Acceptance and Rejection of The Time-Limited Demand
The law of contract formation with respect to offers, counteroffers and rejections informs whether an insurer fails to take advantage of an offer to settle within policy limits. Accordingly, when negotiating a possible settlement within policy limits, the following rules apply:
- The offeror is master of his offer and may condition the terms under which an offer may be accepted.
- Failure to accept the offer in strict compliance with its terms or an “acceptance” that purports to vary a single term is deemed a rejection.
- A counteroffer is a rejection of the initial offer.
- Oral agreements to settle are binding.In accordance with these rules of contract formation, a claimant may send a Holt demand to an insurer stating, for example, that the claimant will accept a certain amount so long as the insurer accepts the offer in writing by a certain date. If the insurer fails to respond within the stated time limit, the insurer has rejected the offer as a matter of law. If the insurer makes a counteroffer prior to the deadline, the insurer has rejected the offer as a matter of law. If the claimant rejects the insurer’s counteroffer, the insurer may not then accept the original offer, even if within the originally stated time, unless the claimant revives the offer. Finally, such dealings may be consummated in writing, orally, or in any combination, though problems of proof may occur with regards to negotiations and agreements not confirmed in writing.
Frickey v. Jones
Whether or not an insurer has made a counteroffer to a time-limited demand has been hotly litigated in recent years. The Supreme Court of Georgia has consistently applied the age-old common-law rules of contract formation stated above to hold that a response by the insurance company that does “not purport to accept [the claimant’s] offer unequivocally and without variance of any sort” is a rejection. Frickey v. Jones is typical of these disputes in that it arises in the context of a motion to enforce settlement agreement. In Frickey v. Jones, the claimant sent a demand letter providing the insurer a five-day period to accept an offer to settle for policy limits. The insurer responded within the five-day period, stating its willingness to tender policy limits and as follows: “Obviously, payment is complicated by what appears to be a Grady Hospital lien as well as potential liens by your client’s health carrier. Please advise me of the status of these liens.”
The claimant viewed this language as a rejection of the demand under the theory that it added the condition of resolving liens prior to payment. The insurer agreed, later writing that it would “tender the policy limits . . . if you were able to resolve the Grady Hospital lien as well as potential liens by your client’s health carriers.” The insurer, on behalf of its insured, filed a motion to enforce the alleged settlement agreement. The Supreme Court of Georgia ruled that no settlement agreement had been made, as the insurer purported to “accept” the offer on the condition that liens be resolved, making the attempted acceptance a counteroffer.
McReynolds v. Krebs
The Supreme Court of Georgia again addressed a nearly identical exchange in McReynolds v. Krebs. In McReynolds v. Krebs, the claimant made a time-limited demand for policy limits that did not mention how a known lien by Grady Hospital would be resolved. The insurer made a timely response as follows:
Our limits are $25,000/$50,000 and we agree to settle this matter for the $25,000 per person limit. Please call me in order to discuss how the lien(s) (Specifically, but not limited to the $273,435.35 lien from Grady Memorial Hospital) will be resolved as part of this settlement.
In the motion to enforce settlement that followed, the insurer argued that its reference to the lien merely made an inquiry and did not add conditions to the demand. The Supreme Court disagreed, noting that the language used did not inquire as to the existence of liens but indicated that counsel needed to discuss how the known liens would be resolved as part of the settlement. Accordingly, a counteroffer was made.
The issue of whether a counteroffer was made arises in many bad-faith cases, as insurers sometimes defend such cases on the theory that it had accepted an offer to settle within policy limits that the claimant refused to consummate.