Eleventh Circuit Reaffirms There Is No Bad Faith Unless the Settlement Offer Fully Protects the Insured

Recently, the Eleventh Circuit, applying Georgia law, reaffirmed that an insurer cannot be liable for negligently failing to settle a case unless the settlement demand provides protection to the insured against all potential claims, even those which have not been asserted.

Linthicum v. Mendakota Insurance Company, No. 16-16593 (11th Cir. May 3, 2017) arises from truly tragic circumstances.  While driving intoxicated, Bobby James Hopkins, II, struck and killed the Linthicums’ 11 year old son.  Hopkins fled the scene, and attempted to have his car repaired.  The child lived a short time before dying. 

When the claim was reported, Mendakota Insurance Company (Insurer) noted that there was a “probable recovery” and set the reserves for the $25,000 policy limit of Hopkins’ auto policy.  Insurer informed Hopkins that he would be responsible for any excess liability over the $25,000 policy limit.  Insurer attempted on several occasions to tender the $25,000 policy limit to settle all claims which might exist against Hopkins, but the Linthicums’ attorney declined to accept the tender.  Eventually, the Linthicums sent Insurer a timed settlement demand for the $25,000 policy limit, which demand was limited to the wrongful death claims the Linthicums had against Hopkins.  Insurer failed to respond, and the Linthicums filed a wrongful death suit against Hopkins.  At no time did the Linthicums open an estate proceeding on behalf of their deceased son, and the lawsuit did not assert any claims which an estate might have for the pain and suffering endured by the Linthicums’ son before he died.  After receiving the lawsuit, Insurer contacted counsel to try and retender the $25,000, only to be told that the settlement demand had expired.  Insurer was also told that its original tender was for more claims than were covered by the expired settlement demand.  The Linthicums reached a settlement agreement with Hopkins for $1,200,000, along with an assignment of Hopkins’ claims against Insurer. 

The trial court granted summary judgment to Insurer, and the Eleventh Circuit upheld that decision.  The court reasoned that the settlement demand was ineffective to trigger bad faith liability because the demand would settle only some of the claims (the wrongful death) claims against Hopkins, leaving Hopkins potentially exposed to other liability in the form of a claim by the non-existent estate of the Linthicums’ deceased son.  The Linthicums argued that the absence of any claim asserted by an estate, as well as the non-existence of such an estate, meant that the timed settlement demand would cover all existing, asserted liability against Hopkins.  Therefore, reasoned the Linthicums, Insurer could be liable for negligently failing to accept that demand.  The courts rejected this argument, noting that Georgia law provided a method of recovery for the estate, should an estate be opened.

The Linthicum holding reaffirms that under Georgia law a carrier acts negligently in refusing to settle a claim only when the settlement demand effects a complete release of liability against the insured party.  Because the Linthicums’ demand left Hopkins potentially exposed to future liability, Insurer could not be liable for failing to accept the demand.

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Avoiding Insurance Bad Faith
Cozen O’Connor represents insurance clients in jurisdictions throughout the U.S. against statutory and common law first- and third-party extracontractual claims for actual and consequential damages, penalties, punitive and exemplary damages, attorneys’ fees and costs, and coverage payments. Whether bad faith claims are addenda to a broader coverage matter or are central to the complaint, Cozen O’Connor attorneys know how to efficiently respond to extracontractual causes of action. More
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