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The Supreme Court of Georgia Clarifies When an Insurer’s Duty to Settle Arises and Applies Contract Law to Reject a Bad Faith Failure to Settle Claim

Written by: Bryan Forsyth, Esq.

In First Acceptance Ins. Co. of Georgia, Inc. v. Hughes, No. S18G0517, 2019 WL 1103831 (Ga. Mar. 11, 2019), the Supreme Court of Georgia reversed the Court of Appeals, 343 Ga. App. 693, 808 S.E.2d 103, and disapproved of Thomas v. Atlanta Cas. Co., 253 Ga. App. 199, 558 S.E.2d 432 (2001) and Alexander Underwriters General Agency v. Lovett, 182 Ga. App. 769, 357 S.E.2d 258 (1987).

On certiorari, the Supreme Court reviewed whether the Court of Appeals erred in reversing the grant of summary judgment to the insurer on its insured’s failure-to-settle claim. In arriving at its decision, the Supreme Court confirmed the threshold issue (one that had been recently deemed unclear, see e.g., Kingsley v. State Farm Mut. Auto. Ins. Co., 353 F.Supp.2d 1242, 1249 (N. D. Ga. 2005) of when an insurer’s duty to settle arises. The Supreme Court concluded that “an insurer’s duty to settle arises only when the injured party presents a valid offer to settle within the insured’s policy limits,” as opposed to when it knows or reasonably should know settlement within the policy limits is possible. To the extent that Thomas and Alexander Underwriters, supra, are inconsistent with this opinion, they were disapproved.

 The main issue before the Court was whether two injured parties had made a valid offer that the insurer failed to accept negligently or in bad faith. The claims arose out of a clear liability multi-vehicle accident. The liability policy at issue had only $25,000/$50,000 bodily injury limits, and there were multiple claimants with severe injuries. The liability insurer retained counsel to reach a global settlement. Counsel sent letters to the injured parties expressing the insurer’s interest in arranging a joint settlement conference/mediation.

Counsel for two of the injured parties, An and Hong, sent two letters, on the same day, in response. These letters stated his clients’ interest in attending the settlement conference but also offered, in the alternative, to settle their claims for the available policy limits.

The insurer’s counsel reviewed the letters and did not construe them as making a time limit demand. An and Hong then filed their Complaint, and soon thereafter sent the insurer a letter stating that it had been 41 days since their letters and that their offer was now revoked.

The case went to trial, and the trial court entered a judgment in favor of An and Hong with the award exceeding $5.3 million. The administrator of the insured’s estate filed suit against the liability insurer alleging negligence and bad faith in its failure to settle Hong’s claim within the policy limits.

The trial court granted the insurer’s motion for summary judgment on all claims. The Court of Appeals reversed the trial court, finding that there were genuine issues of material fact as to the failure-to-settle claim. The appellate court applied the general rule that the issue of an insurer’s bad faith depends on whether the insurance company acted reasonably in responding to the settlement offer. “This is generally a jury issue requiring consideration of all the relevant circumstances including the insurer’s knowledge of facts relevant to liability and damages on the claim; the insurer’s diligence in conducting a reasonable investigation to discover the relevant facts; and the terms of the settlement offer and any response by the insurer.” 334 Ga. App. at 696-697.

The appellate court stated “[i]t is apparent from a review of those letters that they, at the very least, create genuine issues of material fact as to whether Hong offered to settle her claims… and whether the offer included a 30-day deadline for a response.” Id. at 697. “Likewise, it is clear from a review of the record that there also exist genuine issues of material fact as to whether [the insurer] acted reasonably in responding to any such offer.” Id.

Unlike the Court of Appeals, the Supreme Court did not make a fact-dependent inquiry based on the circumstances noted by the Court of Appeals. Instead, the Supreme Court took an entirely different approach and applied the rules of contract construction. “The interpretation of an offer… is an issue of law for a court.” 2019 WL 1103831, at *3 (emphasis added). The Supreme Court then analyzed in detail the words and meaning of the two letters.

At the heart of the matter was whether the offer of settlement in the first letter required acceptance within a time limit mentioned only in the attached second letter. Further complicating matters was that the second letter only explicitly mentioned a 30 day time limit with respect to providing certain insurance information, with no demand for payment within that time period.

The Supreme Court of Georgia held that the “offer to settle is not, at least expressly, subject to a time limit for acceptance… Nor do An and Hong state an express time limit on their willingness to attend the settlement conference.” Id. at *4. As the offer was silent as to the time  given for acceptance, the offer is construed to remain open for a reasonable time. Given that the two letters also expressed An and Hong’s desire to attend the settlement conference, the Supreme Court concluded that the insurer could not have acted unreasonably. Therefore, the insurer was entitled to summary judgment on the failure-to-settle claim. The Supreme Court did not weigh the circumstances and determine whether any disputes of material fact remained; rather, the interpretation of the offer itself was to be determined as a matter of law.