Bad Faith: Assignemnts, Consent Judgments, & Dowse Settlements

ASSIGNMENTS, CONSENT JUDGMENTS AND DOWSE SETTLEMENTS

Many lawsuits involving an insurer’s bad-faith failure to settle are brought by the claimant and not by the insured. Others are brought by both the claimant and the insured. Because a third-party claimant that lacks privity with the insurance company generally has no cause of action against the insurer for claims handling, a claimant who prosecutes a bad-faith claim generally does so by taking an assignment from the insured. Because liability policies have clauses forbidding the insured from assigning claims or settling claims without the insurer’s consent, such assignments can only be accomplished in certain situations.

Southern Guaranty Ins. Co. v. Dowse

The classic situation was presented in Southern Guaranty Ins. Co. v. Dowse. In that case, the claimant brought a lawsuit against a contractor who was insured under a commercial general liability policy. The insurer denied coverage and refused to defend. The claimant and insured entered into a settlement agreement, under which the insured withdrew its answer and allowed a default judgment to be rendered against it. The settlement agreement also provided that the claimant would not seek to enforce the judgment against the insured’s personal assets, but would limit its recovery to any amounts due under the insurance policy. The matter went to trial on damages.

Damages were awarded against the insured, and the claimant initiated a garnishment action directly against the contractor’s insurance company.The insurer argued that because the insured faced no liability under the settlement agreement, there was no indemnity obligation for the insurer to undertake. The insurer also argued that it was relieved of liability because the insured had breached policy provisions barring settlement without the insurer’s consent. The Supreme Court of Georgia rejected both defenses, holding that an insurer that refuses to defend based upon a belief that a claim against its insured is excluded from a policy’s scope of coverage “[does] so at its peril, and if the insurer guesses wrong, it must bear the consequences, legal or otherwise, of its breach of contract.” The Court continued as follows:

In Georgia, an insurer that denies coverage and refuses to defend an action against its insured, when it could have done so with a reservation of its rights as to coverage, waives the provisions of the policy against a settlement by the insured and becomes bound to pay the amount of any settlement within a policy’s limits made in good faith, plus expenses and attorneys’ fees.

Similarly, an insurer who denies coverage waives the provisions (common in most liability policies) barring coverage when the insured has made “voluntary payment” to the claimant. Furthermore, if an insurer refuses to defend a third-party action against its insured after timely notice, the insurer is bound to the issues adjudicated in the underlying suit against its insured.103 If the insurer is then sued for the refusal to defend or failure to pay a judgment entered against the insured, the insurer may not relitigate issues that form the basis for the judgment entered against its insured.

Trinity Outdoor, LLC. v. Central Mut. Ins. Co.

However, an insurer’s refusal to defend does not waive its right to contest whether the insurance policy provides coverage for the underlying claim. The insured may not unilaterally settle a lawsuit, however, if the insurer is defending the insured in the lawsuit but refuses to settle the lawsuit within policy limits. In Trinity Outdoor, LLC. v. Central Mut. Ins. Co., a billboard fell while it was being installed on Trinity’s property, killing two persons. Investigations ultimately determined that the manufacturer of the billboard was primarily at fault, though liability for Trinity could not be ruled out. A wrongful death action against Trinity and the manufacturer ensued, and Trinity’s insurer provided Trinity a defense. A mediation among all parties provided an opportunity to settle the liability against Trinity for less than its $2 million policy limits. The insurer attended the mediation and refused the opportunity to settle. Trinity, fearing a judgment in excess of policy limits, agreed to and paid the settlement. Trinity then sued its insurer, alleging, inter alia, negligent failure to settle and seeking indemnification for the settlement amount. The insurer defended itself by arguing that Trinity had breached the provision in the insurance policy barring insureds from making a “voluntary payment” without the insurer’s prior consent. The Supreme Court of Georgia agreed, holding that “an action for negligent or bad faith failure to settle a case requires that a judgment be entered against an insured in excess of the policy limits before the action can be asserted.” The court distinguished Dowse, in which the insured was “wholly abandon[ed]”, reasoning that Trinity’s insurer provided a defense and had not breached its duties so as to release Trinity from its duties as an insured. Accordingly, Trinity had no cause of action for bad faith as a matter of law.

Bad Faith: Seeking A Judicial Declaration

Bad Faith And The Jury

Bad faith is for the jury where there is a dispute as to whether the insurer’s offer of payment was unreasonably low.

