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First-Party Insurance Bad Faith Claims

Bad Faith/Failure to Settle 101: What You Need to Know Today

John D. Hadden

Atlanta, Georgia


First recognized as a viable cause of action over 70 years ago, claims against insurers for their negligent or bad faith failure to settle provide an important check on insurers' handling of claims made against their insureds.[1] Recent years (and months) have seen significant developments in this area of the law. This paper will briefly address this history and evolution of these sorts of claims in Georgia.

A Brief History and Development of the Insurance Bad Faith Cause of Action

In Francis v. Newton, the Georgia Court of Appeals noted (albeit in dicta), that “an automobile liability insurance company may be held liable for damages to its insured for failing to adjust or compromise a claim covered by its policy of insurance, where the insurer is guilty of negligence or of fraud or bad faith . . . .” [2] Then in the 1960s, the Fifth Circuit, which covered Georgia at the time, expressly ruled in the Smoot cases[3] that an insurer could be liable (and, in fact, was held liable at trial, subsequently affirmed on appeal) for its failure to settle a claim against its insured when the insured faced personal liability for a judgment in excess of policy limits. The Georgia Court of Appeals then noted, in approving the holding of the original Smoot case (1962), that

With respect to the decision whether to settle or try the case, the insurer, acting through its representatives, must use such care as would have been used by an ordinarily prudent insurer with no policy limit applicable to the claim. The insurer is negligent in failing to settle if, but only if, such ordinarily prudent insurer would consider that choosing to try the case (rather than to settle on the terms by which the claim could be settled) would be taking an unreasonable risk-that is, trial would involve chances of unfavorable results out of reasonable proportion to the chances of favorable results.[4]

In 1992, in Holt v. Southern General Insurance Company, the Georgia Supreme Court added another layer to the duties imposed on insurance companies: an insurer can be liable if it fails to settle a case in response to a time-limited demand, thereafter resulting in an excess judgment—and personal liability—against its insured.[5] In the ensuing years, a number of Georgia Supreme Court and Court of Appeals decisions clarified the law. Some of the most significant cases are summarized below:[6]

  • Cotton States v. Brightman (Supreme Court, 2003): An insurer may be liable for failure to settle, even if the demand contains a contingency that the insurer cannot fulfill, if it nevertheless fails to attempt to resolve the claim to the extent it is able. The Court also held, however, that an insurer is not required to negotiate in response to a demand that is in excess of the limits.[7]
  • Frickey v. Jones (Supreme Court, 2006): An insurer's response to a demand that failed to accept the demand “unequivocally and without variance of any sort” constituted a counteroffer and, therefore, a rejection of the time-limited demand.[8]
  • Southern General v. Wellstar Health Systems, Inc. (Court of Appeals, 2012): Establishing a “safe harbor” for insurers in connection with medical liens under O.C.G.A. § 44-14-470 where “(1) the insurer promptly acts to settle a case involving clear liability and special damages in excess of the applicable policy limits, and (2) the sole reason for the parties' inability to reach a settlement is the plaintiff's unreasonable refusal to assure the satisfaction of any outstanding hospital liens.”[9]
  • Baker v. Huff (Court of Appeals, 2013): An insurer's failure to settle a demand for policy limits, where demand was “for pain and suffering only” was, as a matter of law, not in bad faith.[10]

Recent Developments

An attorney evaluating the merits of a potential claim against an insurer for negligent or bad-faith failure to settle should be mindful of several recent decisions (and a pending case) that may affect claims for bad faith.

In Grange Mutual Casualty Co. v. Woodard, the Eleventh Circuit certified to the Georgia Supreme Court the following questions in connection with O.C.G.A. § 9-11-67.1:

(1)       Under Georgia law and the facts of this case, did the parties enter a binding settlement agreement when the insurer Grange accepted the Woodards' offer in writing?

(2)       Under Georgia law, does O.C.G.A. § 9-11-67.1 permit unilateral contracts whereby offerors may demand acceptance in the form of performance before there is a binding, enforceable settlement contract?

(3)       Under Georgia law and the facts of this case, did O.C.G.A. § 9-11-67.1 permit the Woodards to demand timely payment as a condition of accepting their offer?

(4)       Under Georgia law and the facts of this case, if there was a binding settlement agreement, did the insurer Grange breach that agreement as to payment, and what is the remedy under Georgia law?[11]

The claimant's demand stated that payment within 10 days of acceptance of the demand, as well as providing insurance coverage affidavits within the same time period, was an express condition of acceptance. Nevertheless, the insurer did not provide payment within that time period, and the claimant's attorney contended that, as a result, the offer had not been accepted.

Grange filed suit in federal court seeking to enforce the purported contract for settlement, contending that O.C.G.A. § 9-11-67.1 did not permit a claimant to make payment a condition of acceptance. Demands, it argued, were strictly controlled by the statute, and a demand could not add additional terms or conditions. The district court disagreed with Grange, and granted summary judgment to the claimant, ruling that such a condition was allowable. The Supreme Court, answering certified question 2 in the affirmative, agreed. Thus, under Woodard, as long as an offer meets the requirements of O.C.G.A. § 9-11-67.1, a claimant may add additional requirements to its acceptance.[12]

In Linthicum v. Mendakota Insurance Company, the claimants' attorney submitted a demand to the insurer purporting to settle a wrongful death claim without the corresponding estate claim.[13] Notwithstanding the language of Nash v. Allstate,[14] permitting claimants to elect which remedy to pursue, and Allstate v. Evans,[15] allowing insurers to resolve less than all claims arising from a loss, the Eleventh Circuit, citing Baker v. Huff, Although Linthicum is an unpublished decision (and therefore not binding precedent in the federal courts), it raises significant implications for claimants in wrongful death cases.

