A common question that arises for insurers under third-party liability insurance policies is exactly how and when they must seek to settle claims made against their insured's or risk being subject to "bad faith" or extra-contractual damages, i.e., damages above and beyond the contractual limits of the insurance policy. The timing of such settlements, whether settlements can be made within the available policy limits or not, the number of claimants, the facts known to the insurer regarding the insured’s liability and a multitude of other factors come into play in this often complex analysis.
Within our own state of Florida, the Florida Supreme Court has explained in Boston Old Colony that an insurer has a duty of good faith to protect its insured and must "use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business." Boston Old Colony Ins. Co. v. Gutierrez, 386 So. 2d 783, 785 (Fla. 1980). This means, generally speaking, that the carrier is required to "to investigate facts, give fair consideration to a settlement offer that is not unreasonable under the facts, and settle, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so." Id. This seminal standard was recently reaffirmed by the Florida Supreme Court in Harvey v. GEICO Gen. Ins. Co., 259 So. 3d 1, 6 (Fla. 2018).
Few bright line rules can be drawn from the above standard, however, as questions surrounding an alleged failure to settle by an insurance carrier are almost always dependent on a multitude of case-specific facts. Accordingly, in Florida, whether an insurer has acted in "bad faith" in fulfilling its duties to its insured is measured by a "totality of the circumstances" standard. State Farm Mut. Auto. Ins. Co. v. Laforet, 658 So. 2d 55, 62–63 (Fla. 1995).
In response to an underlying liability claim, insurers will often be faced with timed settlement demands—whether reasonable or not—issued by the injured party's counsel. But this begs a fundamental question of a different sort: what obligation does an insurance carrier have to protect its insured via settlement when there has been no demand or offer presented to it? In other words, if an insurance carrier must "give fair consideration to a settlement offer that is not unreasonable under the facts", must an insurance company also make an affirmative effort to settle a claim made against its insured when there is no formal demand for settlement ever made or presented?
In Florida, the answer to the above question may well be, "yes," as held by Florida's Third District Court of Appeal in Powell v. Prudential Prop. & Cas. Ins. Co., 584 So. 2d 12, 14 (Fla. 3d DCA 1991) ("The lack of a formal offer to settle does not preclude a finding of bad faith."). In Powell, the Third District Court of Appeal recognized that while an offer of settlement presented to the carrier was once a required element of finding that carrier subsequently liable for bad faith for a failure to settle within limits, it is not a prerequisite and is only one factor among others to be considered. The court, citing to a decision from the Kansas Supreme Court, stated: "Where liability is clear, and injuries so serious that a judgment in excess of the policy limits is likely, an insurer has an affirmative duty to initiate settlement negotiations." Id. (citing Farmers Ins. Exchange v. Schropp, 222 Kan. 612, 567 P.2d 1359 (1977)). The limitation to the above general principle is that the duty is said to arise in circumstances where liability against the insured "is clear." See Welford v. Liberty Ins. Corp., 190 F. Supp. 3d 1085, 1095 (N.D. Fla. 2016), aff'd sub nom. Welford v. Liberty Mut. Ins. Co., 713 Fed. Appx. 969 (11th Cir. 2017).
Florida is not alone in recognizing a carrier's affirmative "duty to settle" even in the absence of a formal settlement demand where the insured's liability is clear; many states take a similar approach. See Am. Physicians Ins. Exch. v. Garcia, 876 S.W. 2d 842, 863–64 (Tex. 1994) (collecting cases), in which the Texas Supreme Court notes that New Jersey, Wisconsin, Oregon, Kansas and have all adopted similar affirmative "duty to settle" standards for insurance carriers.
Thus, it may have come as some surprise when the Supreme Court of Georgia recently held, unanimously, that unless there is a valid offer to settle within policy limits presented, insurers have no affirmative duty to settle under Georgia law. See First Acceptance Ins. Co. of Georgia, Inc. v. Hughes, S18G0517, 2019 WL 1103831, at *1 (Ga. Mar. 11, 2019). As the Court framed the issue:
We granted certiorari in this case, Hughes v. First Acceptance Ins. Co. of Ga., Inc., 343 Ga. App. 693, 808 S.E. 2d 103 (2017), to review whether the Court of Appeals erred in reversing the grant of summary judgment to the insurer on the insured’s failure-to-settle claim. We also asked the parties to address whether an insurer’s duty to settle arises only when the injured party presents a valid offer to settle within the insured’s policy limits or whether, even absent such an offer, a duty arises when the insurer knows or reasonably should know that settlement within the insured’s policy limits is possible. As to this threshold issue, we conclude that an insurer’s duty to settle arises only when the injured party presents a valid offer to settle within the insured’s policy limits.
