Court of Appeals Allows a Vague "Demand Letter" to Get Past Summary Judgment in an Insured's Claim for Negligent or Bad Faith Refusal to Settle
In Hughes v. First Acceptance Ins. Co. of Georgia, Case No. A17A0735 (Ga. Ct. App., Nov. 2, 2017), the Georgia Court of Appeals held that a jury must decide whether two inexplicit letters sent simultaneously to the defendant insurance company’s counsel constituted a 30-day settlement demand for liability coverage limits. The result of this case underscores the extreme caution and diligence a liability insurance carrier must exercise in reviewing any communications whatsoever from Plaintiff’s attorneys.
The case arose from a five-vehicle accident in which the insured driver was killed and others injured, including Jina Hong, a minor who sustained a traumatic brain injury. Evidently, liability on the part of the insured driver was clear. The driver was insured by First Acceptance with minimum limits of $25,000 per person, $50,000 per accident. The attorney for the minor and the minor’s mother contacted First Acceptance and stated that “he looked forward to working with the insurer to resolve the matter and that he would forward a settlement demand when his clients had finished treatment.” Some months later, the attorney for First Acceptance wrote the attorneys for all of the injured parties, including Jina Hong, stating that he wanted to schedule a settlement conference.
Four months later, Jina Hong’s attorney faxed two letters dated June 2, 2009, to the attorney for First Acceptance. The first letter stated they “were ‘interested in having their claims resolved within your insured’s policy limits, and in attending a settlement conference.’” (Emphasis added.) The letter mentioned the plaintiffs’ uninsured motorist coverage, that the amount paid from available liability coverage must be determined, and “[o]nce that is determined,” they would need to execute a limited liability release. The letter went on to state:
In fact, if you would rather settle within your insured’s policy limits now, you can do that by providing that release document with all the insurance information as requested in the attached [second letter], along with your insured’s available bodily injury liability insurance proceeds.
The second letter simply asked that First Acceptance provide the insurance coverage information within 30 days, and that “’any settlement will be conditioned upon the receipt of all the requested insurance information.”
On July 10, 2009, thirty-eight days after the two letters, the plaintiffs filed suit against the estate of the deceased insured driver. The plaintiffs’ attorney then wrote the attorney for First Acceptance to inform him that a clear 30-day offer to settle within policy limits had been made, there had been no response, and now the offer to settle was withdrawn. Now scrambling, the attorney for First Acceptance quickly scheduled a settlement conference, but counsel for the minor plaintiff did not participate. The case went to a jury trial, and the court entered judgment in favor of the minor plaintiff for $5,334,220.
Robert Hughes, the administrator of the insured’s estate, subsequently sued First Acceptance for negligent and bad faith refusal to settle. Hughes sought the excess amount of the underlying judgment, attorney’s fees, and punitive damages. Both sides moved for summary judgment. The trial court granted summary judgment in favor of First Acceptance and against Hughes. The Court of Appeals affirmed the denial of Hughes’ motion, and affirmed the grant of summary judgment in favor of First Acceptance as to the claims for attorney’s fees and punitive damages. The Court held that, although liability for attorney’s fees and punitive damages are generally questions for the jury, Hughes essentially abandoned his claim for attorney’s fees, and there was an absence of evidence that First Acceptance engaged in willful or wanton conduct which would authorize punitive damages.
Incredibly, however, the Court also held that a jury must decide whether the two letters sent by the plaintiffs’ attorney constituted a time-limited settlement offer, and whether First Acceptance reasonably responded to it. Quoting Cotton States Mutual Ins. Co. v. Brightman, 276 Ga. 683 (2003), the Court laid out the familiar legal standard applicable in these cases: “’An insurance company may be liable for the excess judgment entered against its insured based on the insurer’s bad faith or negligent refusal to settle a personal claim within the policy limits,’” and ‘”the insurer is negligent in failing to settle if the ordinarily prudent insurer would consider choosing to try the case created an unreasonable risk.’” The Court noted that whether the insurer was in fact “ordinarily prudent” or took an “unreasonable risk” is usually a question for the jury. The Court further noted that it was immaterial that First Acceptance was faced with multiple claims and could not know whether the claims could be settled within its limits, because a liability insurer may in good faith settle with one or more claimants to the detriment of the others. With no further analysis, however, the Court simply concludes that “[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 within the insured’s policy limits and to release the insured from further liability, and whether the offer included a 30-day deadline for a response.”
The clear lesson from this unfortunate result is that claims professionals and counsel for insurers must carefully scrutinize every communication received from plaintiffs’ attorneys. Any mention of a deadline should immediately raise a red flag. Where any ambiguity exists, get clarification. A timely response, even if it is just a request for the attorney to say what he means, is better than no response at all.