Policyholders have certain advantages when seeking coverage.  The duty to defend is usually quite broad.  Some courts will find a duty to defend based on the slenderest of potential coverage.  That’s one.  Another is that a policyholder sometimes does not need to prove that its interpretation of policy language is actually correct.  Rather, if it can establish that the policy language has two reasonable interpretations, that may be enough to secure coverage.

These are advantages that exist when coverage is in dispute.  Policyholders also have a card they can play when coverage is not in dispute – calling on their insurer to settle a claim when there is a settlement demand that is within the limits of liability of the policy.   

When such a demand is made, the insurer is confronted with whether to accept it.  It does so based on its assessment of its insured’s potential liability and damages that could be awarded, in conjunction with the relevant state’s standard that dictates the considerations in the decision making process.

Of course, the risk of rejecting the demand can be significant.  If it is determined that the insurer should have accepted the demand, the insurer may be liable for the entirety of a later jury award, even any amount above – way above -- the limits of liability.

While the net result of this is sufficient coverage for the insured, often the real beneficiary is the underlying plaintiff, especially when he or she has serious injuries and the tort-feasor insured has insufficient coverage.  Think of a serious motor vehicle injury and the at-fault driver has a minimum or low limits policy, such as $15,000 or $25,000.  If the plaintiff makes a demand to settle within limits, and the insurer declines, and such declination is determined to have been erroneous, the plaintiff’s problem, of insufficient coverage, may have been solved. 

Indeed, for some plaintiffs, the last thing they want to happen, after making a demand to settle within limits, is for the insurer to accept it.  Sometimes the plaintiff’s attorney prefers that the insurer declines to settle.  If so, the tort-feasor may have gone from having a low limits policy to a no limits policy.

Coverage for an excess verdict was at issue before the Georgia Supreme Court in First Acceptance Insurance Company v. Hughes, No. S18G0517 (Ga. Mar. 11, 2019).  The underlying claim involved a motor vehicle accident with serious injuries.  The tort-feasor’s policy had a $25,000 per person liability limit. The case went to trial and the plaintiff was awarded $5.3 million.  The principal question, as described by the Georgia high court, was whether “an insurer’s duty to settle arises only when the injured party presents a valid offer to settle within the insured’s policy limits or whether, even absent such an offer, a duty arises when the insurer knows or reasonably should know that settlement within the insured’s policy limits is possible.”

As to the legal issue, the court held that “an insurer’s duty to settle arises only when the injured party presents a valid offer to settle within the insured’s policy limits.”

Having concluded that the injured party must present a valid offer to settle, within the insured's policy limits, the court addressed whether such a valid offer to settle had been made. The court concluded that, because it did not include a time-limit, there was no offer, for which the insurer could face consequences for its failure to accept. The court explained: "[T]hrough the June 2 Letters, An and Hong offered to settle their claims within the insured's available policy limits and to release the insured from further liability, except to the extent other insurance coverage was available, but that the offer did not include a 30-day deadline for acceptance. If an instrument containing an offer is silent as to the time given for acceptance, the offer will be construed to remain open for a reasonable time."

This part of the opinion is very fact specific and there is no benefit to discussing the ins and outs of it here.  Rather, Hughes, a supreme court decision, and where there are not many addressing the need for a valid settlement offer to trigger a demand within limits, was selected as one of 2019’s ten most significant for its take-aways.

First, the court closely studied the correspondence between the plaintiff’s attorney, defense counsel and insurer to figure out if a valid offer to settle, within the insured’s policy limits, had been made.  Such scrutiny should benefit insurers that are confronted with a so-called bad faith set-up.  Remember, the plaintiff’s attorney may not want the insurer to accept the demand – so it makes it less than clear if it has made a demand to settle within limits.  Then, if there is an excess verdict, the plaintiff’s attorney turns around and says that it had made a demand to settle within limits and the insurer did not accept it.  Translation – the insurer is liable for the excess verdict.  Such situations deserve close scrutiny.   

Second, if the plaintiff’s attorney does not want the insurer to accept the demand, what better way to achieve that than not making one.  Instead, the plaintiff’s counsel argues that the insurer, the one with the money, and ability to achieve a settlement, should have taken the first step and tried to do so.  By not doing so, the excess verdict, it is argued, is akin to an insurer not accepting a demand within limits.  Translation – the insurer is liable for the excess verdict.  Hughes should squelch that by its requirement that there be a valid settlement offer to trigger a demand within limits.