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GEORGIA SUPREME COURT RULES INSURER CANNOT MAINTAIN AN ACTION AGAINST ITS INSURED FOR BAD FAITH FAILURE TO SETTLE A CLAIM IN ABSENCE OF A JURY VERDICT IN EXCESS OF POLICY LIMITS

Posted by Susan J. Levy

Anthony and Joshua Fowler were killed when a billboard manufactured by Phoenix Outdoor, LLC and owned by Trinity Outdoor, LLC fell while it was being installed on Trinity’s property. Lawsuits were filed and, eventually, the following legal question was posed to the Georgia Supreme Court: Whether a judgment entered against an insured in excess of policy limits is a prerequisite for bringing an action against the insurer for the negligent or bad faith failure to settle. In Trinity Outdoor, LLC v. Central Mutual Insurance Company, 2009 Ga. LEXIS 280 (Jun. 1, 2009), the Georgia Supreme Court answered in the affirmative.

The somewhat confusing facts of Trinity v. Central are as follows: the Fowler family sued Phoenix and Trinity, causing Trinity to file a cross claim against Phoenix for contribution and indemnification. Phoenix admitted liability. The Fowlers then made a limited time demand on Central Mutual Insurance Company with whom Trinity had a $2 million general liability policy. Fearing that a trial could expose Trinity to an excess verdict, Trinity’s counsel demanded that Central accept the $2 million settlement offer. Instead, Central filed a motion for summary judgment on Trinity’s behalf, arguing that Trinity was not responsible for the accident.

After the motion was filed, the Court ordered all parties to mediation. The Fowlers made a global demand of $14 million. Phoenix’s insurer offered $10 million on Phoenix’s behalf and Central offered $200,000 on Trinity’s behalf, although the Fowlers had also demanded $1.37 million from Trinity. Ultimately, the litigation settled for $12 million. Trinity, without Central’s approval, agreed to contribute $954,530 to the settlement (comprised of the $200,000 offered by Central and $754,530 it had received in an earlier judgment against Phoenix for defective billboards).

Trinity then filed suit against Central for the bad faith breach of the insurance contract by refusing to settle with the Fowlers and the negligent failure to settle.

In analyzing the case, the Georgia Supreme Court examined the insurance policy itself. The policy contained a “no settlement” clause which prohibits an insured from settling claims without the insurer’s approval. The Court, citing an insurer’s legitimate interest in preventing fraud, collusion, and bad faith on the part of insureds, found that “no settlement” clauses in and of themselves do not violate Georgia law or public policy. Next, the Court noted that in this case, Central provided Trinity with a defense and did not wholly abandon its insured in an attempt to shield itself with a “no settlement” clause. Finally, the Court noted that “[t]he insurance contract also made it clear that Trinity could sue Central only about agreed upon settlements and judgment following a jury trial. This is the bargain that Trinity struck with Central. . . .” Id.

In sum, based on the facts of this case and the terms of this insurance policy, the Supreme Court found that Trinity could not maintain an action against Central for the bad faith failure to settle the Fowlers’ claim in the absence of a jury verdict in excess of policy limits. The Court’s willingness to examine the language of the policy and uphold the maxim that a “deal is a deal” is the victory for the insurance industry.