Georgia Supreme Court Clarifies When an Insurer’s Duty to Settle Arises
In First Acceptance Insurance Company of Georgia, Inc. v. Hughes, the Georgia Supreme Court issued a unanimous decision clarifying Georgia law regarding an insurer’s duty to settle. Reversing the intermediate appellate court, the Georgia Supreme Court resolved the case on the threshold issue of whether an insurer’s duty to settle arises only when the injured party presents a valid offer to settle within the insured’s policy limits or whether, even absent such an offer, a duty arises when the insurer knows or reasonably should know that settlement within the insured’s policy limits is possible.
In a jurisdiction where courts have acknowledged the unsettled state of the law concerning insurers’ settlement duties, the Court clarified that a duty to settle arises only when the insurer is presented with a “valid offer to settle.” A valid offer to settle must include not only a clear demand to settle within the policy limits, but also a reasonable deadline for the insurer to act, which is mandated by Georgia statute to be at least 30 days in certain tort cases.
Because the claimants did not present the insurer with such an offer, the Court concluded, as a matter of law, that the insurer did not act unreasonably.
The underlying dispute arose out of a multi-vehicle automobile accident with multiple injured parties and low liability policy limits; $25,000 per person/$50,000 in the aggregate.
As a result of the accident there were five bodily injury claimants: two suffered severe injuries, two sustained moderate injuries, and the fifth suffered minor injuries. The insurer for the driver who caused the accident retained coverage counsel to “reach a global settlement” for the five bodily injury claims.
After the least-injured claimant’s attorney sent the insurer an early policy limits demand, the insurer’s counsel negotiated for a global settlement conference, which was communicated to all claimants. Five months later and at-issue here, the attorney for the two most-injured claimants sent the insurer two confusing and conflicting two-page letters on the same day, by facsimile, both indicating a willingness to attend the global settlement conference and evincing a willingness to settle within policy limits. When the insurer did not respond to those letters after a month, that attorney withdrew the “offers,” filed suit, refused to participate in a global settlement conference, and rejected subsequent offers to settle within or at the limits. At trial, the jury returned a verdict in favor of the claimants including an award of over $5.3 million in damages.
When faced with these facts, the Georgia Supreme Court held that “an insurer’s duty to settle arises when the injured party presents a valid offer to settle within the insured’s policy limits.” The Court noted that this standard – rather than a requirement that an insurer has an affirmative duty to settle a case – promotes judicial efficiency, precludes after-the-fact speculation, and prevents collusion between policyholders and claimants against insurers.
The Court further rejected the intermediate appellate court’s finding that there were genuine issues of material fact concerning the underlying settlement offers. The Court explained that the interpretation of a settlement offer is an issue of law for a court, not a jury, to decide. In interpreting the two letters that were purported offers in this case, the Court found their meaning was “clear:” the claimant’s attorney had expressed a willingness to participate in the proposed global settlement conference or settle the claims. Moreover, the offer did not expressly include a time limit for the insurer to act.
Finally, the Court noted that while there was testimony from an insurance claims professional that it is the “custom and practice” in Georgia to resolve the most serious claims first, that individual clarified that it is “certainly better” to settle all claims, if reasonably possible. Therefore, concluded the Court, a reasonably prudent Georgia insurer is entitled to attempt to resolve all claims against its insured. In this case, the insurer’s failure to promptly accept the settlement 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, the claimants “would abruptly withdraw their offer and refuse to participate in the settlement conference.”
While insurance companies faced with claimants’ time-sensitive demands and policyholders’ potential excess exposure should continue to proceed cautiously, this decision provides welcome clarity on a previously unsettled aspect of Georgia law. This decision also is an additional tool for insurers to cite in support of reasonable claims-handling in complex, multi-plaintiff, high-exposure underlying disputes.