An Insurance Company May Not Gamble With Its Insured’s Funds

“[W]here a person injured by the insured offers to settle for a sum within the policy limits, and the insurer refuses the offer of settlement, the insurer may be liable to the insured to pay the verdict rendered against the insured even though the verdict exceeds the policy limits. The reason for this rule is that the insurer may not gamble with the funds of its insured by refusing to settle within the policy limits.” McCall v. Allstate Ins. Co., 251 Ga. 869, 870 (1984) (internal citations omitted). Stated another way, “As the champion of the insured, [the insurer] must consider as paramount his interest, rather than its own, and may not gamble with his funds.” United States Fidelity & Guar. Co. v. Evans, 116 Ga. App. 93, 95 (1967), aff’d., 223 Ga. 789 (1967).

This is often referred to as the “equal consideration” rule. The Georgia Supreme Court described the “equal consideration rule” as follows: “In deciding whether to settle a claim within the policy limits, the insurance company must give equal consideration to the interests of the insured. The jury must decide whether the insurer, in view of the existing circumstances, has accorded the insured “the same faithful consideration it gives its own interest.” Southern General Ins. Co. v. Holt, 262 Ga. 267, 268-69 (1992) (internal citations omitted).

Insurance Companies May Be Liable For An Excess Verdict

In the event of an excess verdict, an insured may recover for the insurer’s failure to settle within policy limits if the insurer (1) failed to give equal consideration to the interests of the insured; (2) failed to accord its insured the same faithful consideration it accords its own interest; (3) refused to settle because of an arbitrary or capricious belief that the insured was not liable; or (4) capriciously refused to entertain a settlement offer with no regard given to the position of the insured. See Southern General Ins. Co. v. Holt, 262 Ga. 267 (1992); United States Fidelity & Guar. Co. v. Evans, 116 Ga. App. 93, 95 (1967); Cotton States Mut. Ins. Co. v. Fields, 106 Ga. App. 740, 741 (1962).

Georgia law has recognized several categories of available tort damages when an insurer refuses in bad faith to settle a claim for an amount within the available policy limits: (1) special damages; (2) general damages; (3) punitive damages; and (4) attorney fees. Smoot v. State Farm Mut. Auto. Ins. Co., 381 F.2d 331, 341 (5th Cir. 1967) (“Smoot III”). Special damages involve the judgment against the insured when the insurer refused to settle within the policy limits.  General damages are of the type typically found in tort cases and caused by the insurer’s negligence or bad faith. For example, in Smoot III, the excess judgment caused a foreclosure and ruined the insured’s credit. Other general damages may include exposure to post-judgment discovery and collection efforts, damage to reputation or business interests caused by a judgment of record, and mental and psychological injury. In certain cases, punitive damages and attorneys’ fees may be awarded against the insurer who refuses to settle within the available policy limits. O.C.G.A. §§ 51-12-5.1 and 13-6-11.

The most common failure to settle within policy limits involves the insurer’s rejection of a time-limited offer of settlement (commonly referred to as a Holt demand). In Southern General Ins. Co. v. Holt, the Georgia Supreme Court specifically mentioned three factors the insurer must consider in deciding whether to accept a settlement offer: (1) the strength of the liability case against the insured, (2) the risk to the insured of a judgment in excess of the policy limits, and (3) damages to which the claimant may be entitled under applicable tort law. Southern General Ins. Co. v. Holt, 262 Ga. 267 (1992).

If your insurance company refused to settle a case against you when it had the chance to do so and an excess verdict was rendered against you, call Attorney Joel Williams for a free consultation at (404) 389-1035. You may be able to successfully sue your insurance company and preserve your personal assets.