But after the justices issued their April 19 opinion responding to three key questions, the federal appeals panel affirmed the verdict. 

The case involved a 2012 accident in Columbus when a borrowed pickup truck driven by Bonnie Winslett hit bicyclist Terry Guthrie, who was hospitalized and ran up about $10,000 in medical bills. 

The truck's owner carried Geico coverage and Guthrie's lawyer contacted the insurer, which in turn sent Winslett a letter saying it would "be handling this injury directly" with the attorney.

Lawyer Austin Gower sent Geico a demand letter for its $30,000 policy limit and responded with an offer of $12,000.

Geico said it could never reach Gower to discuss a settlement, and he sued Winslett in Muscogee County Superior Court in Columbus The next day, a deputy served her with a copy of the complaint, which she testified she "wadded up" and threw away.

Winslett never told Geico about the suit, and two months later Judge Beamon McBride III entered a default judgment for more than $2.9 against her. 

Geico moved to have the judgment set aside, but McBride refused, and the Georgia Court of Appeals upheld his ruling. 

Guthrie filed a petition for involuntary bankruptcy against Winslett and her bankruptcy trustee, Fife Whiteside, sued Geico for bad faith failure to settle. A federal jury awarded her $2.9 million as the measure of damages, apportioning Geico 70% of the liability, for a final judgment of more than $2.7 million, including accrued interest. 

On appeal Geico argued that Georgia law and the insurance policy relieved insurers of liability from suits they didn't know about, that its rejection of the policy limit demand did not cause the excess judgment—which it blamed on Winslett—and that the judgment violated its due process rights because it was unaware of the original lawsuit. 

Observing that the arguments "raised novel issues of Georgia law," the appeals court certified three questions to the Supreme Court:

• When an insurer has no notice of a lawsuit against its insured, does [Georgia law] and a virtually identical insuring provision relieve the insurer of liability from a follow-on suit for bad faith?
• If the notice provisions do not bar liability for a bad faith claim, can an insured sue the insurer for bad faith when, after the insurer refused to settle but before judgment was entered against the insured, the insured lost coverage for failure to comply with a notice provision?
• Does a party have the right to contest actual damages in a follow-on suit for bad faith if that party had no prior notice of or participation in the original suit?

In a unanimous opinion, Ellington wrote that answers were a "qualified no," a "qualified yes" and "no."

The per curiam, unpublished opinion entered by Appeals Court Judges Charles Wilson, Britt Grant and visiting District Judge Jose Martinez of the Southern District of Florida declared the matter settled. 

"The answers supplied by the Supreme Court of Georgia largely resolve this appeal," it said. "We thank that court for its guidance, and the decision below is affirmed."

Amici curiae included counsel from Swift, Currie, McGhee & Hiers. Swift Currie Partner Pamela Lee provided the following explanation of the suit. "In short, there was a pre-suit policy limits demand. Once the lawsuit was filed, the defendant/insured never let the insurance company know and went into default and had a default judgment rendered. The Supreme Court found that even though there was no notice of the suit to the insurance company, and even though the insured lost coverage, the insurance company was still on the hook for bad faith in not settling pre-suit."

Pamela Lee is a partner at Swift, Currie, McGhee and Heirs, and is a member of the Federation of Defense & Corporate Counsel.