When an auto insurer unreasonably refuses to settle a personal injury claim against one of its policyholders, the policyholder can turn around and sue the insurance company for acting in “bad faith.” If successful, a bad-faith lawsuit can mean the insurer is liable for the full amount of any judgment that the accident victim obtained against the policyholder.
Whiteide v. Geico Indemnity Company
A federal appeals court recently asked the Georgia Supreme Court to resolve a number of legal questions arising from a successful bad-faith coverage lawsuit. The case was tried before a jury in federal court following Georgia state law. In situations like this, a federal court may opt to “certify” unresolved legal questions to the state’s supreme court before proceeding further.
The defendant in this case is GEICO. GEICO insured a vehicle that was driven by a woman who hit a cyclist. GEICO initially notified the insured driver that it had accepted liability for the accident would be “handling this injury directly” with the cyclist’s personal injury lawyer.
The cyclist’s lawyer sent GEICO a standard demand letter seeking the full limits of the insure driver’s policy, which was $30,000. GEICO opted to make a counter-offer instead of just $12,000. The cyclist’s attorney never replied. Instead, six days after receiving the counter-offer, the cyclist filed a personal injury lawsuit against the insured driver.
Nobody ever notified GEICO about this lawsuit. The insured driver threw her copy of the lawsuit away and said, “To hell with this s**t.” Apparently, the driver continued to believe that GEICO was simply handling the situation.
When the driver never responded to the lawsuit, a Georgia Superior Court judge entered a $2.9 million default judgment for the cyclist. The cyclist then filed an involuntary bankruptcy petition against the insured driver. The court-appointed bankruptcy trustee then hired the cyclist’s personal injury lawyer to file a bad-faith lawsuit against GEICO.
GEICO insisted it was not liable for the default judgment as it never received any notice of the original personal injury lawsuit. Nor could it be proven that GEICO’s actions were the “proximate cause” of the $2.9 million default judgment. Additionally, it argued that it would violate the Georgia Constitution to use the default judgment “as the measure of damages,” given the insurer never had the opportunity to contest the original personal injury claim.
A federal district judge rejected all of GEICO’s arguments and proceeded to hold a jury trial. The jury determined that GEICO was 70 percent responsible for the default judgment. With interest, this meant GEICO owed the cyclist approximately $2.7 million.
GEICO appealed the verdict to the U.S. 11th Circuit Court of Appeals. Rather that dispose of the appeal immediately, the 11th Circuit certified three questions of law to the Georgia Supreme Court:
- Given that Georgia law absolves insurers from having to pay any personal injury judgment when it is not notified of the original lawsuit, is GEICO also excused from a bad-faith judgment against the insured driver?
- Assuming the bad-faith claim is not prohibited, can GEICO be sued for refusing to settle even though the insured driver later lost her coverage for failing to comply with the terms of her policy? And
- Does the Georgia Constitution give GEICO the right to contest the measure of the cyclist’s damages, given the insurer was not able to contest the original default judgment?