The Georgia Supreme Court ruled this week that First Acceptance Insurance Co. need not pay a $5.3 million excess judgment against its insured, Ronald Jackson. First Acceptance Ins. Co. of Georgia, Inc. v. Hughes, No. S18G0517, 2019 WL 1103831 (Ga. Mar. 11, 2019), even though Jackson’s insurer could have settled the claim for Jackson’s $50,000 policy limits.

The case stems from a July 2012 jury verdict finding that Jackson was at fault in a five-vehicle crash that killed Jackson and injured five others. The $5.3 million verdict was obtained by plaintiffs Julie An, who suffered a neck injury, and Jina Hong, who suffered a traumatic brain injury.

Shortly after the crash, First Acceptance adjusters determined that its policy provided coverage to Jackson for the collision, that Mr. Jackson was liable for the loss, and that his exposure for claims exceeded the relevant policy limits. On June 2, 2009, First Acceptance received two letters from An and Hong’s counsel, stating his clients’ interest in either attending a settlement conference or settling their claims for the available policy limits. First Acceptance’s attorney stated that he did not construe the letters as “any kind of time limit demand” and failed to respond. On July 13, 2009, having received no response to the demand, An and Hong’s attorney advised that the settlement offer had been revoked. On September 24, 2010, First Acceptance offered to settle An and Hong’s claims for $25,000 each. That offer was rejected.

After receiving the $5.3 million verdict, Robert W. Hughes, Jr., as administrator of Jackson’s estate, sued First Acceptance, alleging bad faith in First Acceptance’s failure to accept the June 2, 2009 demand and settle the claims within the policy limits. Hughes sought to recover the excess judgment as well as punitive damages and attorney’s fees. The trial court granted summary judgment to First Acceptance in September 2016, but the Georgia Court of Appeals reversed that judgment the following year.

The Georgia Supreme Court again reversed, entering judgment in favor of First Acceptance. The court reasoned that an insurer’s duty to settle arises only after the injured party presents a valid, time-limited offer to settle within the insured’s policy limits. Absent such an offer to settle, no duty to settle exists under Georgia law, even though the insurer knows or reasonably should know that settlement within the insured’s policy limits is possible and appropriate. In the case of An and Hong’s offer to settle their claims against Jackson’s estate, that offer, according to the Georgia Supreme Court, did not include a deadline for acceptance by the insurer. Thus, the court concluded that the insurer did not act unreasonably by not accepting the offer before it was withdrawn.

The Hughes decision clarifies that, under Georgia law, an insurer’s duty to settle arises only when a plaintiff actually makes a time-limited policy-limits demand. Under Hughes, liability insurers in Georgia can now refuse to settle problematic claims, and thereby subject the policyholder to potentially substantial excess liability, where the plaintiff fails to present a settlement offer that meets the Hughes court’s exacting standards. By imposing such onerous requirements on underlying plaintiffs, the decision will work to undermine the claim settlement process in Georgia by effectively removing liability insurers’ duty to investigate and affirmatively settle meritorious claims.