Where an insured has suffered a loss, efforts by the insurance company to settle the claim that are not bona fide can be a constructive refusal to pay. In Firemen’s Ins. Co. of Newark, N.J. v. Allmond, the insurance company acknowledged coverage, made an offer of settlement of $2,250, and a jury determined the amount of the loss to have been $4,000. In such a case, “it was a question for the jury to say whether the offer had been so small as to amount to an absolute refusal to pay, and if so, whether there was bad faith in such refusal.” Accordingly, the Court of Appeals affirmed the jury’s award of bad-faith damages.

Seeking A Judicial Declaration On A Disputed Coverage Issue

Seeking a judicial declaration on a disputed coverage issue does not defeat bad faith as a matter of law. ” [T]he mere filing of a declaratory judgment action does not in and of itself absolve an insurer from being subject to a bad faith penalty under O.C.G.A. § 33-4-6.” In Great Southwest Exp. Co. Inc. v. Great Am. Ins. Co. of New York, the insured filed a claim that the insurer disputed. The insurance company filed a declaratory judgment action against its insured, seeking direction from a court as to whether coverage existed. The insured counterclaimed for coverage and bad-faith damages. The trial court denied the insurance company’s motion for summary judgment on bad faith, and the Court of Appeals affirmed, holding that the issue of bad faith was for the jury. Likewise, there are circumstances when the insurance company’s failure to seek a declaratory judgment can be evidence of bad faith.

An insurer’s waiver of a coverage defense does not preclude bad faith.

An insurance company that retains a prepaid premium for four and one-half years after learning of fraudulent answers in the insurance application may waive the defense that the policy was void ab initio, but the insurer may still maintain the fraud defense to the bad faith claim. Florida Int’l Indem. Co. v. Osgood, the insured’s house burned. The insurer discovered that the insured had committed fraud in the application by failing to inform the insurer of previous losses by fire. Rather than rescinding the policy, the insurer issued a notice of nonrenewal that specifically stated that the policy remained in effect. The court determined that the notice waived the right to rely on the defense of fraud with regard to coverage. However, because “[t]he waiver did not eliminate the fact that [the insured] had defrauded [the insurer],” a directed verdict for the insurer on bad faith was appropriate.

Bad Faith: Partial Payments

No Bad Faith For A Partial Payment

It is not considered bad faith for a partial payment when amount of the claim is reasonably questioned. In Shaffer v. State Farm Mut. Auto. Ins. Co., the insured was injured in an automobile accident. The insured’s automobile policy provided for payment of reasonable medical expenses incurred as a result of automobile accidents. After the accident, the insured was transported by ambulance and treated. The insurer paid the ambulance and hospital costs. The next day, the insured saw an internist who referred her for physical therapy. The insurer paid the internist’s bill but retained the services of an independent physician to determine if the physical therapy bill was excessive. The physician concluded that certain bills were excessive and that the records did not indicate the necessity of physical therapy. The physician recommended partial payment of $1,185.81, which the insurer tendered. The insured filed suit for the balance, alleging bad faith. The trial court granted partial summary judgment to the insurer on the bad-faith claim, finding the refusal to pay reasonable as a matter of law because of the advice of the independent physician.

The Court of Appeals affirmed, citing Jones v. State Farm Mut. Auto. Ins. Co., which held as follows:

The advice of an independent medical examiner that the treatment furnished a claimant is not in fact necessary treatment for injuries arising from the accident covered by the insurance policy, unless patently wrong based on facts timely brought to the insurer’s attention, provides a reasonable basis for an insurer’s denial of a claim for payment of such treatment.

No Bad Faith And Insurance Paying Less Than Demanded

 No bad faith where insured recovers substantially less than demanded, but insurance company acknowledges coverage. Where the verdict in a suit on an insurance policy is for substantially less than the amount claimed in the proof of loss and less than the amount demanded in the petition, no recovery for bad-faith damages and attorney’s fees is authorized. In Georgia Farm Bur. Mut. Ins. Co. v. Boney, the insured purchased a new car for $2,400 and rolled it five days later. The insured submitted a proof of loss for $2,350, the cost of the car less the $50 deductible. The insurance company acknowledged coverage but refused to pay the amount sought. Rather, the insurance company offered to

(1) have the car repaired by the insured’s choice of dealer

(2) pay $800. The insured rejected the offer, sent a 60-day demand for $1,400 and filed suit. The jury awarded $1,000 for the loss as well as a bad-faith penalty. The Court of Appeals reversed the bad-faith award, ruling that there can be no bad faith as a matter of law where the proof of loss seeks $2,350, the insured seeks $1,400 in its petition, and the jury awards $1,000. The court found it significant that the insurance company had gathered several estimates “from reputable people engaged in the repairing of automobiles.” In addition, the insured refused to produce the damaged car or meaningfully cooperate with the appraisal process called for in the policy.

