Duty to Settle: First Acceptance Insurance Co. of Georgia, Inc. v. Hughes

The Georgia Supreme Court recently considered whether an insurer’s duty to settle arises only when the injured party presents a valid offer to settle within the insured’s policy limits, or whether, absent a settlement offer, a duty arises when the insurer knows, or reasonably should know, that settlement within the policy limits is possible. In resolving the issue stemming from a fatal car crash, the Court clarified its precedent, stating that an insurer’s duty to settle a claim against its policyholder arises when an injured claimant presents a “valid offer” to settle within policy limits.

The Court reasoned that because the injured parties’ settlement letter failed to set a deadline for the insurer to respond, the insurer, First Acceptance Insurance Co., was not liable for allegations of negligent or bad faith failure to settle. No evidence existed indicating that the insurer acted unreasonably in failing to accept the settlement offer before it was withdrawn by the injured parties. Therefore, the administrator of the decedent insured’s estate cannot hold the insurer liable for the $5.3 million dollar award, which largely exceeded the policy limits.