Archive for August, 2009

Bad Faith Claims Against Insurance Companies For Failure to Pay Claims

O.C.G.A. § 33-4-6 provides a cause of action for penalties and attorney’s fees when an insurer is guilty of “bad faith” in refusing to pay a claim submitted by its insured. This statute addresses losses covered by insurance an insurance policy where the insurance company refuses to pay for such loss within 60 days after a demand has been made by the holder of the policy. To prevail on a claim for an insurer’s bad faith, the insured must prove: (1) that a demand for payment was lodged against the insurer at least 60 days prior to filing suit and (2) that the insurer’s failure to pay was motivated by bad faith. “The purpose of the statute’s demand requirement is to adequately notify an insurer that it is facing a bad faith claim so that it may make a decision about whether to pay, deny or further investigate the claim within the 60-day deadline.” Primerica Life Ins. Co. v. Humfleet, 217 Ga.App. 770, 458 S.E.2d 908 (1995).

The demand must notify the insurance company with some degree of specificity that the insured is asserting a claim for bad faith. Id. The demand may not be sent unless the insured’s right to payment has vested under the policy. “Demand must be made at a time when the insured is legally in a position to demand immediate payment, and it is not in order if the insurer has additional time left under the terms of the insurance policy in which to investigate or adjust the loss and therefore has no duty to pay at the time the demand is made.” Dixie Construction Products, Inc. v. WMH, Inc., 179 Ga.App. 658, 659, 347 S.E.2d 303, 304 (1986).

After showing that a timely demand was sent, the insured must demonstrate that the refusal to pay the claim was in “bad faith.” Federal Ins. Co. v. National Distributing Co., Inc., 203 Ga.App. 763, 768, 417 S.E.2d 671, 676 (1992). Although the statute does not define “bad faith,” the Court of Appeals has held that bad faith under O.C.G.A. § 33-4-6 means “a frivolous and unfounded refusal to pay a claim.” United Services Automobile Association v. Carroll, 226 Ga.App. 144, 148, 486 S.E.2d 613, 616 (1997). In those cases in which an insured is successful in pursuing a bad faith claim under O.C.G.A. § 33-4-6, the insurance company has typically failed to conduct a proper investigation of the claim. Georgia Farm Bureau Mut. Ins. Co. v. Murphy, 201 Ga.App. 676, 411 S.E.2d. 791 (1991).

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

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