Bad faith even though insured recovers less than demanded, but insurance company had denied all coverage.

In Hendley v. Am. Nat’l Fire Ins. Co., the insured’s home was damaged by a storm. The insurer denied all coverage, asserting that the insured had failed to give timely notice or make repairs to protect her property from additional damage immediately after the storm. The insured sought approximately $117,000 in damages but recovered much less. The issue on appeal was whether the issue of bad faith should have gone to the jury “where the jury awarded only 59% of the damages which [the insured] requested.”The Eleventh Circuit distinguished between, on the one hand, cases where the insured recovered substantially less than the amount demanded but the insurer had acknowledged coverage with, on the other hand, cases where the insured recovered less than the amount demanded but the insurer had denied coverage. In the former, the insurance company can escape bad faith as a matter of law if it shows good cause for the dispute. In the latter, the issue of bad faith is for the jury.

In addition, the Eleventh Circuit noted that “[t]he fact that the parties have a dispute as to liability will not preclude liability for bad faith penalties.”Although acknowledging that the insurance company’s defenses “provided a genuine dispute,” the Eleventh Circuit refused to find that there could be no bad faith as a matter of law. “Only a very finely-drawn distinction separates the insufficient defense from the one which as a matter of law raises a reasonable question of law or a reasonable issue of fact.

Other cases have found that if the insurer has completely denied any liability, the insured’s failure to recover the full amount sued for will not preclude an insured from recovering a penalty and attorneys’ fees for bad faith.

 

 

Insurance Bad Faith: Damages

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.

 

The Time-Limited Holt Demand

The Time-Limited Holt Demand

The most common failure to settle within policy limits involves the insurer’s rejection of a time-limited offer. A notable 1992 decision provides the moniker for the so-called “Holt demand,” in which an attorney for a claimant sends a letter to the insurer demanding a settlement at or below policy limits and threatening the specter of a judgment in excess of policy limits if the demand is not accepted within a specified time period. In Holt, the Supreme Court of Georgia addressed whether a demand letter providing the insurer 10 days to make a decision was sufficient.

Two Ways Where The Supreme Court Limited Its Holdings

In upholding the rulings and verdict against the insurer, the Supreme Court limited its holding in two distinct ways:

1. An insurance company does not act in bad faith solely because it fails to accept a settlement offer within the deadline set by the injured person’s attorney. Each claim is different, so the factors the insurer must consider in deciding whether to accept a settlement offer vary. The Holt court specifically mentioned three factors – the strength of the liability case against the insured, the risk to the insured of a judgment in excess of policy limits, and damages to which the claimant may be entitled under applicable tort law – that must also be considered when deciding on any opportunity to settle.

2. The Supreme Court stated that “[n]othing in this decision is intended to lay down a rule of law that would mean that a plaintiff’s attorney under similar circumstances could ‘set up’ an insurer for an excess judgment merely by offering to settle within the policy limits and by imposing an unreasonably short time within which the offer would remain open.”

Thus, although the Holt court accepted a 10-day deadline for an insurer to accept an offer, Holt does not stand for the proposition that 10 days is appropriate in all situations. The length of the deadline depends on the facts and circumstances of the case at hand. For example, consider a simple car-wreck case where liability against the insured is reasonably clear, where the claimant has finished treating and sufficient medical expenses and lost wages can be documented and presented with the demand, and policy limits are at the statutory minimum. In such a case, 10 days should be sufficient for the insurer to analyze the documentation, make a decision as to the value of the case and prepare and deliver payment. In a case where the permanency of the claimant’s injuries are still in doubt, and the available policy limits are substantially high in relation to the known damages, an insurer may reasonably require additional time or additional information to determine the reasonable likelihood that policy limits might be pierced.

Consistent with Holt, obvious “policy limits” claims justify a 10-day demand period. In claims that are not so obvious, or in which the insurer has not had a reasonable opportunity to investigate liability and damages, a time-limited demand might still be appropriate, but more time might be reasonably necessary for the insurer to digest the new information, conclude its independent investigation and respond to the offer to settle.

Other factual scenarios might create a situation where a reasonable insurer must respond to a demand to settle within policy limits in rather short order. For example, if the insurer is providing a defense, the parties go to mediation, and sufficient discovery has taken place to establish that there is a significant risk to the insured of a judgment in excess of policy limits, an insurer may have a matter of hours during the mediation to respond to a policy-limits demand. An even shorter deadline might reasonably occur during trial if a key witness fails to perform, performs better than expected, or other vagaries of trial create a significant risk to the insured of a judgment in excess of policy limits. In these situations, it is interesting to note that both parties are subject to the constraints of time. In the mediation scenario, the parties have the mediator and their respective clients’ focused attention for an afternoon. In the trial scenario, the jury may be out deliberating with both parties evaluating the risk of an adverse decision.

