Avoiding pitfalls in handling time-limited demands

A bad faith claim in many states is typically preceded by a time-limited demand to settle the claim within the available policy limit. Navigating this type of policy-limit demand can be difficult, and, in recent years, insurance companies have seen a rise in time-limited demands amounting to “bad faith set-ups.” Bad faith set-ups attempt to trip up insurers’ responses to time-limited demands to create possible extra-contractual liability.

While each state has its own laws and judicial precedent governing the requirements for these types of demands and the rules for a response, this article examines Georgia law and steps that can be taken in Georgia to assist in handling these demands. Insurers should consult with the law in the jurisdiction of their particular claim to determine how to appropriately respond.

In Georgia, these bad faith claims are often referred to as Holt demands, based on the 1992 decision by the Supreme Court of Georgia in Southern General Insurance Co. v. Holt, in which the court explained the insurer “must give equal consideration to the interests of the insured” in deciding whether to settle a claim within policy limits. In evaluating a claim for bad faith, courts consider “whether the insurance company acted reasonably in responding to a settlement offer.”

To address the “gotcha” type demands that flowed from Holt, the Georgia Legislature passed O.C.G.A. § 9-11-67.1, which creates requirements for time-limited demands regarding pre-suit tort claims for physical injury arising from automobile accidents. However, the protections do not apply if the demand: (1) is not prepared by an attorney; (2) does not concern bodily injury; (3) does not concern an automobile accident; or (4) is sent after a lawsuit is filed. Insurers must make sure each of these requirements is met before relying on the provisions of O.C.G.A. § 9-11-67.1 in its response.

There is no checklist or other steps that will fully insulate an insurer from liability for a bad faith claim, and each claim presents a different factual scenario requiring close consideration. However, there are certain things that can be done when a demand is presented to put the insurer in the best position possible to address such a claim down the road.

Communication with the insured

Transmit the demand to all insureds immediately. It is also important to advise the insured of the risk of excess exposure and the insured’s right to retain separate counsel. Keeping the insured advised of the status of the insurer’s review of the demand and the insurer’s plan for response is equally important.

If there is disagreement regarding the approach to respond to the demand, the insurer should listen to the concerns of the insured and evaluate those in the context of the claim. If the insured consents to the proposed course for a response, this will assist the insurer in demonstrating it gave the insured’s interests equal consideration.

Close review of all terms of the demand

Review the demand as soon as it is received and identify the deadline for a response immediately. It is also imperative to carefully review all details of the demand. Demands might be purposefully long, vague or confusing. Some demands do not include resolution of all claims or offer a release from all claimants. It is important to know every term in the demand and exactly what claims and claimants are included in the offer to determine the appropriate response.

Ask for clarification when needed

If the demand is vague or lacking information, a claims representative should carefully seek clarification or more information. The request should be made in writing, so there is a clear record of what information was available when the insurer was considering the demand.

In Georgia, if the demand falls under O.C.G.A. § 9-11-67.1, clarification can be sought on several issues specified in the statute, including the terms, liens, subrogation interests, standing, medical bills and records, as well as other relevant facts. In situations where the statute does not apply, an insurer can request clarification.

However, a request for clarification must be clear that it does not constitute, and should not be construed as, a demand for more information or a mandatory condition. Any request that can be interpreted as a mandatory condition might be considered a counteroffer and rejection of the demand. 

Closely evaluate the claims & risk to the insured

Once the insurer has all of the necessary information, it is important to weigh the pros and cons of the demand. This should include the identification and consideration of any exposure to the insured that would not be resolved if the demand is accepted.

If the insurer decides to accept the demand, there are still a few pitfalls to take care to avoid.

Ensure compliance with all terms

Pay close attention to how the claimant has requested performance of the acceptance. Demands often require delivery of payment or inclusion of an affidavit from the insured by a certain date, among many other things. These requirements are considered valid under Georgia law, and failure to abide by them can result in an unenforceable settlement. 

An insurer can be found to have rejected a demand, even where the money is tendered if there is a deviation from any of the terms proposed by the claimant/plaintiff. A few examples of terms Georgia courts have found to be counteroffers include: (1) a request for execution of a release with additional terms; (2) a request for payment into an escrow account instead of payment to those specified in the demand; and (3) a request for payment of all outstanding medical liens. Identifying and complying with all terms is necessary to ensure the settlement is reached.

Navigating a time-limited demand in Georgia can be challenging. Careful review, open communication with the insured, and a timely, measured response can lay the groundwork for successful handling of the demand and defense of an allegation of bad faith.

Myrece Johnson is a partner at Swift, Currie, McGhee & Hiers, LLP. She has more than 10 years of experience handling matters in the area of civil litigation and general liability, representing businesses and individuals sued in Georgia. She can be contacted at myrece.johnson@swiftcurrie.com. 

Lauren Woodrick is an attorney for Swift, Currie, McGhee & Hiers, LLP. She practices in the firm’s general litigation section and her work centers on wrongful death, insurance coverage and automobile litigation. She can be contacted at lauren.woodrick@swiftcurrie.com.

Opinions expressed here are the authors’ own.

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