Georgia Injury Lawyers Blog

Insurance Law: Eroding Limits and Exhaustion of Limits

September 24, 2015 | by Slappey & Sadd, LLC

Eroding Limits and Exhaustion of Limits

Although policy limits generally constitute the boundaries of the insurer’s indemnity obligations, most liability policies do not limit the amount an insurer must pay in defense of claims. One way an insurer may limit defense costs and its overall exposure is through the use of “eroding” or “burning limits” policies. In these policies, defense costs erode indemnity limits. In other words, every dollar spent on defense reduces by one dollar the amount available to settle or otherwise resolve the claim. Increasing numbers of professional liability policies and employment practices liability policies include eroding limits. Although the idea is gaining popularity among automobile, homeowners’ and commercial general liability policies, competitive markets in some industries and state regulations are likely to curtail expansive use of eroding coverage.

A similar situation arises when there are several claims, and the payment of one or more exhausts policy limits. Whether an insurer has a duty to continue to defend its insured after policy limits have been exhausted is a contractual matter spelled out in the policy. Depending on the policy and the use of the limits, an insurer’s duty to defend some claims may be satisfied by defending and accomplishing a good-faith settlement of other claims in a manner that provides a real benefit to the insured.

Insurance Law: Issues And The Tripartite Relationship

September 23, 2015 | by Slappey & Sadd, LLC

Providing a defense when the insurer reserves its rights

The most common problem that arises in the “tripartite relationship” occurs when the carrier undertakes the defense of the insured pursuant to a reservation of rights. In such cases, it is possible for an insurer to take less interest in paying for a vigorous defense, because the insurer may ultimately prevail on the coverage issue and withdraw its defense. Additionally, if defense counsel is aware of the coverage issues, defense counsel may gather discovery or steer the case toward a coverage result that is favorable to the insurer (for example, by eliciting deposition testimony that supports a particular coverage defense). In these cases, conflicts can generally be avoided where:

appointed defense counsel withdraws

Insurance Law: The Tripartite Relationship

September 21, 2015 | by Slappey & Sadd, LLC

The Tripartite Relationship

When a liability insurer retains defense counsel to represent an insured, the resulting relationship among the three parties is often called a “tripartite relationship.” This relationship is unique in the insurance context. Georgia, like a majority of states, generally holds that the defense attorney has two clients: the insurance company and the insured. In most situations, the objectives of the insurer and the insured align and the tripartite relationship is beneficial to all parties. Insurers have an interest in controlling the costs of litigation, which can be done through billing arrangements with appointed counsel. In turn, defense attorneys receive regular business from their insurance company clients and are generally well compensated for their services. Meanwhile, the insured is to be provided a defense from competent counsel with expertise in defending against claims brought against the insured.

Nonetheless, any time multiple parties are involved in such a relationship, ethical issues arise. One court stated that the ethical dilemma created by the tripartite relationship would “tax Socrates, and no decision or authority … furnishes a completely satisfactory answer.” Lawyers appointed by the insurance company may be in-house attorneys, staff counsel, “captive” law firms, or panel counsel. Regardless of the label, the attorney appointed by the insurance company to represent the insured typically has a business or employment relationship (often a long-standing one) with the insurer. The laws of human nature attendant to this relationship are difficult to ignore.

Insurance Law: Unfair Claims Practices Act

September 18, 2015 | by Slappey & Sadd, LLC

Unfair Claims Practices Act

Georgia’s Unfair Claims Settlement Practices Act is designed “to set forth standards for the investigation and disposition of claims arising under policies or certificates of insurance issued to residents of Georgia.” The UCSPA does not cover claims involving workers’ compensation, fidelity, or surety insurance. The Act sets out fourteen acts that constitute unfair claims settlement practices when committed.

The 14 Acts That Constitute Unfair Claims Settlement Practices

Insurance Law: No Action Clause

September 17, 2015 | by Slappey & Sadd, LLC

No Action Clause

Many policies contain a provision limiting the amount of time in which an insured can bring suit against its insurer, effectively reducing the statute of limitations by way of contractual agreement. Such a contractual limitation or “no-action” clause provides that any suit against the insurer arising out of the policy must be brought within a specific time following “inception of the loss” or some other trigger. Such provisions are generally enforceable. The Supreme Court of Georgia has expressly rejected arguments that such clauses are “unfair,” ambiguous when, for example, they are read with other requirements allowing an insurer 60 days to decide on payment after submission of a proof of loss.