Insurers sometimes ask for extensions to respond to time-limited demands. Any insurer requesting an extension should provide, and any claimant considering whether to grant an extension should request, a reasonably articulated explanation as to why an extension is needed, If the explanation is reasonably necessary, Holt would seem to suggest that failing to provide the extension would run afoul of the cautionary language in Holt warning against a claimant’s attorney “set[ting] up an insurer for an excess judgment merely by offering to settle within the policy limits and by imposing an unreasonably short time within which the offer would remain open.”

In summary, because the test of the insurer’s response to a time-limited demand is measured by the standard of the reasonably prudent insurer, the reasonableness of the terms of the demand is a central factor. Because the facts going to liability, damages and whether the insurer had a reasonable opportunity to settle vary widely from case to case, whether the insurer was negligent or acted in bad faith is usually to be decided by a jury.

Bad Faith And Genuine Conflict

Bad faith And Factual Position

An insurer’s defense “going far enough to show reasonable and probable cause for making it” vindicates the good faith of the  insurer and precludes a finding of bad faith. The facts must,  however, be “in genuine conflict” for the insurance company to be released from bad faith as a matter of law.  Indeed, when faced with conflicting facts, the court’s duty is to “carefully scrutinize” those facts to preclude the insurance company from relying on “fanciful allegations of factual conflict to delay or avoid legitimate claims payment.”

Cincinnati Ins. Co. v. Kastner

In Cincinnati Ins. Co. v. Kastner, the insureds filed suit to recover benefits under their homeowner’s policy following a burglary.  The insurer’s refusal to pay was based, in part, on the fact that there had been no forced entry and that the insureds’ accounts of the missing items and of the location of the keys to the deadbolt doors were somewhat inconsistent.  However, the inconsistencies in the insured’s stories were minor, and there was ample evidence tending to point to a burglary (access from the townhouse next door was relatively easy, the insureds’ neighbor had seen a stranger in the

courtyard of the townhouse on the afternoon of the burglary, the townhouse was for sale and various people, including the movers, had recently been allowed access to the house).

There was no evidence that the insureds had facilitated or staged the burglary nor evidence that the insureds were in possession of the items they claimed had been stolen.  Thus, the insurer’s rationale for its denial supported a claim for bad faith in the trial court, and the Court of Appeals affirmed the award of bad-faith damages.

Where the insurance company’s investigation reasonably indicates that the insured’s loss may have lead to no monetary damages whatsoever, there is no bad faith as a matter of law.

Lawyers Title Ins. Corp. v. Griffin

Lawyers Title Ins. Corp. v. Griffin involved a title insurance policy.  The insured made a claim for a loss of an easement insured under the policy and the insurer denied coverage, arguing that the easement had no monetary value.  Although the insurance company’s factual position was rejected by the trier of fact, the court ruled that there was sufficient evidence of the insurer’s factual position (though ultimately rejected) to defeat bad faith as a matter of law.  A factual dispute, however, “must be reasonable under the circumstances presented in the case.”
No bad faith where insurer has a reasonable ground to contest the claim, even though the insurer may have been wrong. Penalties for bad faith are not authorized under O.C.G.A. § 33-4-6 if the insurance company has a sufficiently reasonable ground to contest the claim.

Guideone Life Ins. v. Ward

In Guideone Life Ins. v. Ward, a widow sued to collect benefits under her husband’s life insurance policy.  The husband had failed to pay his premium on its due date and died outside the grace period.  Other evidence revealed, however, that the husband had overpaid his premium during the life of the policy.  Thus, there was a fact issue as to whether the overpayments kept the policy in force beyond the grace period to include the time of death.  Although the Court of Appeals remanded for determination of the coverage issue, the court ruled that the husband’s failure to pay the premium constituted a reasonable ground to contest coverage, precluding bad faith as a matter of law.

Bad Faith And Ambiguous Policy Provisions

Most bad-faith cases involve disagreements over the meaning of a particular provision of the insurance policy, the resolution of which resolves the issue of coverage.  Where the insured prevails on the coverage issue in such cases, it will sometimes be because the court found the provision ambiguous and construed it in favor of coverage.  Notwithstanding a ruling in favor of coverage in a particular case, the issue of whether the insurance company relied on the ambiguous provision in “bad faith” would still remain.  The cases are mixed as to whether an insurer can face liability for bad faith when the insurer denies coverage in reliance on an ambiguous policy provision.  As shown below, however, the modern trend appears to be that an insurance company’s reliance on an ambiguous provision does not shield the insurer from bad faith as a matter of law.

