Georgia Supreme Court Limits Insurers’ Potential Bad Faith Exposure Related to Settlement Discussions

Georgia Supreme Court Limits Insurers’ Potential Bad Faith Exposure Related to Settlement Discussions

Rejecting insurance bad faith claims based on an insurer’s handling of settlement discussions, the Georgia Supreme Court has ruled 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." First Acceptance Ins. Co. of Ga., Inc. v. Hughes, No. S18G0517, slip op. at 1 (Ga. March 11, 2019). The Court made this holding following a grant of certiorari to review a decision by the Georgia Court of Appeals that had reversed a trial court’s grant of summary judgment in favor of the insurer, First Acceptance, on its insured’s claims of negligence and bad faith. As the law of insurance bad faith is a patchwork of state laws from across the country, this decision is of only persuasive value outside of Georgia, but is part of a developing area of law as to how insureds may be able to lure insurers into a bad faith claim based on settlement possibilities.

​First Acceptance insured Ronald Jackson, who caused a multi-vehicle collision in August 2008, and who later died from his injuries. Jackson’s auto policy had bodily injury liability limits of $25,000 per person and $50,000 per accident. First Acceptance was contacted by five injured parties, who claimed a variety of serious injuries, including a fractured skull, bleeding on the brain, and neck, back and soft tissue injuries. First Acceptance concluded quickly that Jackson was liable and that his exposure exceeded his policy limits.

First Acceptance retained counsel, who reached out to all injured parties to try to schedule a global settlement conference. Counsel for two of the injured parties, Julie An and her daughter Jina Hong, indicated in a June 2009 letter that An and Hong were interested in attending a settlement conference, or in the alternative, settling for policy limits. In July 2009, An and Hong’s attorney filed a complaint related to the accident, and advised First Acceptance’s counsel that the policy limit demand was revoked. First Acceptance’s counsel attempted to schedule a settlement conference, but counsel for An and Hong declined to attend. First Acceptance offered to settle An and Hong’s claims for $25,000 each, which was rejected. An and Hong’s case then went to trial in July 2012, and the jury returned a verdict for $5.3 million in favor of An and Hong.

In June 2014, Jackson’s estate filed the underlying action, alleging claims of negligence and bad faith against First Acceptance for failure to settle within policy limits, seeking $5.3 million in damages, plus punitive damages and attorneys' fees. First Acceptance moved for summary judgment, which the trial court granted as to all claims. Georgia’s Court of Appeals reversed. Hughes v. First Acceptance Ins. Co. of Ga., Inc., 343 Ga. App. 693, 808 S.E.2d 103 (2017). The Georgia Supreme Court reversed, reinstating the summary judgment in favor of First Acceptance.

The Georgia Supreme 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." Slip op. at 6. Reasoning that claims that an insured would have settled within limits had the insurer made such an offer are inherently unreliable and speculative, the Supreme Court ruled that "an insurer’s duty to settle arises when the injured party presents a valid offer to settle within the insured’s policy limits." Id. at 7.

The court then considered whether An and Hong made a valid offer that First Acceptance failed to accept negligently or in bad faith. The court explained that the interpretation of an offer is an issue of law for a court to decide, rejecting the Court of Appeals’ reasoning that the offer from An and Hong created issues of fact to be tried by a jury. In reviewing the letter from An and Hong, the Supreme Court noted that An and Hong expressed a willingness to attend a settlement conference and to settle within policy limits, so the letter could not be construed as including a 30-day deadline to accept the offer to settle within policy limits. The Supreme Court ruled that First Acceptance could not have reasonably foreseen that An and Hong would withdraw their offer and refuse to participate in a settlement conference, so Jackson’s claims therefore failed as a matter of law.

This case highlights many of the difficult issues that insurers face that could potentially give rise to extracontractual liability, including time limited demands, multiple claimants and insufficient limits. The attorneys in Saul Ewing Arnstein & Lehr’s Insurance Practice stay abreast of developments in these difficult issues across the country, and are able to advise clients on hot issues and developing trends.

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