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Insurers Lose Bad Faith Shield

State high court says that maximum settlement offers with unreasonable conditions do not protect insurers

The state Supreme Court issued a unanimous decision Monday that will make plaintiffs’ lawyers happy and put greater pressure on insurance companies.

The ruling affects suits brought by insurance customers who claim their insurance company has acted in bad faith by failing to settle a case brought against the insurance customer. Reversing the Georgia Court of Appeals, the Supreme Court held that an insurance company’s offer to pay the maximum amount its policy allows does not automatically immunize it from a bad faith claim. The court said that a bad faith claim is still possible if the insurance company put unreasonable conditions on the settlement offer. The Georgia Trial Lawyers Association had been watching the case closely, having filed an amicus brief in favor of the plaintiff. J. Marcus “Marc” Howard, the group’s amicus committee co-chairman, said the decision will have a broad impact on tort cases. The problem at issue in the case, said Howard, “happens all the time.” He said often in a case against multiple defendants an insurance company will attach conditions, such as requiring a plaintiff to indemnify the settling defendant against any claims brought against that defendant by another defendant who loses at trial, to a settlement offer.

But with the Supreme Court’s decision, insurance companies “have even more duty to protect their insured’s interests,” said Howard.

The decision was one of several issued Monday that will impact tort cases. In two other cases, the Supreme Court voted 5-2 against tort plaintiffs, reversing Court of Appeals decisions in both cases.

The bad faith case began in 2003, when, according to an earlier appeals court decision in a related case, Alan Arnsdorff was driving drunk and his car collided with the car of Cecil Fortner, who would spend four months in the hospital to recover from injuries.

Fortner sued Arnsdorff over the accident, and according to the Supreme Court opinion, Arnsdorff had a $50,000 policy with Grange Mutual Casualty Co. His plumbing business had a $1 million policy with Auto Owners Insurance Co.

Fortner offered to settle his claims against Arnsdorff if Grange Mutual would pay $50,000 and Auto Owners would pay $750,000. Auto Owners did not respond within the time allotted by Fortner. Grange Mutual said it would pay the $50,000, but that payment was contingent upon Fortner “signing a full release with indemnification language” and dismissing his claim against Arnsdorff. Fortner’s lawyers considered the response a rejection of his offer and went to trial.

A Bryan County jury awarded Fortner $7 million from Arnsdorff, a verdict upheld by the state Court of Appeals in 2005. Arnsdorff gave Fortner permission to pursue against Grange Mutual any bad faith claim that Arnsdorff might have against the insurance company. Fortner’s lawyer, Robert B. “Bart” Turner of Savage, Turner, Pinson & Karsman in Savannah, said his client has since resolved its dispute with Auto Owners, although he wouldn’t give details.

Bad faith claims allege that an insurance company hasn’t fulfilled its duties to try to settle a case and protect its insured against the risk that a trial could result in a large verdict not wholly covered by insurance. As explained in the Supreme Court’s opinion, established Georgia law provides that if an insurance company acts in bad faith in refusing to settle a claim within a policy’s limits, it may be liable for a verdict against the insured that goes beyond the limits of the policy.

Fortner sued Grange Mutual for bad faith in handling Arnsdorff’s case. When that case went to trial, Judge J. Hamrick Gnann Jr. instructed the Chatham County jury that when a plaintiff makes a settlement demand that is contingent upon the response of another insurance company, an insurance company can offer the maximum allowed by its policy and let the plaintiff negotiate with the remaining insurers. “In that situation,” Gnann told the jurors, “the insurance company would have given equal consideration to its insured’s financial interest and fulfilled its duty to him. And you would return your verdict in favor of the defendant.” The jury returned a verdict in favor of Grange Mutual on the bad faith claim.

Fortner appealed, saying that instruction was wrong because it didn’t explain to the jury that an insurer must act reasonably in responding to a settlement offer. The Court of Appeals split 5-2 in favor of Grange Mutual, with Presiding Judges Edward H. Johnson, G. Alan Blackburn and J.D. Smith and Judges John J. Ellington and Herbert E. Phipps voting for Grange Mutual. Then-Chief Judge Anne Elizabeth Barnes and now-Chief Judge M. Yvette Miller each wrote dissenting opinions.

Writing for the majority, Johnson said the charge comported with prior Supreme Court precedent, Cotton States Mutual Insurance Co. v. Brightman, 276 Ga. 683 (2003), and the trial judge in another part of its charge told the jury that it must determine if Grange Mutual acted reasonably. Johnson added that, “on a re-charge,” the trial judge told the jury “if you find that Grange did not meet that portion of the plaintiff’s demand over which it had control, then you would return your verdict in favor of the plaintiff.”

The Supreme Court was not convinced, however, saying no other part of the trial court’s charge adequately corrected the error in the part of the charge about which Fortner complained.

