafter, the insured’s estate filed a bad faith lawsuit against First Acceptance seeking to recover the excess verdict entered against him, punitive damages, and attorneys’ fees. Id.   

The trial court dismissed the insured’s bad faith claim against First Acceptance for failure to timely accept a settlement demand within limits because the demand was not clear and did not include a deadline to respond. Hughes v. First Acceptance Insurance Company of Georgia, Inc., No. 14A52088 (DeKalb State Ct., Sept. 20, 2016). On appeal by the insured, the Georgia Court of Appeals reversed, finding that a question of fact existed regarding the nature of the claimant’s demand.1  Hughes v. First Acceptance Ins. Co. of Ga., Inc., 343 Ga. App. 693, 697(2)(a), 808 S.E.2d 103 (2017). 

The Georgia Supreme Court granted certiorariFirst Acceptance, 2019 WL 1103831, at *2. In granting certiorari, the court “asked the parties to address whether an insurer’s duty to settle arises when it knows or reasonably should know settlement with an injured party within the insured’s policy limits is possible or only when the injured party presents a valid offer to settle within the insured’s policy limits.” Id.  The court concluded “that an insurer’s duty to settle arises only when the injured party presents a valid offer to settle within the insured’s policy limits,” which must include a deadline. Id. at *1. The court found that the insurer did not act unreasonably in failing to respond to the open-ended offer before the claimants withdrew the offer only 41 days after it was made and where the parties were in discussions regarding a settlement conference/mediation. Id. at *1, 6.      

To reach this conclusion, the court looked directly to First Acceptance’s actions and evaluated whether it acted reasonably under the circumstances. The court laid out the foundational requirements for a finding of bad faith against an insurer, noting that “’[a]n insurance company may be liable for the excess judgment entered against its insured based on the insurer’s bad faith or negligent refusal to settle a personal claim within policy limits.’” Id. at *3 quoting Cotton States Mut. Ins. Co. v. Brightman, 276 Ga. 683, 684(1), 580 S.E.2d 519 (2003). Whether an insurer acts in bad faith in refusing to settle a claim within policy limits is determined by evaluating whether the insurer “’acted reasonably in responding to a settlement offer, bearing in mind that, in deciding whether to settle, the insurer must give the insured’s interests the same consideration that it gives its own.’” Id. quoting Fortner v. Grange Mut. Ins. Co., 286 Ga. 189, 190, 686 S.E.2d 93 (2009).

The insured’s estate also argued that First Acceptance knew or should have known that insurance industry custom and practice required First Acceptance to resolve the most serious claim against its insured first. Id. at *6. In support, the insured’s estate cited Miller v. Georgia Interlocal Risk Management Agency, 232 Ga. App. 231, 231, 501 S.E.2d 589 (1998), which permits a liability insurer to, “in good faith and without notification to others, settle part of multiple claims against its insured even though such settlements deplete or exhaust the policy limits so that remaining claimants have no recourse against the insurer.” Id.

The court disagreed, noting that the Miller case states that an insurer may, but does not require, an insurer to settle a portion of claims when multiple claims exist.  Id. Rather, after a detailed examination of the specific facts of this case, the court found that First Acceptance acted as a reasonably prudent insurer because (1) the settlement of all claims was in the insured’s best interests to lower his overall exposure and the claimants expressed an interest in participating in settlement discussions; and (2) having not been provided with a specific deadline to respond to settlement demand, a reasonably prudent insurer could not anticipate that claimants would abruptly withdraw that demand and refuse to participate in the settlement discussions. Id

Thus, First Acceptance was entitled to summary judgment in its favor. Id.

Conclusion

If there is a lesson to be learned from this decision, it is that First Acceptance quickly recognized its insured’s liability and made considerable effort to resolve as many claims as possible, with a very low limit, to protect its insured’s interest. Its efforts seem to have been well documented in the claim file. A question not answered by the opinion is whether First Acceptance included its insured in the settlement approach. When an insured faces more liability and exposure than the coverage provides, a sound approach is to seek input from the insured. Here, we know the insured was in an adversarial position with First Acceptance. It is likely, therefore, that it was not consulted. Having the insured agree with a settlement strategy goes a long way in reducing bad faith exposure.2 Another issue not addressed is what proof an insurer must offer if there is a challenge to proper exhaustion when the limit is paid by settling with only one of several claimants. This type of challenge often comes from the insured or an excess insurer. Some states require that the insurer demonstrate that the settlement was reasonable, which may require expert testimony. Others preclude settlement with one if there cannot be settlement with all. Georgia, at minimum, requires that the insurer act in good faith in settling one claim over another in a multiple claim situation. Miller, 232 Ga. App. at 231, 501 S.E.2d 589; Walston v. Holloway, 203 Ga. App. 56, 56, 416 S.E.2d 109 (1992).

It is important for an insurer faced with a within policy limits demand to consider carefully complying with the timing and response requirements dictated by the insured’s demand and the requirements of Georgia’s bad faith statute, O.C.G.A. Section 9-11-67.1. For more information on Georgia’s bad faith statute and the requirements thereunder, see the previous blog article addressing these issues

The Georgia Supreme Court’s full opinion can be found here

[1]  The Georgia Supreme Court disagreed that the issue was a question of fact to be decided by the jury.  Rather, the Court found that the interpretation of an offer was an issue of law to be decided for the court.  First Acceptance Ins. Co. of Ga. v. Hughes, 2019 WL 1103831, at *3 citing Weill v. Brown, 197 Ga. 328, 332, 29 S.E.2d 54 (1944); Herring v. Dunning, 213 Ga. App. 695, 697, 446 S.E.2d 199 (1994).

 

[2]  However, if the insured will simply not cooperate in such discussions, Georgia courts do provide that an insurer has no legal obligation to confer with its insured before settling a portion of multiple claims.  Miller, 232 Ga. App. at 232, 501 S.E.2d 589.  Rather, “[w]hether to evaluate claims for settlement one at a time or together is in the discretion of the insurer.”  Id.

 


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Please feel free to contact Jennifer Kennedy-Coggins in our Cozen O’Connor Atlanta office if you have any questions or need assistance with this Georgia issue. Contact Jennifer at jkennedy-coggins@cozen.com or 404-572-2066.