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Articles Tagged with Insurance Bad Faith

The common occurrence of a written Holt demand notwithstanding, there is no requirement under Georgia law that the insurer’s failure to settle within policy limits be proven by the insurer’s failure to accept a formal, written demand within a stated time. Rather, the law requires an inquiry into “whether the insurer had an opportunity to make an effective compromise.” Although refusing to place an “affirmative duty on the company to engage in negotiations concerning a settlement demand that is in excess of the insurance policy’s limits,” the Georgia Supreme Court has not required that the “opportunity to make an effective compromise” be in any particular form.

Settling Within Policy Limits

The “argument that an insurer may not be held liable for tortious refusal to settle in the absence of a settlement demand from the plaintiff is not supported by Georgia law.” Indeed, the Georgia Court of Appeals has held that in the appropriate situation an insurer may have a duty to make an offer: “The failure either to settle within policy limits or to make an offer of settlement creates an issue of bad faith of the insurer, because the issue arises whether the insurer places its financial interest superior to the interests of its insured who is placed at great risk for an excess judgment.”


Many lawsuits involving an insurer’s bad-faith failure to settle are brought by the claimant and not by the insured. Others are brought by both the claimant and the insured. Because a third-party claimant that lacks privity with the insurance company generally has no cause of action against the insurer for claims handling, a claimant who prosecutes a bad-faith claim generally does so by taking an assignment from the insured. Because liability policies have clauses forbidding the insured from assigning claims or settling claims without the insurer’s consent, such assignments can only be accomplished in certain situations.

bad faith litigationSouthern Guaranty Ins. Co. v. Dowse

Insurance Bad Faith And Common Law

In addition to the cause of action for bad-faith failure to pay that is grounded in statute, Georgia recognizes a cause of action for insurance bad faith that is grounded in the common law. As explained below, common-law bad faith is associated with a liability insurer’s fiduciary duty to protect its insured from the risks associated with litigation against the insured. In most cases, these risks include legal liability to the insured for damages the insured has allegedly caused to a third-party claimant. Succinctly stated, “[a]n insurance company may be liable for damages to its insured for failing to settle the claim of an injured person where the insurer is guilty of negligence, fraud, or bad faith in failing to compromise the claim.” The most common example of an insurance company’s liability for bad faith arises when the insurance company fails to take advantage of a reasonable opportunity to settle claims against its insured within policy limits.

Origins and the Smoot Trilogy

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