Writing for the unanimous court, Justice David E. Nahmias wrote that the 2003 Supreme Court decision in Brightman says an insurer is safe from liability for bad faith when it meets the portions of the plaintiff’s demand over which the insurer has control. “The trial court’s charge would have been appropriate, and Grange would have been entitled to the ‘safe harbor from liability,’” wrote Nahmias, “if Grange had responded to the settlement condition beyond its control simply by offering its policy limits.”

But Grange Mutual didn’t do that, said Nahmias. Grange Mutual proposed its own condition, Nahmias explained, one that required Fortner to forgo any claim against Arnsdorff and therefore potentially forfeit any access to the $1 million Auto Owners policy.

The jury in the bad faith case should have been able to consider whether Grange Mutual acted reasonably in proposing its settlement conditions, wrote Nahmias, noting the court was not expressing an opinion on the ultimate answer to that question. “Otherwise, if two or more insurers are involved in a case and the plaintiff makes a settlement offer to one insurer that conditions settlement on another insurer also settling, the first insurer could, as a matter of law, avoid a bad faith claim by offering its policy limits but making the offer contingent on unreasonable conditions that a plaintiff was guaranteed to reject.”

Turner, Fortner’s lawyer who made the winning Supreme Court argument in the case, said the Supreme Court ruling closes a “huge loophole” for insurance companies that would have been created by the Court of Appeals decision. “It just reaffirms what we thought all along, that you really have to look at whether the insurance company acted reasonably.”

Turner said his client hoped to secure a December date for a re-trial on the bad faith claim.

Robert R. “Rusty” Gunn II of Martin Snow in Macon, who argued for Grange Mutual, said he didn’t have comment on the decision except to say his client was assessing its options.

Nahmias was recently appointed by the state’s Republican governor, Sonny Perdue.

Turner said he was surprised to see Nahmias author the opinion only because Nahmias hadn’t participated in oral argument in the case, held in May before Nahmias was appointed. “I really think this is a protection of all hard-working people in Georgia, whether you be a Republican or Democrat,” said Turner.

While Howard, the GTLA amicus chair, noted that he was pleased to see Nahmias author the opinion, he insisted he wasn’t surprised. “I think he’s shown that he has a lot of personal integrity,” said Howard, noting that Nahmias has announced that, absent agreement by the parties, he will recuse from cases in which a party is represented by King & Spalding, where Nahmias’ wife is an equity partner. “And this case, I think, shows that he’s willing to listen.”

GTLA’s amicus brief in the case, Fortner v. Grange Mutual Casualty Co., No. S09G0492, was submitted by Jason L. Crawford of Daughtery, Crawford, Fuller & Brown in Columbus and Darren W. Penn of Harris, Penn & Lowrey in Atlanta.

The Martin Snow firm was on the winning side of another insurance coverage decision issued Monday, State Farm Mutual Automobile Insurance Co. v. Staton, No. S09G0348. In that case the court ruled 5-2 that state Sen. Cecil Staton, R-Macon, couldn’t combine three $100,000 uninsured motorist coverage policies so he might collect a total of $300,000 for injuries he suffered in an auto accident because his corporation, not Staton himself, was the only insured named on the policies. A Court of Appeals panel of Miller, Blackburn and Ellington had ruled for Staton, but, in an opinion by Justice Hugh P. Thompson, the Supreme Court reversed. Presiding Justice George H. Carley wrote a brief dissent, joined by Chief Justice Carol W. Hunstein, saying the Court of Appeals opinion was “excellent.”

Hunstein and Justice Robert Benham dissented from another decision that reversed a plaintiff-friendly Court of Appeals ruling by a vote of 5-2 on Monday. In that case, McCord v. Lee, No. S08G1947, the plaintiff received the implantation of radioactive seeds to treat his prostate cancer in December 2001 and experienced bowel and urinary control problems in spring 2004. He filed a medical malpractice claim in June 2005, alleging the seeds had been improperly placed.

A Court of Appeals panel of Barnes, Johnson and Phipps sided with the plaintiff on the question of whether he had filed his suit within the two-year statute of limitations.

For the Supreme Court majority, Justice Harold D. Melton wrote that the Court of Appeals panel shouldn’t have applied the “new injury” statute of limitations exception where there was no misdiagnosis alleged. In her dissent, Hunstein said the same rationale that provided an exception in misdiagnosis cases applied in this case as well, given that the alleged negligent misplacement of the seeds was not immediately apparent to the patient and he experienced a new injury in the form of metastatic cancer.

The winning lawyers in the medical malpractice case were Atlanta lawyers Paul E. Weathington, Wayne D. Toth and C. Matthew Smith.

By Alyson M. Palmer , Fulton County Daily Report

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