As a result, the carrier, First Acceptance, was granted summary judgment on an alleged failure-to-settle claim and was absolved of liability for the corresponding $5.3 million dollar verdict against the policyholder. As is often the case, however, the devil is in the details.
In summary, Hughes involved a multiparty vehicle accident in which First Acceptance's insured, the at-fault driver, was killed. Other involved parties sustained serious injuries, with one being left in a coma for days. First Acceptance determined that the accident was covered by its policy, that its insured was at fault, and that the exposure would exceed available policy limits. Id.
First Acceptance retained counsel in an effort to reach a global settlement with all injured parties. One of those parties, Rodriguez, sent First Acceptance a timed demand to settle his claims in exchange for policy limits. Rodriguez later agreed to extend the time to respond, recognizing that a global settlement conference might soon be scheduled amongst all injured parties. First Acceptance's counsel proceeded with setting up such a global settlement conference and communicated this to all the claimants, including Rodriguez, all of whom agreed to attend. The other claimants, a mother and daughter named An and Hong, agreed to either attend the conference or to settle for policy limits. Id. at *2. Notably, the offer to settle within policy limits made by An and Hong did not contain any timed demand. [As an aside, we would note that under Florida law, an insurer faced with multiple claims that will exceed the available limits is required to investigate all the claims and settle as many as possible within those limits and to avoid indiscriminately settling selected claims that might leave the insured at risk of an excess judgment. See Farinas v. Florida Farm Bureau Gen. Ins. Co., 850 So. 2d 555, 560 (Fla. 4th DCA 2003)].
An and Hong subsequently filed suit involving the auto accident and sent a second letter to First Acceptance's counsel noting that 41 days had passed with nothing having been paid and revoking the previous offer to settle. Although An and Hong were still invited to participate in the global settlement conference being scheduled, they declined to attend. Id. Later, before a verdict could be entered in An and Hong's trial against the at-fault driver, First Acceptance offered to settle both An and Hong’s claims for the policy limits. The offer was rejected, and a judgment was entered for more than $5.3 million for Hong's injuries. As a result, the insured's estate filed suit against First Acceptance for negligence and bad faith for failure to settle Hong's claim within limits, seeking "to recover $5,309,220.25, the amount of the judgment attributable to Hong’s injuries which remained unpaid, as well as punitive damages and attorney fees." Id.
The trial court ruled in favor of First Acceptance on summary judgment. The estate appealed and the Court of Appeals reversed on the failure-to-settle claim leading to a petition for certiorari to the Georgia Supreme Court.
The Georgia Supreme Court noted that the issue of an insurer’s duty-to-settle under Georgia law was unsettled and framed the issue thusly: “To the extent that this Court’s decisions have been deemed to be unclear, we take this opportunity to clarify that an insurer’s duty to settle arises when the injured party presents a valid offer to settle within the insured’s policy limits. Accordingly, the question is whether An and Hong made a valid offer that First Acceptance failed to accept negligently or in bad faith. Id. at *3.
Ultimately, the Georgia Supreme Court applied basic contract principles of offer and acceptance to the letters from An and Hong in order to determine whether the offers were clear and unequivocal and if they contained any express time limit for acceptance of policy limits or to attend the global settlement conference. Because the court found that they were not clear and unequivocal timed demands, the Court determined that First Acceptance was entitled to summary judgment on the failure-to-settle claim and that its actions were not unreasonable nor made in bad faith. Id. at *6.
In sum, although the Hughes case is likely to be cited for its holding that the insurer’s duty to settle only arises when a valid offer to settle within policy limits is first presented, it is clear that the outcome of the case was dependent on the nature of the demands issued, as well as the complexities presented by having multiple claimants involved in the settlement process, which the Court noted raises its own unique issues. The Court discussed, in a footnote, the fact that any decision to the contrary would lead to the difficulty of evaluating if an injured party would or would not have accepted a settlement offer, and might encourage collusion between claimants and insureds.
Georgia now appears to present what is a markedly minority view of this issue, that other states may be encouraged to adopt. Whether this marks an ability for Florida counsel to test the Powell line of precedent from that 1991 intermediate appellate court, remains to be seen. With a more conservative Supreme Court, the insurance industry may see the right case with the right facts, make its way there. MSC’s coverage and bad faith division will keep an eye open for such potential.