Georgia Supreme Court Clarifies Standard for Bad Faith Failure to Settle Claims Against Insurers
April 25, 2019 (Atlanta, GA) – The Supreme Court of Georgia recently issued a significant decision regarding when a liability insurer can be held to have acted in bad faith for failing to settle a pre-suit personal injury claim. The Supreme Court held that a liability insurer could not be required to pay a $5.3 million verdict against its insured – well in excess of the applicable policy limits – because the pre-suit letters sent by the claimants' lawyer did not clearly state that they were conveying a time-limited offer to settle within the policy limits.
The case arose from a multi-vehicle accident caused by First Acceptance Insurance Company's policyholder, Ronald Jackson, who was also killed in the accident. At least five others were injured in the accident, including Julie An, who suffered a neck injury serious arm injury, and her two-year-old daughter, Jina Hong, who suffered a traumatic brain injury. Jackson's auto policy with First Acceptance carried only Georgia's required minimum liability limits ($25,000/$50,000). Recognizing that its insured's potential exposure exceeded the available insurance, First Acceptance retained outside counsel to negotiate a settlement with all of the injured parties. In January 2009, First Acceptance's attorney wrote all parties, suggesting a global settlement conference. On June 2, 2009, An and Hong's attorney sent two letters to the attorney hired by First Acceptance. One letter expressed an interest in attending a settlement conference, and, in the alternative, offered to settle An and Hong's claims for the available policy limits. In his second letter, An and Hong's attorney requested certain information about First Acceptance's policy within 30 days.
First Acceptance did not respond to either letter within 30 days, and An and Hong filed suit on July 10, 2009. An and Hong's attorney then wrote First Acceptance, stating that the offer to settle had been withdrawn because it was not accepted within 30 days. An and Hong later obtained a judgment against Jackson's estate for more than $5.3 million in damages, most of it attributed to Hong's injuries. The administrator of Jackson's estate, Robert Hughes, subsequently sued First Acceptance, contending that the insurer was liable for the entire judgment because its failure to settle An and Hong's claims within the policy limits led to the excess judgment. The Superior Court of DeKalb County granted summary judgment to First Acceptance, but a panel of the Georgia Court of Appeals reversed. First Acceptance petitioned the Supreme Court of Georgia for certiorari, which was granted.
The Georgia Defense Lawyers Association's Amicus Curiae Committee, chaired by Hawkins Parnell & Young partner Martin Levinson, was enlisted to prepare and file briefs in support of the insurer's positions in the Supreme Court. The key holdings and many of the conclusions ultimately rendered by the Supreme Court directly tracked the amicus curiae briefs submitted by the GDLA.
The Supreme Court reversed the Court of Appeals' holding and held that the trial court had correctly granted summary judgment to the insurer on the insured's claim for bad faith failure to settle. The insured argued that an insurer has a duty to attempt to settle a claim within its insured's policy limits even if no demand has been made, which would have fundamentally changed (and greatly expanded) the duty of insurers in adjusting and resolving bodily injury claims in Georgia. The Supreme Court disagreed, however, holding explicitly 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."
The Court also held that while the first letter from An and Hong's attorney was an offer to settle within the policy limits, it could not be considered a time-limited demand because it did not clearly state a deadline for acceptance. Although the first letter referenced the second letter, which did contain a 30-day time limit for providing insurance information, the offer was ambiguous as to whether it had to be accepted within 30 days. Under standard rules of contract construction, any ambiguity in the offer had to be construed against the claimants since they made the offer. Since there was no clear time limit for responding to the claimants' offer to settle, the insurer could not be held to have acted in bad faith by failing to respond within 41 days.
Another key part of the Supreme Court's decision dealt with the extent to which issues in bad faith failure to settle cases may be left for a jury to decide. The Court of Appeals had held that there was a jury question as to whether the letter from An and Hong made a definitive settlement offer. The Supreme Court reversed, holding that "[t]he interpretation of an offer...is an issue of law for a court."
This case appears to represent disapproval by the Supreme Court of an attempt by claimants to "set up" an insurer for excess liability beyond the policy limits. The underlying letters from the claimants' attorney in this case were vague and did not clearly state that the claimants were making a time-limited demand within the insurer's policy limits. The Supreme Court recognized that fact, holding that "First Acceptance's failure to promptly accept An and Hong's offer was reasonable as an ordinarily prudent insurer could not be expected to anticipate that, having specified no deadline for the acceptance of their offer, An and Hong would abruptly withdraw their offer and refuse to participate in the settlement conference." Since An and Hong did not clearly state that their offer carried a time limit, the insurer's failure to respond within 41 days did not constitute bad faith.
The case is First Acceptance Insurance Company of Georgia, Inc. v. Hughes, Supreme Court of Georgia, Case No. S18G0517, decided March 11, 2019.