The Georgia Supreme Court had some tough questions on what responsibilities an insurer has to its policyholders facing potentially hefty liability and just how precise a plaintiff's “Holt” settlement demand must be before an insurer is bound to respond.

The closely watched case centers on the use—and purported misuse—of time-limited settlement demands that insurers and defense lawyers say have evolved into “gotcha” bad-faith setups. Alston & Bird partner Andy Tuck, who argued on behalf of First Acceptance Insurance Company of Georgia during Tuesday's arguments, said the demands are designed to “bust policy limits rather than settle the claims.”

Those became known as “Holt demands” after the 1992 case in which the Georgia Supreme Court held that, if an insurer knows its insured is liable and the damages likely exceed policy limits, the insurer can be subject to bad faith damages if it fails to settle within those limits.

First Acceptance found itself on the losing end of a $5.4 million judgment after its insured, the at-fault driver, was killed in a five-car wreck. That driver, Ronald Jackson, carried a $25,000 per person, $50,000 per incident policy.

There were multiple claimants with serious injuries, including an injured mother and daughter who rescinded an offer to settle for the available coverage or enter into global settlement talks after the insurer did not respond to two letters the plaintiffs' lawyer faxed on the same day.

In fact, Tuck said, there never was an “offer” to settle, only a demand to know the available insurance coverage and a mention that the injured parties were “interested” in attending a settlement conference.

A separate letter faxed to the insurer at the same time asked for statement of known insurance and gave a 30-day deadline to respond. When it expired, plaintiffs Julie An and Jina Hong sued in DeKalb County State Court.

After the jury awarded more than $5.4 million, the estate of the deceased driver sued First Acceptance for bad faith failure to settle. A DeKalb County judge dismissed the case on summary judgment, ruling there was no clear demand, or time-limited demand. The Georgia Court of Appeals reversed, saying the issue of whether First Acceptance acted in bad faith should have been left to the jury.

Arguing for the plaintiffs Tuesday, Swope Rodante partner Brandon Cathey argued the two letters, taken together, clearly constituted a time-limited offer to settle for Jackson's policy or to enter into settlement discussions.

Lawyers for both sides faced stiff questioning from Presiding Justice David Nahmias, who asked Tuck whether he was seeking a blanket rule that insurers have no duty to try to settle claims until they've been hit with demand letter threatening suit.

“The insurer's' duty is to act in the best interests of its policyholders,” Nahmias said.

“You're saying your insurance company never, ever has to initiate settlement talks … if you realize the risk of settling or damages is very high?”

Nahmias also asked if the insurer has some duty to to mitigate the damage, even if there is only $50,000 available.

The way to “rein in” abusive and unclear demands is to require a “clear, time-limited policy demand,” said Tuck, who appeared with colleague Kyle Wallace and Dentons attorney Robin Johnson.

Several amicus briefs were filed supporting First Acceptance, including one on behalf of Geico Insurance, whose lawyer, Smith Gambrell & Russell partner and former Georgia Supreme Court Chief Justice Leah Ward Sears, was in the audience. Nahmias noted the interest.

“I know you've got a lots of amici,” he said, but the “fundamental common-law duty is to give maximum benefit to your insured.”

“You may be right in this case, but you want a blanket rule that you must always get a demand or you win,” Nahmias added.

Cathey said that, in a case such as the one at hand, First Acceptance knew its policy limits were going to be eaten up, and it had a duty to try to reach out and proactively protect its insured.

Nahmias drilled Cathey on how the two letters could be interpreted as a time-limited settlement demand, since one only expressed an interest in a settlement conference and the other requested insurance information, albeit with a 30-day limit.

“Could they have accepted [the offer] in 60 days in they'd provided the insurance information,” Nahmias asked.

If so, he said, “there was not a time-limited demand.”

The issue of whether there was a time-limited offer still failed to address First Acceptance's duty to “fulfill its promise to try and settle the case,” said Cathey, appearing with Swope Rodante colleague Brent Steinberg.

Tuck rose again to say that First Acceptance had, indeed, tried to initiate the global settlement talks, but the plaintiffs in this case refused to participate, electing to sue instead.