In 1967, the Georgia Court of Appeals acknowledged the existence of a cause of action in tort by an insured against their insurer for negligently failing to settle a claim with a third-party claimant. United States Fidelity & Guaranty Co. v. Evans, 116 Ga. App. 93 (1967). When it did, the Court of Appeals adopted what it referred to as the “predominant majority rule” holding that “the insurer must accord the interest if its’ insured the same faithful consideration as it gives its own interest.” Id. at 96-97.
In 1972, the Supreme Court of Georgia first recognized the existence of the failure to settle cause of action in Shaw v. Caldwell, 229 Ga. 87 (1972) noting that “[i]t is no longer an open question in this State that the claim of an insured under an automobile liability policy for damages on account of the bad faith tortious refusal of the insurer to settle a liability claim against him within the policy limits resulting in damage to him in the form of a judgement in excess of the policy limits being returned against him is a legitimate charge against the insurer upon which recovery may be had by the insured.” Id. at *91.
It wasn’t until 1992, however, in S. General Ins. Co. v. Holt, 262 Ga. 267 (1992), that the Supreme Court of Georgia did a deep dive into the “failure to settle” tort and articulated the negligence standard for evaluating such claims when it wrote “[a]n insurance company may be liable for damages to its insured for failing to settle the claim of any injured person where the insurer is guilty of negligence, fraud, or bad faith in failing to compromise the claim.” Id. at *268. When it did, the Supreme Court recognized the possibility of being set up and noted that “[n]othing in this decision is intended to lay down a rule of law that would mean that a plaintiff’s attorney under similar circumstances could ‘set up’ an insurer for an excess judgment by offering to settle within the policy limits and by imposing an unreasonable short time within which the offer would remain open.” Id. at *269.
Policy-wise, the rule laid down by Georgia appellate courts protects, in certain situations, an insured from high-risk decisions made by insurance companies where, because of the nature of the insurance contract wherein the insurer controls the decision to settle, that insured has little to no input. In advancing this policy however, Georgia appellate courts have created an atmosphere which has allowed for the “set up” and has led to an increase in the weaponization of the time limited demand.
In Frickey v. Jones, 280 Ga. 573 (2006), the Supreme Court of Georgia initiated a long line of appellate decisions adhering to the mirror image rule as it relates to acceptance of a settlement demand. Relying on a post-acceptance characterization of the acceptance, the Frickey court concluded that the insurer’s unequivocal acceptance of the demand was not a mirror image acceptance because it purportedly imposed an additional condition to the acceptance when it asked for the status of an outstanding hospital lien. Id.
Since then, the mirror image rule has been fully embraced by both the Supreme Court of Georgia and the Georgia Court of Appeals with both courts rejecting attempts by insurance companies to engage in a dialogue to clarify demands and settle a claim for within the applicable policy limits. See e.g. McReynolds v. Krebs, 290 Ga. 850 (2012) (the insurer’s proposal to resolve the hospital and other liens as part of the settlement as a counteroffer rather than an unequivocal acceptance); Kitchens v. Ezell, 315 Ga. App. 444 (2012) (the insurer submitted a non-conforming proposed release which was deemed a counteroffer) In turn, these rulings have created an atmosphere that has allowed plaintiff’s attorneys to be both opportunistic and pro-active in setting up insurers.
From an opportunistic side, plaintiff’s attorneys are seeing requests for clarifications or mistakes in the wording included in a release as an opportunity to claim counteroffer and disclaim a settlement. This can be seen in Frickey, supra, and Hansen v. Doan, 320 Ga. App. 609 (2013) where the plaintiff’s attorney disclaimed a settlement because the proposed release contained language prohibited by the demand. Ultimately, the Court of Appeals enforced the settlement because the evidence established a clear understanding that the claimant’s attorney could tailor the release to fit his demand. Id.
From a pro-active side, plaintiff’s attorneys are generating ever more complex demands that require strict compliance for the demand to be accepted. For instance, some demands forbid communication about the demand in any manner except in writing. See White v. Cheek, 360 Ga. App. 557, 559-560 (2021). Additionally, these demands often declare that a request for clarification (which is permitted by O.C.G.A. § 9-11-67.1) will be deemed unreasonable, and the demand rejected, if that request can be clarified by reference to the demand. Id. And on occasion, these demands will require that the settlement proceeds be delivered on a date certain deeming delivery before that date a rejection of the demand. See generally, Pierce v. Banks, Ga. Ct. App. A23A0394, Docket Date: September 27, 2022.
As noted by Court of Appeals Judge, Christopher J. McFadden, “[i]t has become clear that, to a plaintiff whose injuries greatly exceed the available coverage, a policy-limits settlement can be less valuable than a rejected offer and consequent bad-faith claim – however, dubious the claim. In the context of proceedings to enforce purported settlements, plaintiffs sometimes structure offers not to reach settlements, but rather elicit rejections.” Wright v. Nelson, 358 Ga. App. 871, 876-877 (2021).
Where liability is clear, and special damages greatly exceed the liability limits, some in the plaintiff’s bar have, and will continue, to take advantage of the fact that Georgia follows the mirror image rule on contract formation by attempting to set up insurers with time limited demands that are nearly, if not actually, impossible to accept. As such, any complex time limited demand should be promptly and meticulously vetted by counsel to have the greatest chance at achieving an unequivocal acceptance.