Summary Judgment Denied to Insurer on Bad Faith Claim

Posted by Megan E. Boyd on April 09, 2013

In Lloyd’s Syndicate No. 5820 d/b/a Cassidy Davis v. AGCO Corp., the Georgia Court of Appeals affirmed the denial of the insurer’s motion for summary judgment on the issue of bad faith under O.C.G.A. § 33-4-6. 

The insured, AGCO Corporation, manufactures and sells agricultural equipment.  With the purchase of a spray applicator known as the RoGator, AGCO offered extended protection plans (“EPP”). Warranty Specialists sold the EPPs to AGCO and administered the claims.  A master liability policy was secured from Cassidy Davis to provide coverage to AGCO for liability incurred under the EPP offered to its customer. 

When wheel motors on the RoGators began to malfunction, claims were filed under the EPP and Warranty Specialists initially paid the claims.  But, when the volume of claims continued to rise, Warranty Specialists ceased processing and paying claims.  As a result of Warranty Specialists actions, AGCO paid the claims and then sued Warranty Specialists, seeking relief pursuant to O.C.G.A. § 33-4-6.  The Georgia Court of Appeals affirmed the trial court’s denial of summary judgment to Cassidy Davis on the bad faith claim arising under O.C.G.A. § 33-4-6. 

In its motion, Cassidy Davis argued that AGCO was legally barred from recovering for bad faith because AGCO had not made a demand for payment pursuant to O.C.G.A. § 33-4-6 and thus failed to trigger any duty for Cassidy Davis.  Cassidy Davis relied upon the language of the master liability policy that the insurer ‘agrees to indemnify [AGCO] for all sums which [AGCO] shall be held legally liable to pay in respect to the contractual liability’.  Cassidy Davis argued that the phrase, “legally liable,” meant a judgment must be obtained.  And, since no judgment was obtained at the time demand for payment was made – no payment was due and Cassidy Davis could not be in bad faith – as a matter of law. 

The Court of Appeals, however, found that ‘indemnify’ “has been defined as ‘to reimburse another for a loss suffered because of a third party’s or one’s own act or default.’”  The court also noted that indemnify has also been defined as “’a duty to make good a loss, damage or liability incurred by another.’”  The Court rejected the argument that a judgment was a condition precedent. 

As a judgment against AGCO was not required before a demand for payment could be made, AGCO’s demand for reimbursement satisfied the provisions of O.C.G.A. § 33-4-6.  According to the Court of Appeals, the term ‘indemnify,’ as used in the contract of insurance “is broad enough to include any liability, not just liability resulting from a judgment.”  Thus, Cassidy Davis was not entitled to summary judgment on the bad faith claim. 

Coverage Expands to Design and Engineering Defects under Master Liability Policy

Posted by Megan E. Boyd on April 03, 2013

warranty contract.jpgIn affirming summary judgment for the insured in Lloyd’s Syndicate No. 5820 d/b/a Cassidy Davis v. AGCO Corp. the Georgia Court of Appeals relied upon the adage that the scope of coverage is broad.  The insured, AGCO Corporation, manufactures and sells agricultural equipment.  With the purchase of a spray applicator known as the RoGator, AGCO offered extended protection plans (“EPP”).  Warranty Specialists sold the EPPs to AGCO and administered the claims.  A master liability policy was secured from Cassidy Davis to provide coverage to AGCO for liability incurred under the EPP.  

When wheel motors on the RoGators began to malfunction, claims were filed under the EPP and Warranty Specialists initially paid the claims.  But, when the volume of claims continued to rise, Warranty Specialists ceased processing and paying claims.  When AGCO sued, Warranty Specialists and Cassidy Davis defended the suit on the basis that neither the EPP nor the master policy insured the wheel motor failure because the failure was caused by a design or engineering defect and not due to a mechanical breakdown caused by manufacturing defects in workmanship or materials. 

The Georgia Court of Appeals affirmed the trial court’s grant of summary judgment to AGCO.  The Appellate Court noted that the policy covered the breaking of any part on the RoGator “arising from faults attributable to manufacturing defects in workmanship or materials,” and held that the phrase was broad enough to include breakdown resulting from a design or engineering defect.  Furthermore, the court noted that the policy contained specific exclusions to coverage, but breakdown from design or engineering defect was not specifically excluded.