The Northwestern Mut. Life Ins. Co. v. Ross

One of the earliest bad-faith cases involved ambiguity in an insurance policy.  In The Northwestern Mut. Life Ins. Co. v. Ross, the Supreme Court of Georgia found that the insurance company had relied on an ambiguous policy in denying coverage.  Construing the ambiguity in favor of the insured, the Court found that coverage existed and affirmed the verdict in favor of the insured.  In discussing its conclusion as to the meaning of the operative clause, the Court referred to the fact that other jurisdictions had reached an opposite conclusion as to the meaning of the operative clause.

Turning to the issue of bad faith, the Court ruled that there could be no bad faith as a matter of law.  “Where the highest courts of the country have differed in respect to the construction of a contract, and, in this state, the principle, though hinted at, had never been settled, it cannot be that to test the question here is in bad faith.”  Thus, the court reasoned that the insurer could not be penalized for litigating its interpretation of the policy in that particular case, even though the insurer did not prevail.

Georgia Farm Bureau v. Jackson

A more recent case reached a different result.  In Georgia Farm Bureau v. Jackson, the named insured owned a Geo and a Taurus that were insured under two separate policies.  The policy on the Geo had an accidental death benefit, which stated as follows: The Company will pay insured’s injury coverage benefits for: … “accidental death benefit” incurred with respect to “bodily injury” sustained by an “eligible injured person” caused by an accident…. When used in reference to this coverage “accidental death benefit” means death resulting directly and independently of all other causes from “bodily injury” caused by accident while “occupying” or being struck by a “motor vehicle.”

The 16-year-old daughter of the named insured was killed in an accident while driving the Taurus.  The named insured made a claim under the Geo policy for the accidental death benefit, and the insurer denied the claim.  The trial court granted summary judgment and bad faith penalties against the insurer. With regard to coverage, the insurer argued on appeal that to qualify for the accidental death benefit an insured must be “struck by a motor vehicle” while a pedestrian.  In rejecting the argument, the Court of Appeals relied on the general rule that policies are to be read according to the reasonable expectations of the insured and found that the language of the endorsement was not specifically tailored to apply only to pedestrians.  Accordingly, the court found the language ambiguous and construed it in favor of coverage.

With regard to bad faith, the court acknowledged that an insurer is not liable for bad faith penalties where there is a doubtful question of law, but ruled that the policy was ambiguous without a doubt.  The assertion that there was a “doubtful question” was based on an “implication” gathered from the policy, the court reasoned, not on specific language or doubtful facts.  Accordingly, the court affirmed the trial court’s finding of bad faith as a matter of law.

Transportation Ins. Co. v. Piedmont Construction Group, LLC

In another case, the court ruled that although the insurer’s reliance on an ambiguous provision was “plausible,” bad faith should still go to the jury.  Bad faith and the reasonableness of the insurer’s In Transportation Ins. Co. v. Piedmont Construction Group, LLC, the court determined that the insurance company’s denial of coverage was based on a frivolous and unsubstantiated interpretation of policy language and the law, supporting bad faith as a matter of law.  In Transportation Ins. Co. v. Piedmont Construction Group, LLC, the insured was a contractor renovating part of a building.  A subcontractor started a fire that caused substantial damage to the entire building.  The building owner sued the contractor, and the contractor sought coverage and a defense from its liability insurer.  The insurer denied, relying on the so-called “business risks” exclusions, one of which bars coverage for damage to “[t]hat particular part of real property on which you or any contractors or subcontractors . . . are performing operations.”

The insurer relied solely on one decision of the Georgia Court of Appeals that had applied the exclusion when the insured sought liability coverage solely for its own work.  In the case at interpretation of policy language. bar, however, the fire had damaged parts of the owner’s property that were clearly not the insured’s work and not the “particular part” of the property on which the insured was working.  The insurer ignored case law making the distinction clear, supporting the appellate court’s decision to affirm the trial court’s finding of bad faith as a matter of law.

Selective Way Ins. Co. v. Litigation Technology Inc.

An “unfounded” interpretation of policy language may also create a jury issue as to bad faith.  In Selective Way Ins. Co. v. Litigation Technology Inc., the court affirmed a trial court’s denial of an insurance company’s motion for summary judgment on bad faith.  “[The unfounded interpretation] coupled with the fact that [the insurance company] initially agreed to pay and did not assert its exclusionary defense for over a year and a half creates a jury issue as to whether it exercised bad faith in refusing to pay [the insured’s] claim.”