Insurers Are Not Liable For Bad Faith Unless The Injured Party Makes A Valid Demand

In First Acceptance Ins. Co. of GA, Inc. v. Hughes, 305 Ga. 489, 492 (2019), the Georgia Supreme Court made clear that “an insurer’s duty to settle arises when the injured party presents a valid offer to settle within the insured’s policy limits.” In so finding, the Georgia Supreme Court noted an Eleventh Circuit opinion ruling:

[I]f an offer within the policy limits is not a prerequisite to a tortious failure to

settle suit, each insured will attempt to prove an essential element of his case --

that the insurer could have settled the case within the policy limits -- by introducing

the after-the-fact testimony of the injured party…

Id. at 493 (quoting Delancy v. St. Paul Fire & Marine Ins. Co., 947 F.2d 1536, 1553 (11th Cir. 1991)). Applying this reasoning, the Georgia Supreme Court reversed the Court of Appeals and ruled the insurer was entitled to summary judgment on the insured’s claim of bad faith.

Hughes involved a multi-vehicle automobile accident, where the insured caused injuries to five individuals. The insured’s policy limits were only $25,000 per person or $50,000 per accident. The insured’s attorney reached out to all the injured parties to set a global settlement conference. Two of the most injured parties sent two letters offering to settle for the policy limits, but expressed willingness to participate in the settlement conference. Though the letters offered to settle, the acceptance date was unclear. The letters seemed to request that all insurance information be sent within 30 days, but did not state acceptance must also be within 30 days. After 41 days passed, the two injured parties filed suit, ultimately obtaining judgment for over $5.3 million. The insured brought a claim against the insurer for failure to settle. The court found that because the offer did not clearly state acceptance date, the insurer “could not have reasonably known that it needed to respond within 41 days or risk that its insured would be subject to a judgment in excess of policy limits.”

Insurers remain well advised to tread with care to the extent a demand within policy limits is considered ambiguous and, therefore, not of the type to support a later bad faith claim.