WHITESIDE v. GEICO INDEMNITY COMPANY (2021)

United States Court of Appeals, Eleventh Circuit.2021-05-11No. No. 18-15074

Summary · law.co

Holding. The court affirmed the Georgia Supreme Court's rulings that the insurer's lack of notice did not bar the bad faith failure-to-settle claim, that the insurer remained liable despite the insured's loss of coverage, and that the excess default judgment could serve as the measure of damages without relitigating the underlying injury claim.

GEICO refused to settle a claim brought by an injured third party against one of its insureds, Bonnie Winslett. The insured then failed to respond to a lawsuit filed by that injured party because she mistakenly believed GEICO was handling the matter and discarded her summons. A default judgment significantly exceeding the policy limits resulted, forcing Winslett into bankruptcy. She sued GEICO for bad faith failure to settle. GEICO raised three arguments on appeal: that a Georgia statute relieved it of liability because it had no notice of the original lawsuit, that the insured's own conduct broke the causal chain between GEICO's rejection and the excess judgment, and that using the excess judgment as damages violated due process since GEICO was never notified of the underlying suit.

The 11th Circuit certified three questions to Georgia's Supreme Court. That court rejected GEICO's notice-based immunity defense, finding that under these circumstances the statute does not bar liability as a matter of law. The Georgia court also held that GEICO remained liable for its settlement duty breach even though the insured lost coverage by failing to notify the insurer of the suit. Finally, it ruled that the insured need not relitigate the original injury claim to establish her damages in the bad faith suit; the excess judgment itself serves as the proper measure of what she lost due to GEICO's breach.

The appellate court affirmed the Georgia Supreme Court's answers to all three certified questions, rejecting GEICO's constitutional arguments as well.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Whether an insurer's lack of notice of a lawsuit against its insured bars liability for bad faith failure to settle
Whether an insurer may be held liable when the insured loses coverage by breaching notice requirements
Whether damages in a bad faith failure-to-settle claim must be established by relitigating the original injury case

Procedural posture

The 11th Circuit certified three questions of Georgia law to the Georgia Supreme Court, which answered those questions; the federal court now reviews and affirms the state court's responses.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

The relevant facts of this appeal are set out in Whiteside v. GEICO Indemnity Co., 977 F.3d 1014 (11th Cir. 2020). To briefly summarize here, “GEICO has been found liable for rejecting a policy-limits demand against one of its insureds. The measure of damages in this suit came from an earlier negligence case that GEICO neither knew about nor participated in.” Id. at 1015. The attorney for Terry Guthrie, the injured party, “did not notify GEICO about the negligence suit—even though he and the insurance company had been communicating about the injured partys claim.” Id. And Bonnie Winslett, GEICOs insured driver, “thought GEICO was handling the case, so she threw away her summons and complaint, failed to answer either, and decided against notifying GEICO.” Id. at 1016. That resulted in a $2.9 million excess default judgment against Winslett, who was then forced into involuntary bankruptcy. Her estate sued GEICO for bad faith failure-to-settle and, after a trial, the jury concluded that GEICO was 70% liable for that excess default judgment.

GEICO argued three points on appeal. First, it asserted that O.C.G.A. § 33-7-15 and a corresponding policy provision relieved unnotified insurers of liability for any judgment against its insured. Second, GEICO contended that its rejection of the policy-limits demand was not the proximate cause of the excess default judgment; instead, it said that Winslett, its insured, “caused the entry of that default judgment by throwing away the Summons and Complaint, not informing GEICO, and not taking steps to answer the Complaint.” And third, it claimed that using the excess default judgment as the measure of damages violated due process because GEICO did not have notice of that original suit. These arguments raised novel issues of Georgia law, so we certified three questions to the Supreme Court of Georgia:

1. When an insurer has no notice of a lawsuit against its insured, does O.C.G.A. § 33-7-15 and a virtually identical insuring provision relieve the insurer of liability from a follow-on suit for bad faith?

2. If the notice provisions do not bar liability for a bad-faith claim, can an insured sue the insurer for bad faith when, after the insurer refused to settle but before judgment was entered against the insured, the insured lost coverage for failure to comply with a notice provision?

3. Does a party have the right to contest actual damages in a follow-on suit for bad faith if that party had no prior notice of or participation in the original suit?

Id. at 1022.

This case now returns to us from the Supreme Court of Georgia, which considered each of our questions. See GEICO Indem. Co. v. Whiteside, No. S21Q0227, ––– S.E.2d ––––, 2021 WL 1521527 (Ga. Apr. 19, 2021). It answered the first question with a qualified “no.” Id. at ––––, at *7. The court noted that the “question is whether Winsletts breach was an intervening act sufficient to break the causal chain between GEICOs unreasonable rejection of Guthries settlement demand and the excess default judgment entered against Winslett,” which turns on “whether the facts of the case supported a finding that GEICO reasonably should have foreseen Winsletts breach and the consequences flowing from it.” Id. The court then rejected GEICOs argument that the notice provisions relieved it of liability, explaining that “under the facts and circumstances of this case, OCGA § 33-7-15 and the corresponding policy provisions regarding notice to the insurer of the filing of a suit against the insured do not bar liability as a matter of law for Whitesides negligent or bad faith failure-to-settle claim on the basis that GEICO did not receive notice of the lawsuit against its insured.” Id. at ––––, at *9.

On the second question, the court gave a qualified “yes.” Id. at ––––, at *10. It concluded that “even though Winslett lost coverage when she failed to notify GEICO of Guthries suit, GEICO is liable for its negligent failure to settle Guthries claim under the circumstances of this case.” Id. at ––––, at *11. After all, “Winslett was a covered insured under the policy; GEICO owed her a duty to settle; GEICO breached that duty; and the jury found that GEICO was partially at fault for Winsletts failure to comply with the notice-of-suit provision and the resulting default excess judgment entered against Winslett.” Id.

Finally, the court responded “no” to the third question because if “GEICO were able to re-litigate Guthries personal injury claims in the failure-to-settle suit, and then use Guthries measure of damages as a substitute for what Winslett actually suffered as a result of the excess default judgment against her, Winslett may not be made whole even if the jury finds entirely in her favor.” Id. It reasoned that “Winslett remains liable to Guthrie,” so “if the bankruptcy estate does not recover enough from GEICO to satisfy Guthries judgment, the estate would not be fully compensated for Winsletts damages, and GEICO would escape responsibility for breaching its settlement duty to Winslett.” Id.

The answers supplied by the Supreme Court of Georgia largely resolve this appeal.

We thank that court for its guidance, and the decision below is AFFIRMED.

FOOTNOTES

. GEICO also argues that “enforcing the default judgment against GEICO violated GEICOs due process rights” under the Fourteenth Amendment because it did not receive notice of the original action against Winslett after she threw away the summons and complaint. We find no merit in this argument. Like we said before, GEICO “has not cited a case persuading us that the United States Constitution applies in the way it had hoped.” Whiteside, 977 F.3d at 1022 n.3. And as the Supreme Court of Georgia explained, GEICOs due process argument “makes little sense under the circumstances of this case because damages in a negligent failure-to-settle case reflect the damages the insured incurred as a result of the insurers tortious failure to settle a claim brought against the insured by a third party.” Whiteside, ––– S.E.2d at ––––, 2021 WL 1521527, at *11. Moreover, here GEICO had notice and an opportunity to argue to the jury that it did not cause the excess default judgment—the jury just did not agree.

PER CURIAM: