Failure to settle or 'bad-faith offer'?
Geico is accused of failing to meet the requirements of a time-limited settlement demand.
An insurer was found to have failed to meet the requirements of a time-limited settlement demand, raising the possibility of a bad-faith failure-to-settle claim, according to the Georgia Court of Appeals.
However, the ruling was handed with Chief Judge Christopher McFadden making clear his displeasure with the “onerous requirements” and “warnings and threats” contained in the demand letter.
“The 22-page offer letter is compelling, if not dispositive, evidence of a lack of intent to settle the claim and so of bad faith,” wrote McFadden in a special concurrence. “Per force, it is not bad faith to reject an offer made in bad faith.”
McFadden agreed with the majority opinion, written by Presiding Judge Brian Rickman and Senior Judge Herbert Phipps, that Geico Insurance did not meet all of the terms of the letter seeking its $25,000 policy limit.
But he said the case exemplified “another of the cases arising out of the unintended consequences of our Supreme Court’s decision in Southern Gen. Ins. Co. v. Holt, 262 Ga. 267,” the seminal 1992 decision under which an insurer that declines to settle for its policy limits may be liable to its insured for a bad-faith claim.
Holt created a “perverse incentive” in cases “where damages greatly exceed policy limits, for a plaintiff to attempt to set up a bad faith claim,” McFadden wrote.
The majority opinion disputed that anyone was “set up,” noting that the demand from plaintiff Walter Cheek was clear that any communication from Geico concerning its insured, Stephan White, must be in writing. As detailed in the opinion and other filings, the case involves a 2018 accident when White lost control of his vehicle and crashed, injuring Cheek who was a passenger.
“We feel compelled to note that White argues that our holding ‘sets up’ insurers for ‘bad-faith’ claims,” wrote Rickman in a footnote. “This case, however, is not about bad faith, it is about the basic contract principle that the offeror is the master of his offer.”
Cheek had “invited clarification of the offer in writing and this could have been done by mail, email, or by facsimile,” the opinion said.
“We cannot hold that White was ‘set up’ when he was expressly given three other acceptable forms of communication to correspond with Cheek about the settlement offer,” the majority ruling said.
Cheek’s lawyer, Ben Brodhead, said in an email that, even though his client prevailed, he may take the unusual step of seeking reconsideration of McFadden’s concurrence.
“The only issue before the court was whether a settlement contract formed, and all judges agreed it did not,” said Brodhead, whose co-counsel includes Brodhead Law colleagues Ashley Fournet and John Nichols.
McFadden “issued an advisory opinion predicting and assuming that the plaintiff will win this case and that the judgment will greatly exceed the defendant’s insurance policy limits,” Brodhead said. “While we agree, it is unusual for a judge to declare the outcome before a jury has even heard the case.”
Brodhead is “considering filing a motion for reconsideration that would ask for the special concurrence to be withdrawn because it addresses a future dispute that is irrelevant to this case and that might never exist.
“Since the special concurrence only benefits a nonparty insurance company at the expense of the actual defendant, we would expect the defendant to join in this motion,” he said
The Daily Report, an ALM sister site of PropertyCasualty360.com, asked appellate specialist Michael Terry of Bondurant Mixson & Elmore, who is not involved in the case, to review the opinion.
“Without necessarily commenting on this specific case, it is extremely unusual as a general matter for an appellate judge, even in a one-judge Special Concurrence, to opine on a potential future dispute between different parties, who in this case would be the insurance company and its insured,” Terry said via email.
“This is particularly risky if that issue wasn’t even briefed,” Terry continued. “It seems unlikely that counsel for the insured would have argued against the insured’s own ability to later claim bad faith or negligent claim handling for rejecting a demand within policy limits, as that would be against the insured’s interests.”
‘Failed to establish an enforceable settlement agreement’
In January 2019, Cheek’s lawyer sent Geico a demand letter seeking White’s $25,000 policy limit and providing 35 days to accept. Among many stipulations was that “all communications to this firm initiated by or on behalf of your insurance company or your insured relating to this offer of compromise must be made in writing and that any other form of communication would constitute a rejection.”
Eight days later, a Geico adjuster left a voicemail for Cheek’s lawyer asking whether he would allow Cheek to make a recorded statement. Five days later, Cheek’s lawyer received another voicemail saying their investigation “indicates this was a hit and run, so I’m a little confused as to where the liability rests with Mr. White. So maybe if you could shed some light on that.”
Cheek’s lawyer responded with a letter saying the call “makes it clear that Geico has chosen to reject Mr. Cheek’s offer of compromise.”
Within a month, Geico sent a letter accepting all of the terms of the demand and enclosed a $25,000 check. Cheek’s lawyer responded with a letter saying Geico had declined the offer and returned the check.
White filed a motion to enforce the settlement, but Gwinnett County State Court Judge Shawn Bratton declined to do so, holding that by failing to comply with the written communication requirement Geico “failed to establish an enforceable settlement agreement.”
In upholding Bratton, the appellate panel’s majority opinion said Georgia law governing settlement offers and demands makes clear that a party can “seek reasonable clarification” as to terms, liens, medical records and so forth without being deemed a counteroffer.
But nothing “limited Cheek’s ability as the offeror to require that a request for clarification be in writing,” Rickman wrote for the majority.
“White violated this requirement when Geico representatives left a voicemail for Cheek that expressly mentioned receiving the offer, questioned liability, and sought further information about the claim,” the opinion said.
In his concurrence, McFadden “respectfully disagree[d] with the majority’s conclusion that, because the inquiries made by White’s insurer were made in voicemails, they constituted a counteroffer.”
But he said there was merit in Cheek’s “alternative argument that there was no settlement agreement to enforce because Geico did not meet one of the terms of acceptance.”
Cheek’s lawyer had demanded certain terms for its release, including no “denials of liability,” but the one Geico offered said it “was not an admission of liability” by White.
The insurer’s “failure to deliver a fully compliant release meant that Geico did not accept the offer,” McFadden said, and Bratton’s ruling was correct on that point.
But he was not finished.
“As a consequence of our decision today, plaintiff Cheek can continue to pursue the potential bad faith claim underlying the contract formation issues directly before us,” he wrote. “These bad faith claims usually come to us that way, as inchoate issues and motivating factors in actions to enforce settlement agreements. We rarely see an appeal that directly addresses the merits of a bad faith claim, such as the reasonability of an insurer’s actions.”
The offer at issue “specifies that it could be accepted only through compliance with its many requirements … buried in a 22-page, single-spaced letter that includes 16 footnotes and is filled with warnings and threats on a wide variety of subjects.”
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