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GEORGIA SUPREME COURT SENDS MESSAGE TO INSURANCE COMPANIES FOR BAD FAITH CLAIMS

Posted by Jonathan A. Barash

In a unanimous decision written by new Georgia Supreme Court Justice David E. Nahmias, the Court sent a message to liability insurers this week that even an offer to pay policy limits may not necessarily shield the company from a bad faith claim. In Fortner v. Grange Mut. Ins. Co., the Court reiterated that the true question is still whether the insurance company acted reasonably in its response to the settlement offer.

In 2003, Cecil Fortner brought personal injury claims against Alan Arnsdorff, a driver insured by Grange Mutual Insurance Company, and Arnsdorff’s plumbing business, which was insured by Auto Owners Insurance Company. Fortner’s attorney sent a joint settlement demand to both insurers. While Auto Owners did not respond to the offer within the deadline set by Fortner, Grange offered to tender its policy limits contingent upon Fortner “signing a full release with indemnification language” and dismissing his claim against Arnsdorff with prejudice. However, Fortner treated Grange’s response as a rejection of his settlement offer, went to trial, and was awarded $7 million. Arnsdorff assigned to Fortner any bad faith claim he might have against Grange.

At the trial of the bad faith claims against Grange, the jury found in favor of Grange. Fortner appealed, arguing that one of the jury charges improperly suggested that a defense verdict was appropriate when an insurer tenders its policy limits. (The charge was based on the “safe harbor” provision recognized by the Georgia Supreme Court in Cotton States Mut. Ins. Co. v. Brightman, 276 Ga. 683 (2003)). A divided Court of Appeals found no error in the charge. However, the Georgia Supreme Court reversed, reasoning that the judge’s charge improperly “instructed the jury that it must return a verdict for Grange based solely on the fact that the insurance company tendered its policy limits without regard to whether the conditions it added were a reasonable response to the settlement offer.” The Court stated that “[o]therwise, if two or more insurers are involved in a case and the plaintiff makes a settlement offer to one insurer that conditions settlement on another insurer also settling, the first insurer could, as a matter of law, avoid a bad faith claim by offering its policy limits but making the offer contingent on unreasonable conditions that a plaintiff is guaranteed to reject.”

Fortner closes a loophole in the law for insurance companies that might abuse the “safe-harbor” protections enunciated in Brightman. However, it also presents a challenge for an insurer that sincerely wants to settle a claim against its insured in a multi-party case where a global settlement cannot be reached. The Court acknowledged that an insurer is still entitled to a “safe harbor from liability for an insured’s bad faith claim . . . by meeting the portion of the demand over which it has control,” but to enjoy such automatic protection, the insurer apparently cannot add any terms whatsoever to the plaintiff’s offer. Nonetheless, the Court’s decision does not mean that an insurance company cannot condition settlement on indemnification language or a full release, as is common practice when settling claims of this nature. It simply means that if it does so, a jury may someday get to decide whether the insurance company’s “conditions” were reasonable and adequately protected its insured’s interests.