The Georgia Supreme Court recently dismissed a $5.3 million bad faith claim against First Acceptance Insurance Company because plaintiffs’ counsel failed to put a time restriction in its settlement demand letter.
In the case, several claimants in a multi-car accident were severely injured by a driver, who died in the accident. The driver was insured by First Acceptance. Two of the claimants demanded the insurance policy limits of $50,000 — $25,000 for each claimant. The demand letter did not contain a time limit for First Acceptance to accept or reject the demand. Forty-one days after the demand letter had been sent, the claimants revoked the offer and filed suit.
Over half a year later, First Acceptance offered the claimants $25,000 each. The claimants rejected the offer. At trial, the jury returned a verdict in favor of the claimants for approximately $5.3 million. After the verdict, the estate for the deceased driver brought a suit against First Acceptance for bad faith failure to settle the claims within the policy’s limits. The trial court dismissed the bad faith claim on summary judgment, but the appeals court reversed. The Georgia Supreme Court reversed again and granted summary judgment in favor of First Acceptance, dismissing the bad faith complaint.
In its decision, the Supreme Court ruled that First Acceptance believed that the lack of a time restriction in the demand letter created an open-ended offer to settle. Had the plaintiffs stated that the insurer had a time limit within which to accept the offer, and then had revoked it, the bad faith claim would have been viable.
This case was a $5.3 million teachable moment on how to properly posture a settlement demand in Georgia in order to trigger a potential claim for bad faith refusal to settle.
This case also serves as a reminder that each state law concerning legal issues like bad faith can be—and often are—very different. In New York, for example, time-restricted, bad faith demand letters are typically unenforceable unless they give the insurance company adequate time to investigate and appreciate the risk and exposure to their insureds.
If you have any questions concerning a bad faith case, or any other questions about insurance coverage, please contact us.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack