“That Settles It”: The Georgia Supreme Court Provides Clarity Regarding an Insurer’s Duty to Settle

New guidance from the Georgia Supreme Court re: an insurer’s duty to settle

November 15, 2019

The Robins Kaplan Insurance Insight

The issue of whether an insurer has fulfilled its duty to settle in good faith was recently litigated in Georgia. Under Georgia law “[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 the policy limits.”1 However, until recently, it has been unclear exactly when an insurer’s duty to settle is triggered. In March 2019, the Supreme Court of Georgia issued a decision that provides some guidance. In First Acceptance Ins. Co. of Ga. v. Hughes,2 the Court examined: (a) whether an insurer has a duty to make an affirmative settlement offer absent an initial offer from an injured party, and (b) the effect of an injured party’s failure to include a time limit in their settlement offer.

The facts of Hughes are summarized as follows: On August 29, 2008, Ronald Jackson was involved in a multi-vehicle collision. At the time of the accident, Mr. Jackson was insured under an automobile policy issued by First Acceptance Insurance Company of Georgia, Inc., which included bodily injury liability limits of $25,000 per person and $50,000 per accident.3 Adjusters performed an investigation and concluded that Mr. Jackson was at fault in connection with the incident and that his exposure exceeded his policy limits. First Acceptance retained counsel to resolve the five related injury claims. In January 2009, First Acceptance’s attorney began to make settlement overtures to the claimants’ attorneys.4

On June 2, 2009, counsel for claimants Julie An and Jina Hong sent two letters to counsel for First Acceptance. In the first letter, the attorney stated that his clients were “interested in having their claims resolved within [the] insured’s policy limits, and in attending a settlement conference.”5 The letter, however, did not include a demand that First Acceptance respond by a date certain.6 The second letter requested that the company provide certain insurance information within 30 days and conditioned settlement upon compliance with that request.7 First Acceptance’s attorney reviewed the letters, but did not consider them to impose “any kind of time limit demand.”8 The letters were misfiled, and a response was not immediately provided.

Shortly thereafter, counsel for the claimants filed a lawsuit for damages arising out of the automobile accident. Then, on June 13, 2009, the claimants’ attorney sent a letter to counsel for First Acceptance revoking his clients’ settlement offer. Counsel for First Acceptance responded by inviting the claimants to attend a settlement conference – an offer which they declined, along with subsequent settlement offers, including an eventual tender by First Acceptance of the total policy limits.9 The matter went to trial in July 2012. The jury rendered a verdict in favor of the claimants, and the trial court entered a judgment against the now-deceased Mr. Jackson’s estate in excess of $5.3 million.10

In June 2014 the administrator of Mr. Jackson’s estate filed suit against First Acceptance, alleging that it acted negligently and in bad faith by refusing to settle the claim within the policy limits. First Acceptance made a motion for summary judgment, which the trial court granted. The Court of Appeals reversed the trial court’s decision, and First Acceptance petitioned for certiorari – which was granted by the Supreme Court of Georgia.11

As a preliminary matter, the Supreme Court addressed “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.”12 The Court observed that other courts had found its prior decisions regarding this issue to be unclear.13 To put an end to any speculation, the Court definitively 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.”14 15

Next, the Court examined the facts of the underlying action – namely, whether the claimants had made a valid offer that First Acceptance failed to accept either negligently or in bad faith.16 The administrator of Mr. Jackson’s estate argued that, read together, the two June 2nd letters established a 30-day deadline for First Acceptance to respond to the claimants’ settlement offer. The Court disagreed, observing that the June 2nd letters did not contain a time limit for acceptance of the claimants’ settlement offer – rather, the 30-day deadline applied to counsel’s request for insurance information. As such, First Acceptance “was not put on notice that its failure to accept the offer within any specific period would constitute a refusal of the offer.”17 In light of these facts, the Court opined that First Acceptance’s actions were reasonable, as an “ordinarily prudent insurer could not be expected to anticipate that, having specified no deadline for the acceptance of their offer, [the claimants] would abruptly withdraw their offer and refuse to participate in the settlement conference.”18 Accordingly, the Georgia Supreme Court reversed the Court of Appeals’ decision and held that First Acceptance was entitled to summary judgment with regard to the estate’s negligence and bad faith claims.19

In sum, the Court’s decision in Hughes indicates that, under Georgia law, (a) an insurer’s duty to settle is triggered when an injured party presents a valid offer to settle within policy limits; and (b) if an injured party’s settlement offer does not contain an express time limit for acceptance, an insurer’s failure to accept the offer within any specific period would not constitute a refusal of the offer. While it is too early for the impact of the decision to be fully apparent, Hughes provides valuable guidance for those attempting to engage in settlement negotiations that are compliant with Georgia law.

1 Cotton States Mut. Ins. Co. v. Brightman, 276 Ga. 683, 684, 580 S.E.2d 519 (2003).
1 305 Ga. 489, 826 S.E.2d 71 (2019).
1 Id. at 490.
1 Id. at 490-491.
1 Id. at 491, 494.
1 Id. at 494-495.
1 Id. at 495.
1 Id. at 491.
1 Id.
1 Id.
1 Id. at 491-492.
1 Id. at 492.
1 Id., citing e.g., Kingsley v. State Farm Mut. Auto. Ins. Co., 353 F.Supp.2d 1242 (II) (B) (2) (N.D. Ga. 2005).
1 Id. at 492-493.
1 Note: When determining whether an insurer may be held liable for an excess judgment against its insured based upon a bad faith or negligent refusal to settle a claim within policy limits, Georgia courts consider more than just the timing of the relevant settlement offer. For example, the Hughes Court opined that an “insurer is negligent in failing to settle if the ordinarily prudent insurer would consider choosing to try the case created an unreasonable risk.” Id. at 492, citing Brightman at 685.
1 Id. at 493.
1 Id at 495-496.
1 Id. at 497.
1 Id. at 498.

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