Earlier this month, the Georgia Supreme Court issued a highly anticipated insurance related opinion affecting third-party “bad faith” or “negligent” failure to settle claims. In First Acceptance Insurance Company of Georgia, Inc. v. Hughes, Supreme Court of Georgia, Case No. S18G0517, decided March 11, 2019, the Court reversed the Georgia Court of Appeals decision, which had reversed the trial court grant of summary judgment to the insurer in a suit for extra-contractual damages. The underlying case resulted in a $5.3 million verdict against a First Acceptance Insurance Company of Georgia, Inc. insured in an automobile liability case. The Court held that First Acceptance did not act negligently, nor in bad faith, when it did not settle a claim within policy limits.
This decision is important for numerous reasons, but primarily for two factors. First, it held 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. This is a great clarification of prior decisions, and differentiates Georgia further from the Florida standards which are more difficult for insurers. Second, further clarification is provided on handling multiple party cases with insufficient limits of liability. Again, this provides more protections than the Florida jurisprudence.
The underlying claim began with a five-vehicle collision in 2008, allegedly caused by First Acceptance’s policyholder, Ronald Jackson. Mr. Jackson died in the accident. At least five others were injured, including claimant An, who suffered a neck injury and permanent scarring on her arm, and her infant daughter, Jina Hong, who suffered a traumatic brain injury. The applicable First Acceptance policy had the minimum liability limits of $25,000 per person and $50,000 per accident. First Acceptance retained counsel to broker a global settlement with all parties. An and Hong’s attorney sent two letters on June 2, 2009 after First Acceptance, through counsel, wrote to the parties seeking global resolution. Their attorney expressed an interest in attending a settlement conference, and, in the alternative, offered to settle his clients’ claims for the available policy limits. The second letter requested certain information about the policy within 30 days. First Acceptance did not respond within 30 days, and An and Hong filed suit on July 10. A subsequent letter was sent to First Acceptance stating that the offer to settle had been withdrawn because it was not accepted within 30 days. The matter went to trial and a verdict was entered in excess of $5.3 million against Mr. Jackson’s estate.
The extra-contractual claims commenced as Robert Hughes, the executor for Mr. Jackson’s estate, sued First Acceptance, asserting a failure to settle “bad faith” claim, demanding that First Acceptance was liable for the entire judgment and more, citing the insurer’s failure to effectuate settlement within the policy limits. The Superior Court of DeKalb County granted summary judgment to First Acceptance, but a panel of the Georgia Court of Appeals reversed the trial court in November 2017.
In the appeal before the Georgia Supreme Court, the Court asked the parties to address two issues. First, 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.” First Acceptance, at 1. In its decision finding for the insurer, the Court rejected the estate’s argument that the insurer should attempt to settle a claim to protect the interests of its insured, even in the absence of a demand, and held 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.”
Second, the Court asked the parties to address whether a jury question was presented as to whether the claimants had made a time-limited offer to settle their claims within the policy limits. In its decision, the Court began its analysis by concluding that the Court of Appeals erred when it held that a jury must decide whether the claimants had made a settlement offer because the interpretation of an offer is an issue of law for a court. Critical to this analysis was a question regarding whether the 30-day letter provided a deadline for accepting the demand, or for providing the other requested information. The Court also noted that there was no stated deadline on the claimants’ willingness to participate in a settlement conference. Applying the rules of contract construction, the Court held that although the first letter from Hong and An’s counsel did present an offer to settle for policy limits, there was no deadline for acceptance. Because the offer to settle was not time-limited, the insurer was not put on notice that not accepting the policy limit demand within a specified time period would amount to a refusal of the offer and subject it to “bad faith” liability. The Court also wrote that because the claimants were expressing an interest in participating in a settlement conference as an alternative, First Acceptance could not have reasonably known that failure to accept the offer would result in a judgment in excess of the policy limits against its insured.
The Court also confirmed that “a liability insurer may, 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.” Miller v. Ga. Interlocal Risk Mgmt. Agency, 232 Ga. App. 231, 231 (1) (501 SE2d 589) (1998). Hughes argued that “a jury should consider whether First Acceptance was acting as an ordinarily prudent insurer in failing to simply accept an offer that would eliminate the most serious claim facing its insured.” The Court held that a settlement of multiple claims that included Hong’s claim was in the insured’s best interest, and Hong and An had expressed an interest in the settlement conference. The Court noted testimony by the estate’s expert which indicated it “insurance custom and practice required First Acceptance to resolve the most serious claim so as to limit its insured’s exposure.” He argued that Miller required an insurer settle part of multiple claims. The Court disagreed as an insurer “may” do so, but “settlement of multiple claims that included Hong’s claim was in the insured’s best interest as it would reduce the overall risk of excess exposure, and An and Hong had expressed their interest in attending a settlement conference with the other claimants.” First Acceptance, at 16.
This matter is First Acceptance Insurance Company of Georgia, Inc. v. Hughes, Supreme Court of Georgia, Case No. S18G0517, decided March 11, 2019, as available from the Court directly here:
https://www.gasupreme.us/wp-content/uploads/2019/03/s18g0517.pdf
For further information, please contact Ian Neil Matthes, Esq. at IMatthes@National-Law.com