By Stacy Broman and Danielle Dobry on January 16, 2018
The Georgia Court of Appeals recently decided Hughes v. First Acceptance Ins. Co. of Georgia, No. A17A0735, 2017 WL 5013371 (Ga. Ct. App. Nov. 2, 2017), a case involving whether an insurer was liable for negligence or bad faith failure to settle. The Court of Appeals found that genuine issues of material fact precluded summary judgment. The Court reasoned that an insurer may, in good faith and without notification to others, settle part of multiple claims against its insureds even though such settlements deplete or exhaust policy limits. The Court reasoned that under the facts of the case, the possibility of settling other claims within policy limits and an insurer’s knowledge of the possibility were not dispositive of the failure to settle a claim. The Hughes case serves as a reminder to keep an insurer’s good faith settlement obligations in mind when confronted with similar scenarios.
In Hughes, Ronald Jackson caused a five-vehicle collision. The collision resulted in Jackson’s death and injured others, including Julie An and her minor child, Jina Hong. Jackson was insured by First Acceptance of Georgia, Inc. Jackson’s policy had liability limits of $25,000 per person and $50,000 per accident. Following the collision, letters were exchanged between An & Hong’s counsel and First Acceptance’s counsel regarding potential settlement demands and settlement conferences.
On June 2, 2009 An & Hong’s counsel sent two letters which An & Hong would later assert were an offer to settle with a 30-day response deadline. The first letter recognized First Acceptance’s interests in a settlement conference, provided that An & Hong were interested in resolving the matter within the insured’s policy limits and expressed interest in participating in a settlement conference. The second letter requested First Acceptance provide insurance information in 30 days and that any settlement would be conditioned upon receipt of the insurance information.
On July 10, 2009 An & Hong filed a personal injury action against Jackson’s estate. On July 13, 2009, An & Hong withdrew their June 2, 2009 offer to settle. On July 17, 2009 First Acceptance sent a letter to An & Hong’s counsel and asserted that the June 2, 2009 letters had been temporarily lost which resulted in no response. On July 20, 2009, First Acceptance’s counsel responded to An & Hong’s counsel and advised that a settlement conference with all potential claimants would be scheduled within two weeks. On July 30, 2009, First Acceptance’s counsel wrote to all parties that a settlement conference would take place on September 1, 2009. An & Hong’s counsel did not participate in the conference.
On January 18, 2010 First Acceptance offered $25,000 to settle Hong’s claims which was rejected. On October 1, 2010, An & Hong rejected an offer of $50,000 to settle their claims collectively. The personal injury lawsuit went to trial in July 2012 and final judgement was entered in favor of An & Hong. The jury entered an award of $5,334,220 for Hong’s injuries.
In June 2014, the administrator of Jackson’s estate filed an action against First Acceptance. The administrator alleged that First Acceptance either negligently or in bad faith failed to settle Hong’s claim. The administrator requested damages in the amount of the difference of the jury award and First Acceptance’s $25,000 tender as well as punitive damages and attorney’s fees.
Following a hearing on cross-motions for summary judgment, the trial court denied the administrator’s motion and granted First Acceptance’s motion. The Court of Appeals held that there were issues of material fact regarding the failure to settle claim.
First, the Court of Appeals reasoned there was a genuine issue of material fact as to whether An & Hong’s June 2, 2009 letters were offers to settle within the insured’s policy limits and whether the offer included a 30-day response deadline.
Next, the Court of Appeals found that there were issues of fact regarding whether First Acceptance acted reasonably in responding to the offer. While the trial court held that summary judgment for First Acceptance was appropriate because there was no evidence to show it knew or should have known claims against the insured could have been settled within policy limits, the Court of Appeals found this reasoning misplaced. In holding that the trial court erred in granting summary judgment to First Acceptance, the Court of Appeals made clear that an insurer may, in good faith, and without notice to others, settle parts of multiple claims against its insured even though such settlements depleted or exhausted policy limits. Ultimately, under the facts of Hughes, the possibility of settling other claims within policy limits and an insurer’s knowledge of the possibility were not dispositive of the failure to settle claim. The Court of Appeals determined that those are factors a jury could consider to decide whether an insurer acted reasonably in response to an offer to settle within policy limits.
The Court of Appeals additionally held that the trial court did not err in granting summary judgment in favor of First Acceptance on the claim for attorney fees and punitive damages. The Court of Appeals reasoned that the administrator showed no evidence of bad faith or willful or wanton conduct to support those claims. The Court found fact questions regarding whether a time-limited demand existed and whether the insurer acted reasonably in responding to any such demand.
In light of Hughes, it is imperative that insurers understand their settlement obligations. An insurer is obligated to act reasonably in responding to settlement offers. To determine whether an insurer was negligent in failing to settle, Georgia courts, similar to several other jurisdictions, use the ordinarily prudent insurer standard. The ordinarily prudent insurer standard assesses whether an ordinarily prudent insurer would consider choosing to try the case an unreasonable risk of subjecting the insured to an excess verdict. In responding to a settlement offer, the insurer must give equal consideration to an insured’s interests.