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

Chamber lawyers and Bryan Cave partners Adwoa Seymour and William Custer argued in an August 23 motion to file an amicus brief with the court that the case is a prime example of a “recent epidemic of bad-faith litigation in Georgia” stemming from the abuse of so-called Holt letters to allow essentially any response for an insured’s policy limits other than immediate acceptance to be deemed negligent and used to support a bad-faith failure to settle.

The chamber’s brief claims that the recurring “bad-faith-failure-to-settle” actions actually incentivize parties not to settle and lead to insurers being held liable for judgments far in excess of their insureds’ policy limits, raising rates for everyone 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 an insurer had demonstrated bad faith when it failed to timely respond to a policy limit request on behalf of a woman injured in a car wreck, even though medical records showed her bills far exceeded the policy limits.

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

Eleventh Circuit case

The case before the Eleventh Circuit stems from a fatal wreck in 2005 that killed Stacey Camacho. Her husband sued the other driver, Seung Park, and his lawyer sent Nationwide a time-limited, 10-day demand for Park’s $100,000 policy limit. In exchange, he offered a limited liability release shielding Park from any personal liability for any other claims, with the exception of any other insurance coverage that might be available to Camacho’s family.

Nationwide rejected the offer 13 days after it was made, and said it would only pay if the family supplied a general release under which they would have to repay the insurer if any other claims were made related to medical liens.

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

Camacho sued Nationwide in federal court in Georgia’s Northern District, and a jury determined that Nationwide had acted negligently and in bad faith. In May, Judge Amy Totenberg ordered the insurer to pay more than $8.1 million in damages, including more than $2.4 million in accrued interest.

Nationwide appealed, and the insurer’s August 16 brief, like the latest 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 basis for a bad-faith claim that is subsequently handled as a tort rather a contract dispute. (Photo: Thinkstock)

An issue of ‘bad faith’?

Authored by Alston & Bird partners Michael Kenny, Tiffany Powers and Andrew Tuck and associate Bryan Lutz, Nationwide’s brief claims Georgia law appropriately provides protection for insured clients when insurers unreasonably withhold payment despite clear evidence of liability “on the calculated bet that their insured nevertheless will prevail at trial.”

Even so, it said, “The siren song of large payouts has swayed some unscrupulous attorneys to ignore whether there was actual bad faith by an insurer, and to devise schemes that entrap insurers into artificial bad-faith liability.”

While Holt was “intended to further the well-intentioned policy goal of encouraging settlement within policy limits,” the brief said, in intervening years, court rulings have “established a body of murky precedent that fails to define the basis upon which claimants may seek redress” against an insurer accused of bad faith.

Seeking ‘clarity’

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

The filing said that most other states have adopted a higher standard than mere negligence, citing a 2006 Arkansas case defining bad 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 its president, Chris Clark. The chamber said in an email that several Georgia statutes allow for the imposition of penalties against an insurer who demonstrates bad faith. The problem, it said, is that exposure for an insurer accused of negligently failing to accept a Holt demand “is uncapped and is based on Georgia appellate law, not statutory law.”

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

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

Greg Land is a reporter for the Daily Report, an ALM Media property. He can be reached at gland@alm.com.

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Georgia Chamber sides with Nationwide Insurance over bad-faith judgment

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