In finding coverage, the Appellate Court noted that under Georgia law, “where a contract requires a conduct ‘arise out of’ an act, ‘it does not mean proximate cause in the strict legal sense but instead encompasses almost any causal connection or relationship.’”  According to the opinion, “‘nothing more than a slight causal connection is required . . . ’ [Cits.]”  Consequently, the Court held that “the phrase ‘arising from fault attributable to manufacturing defects and workmanship or materials’ is broad enough to include a breakdown or failure related to a manufacturing defect, even where there was a design or engineering defect.” 

Fourth Circuit Finds No Bad Faith in Settlement Offer

Posted by Katherine W. Sullivan on November 11, 2011

In a July 2011 decision, Collins v. Auto Owners, the Fourth Circuit Court of Appeals affirmed the trial court's grant of summary judgment in favor of Auto-Owners and held the evidence did not support a finding that Auto-Owners acted in bad faith.  The Plaintiff in the underlying case, Calvin Collins, was injured in an automobile accident with Mark Frasie (who had no insurance). Mr. Collins was insured by Auto-Owners under three uninsured motorist policies of $500,000 each.  Auto-Owners, as the uninsured motorist carrier, was essentially defending the claim on behalf of Mr. Frasier.  During settlement negotiations, Mr. Collins consistently demanded $1 million or more to settle the claims.  The most that Auto-Owners offered to settle was $100,000 because Auto-Owners felt that Frasier had legitimate defenses to both liability and damages. When the underlying case went to trial, the jury returned a defense verdict for Mr. Frasier and found that he was not liable to Mr. Collins for the damages because Mr. Frasier had suffered a sudden and unforeseeable incapacity.  Mr. Collins brought this claim in federal court for bad faith refusal to settle the case within policy limits.

The Court held Auto-Owners did not act in bad faith because Auto-Owners had legitimate reservations about the validity of Mr. Collins' claims, as evidenced by letters and memos to Collins' attorney from Auto-Owners outlining the meritorious defenses.  Specifically, the court noted that "the fact that the parties had different estimations of the value of the claim is not, under South Carolina law, evidence of bad faith on the party offering the lower amount."  The Court further clarified that if there is a "reasonable ground for contesting a claim, there is no bad faith, even where the insurer makes no offer to settle."

R. Michael Ethridge, Attorney
Katie Sullivan, Attorney
South Carolina Insurance Coverage Practice Group

Clarity and Precision And Avoidance of Bad Faith

Posted by Charles McDaniel, Jr. on June 24, 2011

Whether by design or by accident, bad faith causes of action are occurring in cases where the damages far exceed the policy limits, and the liability insurer clearly intended to pay its policy limits to resolve the case and terminate its exposure.  While the Georgia appellate courts afford insurers certain safe harbors for protection against bad faith, plaintiffs' counsel have become very adept at exploiting any deviation from the protocol and the appellate courts are not forgiving when the insurer fails to follow, with precision, the requirements for the safe harbors.   

In Fortner v. Grange Mutual Ins. Co., Grange placed additional conditions on the requirement for settlement, and the Supreme Court held it was for the jury to determine whether Grange's additional conditions in response to Fortner's policy limits settlement demand met the standard of care for the prudent insurer.  This decision followed Jones v. Frickey, where the Court of Appeals found no meeting of the minds regarding a settlement.  The Court stated,

“[a]n answer to an offer will not amount to an acceptance, so as to result in a contract, unless it is unconditional and identical with the terms of the offer. To constitute a contract, the offer must be accepted unequivocally and without variance of any sort.”  Jones, at 401.

Most recently, in Penn v. Muktar, Judge Andrews, in which Judge Phipps and Doyle concurred, held that the parties failed to reach a meeting of the minds regarding a settlement.  The Penns offered to settle their bodily injury claims for the bodily injury policy limits, but when State Farm tendered its policy limits, the proposed release, in effect, asserted a counteroffer in that it contained language that not only released the bodily injury claims, but the property damage claims and any other claims resulting from the collision. 

The Penns refused to sign the release and returned the $50,000 settlement check.  The Penns had an uninsured motorist claim which they clearly intended to pursue, but would have been eliminated with the execution of the proposed release forwarded by State Farm. 

These cases highlight the importance of clarity and precision in resolving liability claims, so as ensure a meeting of the minds, and not inadvertently create a potential bad faith cause of action.  In each case, bad faith, if pursued may ultimately be avoided, but it is much simpler to avoid a potential bad faith claim altogether by meeting plaintiff's demand with clarity and precision.