Key Takeaways

  • The Georgia Supreme Court ruled that an insurer is liable for damages in excess of its policy limits after failing to settle a claim involving an accident between a car and a bike, even though the driver failed to notify the insurer of a lawsuit stemming from the collision

  • The court’s decision affirms the requirement under Georgia law that insurers act reasonably when faced with a settlement demand for policy limits, when the insured is faced with potential excess exposure

On April 19, 2021, the Georgia Supreme Court responded to questions certified by the Eleventh Circuit involving claims against an insurer for failure to settle a tort liability claim against its insured arising from a collision between a car and a bike. The Supreme Court ruled that the insurer was liable after failing to settle the claim, even though the insured driver of the car failed to notify the insurance company of a lawsuit filed against it until after a default judgment was entered.

In this matter, Geico had previously issued a policy covering a car operated by Bonnie Winslett and acknowledged the accident, advising Winslett that it would deal directly with the attorney for the injured cyclist, Terry Guthrie. Guthrie’s attorney demanded Geico pay the $30K liability limits of its policy, which Geico failed to do, notwithstanding its knowledge that Winslett was at fault for the accident and that Guthrie’s medical bills were close to $15K, and he required further treatment. Guthrie, unbeknownst to Geico, then filed suit against Winslett, who failed to notify Geico or respond to the lawsuit against her.

Ultimately, a default judgment of approximately $2.9 million was entered against Winslett. At that point, Winslett first notified Geico of the lawsuit and the judgment against her. Geico unsuccessfully tried to vacate the judgment, and Winslett was forced to declare bankruptcy. The bankruptcy estate then filed a bad faith lawsuit against Geico for failure to settle Guthrie’s claim. A jury found in favor of the bankruptcy trustee, notwithstanding Winslett’s failure to notify the insurance company of Guthrie’s lawsuit until after the default judgment.

First, the Georgia Supreme Court found that Winslett’s failure to notify Geico of the lawsuit by Guthrie did not shield it from liability for the bad faith lawsuit. The court found that Winslett’s breach did not break the casual chain between Geico’s failure to settle and the default judgment because it reasonably should have foreseen that Winslett would fail to notify it of Guthrie’s lawsuit and the consequences of that failure (i.e., a default judgment against Winslett in excess of policy limits). Specifically, the court noted that sufficient evidence had been presented to the jury to find that Geico should have foreseen Winslett’s breach, including that (1) Geico was aware that Winslett did not have a copy of its policy, which was issued to another party; (2) Geico knew Winslett was unstable, unreliable, and unsophisticated; and (3) Geico never explicitly informed Winslett of her obligation to notify it of any lawsuit by Guthrie.

Second, the Supreme Court ruled that even though Winslett breached the Geico policy by failing to notify it of Guthrie’s lawsuit, Geico could still be liable for the failure to settle, since the conduct by Geico giving rise to the claims against it―its failure to pay Guthrie’s policy limit demand―occurred before Winslett breached the policy.

Third, the Supreme Court held that Geico was liable for the full amount of the judgment entered against Winslett, notwithstanding its inability to contest Guthrie’s damages, because under Georgia law, the measure of damages in a bad faith failure-to-settle claim is the total amount of the judgment entered against the insured.