There are two categories of insurance bad faith law in Georgia. The first category is court created bad faith law and the second is codified or statutory bad faith law created by the legislature. Although the statutory bad faith law imputes a duty of good faith on the insurance companies, the court created bad faith law also known as common law bad faith has much more significant impact against an insurance company.
COMMON LAW BAD FAITH AGAINST A LIABILITY INSURER
Georgia law imposes a fiduciary duty on insurance companies (insurers) to protect its insured defendants from risks associated with litigation. An insurance company may be responsible to its insured defendants if it is guilty of negligence, fraud, or bad faith in compromising to settle the injured party's claim as the Georgia Court of Appeals held in Francis v. Newton, 75 Ga. App. 341, 43 S.E2d 282 (1947). This issue of an insurer's bad faith is often seen in cases where it fails to settle a claim within the limits of its policy. The Georgia Supreme Court has stated that if an insurer fails to settle within its policy limits, it may be held responsible for the amount of judgment in addition to its policy limits. See Cotton States Mut. Ins. Co. v. Brightman, 276 Ga. 683, 580 S.E2d 519 (2003). Failing to settle within its policy limits may create a tort action against the insurer by the defendant insured.
PROVING COMMON LAW BAD FAITH FOR FAILING TO SETTLE WITHIN POLICY LIMITS
- The standard of care that a liability insurer must exercise is whether that insurer acted reasonably like an ordinarily prudent insurer would in that same situation. See Fortner v. Grange Mut. Ins. Co., 286 Ga 189, 686 S.E.2d 93 (2009). the insurer gave equal consideration to the insured defendants' interests like its own interests to avoid liability of a judgment in excess of the policy limits. See Southern General Ins. Co. v. Holt, 262 Ga. 267, 416 S.E.2d 274 (1992) and Fortner v. Grange Mut. Ins. Co., 286 Ga 189, 686 S.E.2d 93 (2009). In addition, an insurer's equal consideration of both the insured defendants and insurer's interests must be taken into account without its policy limits. See U.S. Fidelity & Guaranty Co. v. Evans, 116 Ga. App. 93, 156 S.E.2d 809 (1967).
- Whether a liability insurer breach its standard of care is determined by considering all the facts and circumstances are sufficient enough that would allow a jury to decide if the liability insurer was unreasonable in deciding not to settle the claim within its policy limits. See Fortner v. Grange Mut. Ins. Co., 286 Ga 189, 686 S.E.2d 93 (2009). Moreover, if a liability insurer decides to try the case in court rather than settle within its policy limits, its decision must be one where an ordinarily prudent liability insurer would consider such a decision as taking an unreasonable risk that the insured may be liable for a judgment in excess of the policy limits. See U.S. Fidelity & Guaranty Co. v. Evans, 116 Ga. App. 93, 156 S.E.2d 809 (1967) and Cotton States Mut. Ins. Co. v. Brightman, 276 Ga. 683, 580 S.E2d 519 (2003).
Some of the relevant facts and circumstances in determining whether a liability insurer breach its care to the insured defendant are:
- Insurer's knowledge of facts relevant to the insured's liability and amount of damages;
- Insurer's diligence in performing a reasonable investigation to find all relevant facts; and
- The terms of the injured's settlement offer and insurer's response to such offer.
Generally, a bad faith claim against an insurer is a question for the jury. The common cases that have the highest probability of creating a bad faith claim against an insurer is where the insured's liability was clear and the injured party's damages exceeded the policy limits. See Baker v. Huff, 323 Ga. App. 357, 747 S.E.2d 1 (2013).
However, in Fortner v. Grange Mut. Ins. Co., 286 Ga 189, 686 S.E.2d 93 (2009), Georgia Court of Appeals has provided exceptions or "safe harbors" for insurers that prevents a bad faith claim from being decided by a jury. If an insurer has satisfied the sections of an injured party's offer that it has control over then it is deemed as being reasonable and shield from a bad faith claim. Two examples of "safe harbors" may include:
- Situations where a liability insurer refuses to settle a claim within policy limits because the injured party did not agree or give assurance that liens would be paid from the settlement. See Southern Gen. Ins. Co. v. Wellstar Health Sys., 315 Ga. App. 26, 726 S.E.2d 488 (2012).
- Situations where two or more liability insurers are involved. The injured party offers to settle within policy limits with the condition that all insurers tender their policy limits. Otherwise, the injured party will not accept just one insurer's settlement payment. Because one insurer cannot control what the other insurer may do, if that insurer tenders its policy limits to settle then as a matter of law, it protected from a bad faith claim for failure to settle within policy limits. See Cotton States Mut. Ins. Co. v. Brightman, 276 Ga. 683, 580 S.E2d 519 (2003).
EXCESS JUDGMENT AND PUNITIVE DAMAGES FOR BAD FAITH FAILURE TO SETTLE WITHIN LIMITS
As discussed above, a liability insurer may be responsible for paying the full amount of judgment even it is more than the policy limits. After an injured party makes a demand to a liability insurer for policy limits and that insurer fails to tender their policy limits the basic litigation is as follows:
- In the first trial, the injured party must get a judgment or verdict that is more than the amount of the insurer's policy limits. If an excess judgment is obtained then that creates a potential cause of action for the insured defendant against his or her insurer to sue for bad faith. Defendant may assign his or her right to sue that insurer to the injured party in exchange for the injured party releasing defendant from any further liability.
- Once that assignment is made, the injured party files a second lawsuit against that same insurer from the first trial. It will be up to the jury to consider all relevant facts and circumstances in arriving at a decision of whether that insurer acted in bad faith when it failed to settle within its policy limits.
In addition to possibly begin liable for all excess judgment, that insurer may also be held responsible for punitive damages under O.C.G.A § 51-12-5.1. Punitive damage is additional monetary damage that is awarded to a claimant to punish wrongdoers such an insurer in a bad faith claim. See Thomas v. Atlanta Cas. Co., 253 Ga. App. 199, 558 S.E.2d 432 (2001). Generally punitive damages are limited to $250,000 unless a case involves products liability case or a defendant's wrongdoings while under the influence of alcohol, drugs, or chemicals that alter a person's state of mind.
HOW WE CAN HELP
A bad faith claim against a liability insurer for failing to settle within its policy limits is very fact sensitive. Because it is generally a question for a jury, many pieces of relevant evidence are required to present to a jury. Many of these important evidence are within the custody and control of the insurer and sometimes protected under an attorney-client privilege. We are committed to ensuring that the liability insurer is acting reasonably and in good faith. We want to seek justice for you if an insurer has acted in bad faith and fight through each phase of your claim. Connect with us if you feel that you have been treated in bad faith by an insurer.