In the case of Indemnity Co. v. Whiteside, the Georgia Supreme Court held that an insurer’s bad faith failure to settle a claim may expose it to liability for judgments in excess of the insured’s policy coverage, even in situations where the insured also breaches its contractual obligations to notify the insurer of a suit that was filed against it.

According to the court's ruling, an insurer can no longer claim that its lack of notice of a lawsuit against it, excuses it for failing or refusing to settle the suit.

In the case of Whiteside, the Georgia Supreme Court found that an insurer’s bad faith failure to resolve a claim can result in liability for judgments in excess of the insured’s policy limit, even in cases where the insured also breaches its contractual obligation to notify the insurer of a lawsuit filed against it.

Relevant Factual Background

In 2012, Bonnie Winslett, a permissive driver of a vehicle insured by GEICO hit and injured a bicyclist. GEICO later informed the driver that she was covered by the vehicle’s owner’s policy. However, GEICO did not ask her to notify it of any accident-related legal documents nor did it inform her of her duty under the policy to notify GEICO if she was sued.

The attorney representing the injured bicyclist, then demanded that GEICO settle with the bicyclist by paying him the $30,000 policy limit. GEICO refused and counter-offered $12,409. The attorney never responded to this offer.

Instead, the attorney for the bicyclist filed a lawsuit against the driver. The driver never notified GEICO of the suit, even though she had been advised to do so by the plaintiff’s law firm.

Instead, Winslett discarded the summons and complaint and failed to appear in court, which resulted in a default judgment against her in the amount of $2,916,204.

The Judgment

This judgment eventually forced Winslett into bankruptcy. The bankruptcy trustee then filed suit against GEICO in federal district court, accusing GEICO of negligently and/or in bad faith failure to settle the bicyclist’s claim, which resulted in a judgment against Winslett in excess of the policy limits.

As a result, the jury found Winslett 30 percent liable and GEICO 70 percent liable and entered a judgment of $2.7 million against GEICO.

The Appeal

GEICO appealed to the Eleventh Circuit, and certified three questions to the Georgia Supreme Court, including whether an insurer is relieved of liability from a bad faith suit when it had no notice of the underlying lawsuit against its insured.

However, the Georgia Supreme Court responded to this question with a “qualified ‘no.’ The court noted that GEICO “should have foreseen” that Winslett would breach her contractual obligation, in light of GEICO’s failure to inform her of this obligation, as well as facts that came out at trial, that suggested Winslett led an unstable lifestyle and was unlikely to have a copy of the policy because she was not listed on it.

Conclusion

Accordingly, GEICO was subject to liability for the total judgment in the underlying lawsuit against Winslett even though it exceeded the policy limits. The court’s ruling establishes that an insurer’s lack of notice of a lawsuit brought against it does not preclude a future claim against it for bad faith failure to settle the underlying claim.