Georgia Supreme Court Holds Insurer Not Responsible for $5.3 Million Accident Judgment

Most personal injury claims arising from an auto accident are paid via a settlement with the negligent driver’s insurance company. What happens when the insurer refuses to settle and the injured parties successfully sue the negligent driver for damages? In such scenarios, the driver may be able to sue the insurer for its “bad faith” refusal to settle the personal injury claim in the first place.

First Acceptance Insurance Company of Georgia, Inc. v. Hughes

When does an insurance company’s “duty to settle” actually arise? Does the insurer have to wait for the injured victims to file a lawsuit? Or should the insurer reasonably anticipate when such a lawsuit is likely to occur? The Georgia Supreme Court recently addressed both of those questions.

This case revolves around a 2008 multi-car accident. The negligent driver died as a result of injuries he sustained in the accident. At the time, he was insured by First Acceptance, which issued a policy that provided liability coverage of $25,000 per person and $50,000 per accident.

First Acceptance was “advised” that two people, a mother and daughter, were injured in the accident. The daughter, in fact, suffered a “fractured skull, bleeding on the brain, and was in a coma for four to five days,” according to court records. The mother also suffered permanent scarring on one of her arms. First Acceptance’s adjusters therefore knew right away that their driver was responsible for the accident and that his potential legal exposure far exceeded the liability limits of the policy.

In June 2009, a personal injury lawyer representing the two women sent First Acceptance a letter that indicated his clients were interested in “attending a settlement conference,” or otherwise settling their potential claims for the limits of the policy. A month later, they filed a lawsuit in Georgia state court. First Acceptance then invited the women to participate in a settlement conference, but they chose not to attend and proceeded with their lawsuit. Prior to trial, First Acceptance finally offered to settle for the policy limits, but the plaintiffs refused. A jury ultimately awarded the daughter $5.3 million in damages.

The estate of the negligent driver, which was on the hook for this award, then sued First Acceptance, alleging it acted in bad faith when it failed to settle the claim for the policy limits prior to the victims filing their lawsuit. This eventually led to the Georgia Supreme Court, which agreed to address the question of when precisely First Acceptance’s “duty to settle” arose.

The estate argued the duty arose in June 2009, when the victims’ attorney sent the demand letter to First Acceptance. As the Court explained, that letter did not include any time limit. That is to say, the letter did not say something along the lines of, “If you do not respond to offer within 30 days, we will consider that a rejection.” The letter therefore did not put First Acceptance “on notice that its failure to accept the offer within any specified period would constitute a refusal of the offer.” Accordingly, First Acceptance did not act in “bad faith” when it refused to settle for the policy limits prior to the filing of the victims’ lawsuit.