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Supreme Court of Georgia Holds There Can Be No Bad Faith Refusal to Settle Without A Valid Demand - Insurance Coverage

Insurance Coverage


Posted on: Mar 27, 2019

By Jon Noyes, Wilson Kehoe Winingham

In First Acceptance Insurance Company of Georgia, Inc. v. Hughes, the Supreme Court of Georgia considered whether an insurer’s duty to settle claims against its insured arises when (1) the insurer is presented with a valid offer to settle within the insured’s policy limits; or (2) the insurer knows or reasonably should know that settlement within the insured’s policy limits is possible. Concluding the former, the court held that an insured does not “act unreasonably in failing to accept the offer [to settle] before it was withdrawn by the injured parties.”

In 2008, the insured caused a motor vehicle collision that killed him and injured others. The insurer concluded that the crash was the insured’s fault and the insured’s exposure exceeded his policy limits. The insurer received a demand for an amount within the insured’s policy limits, but the demand was revoked before the insurer accepted it. Later, the insurer offered to settle the claims for the insured’s policy limits, but the offer was denied. The injured parties filed suit, the case went to trial, and the jury awarded a verdict well in excess of the insured’s policy limits.

The insured’s estate then sued the insurer for failure to settle within the insured’s policy limits. On appeal, the Supreme Court of Georgia found that the injured parties never actually made a valid demand for settlement within the insured’s policy limits. Although an offer was made, the injured parties never limited the offer in time. Therefore, the insurer “was not put on notice that its failure to accept the offer within any specific period would constitute a refusal of the offer.” The insurer could not “refuse” to settle the insured’s claims by failing to settle the offer within an unknown deadline. 

Hughes provides a timely example that ambiguous offers to settle should be avoided because they will often create subsequent litigation issues. 

See the full opinion here.

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