Judge: Insurance Company Did Not Act in “Bad Faith” by Asking Motorcycle Accident Victim to Place Settlement Funds in Escrow

When a person is seriously injured in a motor vehicle accident, the responsible insurance company may face conflicting obligations under Georgia law. On the one hand, the insurer must settle a valid claim in good faith. For example, if an insurer knows its policyholder is responsible for causing an accident, a refusal to settle with the victim can make the insurer liable for any excess personal injury award against the negligent driver.

On the other hand, an insurer may also be responsible to any medical provider that files a lien after providing services to the accident victim. That is to say, if the insurer simply cuts a check to the victim without first checking to see if there are any hospital liens, the hospital could turn around and sue the insurer for the amount owed (plus additional damages).

Kemper v. Equity Insurance Company

A federal judge in Macon recently had to resolve a case involving these two seemingly contradictory obligations. This particular case began with a 2012 accident. A drunk driver crossed the center line of a highway and struck a motorcyclist (the plaintiff).

The plaintiff’s medical bills exceeded $1 million. The drunk driver’s insurance company (the defendant) knew this. The defendant therefore offered to pay out the limits of the drunk driver’s policy ($25,000) in exchange for a limited release. But, as the insurer was also concerned about possible medical liens, it insisted the motorcyclist put the $25,000 in escrow.

The plaintiff objected to this, noting she needed that money to pay her living expenses while recovering from her injuries. The Georgia Court of Appeals later held that by asking for the escrow, this qualified as a “counter-offer” that did not actually settle the plaintiff’s claims against the drunk driver. Following this ruling, the plaintiff and the drunk driver stipulated to a $10 million personal injury judgment. The driver then assigned his right to sue his insurance company for refusing to settle the plaintiff’s claim in bad faith.

U.S. District Judge Michael L. Brown, however, determined the insurance company did nothing wrong in this scenario. He noted that the insurer asked for escrow to protect against potential litigation by the medical providers who cared for the plaintiff following the accident. Indeed, under Georgia law the insurer “had an obligation to look out for any claims or liens hospitals, physicians, or other medical service providers may have filed upon [the plaintiff’s] claims.”

Furthermore, Judge Brown said Georgia law creates an express “safe harbor” for insurance companies that refuse to settle a valid accident claim due to the victim’s “unreasonable refusal to assure the satisfaction of any outstanding hospital liens from the proceeds of the settlement.” The Georgia Supreme Court has said that asking the victim to place settlement funds in an escrow account is an acceptable way for an insurer to satisfy its obligations, both to the victim and to any potential lien-holders.