A Georgia Court of Appeals decision in a bad faith case last week offers insight into what happens when an insurance company declines a policy limits settlement in a case that goes on to a big verdict—in this instance $5 million.

Bottom line: It's complicated, and it's going to a jury.

Judge Christopher McFadden ruled that DeKalb County State Court Judge Michael Jacobs was wrong to toss out a bad faith lawsuit against First Acceptance Insurance Company of Georgia.
“There are genuine issues of material fact as to the failure-to-settle claim,” McFadden said, writing for a panel that included Judges Elizabeth Branch and Charlie Bethel.

On three actions being appealed, the panel ruled that the trial judge was right on two and wrong on one. The judges upheld Jacobs in denying a motion for summary judgment to the estate of Ronald Jackson, who was killed when he caused a five-vehicle crash in 2008, McFadden said. Among those hurt were Julie An and her child, Jina Hong, who sustained traumatic brain injuries.

Jackson's insurance company, First Acceptance, declined to settle for the policy limit of $25,000 per person and $50,000 per accident within 30 days of the demand. One letter from an insurance company lawyer said the demand letter “had been inadvertently placed with some medical records and no follow-up had occurred.”

The insurance company's lawyers then scheduled a settlement conference, but An and Hong's counsel did not attend.

The case went to trial in 2010. A jury awarded An and Hong $5.3 million. The case at hand is Robert Hughes Jr. suing First Acceptance as administrator of Jackson's estate.

McFadden overruled Jacobs in granting summary judgment to First Acceptance. The panel did rule that Jacobs properly granted First Acceptance summary judgment on claims for attorney fees and punitive damages—although by default.

“Because the plaintiff has pointed to no evidence of bad faith or willful or wanton conduct which would support the claims for attorney fees and punitive damages, the trial court properly granted summary judgment on those claims,” McFadden said. “So we affirm in part and reverse in part.”

Brandon Cathey of Swope Rodante in Tampa represented Hughes, the administrator of the Jackson estate. Cathey could not be reached.

First Acceptance was represented by a team from Dentons: John Berry, Robin Johnson and J. Randolph Evans. Berry returned a message and said, “No comment.”

In his decision, McFadden cited two well-known Georgia bad faith cases, Cotton States Mutual Ins. Co. v. Brightman, 276 Ga. 683 (2003) and Southern General Insurance Co. v. Holt, 262 Ga. 267 (1992).

He quoted this passage from Cotton States Mutual Ins. Co.: “An insurance company may be liable for the excess judgment entered against its insured based on the insurer's bad faith or negligent refusal to settle a personal claim within the policy limits.”

From Southern General Insurance Co., McFadden cited: “In deciding whether to settle a claim within the policy limits, the insurance company must give equal consideration to the interests of the insured.”

Referring again to  Cotton States Mutual Ins. Co., he quoted: “Judged by the standard of the ordinarily prudent insurer, the insurer is negligent in failing to settle if the ordinarily prudent insurer would consider choosing to try the case created an unreasonable risk.”

As for bad faith, McFadden added, “the general rule [is] that the issue of an insurer's bad faith depends on whether the insurance company acted reasonably in responding to a settlement offer.”

That, the court ruled, is a matter for a jury to decide.

The case is Hughes v. First Acceptance, No. A17A0735.