Insurance Company Avoids Bad Faith by Offering Its Policy Limits

Insurers in Georgia can be subject to “bad faith” claims depending on how they respond to a settlement demand sent to multiple insurers. When multiple insurers are involved, an insurer likely will avoid a subsequent claim for bad faith if it unequivocally meets the portion of the demand over which it has control and then lets the claimant negotiate with the remaining insurers.

This issue arose in the recent case of Fortner v. Grange Mutual Casualty Co., __ Ga.App. __, Case No. A08A0983, 2008 WL 4334613 (Sept. 24, 2008). There, Fortner was injured in an automobile accident due to the negligence of Arnsdorff. Arnsdorff was insured by Grange Mutual under a policy with a bodily injury liability limit of $50,000, and his plumbing business was insured by Auto Owners under a policy with $1.0 million in liability limits. Fortner’s attorney offered to settle all claims against Arnsdorff for Grange’s policy limits of $50,000 and a contribution by Auto Owners in the amount of $750,000, so long as the offer was accepted in writing within 15 days. Auto Owners did not respond in time, but Grange agreed to pay the $50,000 if Fortner signed a full release, including indemnification language, and dismissed his claim against Arnsdorff with prejudice. Fortner deemed this response by Grange as a rejection, and he proceeded to trial where he won a $7.0 million verdict against Arnsdorff. Arnsdorff then assigned his claim for bad faith against Grange to Fortner. The bad faith claim eventually went to trial where the jury returned a verdict in favor of Grange.

On appeal, Fortner objected to the following charge which was given to the jury:

In responding to a settlement demand, which demand is conditional 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 Georgia Court of Appeals held that this charge was a correct statement of the law and affirmed the verdict in favor of Grange.

Although the holding in Fortner reaffirms the principle of Georgia law that an insurer typically avoids liability for bad faith by meeting the portion of a demand over which it has control, the case also demonstrates the risk associated with adding contingencies to the acceptance of an offer to settle within the policy limits when there is a risk of an excess verdict that could lead to a bad faith claim. In such a situation, the claimant closely scrutinizes the language of any attempted acceptance for new conditions that would allow him or her to consider the insurer’s response to be a counter-offer and thus a rejection of the offer to settle within the policy limits. Therefore, when an insurer is responding to a settlement offer, it should analyze whether it is accepting the offer on the same terms communicated by the claimant or if it is adding any new terms to its attempted acceptance.

For more information, please contact Denny Brown at (404) 633-9230.

“I Plead The 5th!” When Civil Defendants Face Related Criminal Charges

Defendants in civil cases often also face related criminal charges. It thus is critical to balance the interplay of the civil and criminal matters. The plaintiff likely will propound discovery asking for admissions or information that may be incriminating in the criminal matter. Such risks also will be present during depositions. Therefore, care must be taken to protect the defendant’s rights at all phases of litigation.

A defendant has a right to avoid giving testimony to incriminate him. Ga. Const. 1983, Art. I, § I, ¶; XVI. The privilege against self-incrimination extends not only to those answers that would in themselves support a conviction, but also to answers that may establish a link in the chain of evidence needed to prosecute the criminal matter. Chumley v. Georgia, 282 Ga. App. 117, 637 S.E.2d 828 (2006).

However, when a person invokes his privilege against self-incrimination, an inference may be drawn by the fact finder that the witness’ testimony would be unfavorable to him. Simpson v. Simpson, 233 Ga. 17, 209 S.E.2d 611 (Ga. 1974). This can be devastating to the defense in the civil matter. One way to make the best of this difficult situation is to seek a stay in the civil matter pending the outcome of the criminal matter.

OCGA § 9-11-26(c) authorizes the trial court to issue a protective order where justice so requires: “Upon motion by a party or by the person from whom discovery is sought and for good cause shown, the court in which the action is pending . . . may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense, including . . . [t]hat the discovery not be had [or] . . .[t]hat certain matters not be inquired into or that the scope of the discovery be limited to certain matters.” The grant or denial of a motion for protective order generally lies within the sound discretion of the trial court. Bridges v. 20th Century Travel, 149 Ga.App. 837, 839, 256 S.E.2d 102 (1979).

The law generally disfavors complete stays in these situations. See Christopher v. State of Ga., 185 Ga.App. 532, 364 S.E.2d 905 (1988), (“a merely conclusory allegation that any and all discovery would prejudice the criminal investigation, without more, would frustrate legitimate discovery, as would either an unreasonable or indefinite stay”); and Bridges, 149 Ga.App. at 839, 256 S.E.2d at 102 (holding that the trial court will not be able to effectively decide whether the privilege is validly raised unless there is a record of the questions propounded, including those to which the privilege has been asserted and the court considers the implications of each question to which the privilege is raised and the setting in which it is asked and whether the party raising the privilege should provide sufficient information on which the court may find that a real danger of incrimination exists.)

Nevertheless, a complete stay is not improper under the law and lies within the sound discretion of the trial judge. OCGA § 9-11-26(c). In the alternative, the defendant can ask the court for protection from responding to certain discovery.

When presented with the possibility of facing both civil and criminal actions, defendants must be careful to not impair one defense while protecting another. Understanding and balancing these issues is vital to the best defense in both matters.

For more information, please contact Barbara Mulholland at (404) 633-9230.