An insurer may waive the contractual limitation “where the insurer leads the insured by its actions to rely on its promise to pay, express or implied” or where conduct on the part of the insurer reasonably leads the insured to believe that strict compliance with the limitation provision would not be insisted upon. For example, where settlement negotiations lead the policyholder to believe that payment will be forthcoming without a lawsuit, the insurer cannot require the action to be brought within a certain time. Also, if an insurer does not deny liability and takes actions indicating an intent to pay the claim without suit, an issue of fact is presented as to whether the insured was lulled into a belief that the limitation for filing suit was waived. However, “mere negotiation for settlement, unsuccessfully accomplished, is not that type of conduct designed to lull the claimant into a false sense of security so as to constitute a waiver of the limitation defense.”Where suit has been delayed beyond the stipulated time on account of direct promises to pay the claim, the action is not barred by delay. It is not necessary that there be an actual promise to pay in order for the acts of the insurer to effect a waiver of the time limitation if facts show that negotiations for a settlement have led the insured to believe that the insurer will pay the claim. In most cases, whether a waiver occurred is a jury issue.

Insurance Law: Duty To Defend Multiple Insureds

September 15, 2015 | by Slappey & Sadd, LLC

Duty To Defend Multiple Insureds

Where there are multiple insureds under a single policy, each insured is entitled to a separate defense. An insurer owes a duty of good faith and fair dealing to each insured. An additional insured, however, may have to elect coverage under the policy by notifying the insurer of his election and demanding a defense.

Reservation Of Rights

Insurance Law: Exhaustion Of Policy Limits

September 10, 2015 | by Slappey & Sadd, LLC

Duty To Defend And Exhaustion Of Policy Limits

Generally, an insurer does not have a continued duty to defend its insured after the insurer has exhausted policy limits by settling multiple claims with the insured’s consent, even though there might be additional claims arising from the same accident. In Liberty Mutual Ins. Co. v. Mead Corp., the Supreme Court of Georgia held that the insurer had no further duty to defend remaining claims after settling other claims and exhausting policy limits. The insurer had the insured’s consent to settle the claims, and the applicable insurance policy was construed to mean that “the duty to defend is limited by the amount of liability coverage afforded by the policy.”Similarly, if the insurer exhausts policy limits in good faith settlements of several claims, the insurer need not defend its insured on later-filed claims arising from the same accident. The rule is true even if the insurer mistakenly enters a defense on the later-filed claim, so long as the insurer did not prejudice the insured.

Based on a recent ruling by the Georgia Supreme Court, it remains to be seen whether this rule will hold true if the insurer commences to defend several claims arising out of a single accident without clearly reserving its rights to withdraw its defense at such time as policy limits are exhausted by payment to one or more of the claimants. “An insurer’s duty to defend its insured is not satisfied when the insurer settles by paying its policy limits to the wrong party.” The insurance policy in Atkinson v. Atkinson (like the one in Liberty Mutual Ins. Co. v. Mead), provided that the duty to defend would end upon payment of policy limits. The insurer entered a defense and paid policy limits, but to the wrong party. Because the payment did not resolve the case against the insured, the insurer could not withdraw.

Insurance Litigation: Duty To Defend

September 9, 2015 | by Slappey & Sadd, LLC

Duty To Defend

An important value provided by a liability policy is the insurer’s promise to retain attorneys to handle the defense of a lawsuit on behalf of an insured. An insurer’s failure to defend sometimes accompanies the insurer’s failure to take advantage of a reasonable opportunity to settle within policy limits, making the failure to defend relevant to bad faith. A typical commercial general liability policy includes the following:

We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result.

Insurance Law: Duty To Give Notice And UM Coverage

September 7, 2015 | by Slappey & Sadd, LLC

What Is “UM” Coverage?

“UM” coverage is an optional coverage that an insured may purchase to cover the insured who is injured by the negligence of another person who has no liability coverage or insufficient liability coverage to compensate the insured for his or her injuries. Like any insurance policy, an automobile policy providing UM coverage will have its own provisions regarding notice of a claim to the insurer. Care must be taken in reading the policy to determine whether the General Conditions section of the policy contains a notice provision applicable to all coverages or whether the UM coverage section contains its own notice provision.

Manzi v. Cotton States Mut. Ins. Co.

Insurance Law: Failure To Give Notice As Soon As Practicable

September 4, 2015 | by Slappey & Sadd, LLC

Whether reasonableness of late notice can be decided as a matter of law, or whether it should remain in the province of the jury depends on two factors:

the sufficiency of the excuse
insured’s diligence after any disability has been removed