Time-Limited Settlement Demands

Insurer Bad-Faith Liability for Failing to Accept Time-Limited Policy-Limits Settlement Demands

An insurer’s obligation to accept a reasonable settlement demand within policy limits derives from the implied covenant of good faith and fair dealing rather than from any express policy term. Comunale v. Traders & General Insurance, 50 Cal. 2d 654 (Cal. 1958) held that "[t]here is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement," and that "[t]his principle is applicable to policies of insurance." The insurer, "in deciding whether a claim should be compromised, must take into account the interest of the insured and give it at least as much consideration as it does to its own interest," and "[w]hen there is great risk of a recovery beyond the policy limits so that the most reasonable manner of disposing of the claim is a settlement which can be made within those limits, a consideration in good faith of the insured’s interest requires the insurer to settle the claim." An insurer that "refuses to accept a reasonable settlement within the policy limits in violation of its duty to consider in good faith the interest of the insured in the settlement, is liable for the entire judgment against the insured even if it exceeds the policy limits."

When the demand carries a deadline, the insurer’s failure to respond before it expires can support liability, but the deadline itself does not establish bad faith. Southern General Insurance v. Holt, 262 Ga. 267 (Ga. 1992) rejected the insurer’s argument that "an insurance company has no duty to its insured to respond to a deadline to settle a claim within policy limits when the company has knowledge of clear liability and special damages exceeding the policy limits"; instead, "the issue is whether all the facts show sufficient evidence to withstand an insurance company’s motion for directed verdict and permit a jury to determine whether the insurer acted unreasonably in declining to accept a time-limited settlement offer," because "[t]he jury generally must decide whether the insurer, in view of the existing circumstances, has accorded the insured ‘the same faithful consideration it gives its own interest.’" The court observed, however, that "[a]n insurance company does not act in bad faith solely because it fails to accept a settlement offer within the deadline set by the injured person’s attorney," and that "[n]othing in this decision is intended to lay down a rule of law that would mean that a plaintiff’s attorney under similar circumstances could ‘set up’ an insurer for an excess judgment merely by offering to settle within the policy limits and by imposing an unreasonably short time within which the offer would remain open."

A valid demand within limits is a threshold requirement. In First Acceptance Insurance Company of Georgia, Inc. v. Hughes, 305 Ga. 489 (Ga. 2019), the Supreme Court of Georgia concluded "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." Because the claimants’ letters specified no acceptance period, the court applied the rule that where 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," reasoned that "[a]s An and Hong’s offer was not a time-limited settlement demand, First Acceptance was not put on notice that its failure to accept the offer within any specific period would constitute a refusal of the offer," and reinstated summary judgment for the insurer. Texas imposes the same threshold through the Stowers doctrine: American Physicians Insurance Exchange v. Garcia, 876 S.W.2d 842 (Tex. 1994) held that "[t]he Stowers duty is not activated by a settlement demand unless three prerequisites are met: (1) the claim against the insured is within the scope of coverage, (2) the demand is within the policy limits, and (3) the terms of the demand are such that an ordinarily prudent insurer would accept it, considering the likelihood and degree of the insured’s potential exposure to an excess judgment," and that "[a] demand above policy limits, even though reasonable, does not trigger the Stowers duty to settle."

Georgia has codified a safe harbor for these demands. Grange Mutual Casualty Co. v. Woodard, 300 Ga. 848 (Ga. 2017), answering certified questions about O.C.G.A. § 9-11-67.1, quoted the statute’s command that any pre-suit "offer to settle a tort claim for personal injury, bodily injury, or death arising from the use of a motor vehicle and prepared by or with the assistance of an attorney on behalf of a claimant or claimants shall be in writing and contain the following material terms," the first of which is "[t]he time period within which such offer must be accepted, which shall be not less than 30 days from receipt of the offer." The statute further provides that recipients "shall have the right to seek clarification regarding terms, liens, subrogation claims, standing to release claims, medical bills, medical records, and other relevant facts," and that "[a]n attempt to seek reasonable clarification shall not be deemed a counteroffer." The court held that a pre-suit offer "must be accepted in writing, at least as to the five terms listed in subsection (a)," and that the statute "does not prohibit a claimant from conditioning acceptance of a Pre-Suit Offer upon the performance of some act, including a timely payment," subject to the statutory floor of ten days after written acceptance for any required payment.

Florida’s statutory bad-faith remedy contains an express cure period. Under Fla. Stat. § 624.155, "[a]s a condition precedent to bringing an action under this section, the department and the insurer must have been given 60 days’ written notice of the violation," and "[n]o action shall lie if, within 60 days after filing notice, the damages are paid or the circumstances giving rise to the violation are corrected"; the applicable limitations period is "tolled for a period of 65 days by the mailing of the notice." Taken together, the decisions and statutes assign the time-limited demand a defined role: the common-law duty attaches when a claimant presents a valid demand within limits that a reasonably prudent insurer would accept in light of clear liability and probable excess exposure, and an insurer that lets such a demand lapse answers for the entire judgment, while a claimant cannot manufacture bad faith through an arbitrarily short deadline or an offer never validly made. The statutory safe harbors operate on both ends of the exchange — Georgia’s 30-day minimum acceptance period and clarification procedure protect the insurer from a deadline default during the evaluation of the claim, and Florida’s 60-day civil remedy notice gives the insurer a final opportunity to pay or correct the violation before statutory bad-faith exposure attaches.