Georgia Supreme Court Clarifies Bad Faith "Safe Harbor"
One of the more nagging problems in bad faith litigation is failure to settle cases in which more than one insurance company is involved. In such circumstances, where the insurer does not have full control as to whether the case can settle or not, may a liability insurer be liable for bad faith where the failure of the settlement owes to the intransigence of an excess insurer or other parties. It was with some relief, therefore, that we received a ruling from the Georgia Supreme Court earlier this decade that created a "safe harbor" for primary insurers that had done everything in their power to effect a settlement within the overall limits. Last month, however, the Georgia Supreme Court took a disturbingly narrow view of its earlier ruling in Brightman and declared that any sort of condition imposed by the insurer in offering its limits vitiates this protection.
Several years ago, the Georgia Supreme Court recognized the dilemma that such cases pose for primary insurers and ruled in Cotton States Mut. Ins. Co. v. Brightman, 276 Ga. 683, 580 S.E.2d 519 (2003) that an insurer is not protected from liability merely because the plaintiff’s demand against it was conditional on a second insurer also making an offer of settlement. In such circumstances, the court ruled that even though the insurer had no control over the involvement of the second carrier, it was nonetheless obligated to give equal consideration to its policyholder’s financial interests by offering its limits.
The Supreme Court disagreed with the 2002 analysis of the intermediate appellate court (256 Ga. App. 451 (2002) that would have imposed an affirmative obligation on the part of the insurer to engage in negotiations concerning a settlement demand within policy limits. The Supreme Court ruled that it was “unwilling to ascribe a duty to insurers to make a counter-offer to every settlement demand that involves a condition beyond their control. Instead, we conclude that an insurance company faced with a demand involving multiple insurers can create a safe harbor from liability for an insured’s bad faith claim under Holt by meeting the portion of the demand over which it has control, thus doing what it can to effectuate the settlement of the claims against its insured.”
Last month, however, the Georgia Supreme Court held that a primary insurer might have been liable for a bad faith failure to settle notwithstanding the “safe harbor” recognized in Brightman. In Fortner v. Grange Mut. Ins. Co., S09G0492 (Ga. October 19, 2009), the plaintiff was injured in a car accident caused by Alan Arnsdorff. At the time, Arnsdoftf had a $50,000 policy with Grange Mutual as well as a $1 million limit with the Auto Owners policy issued to his plumbing business. Fortner offered to settle the claims for $50,000 contingent on Auto Owners’ payment of $750,000.
Although Auto Owners did not respond within the time limit set forth by Fortner, Grange responded that it would pay its $50,000 limit contingent on Fortner signing a full release within indemnification language and dismissing his claim against Arnsdorff with prejudice. Fortner considered this a rejection of his offer and took the case to trial where he won a $7 million verdict that was affirmed on appeal. As is often the case in such matters, Arnsdorff then assigned his rights to Fortner who brought a bad faith action against Grange for failing to settle.
At trial, the jury ruled in favor of Grange. On appeal, Fortner argued that the trial judge had erred in instructing the jury that it must rule for the insurer if it had offered its policy limits.
This instruction was affirmed by the Georgia Court of Appeals. On furthe rreview, however, the Georgia Supreme Court ruled on October 19, 2009 that the instruction had precluded the jury from considering whether Grange Mutual had breached its obligations by imposing those conditions. It declared that its earlier analysis in Brightman was limited to situations in which the insurer had done everything within its power to effect a settlement. In this case, it was Grange Mutual that had elected to impose the conditions that the plaintiff enter a full dismissal with prejudice of its rights against the insured and agree to indemnify it.
Noting the fact that Fortner had eventually obtained a $7 million judgment, the court found that any such argument would have required Fortner to forfeit his access to Arnsdorff’s $1 million business policy, a condition that was entirely within Grange Mutual’s control. The Supreme Court declared, therefore, that it was not enough to instruct the jury that a liability insurer is blameless if it has tendered its limits but must also consider whether conditions are added to the offer. The case was therefore remanded to the trial court for further consideration of whether the insurer had acted in an ordinarily prudent manner in its response to Fortner’s settlement offer.