Finally, in Nationwide v. Camacho, pending at the Eleventh Circuit as of the time of writing, the insurer is asserting that a claim for failure to settle requires actual bad faith, rather than mere negligence.[16] As detailed in the attached brief that the Georgia Trial Lawyers Association submitted as amicus curiae in the case, Georgia courts have long permitted claims to be brought “where the insurer is guilty of negligence, fraud, or bad faith in failing to compromise the claim.”[17] Following Nationwide's rejection of a policy-limit demand for $100,000 in a wrongful death case involving a drunk driver, the claimants filed suit and obtained a $5.83 million verdict. The claimants subsequently received an assignment of the at-fault driver's claim against Nationwide, and the federal district judge awarded them $8,135,873 against the insurer, which included the underlying judgment as well as interest and attorneys' fees. Nationwide then appealed to the Eleventh Circuit.

Nationwide's brief (as well as the brief of the Georgia Chamber of Commerce, submitted as an amicus curiae) largely focuses its attack on trial lawyers and the concept of bad faith claims generally, asserting that there is an “epidemic” of bad-faith “set ups.” The appellees, on the other hand, along with GTLA, pointed out the insurer's missteps, and argued that the insurer's actions in the case were precisely the sort of behaviors that show the need for the bad faith/failure to settle cause of action. Assuming that the Eleventh Circuit does not certify the question to the Georgia Supreme Court (particularly on the issue of whether a claim for failure to settle requires bad faith, or whether negligence is sufficient), a decision is expected this year.


Claims against insurers for failure to settle have been in the spotlight in recent years, and recent (and upcoming) decisions may change the playing field to some extent for this area of the law. As a result, practitioners would be well advised to carefully review the new decisions, and follow the requirements of O.C.G.A. § 9-11-67.1 where applicable, in order to ensure that the insurer has a full and fair opportunity to settle a claim and protect its insured.

[1]     This paper is concerned with common-law bad faith, as opposed to statutory bad faith as set forth in O.C.G.A. §§ 33-4-6, 33-4-7, and 33-7-11(j).

[2]     Francis v. Newton, 75 Ga. App. 341 (1947).

[3]     Smoot v. State Farm, 299 F.2d 525 (5th Cir. 1962); Smoot v. State Farm, 337 F.2d 223 (5th Cir. 1964); State Farm v. Smoot, 381 F.2d 331 (5th Cir. 1967) (“There is an old folk saying, the origin of which I know not, that ‘the third try is the charm'. The legal warfare represented by this litigation had its origin nearly twelve years ago; now it is before this Court for the third time. In the most recent trial, the subject of this appeal, the plaintiff-appellee, on a jury verdict, was awarded judgment in the sum of $65,787.60. The Judgment will be affirmed.”).

[4]     U.S. Fid. & Guar. Co. v. Evans, 116 Ga. App. 93, 94–95 (1967) (quoting Robert E. Keeton, Liability Insurance and Responsibility for Settlement, 67 Harv.L.Rev. 1136, 1147).

[5]     Holt v. Southern General Insurance Company, 262 Ga. 267 (1992).

[6]     This is not intended to be a comprehensive summary of every case involving failure to settle/bad faith, but merely a summary of some of the most significant cases.

[7]     Cotton States v. Brightman, 276 Ga. 683 (2003).

[8]     Frickey v. Jones, 280 Ga. 573 (2006). Subsection (d) of O.C.G.A. § 9-11-67.1 now provides that an insurer may inquire as to medical bills and liens, and such an inquiry will not be deemed a counteroffer.

[9]     Southern General v. Wellstar Health Systems, Inc., 315 Ga. App. 26 (2012). In dicta, the Court also questioned whether liability for failure to settle could attach where the special damages did not exceed policy limits. This suggestion was disapproved in Baker v. Huff.

[10]    Baker v. Huff, 323 Ga. App. 357 (2013). It should be noted that the claimant disputed that the intent of the demand was not to settle the entire claim, but rather to merely allocate the damages in the demand to pain and suffering.

[11]    Grange Mut. Cas. Co. v. Woodard, 300 Ga. 848 (2017); Grange Mut. Cas. Co. v. Woodard, 826 F.3d 1289 (11th Cir. 2016) (certifying questions).

[12]    The Eleventh Circuit subsequently affirmed the trial court's ruling in favor of the claimant, based upon the Supreme Court's decision. Grange Mut. Cas. Co. v. Woodard --- F.3d ---, 2017 WL 2819729 (11th Cir. June 30, 2017).

[13]    Linthicum v. Mendakota Ins. Co., --- Fed.Appx. ---, 2017 WL 1735241 (11th Cir. May 3, 2017) (unpublished, see Fed. R. App. P. 32.1 and 11th Cir. R. 36-2).

[14]    Nash v. Allstate, 256 Ga. App. 143 (2002).

[15]    Allstate v. Evans, 200 Ga. App. 713 (1991).

[16]    Nationwide v. Camacho, Case No. 16-14225 (11th Cir.).

[17]    Holt v. Southern General Insurance Company, 262 Ga. 267 (1992).

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