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By: Phil Savrin
The Supreme Court of Georgia has dealt a severe blow to an insurance company’s ability to require advance notice of a lawsuit against its insured before being exposed to extra-contractual liability for the full amount of the judgment that may be returned. In GEICO Indemnity Company v. Whiteside, Bonnie Winslett was using the named insured’s vehicle with permission when she collided with a bicyclist named Terry Guthrie. GEICO rejected Guthrie’s demand for the $30,000 policy limit but made numerous attempts to reach Guthrie’s lawyer to follow up on a counteroffer GEICO had made. Instead of engaging GEICO, Guthrie had already sued Winslett for personal injuries. Although Winslett was served with the lawsuit, neither she nor Guthrie’s lawyer notified GEICO as required by both the language of the policy and a Georgia statute for coverage to apply. For her part, Winslett assumed GEICO was handling the matter and threw the summons away. With Winslett having defaulted, Guthrie proceeded to obtain a judgment of $2.9 million. No sooner was the ink dry a week later when Guthrie forwarded the judgment to GEICO. A clearer case of setting up the insurance company for a bad faith claim could hardly be crafted.
In reviewing the judgment against GEICO, the Supreme Court first determined that the notice requirement is a matter of contract to obtain coverage under an insurance policy whereas a failure to settle claim is based on tort law – specifically, whether GEICO was negligent in not meeting the policy limit demand based on information that was known at the time. So viewed, the question was whether GEICO should have reasonably foreseen that Guthrie would file a lawsuit and that Winslett would not provide notice. The tort exposure, in other words, was not for the amount of coverage owed by GEICO but for its negligence in failing to settle when the limits was demanded.
Applying tort principles, therefore, the question was whether Winslett’s failure to provide notice was an intervening act that cut off any exposure to GEICO for negligence. Based on the facts presented, the Supreme Court determined that a jury could conclude that Winslett’s failure to give notice was foreseeable as she was an unsophisticated person who was not the named insured and who had driven the vehicle without a license, among other factors. As such, “but for” Geico’s negligence in not settling the exposure, the lawsuit and the judgment by default would not have resulted.
The jury that considered GEICO’s negligence did apportion 30% of the fault to Winslett for having defaulted without providing notice to GEICO, with the remaining 70% assessed against GEICO. Curiously, though, the Supreme Court made no mention whatsoever of Guthrie’s role in refusing to engage the insurer who was attempting to negotiate settlement, in not disclosing that a lawsuit had been filed, and in then laying in wait until the default judgment was entered — all in a concerted effort to tag the insurer with bad faith.
With the reasoning in this case, Georgia law on failure to settle continues to morph from an obligation owed to the insured to one that must also consider the interests of the claimants. Insurers are well-advised to maintain a watchful eye when demands are made and to be ever-vigilant to counter tactics that are being condoned by the courts in troublesome cases
For more information, please contact Phil Savrin at [email protected].