By Jeffrey A. Kershaw | April 20, 2021

The Supreme Court of Georgia handed down an extremely problematic decision yesterday in a negligent/bad faith failure to settle case, ignoring the notice requirement contained in both a relevant insurance contract and as provided for by Georgia Statute on its way to determining – absent any analysis – that an insurer acted unreasonably in rejecting a pre-suit settlement demand. The case is GEICO Indem. Co. v. Whiteside, No. S21Q0227, 2021 WL 1521527 (Ga. Apr. 19, 2021).

The case was brought against GEICO on behalf of the bankruptcy estate of Bonnie Winslett, who was involved in an accident while driving a vehicle owned by Karen Griffis, GEICO’s insured. By virtue of the policy’s terms, Winslett was an insured driver. GEICO rejected a time-limited pre-suit demand for the $30,000 limits of the GEICO policy, noting medicals of only about $10,000. Shortly after GEICO’s rejection, Plaintiff’s counsel filed suit against Winslett in the Superior Court of Muscogee County, Georgia, but did not inform GEICO of the suit. Winslett failed to notify GEICO of the suit or forward the suit papers served on her. The Court eventually entered a default judgment of more than $2.9 million against Winslett.

Following appeals, Winslett’s bankruptcy trustee sued GEICO for negligent and bad faith failure to settle. GEICO contended that Winslett’s failure to provide notice of the lawsuit negated its potential liability both under the policy and pursuant to Section 33-7-15 of the Georgia Code, which requires insureds to notify their insurers of any suit. GEICO also argued that its conduct could not be the proximate cause of the default judgment given Winslett’s failure to provide notice. GEICO finally contended that the default judgment violated due process in that GEICO had no opportunity to contest the damages.

The Georgia Supreme Court rejected each of GEICO’s arguments. The Court held that, notwithstanding the requirements of the insurance contract and the unequivocal terms of Section 33-7-15, Winslett’s breach of the notice requirement was not “an intervening act sufficient to break the causal chain between GEICO’s unreasonable rejection of Guthrie’s settlement demand and the excess default judgment entered against Winslett.” In so doing, the Court found that GEICO “reasonably should have foreseen” that Winslett might breach the notice requirement, both because she was not a named insured under the policy and because it possessed information that Winslett was unstable, and unreliable, and lacked sophistication.

The Supreme Court further held that, because GEICO had admitted liability pre-suit, it possessed a duty to settle and unreasonably breached the duty. The Court’s determination that the failure to accept the $30,000 pre-suit demand was improper was completely conclusory; the Court spends no time addressing the question.

Finally, the Court rejected GEICO’s due process arguments, noting that, even if GEICO were able to re-litigate the underlying case, Winslett would remain liable.

The case serves as a reminder that courts will generally view an insurer’s negligence in failing to settle as a foregone conclusion in the face of an excess judgment without fully analyzing the facts in play at the time a demand was rejected – and with the benefit of hindsight. The case should also serve as a warning that Georgia’s courts are willing to ignore plain contract terms and even established Georgia law in the insurance context, applying an after-the-fact, “should have known” standard to the conduct of insurers not only with respect to evaluating settlement, but also so as to negate policy conditions.

Read the Decision:
https://www.gasupreme.us/wp-content/uploads/2021/04/s21q0227.pdf