Insurance Bad Faith: Opportunity To Settle

The common occurrence of a written Holt demand notwithstanding, there is no requirement under Georgia law that the insurer’s failure to settle within policy limits be proven by the insurer’s failure to accept a formal, written demand within a stated time. Rather, the law requires an inquiry into “whether the insurer had an opportunity to make an effective compromise.” Although refusing to place an “affirmative duty on the company to engage in negotiations concerning a settlement demand that is in excess of the insurance policy’s limits,” the Georgia Supreme Court has not required that the “opportunity to make an effective compromise” be in any particular form.

Settling Within Policy Limits

The “argument that an insurer may not be held liable for tortious refusal to settle in the absence of a settlement demand from the plaintiff is not supported by Georgia law.” Indeed, the Georgia Court of Appeals has held that in the appropriate situation an insurer may have a duty to make an offer: “The failure either to settle within policy limits or to make an offer of settlement creates an issue of bad faith of the insurer, because the issue arises whether the insurer places its financial interest superior to the interests of its insured who is placed at great risk for an excess judgment.”

At the present time, no Georgia court has specifically ruled on whether an insurance company has a duty to initiate a settlement offer when the claimant has not first provided an opportunity to the insurer to settle the claims against the insured for an amount within policy limits. The Northern District of Georgia, applying its understanding of Georgia law, has ruled that there is no bad faith as a matter of law unless “the case could have been settled within the policy limits-and that the insurer knew, or reasonably should have known, of this fact.” In Kingsely v. State Farm, “[p]rior to filing suit, neither [claimant] nor her attorneys made a settlement demand or requested to discuss settlement with State Farm.” State Farm tendered policy limits within a month of suit being filed. The claimant rejected the tender and proceeded to obtain a verdict in excess of policy limits. In the subsequent bad-faith lawsuit, the claimant acknowledged that she had made no demand and testified that she had decided to obtain an excess judgment if State Farm did not offer its limits prior to her deadline for filing a lawsuit. The deadline for filing a lawsuit was not communicated to State Farm. The court ruled that there was no bad faith as a matter of law, as State Farm had no knowledge of the claimant’s “secret deadline” and that there was no evidence that State Farm knew of any “triggering event” alerting State Farm to an opportunity to settle.Thus, although the formal demand is highly useful as documentary proof of the insurer’s failure to fulfill its duty, the demand is not itself may not be a necessary element of the tort. Rather, the necessary element is failure to take advantage of an opportunity to settle within policy limits. Although in the vast majority of bad-faith cases the opportunity is delivered to the insurer in the form of a written demand, in the appropriate case, an insurance company may have to create a reasonable opportunity to effect settlement and protect its insured from legal liability before any demand is sent. the opportunity itself. This opportunity could arise while the insurer fulfills its duties of investigating the claims against its insured.

Practice Pointer

Whether a necessary element of the tort of bad faith or not, a formal, time-limited demand is a useful and sometimes necessary tool in getting a claim paid promptly. A for-profit entity like an insurance company is likely to avoid or delay payment unless prodded. A demand should be in writing and give the insurer sufficient information (in the form of medical invoices, statements of lost income, etc.) justifying the amount of the demand. The demand should clearly state the deadline and means of acceptance, with the amount of time being reasonably sufficient in the circumstances of the particular case. Send the demand via certified mail, return receipt requested, to insure that you have a record of when the insurer received the letter. Insurers routinely ask for more time to consider. Failing to provide additional time to consider in the appropriate case could provide a defense to the insurer if it can show that it did not have enough time to properly consider. Respond to such requests in writing. If the rejection of a reasonable offer is at mediation and possibly subject to confidentiality, consider following up with a formal letter making a demand that follows the suggestions above.