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By Matt Stone
The Georgia appellate courts handed down two important decisions last week. On March 20, 2012, the Court of Appeals issued an opinion holding that an insurer can create a “safe harbor” where a plaintiff who sends a time-limited settlement demand trying to set-up a bad faith claim unreasonably refuses to assure satisfaction of hospital liens. Southern Gen. Ins. Co. v. Wellstar Health Sys., Inc., No. A11A2065, 2012 WL 917604 (Ga. Ct. App., Mar. 20, 2012). On March 23, 2012, the Supreme Court issued an opinion upholding the Tort Reform Act of 2005’s amendment of O.C.G.A. § 51-12-33, requiring apportionment among multiple tortfeasors, even where a plaintiff bears no fault, and eliminating a co-defendant’s right of contribution or set-off. McReynolds v. Krebs, No. S11G0638 (Ga. Sup. Ct., Mar. 23, 2012).
Time-Limited Demands and Hospital Liens – Southern Gen. Ins. Co. v. Wellstar Health Sys., Inc.
Southern General issued an automobile liability policy with an applicable limit of $25,000. In September 2007, its insured struck and injured Gray, who treated at Wellstar Hospital and incurred $22,000 in medical expenses. In October 2007, Wellstar notified Gray and Southern General of its intent to file liens; a month later, it filed liens for the total charges.
After receiving notice but before Wellstar filed its liens, Southern General wrote to Gray’s attorney, offering to settle for its policy limits and to send a check and general release once Gray confirmed that the liens would be satisfied or that he would indemnify Southern General’s insured. On October 24, Gray’s attorney sent a letter to Southern General demanding payment of its policy limits within five days, citing Frickey v. Jones, 280 Ga. 573 (2006) (no binding settlement where insurer’s response to settlement demand contained an additional term requiring resolution of liens).
Southern General responded the next day, offering to send the $25,000 settlement check upon receipt of a signed release that included a representation that no liens existed and an agreement to indemnify. On October 26, Gray’s attorney responded that Gray would sign a general release without an agreement to indemnify. On October 29, Southern General tendered its $25,000 policy limits to Gray and, on October 31, Gray returned a signed release that did not include an indemnity provision.
Thereafter, Wellstar sued Southern General, alleging that it had ignored Wellstar’s liens and paid Gray in violation of Georgia’s hospital lien statutes, O.C.G.A. §§ 44–14–470, et seq. Southern General filed a motion for summary judgment, arguing that it had no choice but to accept Gray’s time-limited demand in order to avoid a bad faith claim under Frickey and Southern General Insurance Co. v. Holt, 262 Ga. 267 (1992) (insurer may be found to have acted in bad faith for failing to settle where liability is clear and the claimant’s special damages exceed the policy limits). The trial court denied the motion and Southern General appealed.
In affirming, the Court of Appeals rejected Southern General’s argument thatFrickey and Holt, when coupled with the hospital lien statutes, set-up an insurer to pay in excess of its policy limits because it cannot unconditionally accept a claimant’s time-limited demand and satisfy the hospital liens. The court first noted the settled principle that an insurer faced with a time-limited demand must accord its insured “the same faithful consideration it gives its own interest” and that the issue is whether the insurer acted unreasonably in rejecting a time-limited settlement demand. Wellstar, 2012 WL 917604 at *3 (quoting Holt, 262 Ga. at 269). After noting that an insurer cannot ignore a properly-filed hospital lien, the court went on to hold that:
[I]t is possible for an insurance company to create a “safe harbor” from liability under Holt and its progeny when (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.
Id. at *4.
The court stated that an insurer faced with a claim of clear liability and special damages in excess of the policy limits can invoke the safe harbor by timely offering to tender its policy limits, “subject to a reasonably and narrowly tailored provision assuring that the plaintiff will satisfy any hospital liens from the proceeds of such settlement payment.” Id. The court then suggested that:
[T]he insurance company could request that plaintiff’s counsel or a third party hold a portion of the settlement proceeds (in an amount equal to that of the hospital lien) in escrow to allow the plaintiff an opportunity to investigate the validity of the liens and to negotiate with the hospital. And once the relevant lien-resolving documents have been executed by the parties, the held-back settlement funds could then be disbursed to the plaintiff. But if the insurer made such an offer or counteroffer (in a timely and reasonable fashion) and the plaintiff unreasonably refused to give the requested assurance, the insurer is (at that point) under no obligation to tender policy limits directly to the plaintiff. Indeed, a plaintiff who unreasonably refuses to give such an assurance does so at his or her own peril because the insurance company would thereafter have no obligation to negotiate with the hospital or otherwise advocate on the plaintiff’s behalf. Instead, the insurer would be free (at that point) to simply verify the validity of any liens, make payment directly to the hospital, and then disburse any remaining funds to the plaintiff.
Id. at *4-5. The court, however, warned that making payment directly to a hospital before engaging in good faith settlement negotiations with a plaintiff could expose an insurer to liability under Holt and its progeny. Id. at *4 n.21. Finally, the court held that:
[W]hen the failure to settle a Holt-scenario claim is based solely on the plaintiff’s unreasonable refusal to agree to a reasonably and narrowly tailored provision assuring that any hospital liens will be satisfied from the settlement proceeds, that cannot, as a matter of law, constitute a bad faith failure to settle when the insurer is merely attempting to comply with its legal obligations.
Id. at *5 (emphasis in original).
We should expect that the Wellstar decision is not the end of the line for this issue, as the Georgia Supreme Court has regularly weighed-in on post-Holt andFrickey cases.
Apportionment Upheld – McReynolds v. Krebs
Krebs sustained injuries in a motor vehicle accident and sued the other driver, McReynolds, and General Motors, the manufacturer of the vehicle in which Krebs was riding as a passenger, contending that the vehicle’s design contributed to her injuries. McReynolds filed a cross-claim against GM for contribution and set-off. After Krebs settled with GM, the trial court dismissed McReynolds’ cross-claims based on the Tort Reform Act’s amendments to O.C.G.A. § 51-12-33. McReynolds appealed a jury verdict in favor of Krebs, arguing that O.C.G.A. § 51-12-33(b) requires apportionment of damages only where the plaintiff is partially at fault. The Court of Appeals rejected that argument and affirmed (McReynolds v. Krebs, 307 Ga. App. 330 (2010)), as did the Supreme Court.
Noting that the previous version of the apportionment statute (before the Tort Reform Act of 2005) applied only where a plaintiff was to some degree at fault, the Supreme Court held that the amendment to O.C.G.A. § 51-12-33(b) requires apportionment of damages where an action is brought against more than one person for injury, even where the plaintiff bears no fault. McReynolds, No. S11G0638, slip op. at 6. Accordingly, the court held there was no error in dismissing McReynolds’ cross-claims for contribution and set-off against GM because the statute “flatly states that apportioned damages ‘shall not be subject to any right of contribution.’” Id.
For more information, contact Matt Stone at 770.818.1411 or[email protected].