Following an $8.1 million judgment against Nationwide Insurance, the Georgia Chamber of Commerce has weighed in onthe side of the insurer in asking the U.S. Court of Appeals for theEleventh Circuit to rein in what it describes as a rising tide of“set-up cases” engineered by lawyers using time-limited policydemands to gin up “bad faith” judgment claims against insurers.

Chamber lawyers and BryanCave partners Adwoa Seymour and William Custer argued in anAugust 23 motion to file an amicus brief with the courtthat the case is a prime example of a “recent epidemic of bad-faithlitigation in Georgia” stemming from the abuse of so-called Holtletters to allow essentially any response for an insured’s policylimits other than immediate acceptance to be deemed negligent andused to support a bad-faith failure to settle.

The chamber’s brief claims that the recurring“bad-faith-failure-to-settle” actions actually incentivize partiesnot to settle and lead to insurers being held liable for judgmentsfar in excess of their insureds’ policy limits, raising rates foreveryone and making policy limits “effectively unenforceable.”

The Georgia Supreme Court, in Southern General Ins. Co. v.Holt, 416 S.E. 2d 274, in 1992 upheld a jury verdict that aninsurer had demonstrated bad faith when it failed to timely respondto a policy limit request on behalf of a woman injured in a carwreck, even though medical records showed her bills far exceededthe policy limits.

Attorneys routinely file “Holt demands” as part of initialclaims settlement negotiations.

Eleventh Circuit case

The case before the Eleventh Circuit stems from a fatal wreck in2005 that killed Stacey Camacho. Her husband sued the other driver,Seung Park, and his lawyer sent Nationwide a time-limited, 10-daydemand for Park’s $100,000 policy limit. In exchange, he offered alimited liability release shielding Park from any personalliability for any other claims, with the exception of any otherinsurance coverage that might be available to Camacho’s family.

Nationwide rejected the offer 13 days after it was made, andsaid it would only pay if the family supplied a general releaseunder which they would have to repay the insurer if any otherclaims were made related to medical liens.

No agreement was reached, and after a 2009 trial, a FultonCounty jury awarded Camacho and his widow’s estate $5.85 million.Park assigned his right to sue Nationwide for negligence and badfaith for failing to settle the claims against him to Camacho.

Camacho sued Nationwide in federal court in Georgia’s NorthernDistrict, and a jury determined that Nationwide had actednegligently and in bad faith. In May, Judge Amy Totenberg orderedthe insurer to pay more than $8.1 million in damages, includingmore than $2.4 million in accrued interest.

Nationwide appealed, and the insurer’s August 16 brief, like thelatest brief, takes sharp aim at Holt demand-based claims.

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The Georgia chamber’s brief zeroed in on a single issue:Whether “mere negligence” on an insurer’s part can form the basisfor a bad-faith claim that is subsequently handled as a tort rathera contract dispute. (Photo: Thinkstock)

An issue of ‘bad faith’?

Authored by Alston & Bird partners Michael Kenny, TiffanyPowers and Andrew Tuck and associate Bryan Lutz, Nationwide’s briefclaims Georgia law appropriately provides protection for insuredclients when insurers unreasonably withhold payment despite clearevidence of liability “on the calculated bet that their insurednevertheless will prevail at trial.”

Even so, it said, “The siren song of large payouts has swayedsome unscrupulous attorneys to ignore whether there wasactual bad faith by an insurer, and to devise schemes thatentrap insurers into artificial bad-faith liability.”

The Georgia chamber’s brief zeroed in on a single issue: Whether“mere negligence” on an insurer’s part can form the basis for abad-faith claim that is subsequently handled as a tort rather acontract dispute.

While Holt was “intended to further thewell-intentioned policy goal of encouraging settlement withinpolicy limits,” the brief said, in intervening years, court rulingshave “established a body of murky precedent that fails to definethe basis upon which claimants may seek redress” against an insureraccused of bad faith.

Seeking ‘clarity’

The chamber said it “seeks clarity on the legal foundation forthese claims.”

The filing said that most other states have adopted a higherstandard than mere negligence, citing a 2006 Arkansas case definingbad faith as “dishonest, malicious, or oppressive conduct”characterized by “hatred, ill will, or a spirit of revenge”(Moss v. Am. Alternative Ins. Corp., 5:06cv00010, E.D.Ark.).

Custer referred questions to the Georgia Chamber and itspresident, Chris Clark. The chamber said in an email that severalGeorgia statutes allow for the imposition of penalties against aninsurer who demonstrates bad faith. The problem, it said, is thatexposure for an insurer accused of negligently failing to accept aHolt demand “is uncapped and is based on Georgia appellate law, notstatutory law.”

The Camacho family is being represented by Jay Sadd and RichDolder of Slappey & Sadd, and Brandon Cathey and Darrell Hinsonof Swope, Rodante.

“I am taken aback by the chamber’s position that its fewinsurance industry members should enjoy immunity at the expense ofthe majority of chamber members who purchase insurance protection,”Dolder said in an email.

Greg Land is a reporter for the Daily Report, an ALM Mediaproperty. He can be reached at [email protected].