The Georgia Supreme Court recently remanded a case alleging an insurer's bad-faith failure to settle based upon the fact that the trial court improperly instructed the jury that where a claimant's demand is conditioned upon the response of another insurance company, the insurer's offer of its policy limits fulfills its duty to its insured. Fortner v. Grange Mutual Insurance Co., No. S09G0492 (G.A. October 19, 2009). The opinion can be found here.
In Fortner, the underlying claim involved an insured who had caused an auto accident. The claimant made a policy limits demand upon the insured's auto insurer, which was also conditioned upon the claimant's ability to receive payment from the insured's company liability insurer. The insurer responded by offering to pay its policy limits conditioned upon the claimant signing a full release with indemnification language. The claimant rejected the insurer's offer and eventually prevailed in a suit against the insured for an amount far exceeding the insurer's policy. The insured assigned his rights against the insurer to the claimant and the claimant brought suit against the insurer alleging bad-faith failure to settle the claim.
The trial court instructed the jury, based upon its interpretation of Georgia case law, as follows:
"In responding to a settlement demand, which demand is conditioned upon the response of another insurance company, an insurance company can offer its policy limits in response to the demand and then let the plaintiff negotiate with the remaining insurers. In that situation, the insurance company would have given equal consideration to its insured's financial interest and fulfilled its duty to him. And you would return your verdict in favor of the defendant."
The jury returned a verdict for the insurer and the claimant appealed. The Court of Appeals affirmed, but the Georgia Supreme Court reversed, finding that the "safe harbor" provided to insurers faced with settlement demands conditioned upon the settlement of other insurers did not apply in this case.
The court explained that the safe harbor was intended to protect insurers from bad faith claims where a settlement offer contains a condition beyond the insurer's control and the insurer meets every portion of the demand over which it does have control. In this case, however, the court held that because the insurer conditioned its acceptance on the claimant signing a full release with indemnification language (which could have forfeited the claimant's access to the other insurance available), the insurer did not meet all of the conditions within the insurer's control. Accordingly, the court held that the insurer was not entitled to the safe harbor instruction. The court, however, offered no opinion regarding whether the insurer acted reasonably in responding to the claimant's demand.