No Notice, No Problem. Georgia Supreme Court Rules That Lack of Notice of Suit Does Not Relieve Insurer from Subsequent Bad Faith Failure to Settle Suit

Written by: Paul Trainor, Esq.

On April 19, 2021, the Georgia Supreme Court issued its opinion in Geico Indemnity Co. v. Whiteside, dealing another blow to insurers in the context of bad faith claims.

The underlying case arose from a motor vehicle accident on February 26, 2012 between Bonnie Winslett, the driver of a Ford Explorer owned by Karen Griffis.  Winslett struck Terry Guthrie, who was riding his bicycle, and Winslett’s liability was undisputed.  GEICO insured Griffis’ vehicle, and the policy provided $30,000 of per-person bodily injury coverage.  Winslett was not the GEICO policy holder, nor did she have a copy of Griffis’ policy.

Guthrie’s attorney issued a policy limits demand to GEICO, requiring that GEICO tender its policy limits within 30 days.  The letter specified that Guthrie’s medical expenses “exceeded $10,000” and indicated he would require additional treatment.  GEICO issued a counteroffer, which was ignored by Guthrie’s counsel.  Guthrie filed suit against Winslett, who was served but never informed GEICO of the suit.  Winslett threw the suit papers away, and never filed an answer.

Due to Winslett’s failure to appear, the Superior Court of Muscogee County entered a default judgment of over $2.9 million against Winslett.  Guthrie’s counsel notified GEICO of the judgment, then proceeded to force Winslett into involuntary bankruptcy.  Following a motion by the bankruptcy trustee, Fife Whiteside, the bankruptcy court appointed Guthrie’s attorney to represent the bankruptcy estate.

Whiteside then filed suit against GEICO in federal district court, alleging that GEICO acted in bad faith by failing to settle Guthrie’s original claim against Winslett.  On two occasions, GEICO moved for judgment as a matter of law under its policy provisions requiring notice of the underlying suit.  In denying GEICO’s motions, the district court ruled that Winslett’s failure to give notice did not prevent her or Whiteside from recovering where, according to the court, GEICO was a proximate cause of Winslett’s failure to give notice of the lawsuit.  The bad faith suit proceeded to trial, where a jury found GEICO 70% liable and Winslett 30% liable.

On appeal, the Eleventh Circuit certified three questions to the Georgia Supreme Court:

1. 1. When an insurer has no notice of a lawsuit against its insured, does OCGA § 33-7-15 and a virtually identical insuring provision relieve the insurer of liability from a follow-on suit for bad faith?
   2. If the notice provisions do not bar liability for a bad-faith claim, can an insured sue the insurer for bad faith when, after the insurer refused to settle but before judgment was entered against the insured, the insured lost coverage for failure to comply with a notice provision?
   3. Does a party have the right to contest actual damages in a follow-on suit for bad faith if that party had no prior notice of or participation in the original suit?

In response to Question #1, the Georgia Supreme Court found that an insurer is not relieved under the facts presented in this case.  The Supreme Court readily agreed that Winslett breached a condition precedent to coverage under the policy, yet ruled that the issue was whether Winslett’s breach “was an intervening act sufficient to break the causal chain between GEICO’s unreasonable rejection of Guthrie’s settlement demand and the excess default judgment entered against Winslett.”  The Supreme Court reasoned that GEICO should have foreseen Winslett’s breach because, among other reasons, she did not have a driver’s license, lived in an unrentable apartment, and was unreliable and unsophisticated.

Answering Question #2, the Georgia Supreme Court declared that, “yes”, an insured can sue the insurer for bad faith when the refusal to settle occurs after the insured lost coverage for failure to comply with the notice provision.  In so ruling, the Supreme Court noted that GEICO’s duty to settle “as soon as GEICO received Guthrie’s time-limited, policy-limits settlement demand.”  Thus, GEICO’s breach of duty occurred before suit was ever filed against Winslett, which then triggered the notice provision.

Finally, the Georgia Supreme Court declared that GEICO had no right to contest actual damages in the bad-faith suit even when GEICO had no notice or participation in the underlying suit.  The Supreme Court stated that Georgia law made clear that, once an insurer’s refusal to settle is established, “the insured or its assignee is entitled as a matter of law to recover damages equal to the amount by which the judgment exceeds policy coverage.”

This recent opinion effectively bars an insurer from denying coverage after it has failed to accept a policy-limits demand that ultimately results in an excess judgment, even where the insurer has no notice that suit was ever filed.  Moreover, this new ruling places an increased burden on insurers to take additional action to determine whether suit has been filed rather than merely relying on notice from an insured, regardless of any condition precedent notice provision.  Finally, the opinion seemingly requires insurers to evaluate the reliability of an insured, even where the insured driver is not a named insured, to determine whether it is foreseeable that the insured will not notify the insurer of suit.  Overall, the Whiteside opinion places additional burdens on insurers to evaluate policy limit demands and simultaneously determine whether the insurer believes it will receive notice if suit is filed.