These days, it’s rare that court decisions involving bad faith are favorable toward insurers. However, the Georgia Supreme Court recently provided a bright spot in an area darkened by adverse legal developments for claims professionals.

At issue was whether auto carrier First Acceptance appropriately responded to a policy limit (25/50) demand for a clear liability claim involving two serious bodily injury (BI) claims and five BI claims in total.¹

The facts here appeared clear-cut. The horrible auto accident occurred on August 29, 2008. First Acceptance quickly learned that its insured perished in the accident, that one BI claimant had suffered a brain injury and that the other sustained significant injuries. In late September 2008, First Acceptance retained counsel to resolve the five known BI claims and to reach a global settlement. In November 2008, the company received a time-limited demand to settle one of the five BI claims, with an extension later given. In January 2009, the company’s attorney wrote to the lawyer representing the five multiple claimants saying the company sought to arrange “a global settlement conference/mediation to resolve all claims.” 

In June 2009, the attorney who represented the two most seriously injured claimants indicated, by two letters, interest in participating in that settlement, or alternatively, settling the two claims for the $50,000 limit. Significantly, no time limit was mentioned in the letters but instead a response for certain insurance information was requested within 30 days.

This attorney then filed suit the following month and sent a letter to First Acceptance that revoked the settlement offer. In response, First Acceptance’s lawyer invited this attorney and his clients to a global settlement conference that was to occur on September 1, 2009. The attorney refused and then later rejected the company’s offer to settle the two BI claims for the $50,000 limit.

The case went to trial and resulted in a $5.3 million verdict. The administrator of the insured’s estate subsequently filed suit, alleging First Acceptance had acted in Bad Faith by failing to settle. The administrator sought recovery of the $5.3 million judgment along with punitive damages and fees. First Acceptance moved for and obtained summary judgment.

The Court of Appeals reversed the judgment on the failure-to-settle claim. The Georgia Supreme Court then granted First Acceptance’s petition for review. Ruling that the letters did not constitute a time-limited demand, the court noted that no requirement exists to settle part of multiple claims. Moreover, the court found that First Acceptance had acted in its insureds’ best interest by attempting to settle multiple claims as it would reduce the overall risk of the insureds’ excess exposure.

What are some takeaways from this case?

• In cases with multiple claimants, adverse liability and excess exposure, insurers should retain capable extra-contractual counsel to respond to policy-limit demands and to orchestrate global settlement conferences.
• Demand letters in Georgia must expressly state a time limit if the objective is to give a carrier enough notice that failing to accept the offer within the specified period constitutes refusal.
• As with any “excess case,” insurers should work with extreme urgency in case investigation and evaluation. This includes having only the most experienced claim professionals handle such cases under strong managerial oversight.

Gen Re is here to help our clients think through next steps in these types of cases. If you have one you are worried about, contact your Claims Executive.

Endnote

1. First Acceptance Ins. Co. of Ga. v. Hughes, 2019 Ga. LEXIS 161