DAMAGES
Although an insurer’s failure to defend a covered claim is a breach of the insurance contract, a claim for bad faith refusal to settle within policy limits sounds in tort, not contract. Like any tort, damages are an essential element to a claim for bad faith. Since the Smoot cases, Georgia law has recognized several categories of available damages:
(1) special damages
(2) general damages
(3) punitive damages
(3) attorneys’ fees
SPECIAL DAMAGES
Special damages consist of the judgment against the insured that the insurer refuses to pay. In the typical case, where the
insurer has tendered limits but refuses to pay amounts in excess of limits after having allowed a judgment to be entered, the special damages are the difference between policy limits and the amount in excess of policy limits. In cases where the insurer is refusing to pay anything, perhaps because of a purported coverage defense, special damages would be the entire judgment. Where an insurance company fails to offer a defense, it may be liable to its insured beyond the policy limits to the full amount of the judgment. An insurer who is liable for bad faith may be liable for the full amount of the judgment, even in excess of the policy limits, where the consequential
damages can be traced directly to the failure to timely defend or settle. The issue of whether the insured is entitled to
judgment in excess of the policy limits is a matter for the jury.
An insurer may be liable to its insured for post-judgment interest that the insured is required to pay. In addition, if the insured incurred legal fees in its own defense (for example, when the insurer refused to defend its insured), such legal fees are recoverable as special damages.
GENERAL DAMAGES
General damages are of the type typically found in tort cases and caused by the tortfeasor’s negligence or bad faith. For example, in Smoot III, the judgment in excess of policy limits caused a foreclosure and ruined the insured’s credit, justifying $10,000 in general damages. Other proof of such damages may, in the proper case and with appropriate proof, include exposure to post-judgment discovery and collection efforts, damage to reputation or business interests caused by a judgment of record, or various types of mental or psychological
injury.
PUNITIVE DAMAGES 
When an insurer fails to settle claims against its insured within policy limits when it has a reasonable opportunity to do so, the insurer may be subject to punitive damages. An insurer’s failure to take advantage of a single, time-limited demand for policy limits can create a jury question as to punitive damages. Even without the existence of an express, time-limited demand from the claimant, there may be a jury issue as to punitive damages when there is a fact issue as to whether the insurer should have initiated settlement discussions. Whether an insurer’s bad faith subjects it to punitive damages is governed by the familiar standards applicable to other torts and set forth in O.C.G.A. § 51-12-5.1.71 Under that statute, punitive damages may be awarded only when it is proven by “clear and convincing evidence” that the defendant’s actions showed “willful misconduct, malice, fraud, wantonness, oppression, or that entire want of care which would raise the presumption of conscious indifference to consequences.” If punitive damages are awarded, they are generally capped at $250,000. The cap does not apply, and a jury may award unlimited punitive damages, upon a finding that the defendant had “specific intent to cause harm.” Because O.C.G.A. § 51-12-5.1 has general applicability, judicial construction of the statute in cases other than those involving an insurer’s bad faith failure to settle is highly relevant.
Entitlement to punitive damages up to $250,000
“Willful misconduct,” as used by the courts in authorizing punitive damages, is generally defined as the conscious or intentional disregard of the rights of another. The term “conscious indifference to the consequences” has been defined as the “[i]ntentional disregard of the rights of another, knowingly or willfully disregarding such rights.” It is not essential to a recovery for punitive damages that the person inflicting the damages was guilty of willful and intentional misconduct, if the act was done under such circumstances as evinces an entire want of care and a conscious indifference to the consequences.
The fact that many victims of an insurance company’s bad faith do not always suffer direct personal injury does not remove the potential for punitive damages. Nor is it relevant that there might be no personal contact between the insured and the insurance company adjuster that decides not to settle within policy limits. This is because neither direct personal contact nor specific malice between the defendant and plaintiff is required to support a claim for punitive damages. In Bowen v. Waters, an automobile owner sued a store for property damage to his automobile. The damage occurred when the automobile was forced off the road by a store employee who was following the automobile because he suspected the driver of shoplifting. Because there was evidence that the defendant’s acts were done with reckless disregard or with a conscious indifference to the rights of the plaintiff, the court ruled that there was a fact issue as to punitive damages.
Entitlement to punitive damages must be proven by clear and convincing evidence. A jury may award punitive damages even where the clear and convincing evidence only creates an inference of the defendant’s conscious indifference to the consequences of his acts. Specific to bad-faith cases, “conscious indifference to the consequences” may be shown where an adjuster who is in possession of a time-limited demand, knowing the insured is 100 percent liable and knowing that “special” damages already exceeded policy limits, fails to accept the offer within the deadline or ask for an extension. Also, once it has been determined that the insurer tortiously refused to accept an offer within policy limits (and the issue of punitive damages does not come up until that underlying issue is decided), the insurer has “gamble[d] with the funds of its insured” and failed to give its insured’s interests “equal consideration,” violating duties in Georgia law long-known to all liability insurers. Indeed, an insurer who undertakes the defense of an insured under a liability policy has established a fiduciary relationship. Thus, it is difficult for the insurer to claim that its failure was of the type of “mere negligence” that will not support a claim for punitive damages.
Entitlement to more than $250,000 in punitive damages.
The statutory cap of $250,000 on punitive damages is lifted where the trier of fact finds that the defendant acted, or failed to act, with “specific intent to cause harm.” A party possesses specific intent to cause harm when that party desires to cause the consequences of its act or believes that the consequences are substantially certain to result from it. Intent is always a question for the jury. It may be shown by direct or circumstantial evidence.
Whether the defendant acted or failed to act with the specific intent to cause harm is determined by the common law standard of preponderance of the evidence.It is hard to imagine a situation where the issue of whether the insurer acted with specific intent to cause harm would not be a jury question. As noted, a liability insurer who declines a reasonable opportunity to protect its insured has breached its fiduciary duty to the insured.88 Thus, the insurer specifically knows who will be harmed by any failure to settle. Moreover, the decision to not settle or defend is rarely made by accident. Discovery of the claims file will usually show the deliberativeness of the process of making such decisions, highlighting the “intent” of the act.
Attorneys’ Fees
Expenses of litigation under O.C.G.A. § 13-6-11 may be allowed in common law bad faith claims against an insurer.
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