Georgia’s Bad Faith Demand Requirements

Ashley Harris | Property Insurance Coverage Law Blog | March 31, 2018

I’ve previously discussed Georgia’s bad faith demand requirements in Georgia Unfair Claims Handling. A recent Georgia appellate court opinion1 highlights how strictly OCGA § 33-4-6 is construed by the courts.

OCGA § 33-4-6 provides, in relevant part:

In the event of a loss which is covered by a policy of insurance and the refusal of the insurer to pay the same within 60 days after a demand has been made by the holder of the policy and a finding has been made that such refusal was in bad faith, the insurer shall be liable to pay such holder, in addition to the loss, not more than 50 percent of the liability of the insurer for the loss or $5,000.00, whichever is greater, and all reasonable attorney’s fees for the prosecution of the action against the insurer.

Georgia courts have held that to bring a claim under this statute the policyholder must prove:

  1. That the claim is covered by the relevant insurance policy;
  2. That a demand for payment was made by the policyholder at least 60 days prior to filing suit; and
  3. That the carrier’s failure to pay was motivated by bad faith.2

In Thompson v. Homesite Insurance Company of Georgia, the policyholder’s home was damaged when a tree fell on it during a storm. The policyholder sustained damages to her home and expenses to remove the tree and other debris from her property. Homesite’s initial payment for these damages was $1,812.33.

The policyholder disagreed with Homesite’s valuation of her claim, and made a number of complaints to and about Homesite regarding the handling of her claims. Specifically, the policyholder filed a formal complaint with the Georgia insurance commissioner and sent several messages to Homesite representatives in May 2011, inquiring about, and criticizing, the handling of her claims. After receiving documentation of the expenses incurred by the policyholder for removal of the tree and other debris in June 2011, Homesite issued an additional payment for $1,800 on October 6, 2011.

In a letter dated October 12, 2011, the policyholder’s counsel demanded payment for the reimbursement for the policyholder’s tree and debris removal expenses. In this letter, the policyholder’s counsel threatened to file a bad faith claim against Homesite under OCGA § 33-4-6 if Homesite did not properly reimbursement the policyholder for the tree and debris removal expenses. This letter also notified Homesite that the policyholder disagreed with Homesite’s estimate of damages to repair her home.

The parties ultimately went to appraisal and an umpire awarded the policyholder $50,713.69 less the $1,000 deductible and prior payments. Homesite issued payment for the umpire’s award.

The policyholder then sued Homesite claiming that Homesite unreasonably delayed reimbursing her for the tree and debris removal expense and that it had underpaid on the umpire’s award, subjecting Homesite to liability under OCGA § 33-4-6. Homesite moved for summary judgment on these claims.

The court analyzed whether the policyholder’s communications with Homesite were sufficient to support recovery under the bad faith statute. The court concluded that statements by the policyholder to Homesite and the Georgia insurance commissioner that she was unhappy with the progress of her claim were not sufficient to alert Homesite she was considering filing a bad faith claim.

The court held that a demand under OCGA § 33-4-6 must not only express displeasure with the insurer’s handling of the claims process but actually alert the insurer that the insured plans to take legal action for bad faith if the claim is not paid.

The only communication the policyholder had with Homesite in which potential litigation was threatened was the October 12, 2011, letter sent by her counsel. However, this threat of litigation pertained only to the Homesite’s failure at the time to reimburse the policyholder for tree and debris removal expenses. Since Homesite paid the policyholder for those expenses on October 6, 2011, Homesite had already satisfied the specific demand made by the policyholder. As the policyholder never threatened to invoke OCGA § 33-4-6 regarding any remaining portions of her claim with Homesite, the appellate court affirmed the trial court’s grant of summary judgment on the policyholder’s bad faith claim.

While Georgia courts have held that no special language is necessary for the demand under OCGA § 33-4-6, this opinion emphasizes how strictly courts will review and interpret the demands in order to hold carriers liable under the bad faith statute.
1 Thompson v. Homesite Ins. Co. of Georgia, No. A17A1938 (Ga. App. Mar. 14, 2018).
2 BayRock Mortg. Corp. v. Chicago Title Ins. Co., 286 Ga.App. 18, 19 (648 S.E.2d 433) (2007).

Ambiguous Punctuation Can Lead to Insurance Coverage Following a Loss

Marie Laur | Property Insurance Coverage Law Blog | March 27, 2018

A court in Georgia found coverage for a loss based on the presence of a semicolon. In the case Lee v. Mercury Insurance Company,1 the court found coverage for a home destroyed by fire based on the potential ambiguity created by a semicolon.

In Lee, Ronald Lee (“Mr. Lee”) purchased a home in Georgia and allowed his friend, Jim Constable (Mr. Constable”), to live there with his family rent-free. Mr. Lee purchased a homeowner’s insurance policy for the home through an insurance agent. Mr. Lee completed the application over the phone. Since Mr. Lee was not present, he asked the agent if Mr. Constable could sign his name, and the agent replied that that was fine. Mr. Lee alleged that the insurance agent knew that he would not be residing at the home full-time, but would be “stopping in” since he traveled. Mr. Lee stated that the insurance agent knew that Mr. Constable resided at the property instead of Mr. Lee. The answers to the application were typed; one section of the application requested the applicant to “Check all that apply”, and an “X” was marked beside “Primary” and “Occupied by Named Insured.” The “Secondary” and “Additional Residence for Insured” were not marked with an “X.” Mr. Lee, Mr. Constable, and Mr. Constable’s family were listed as residents of the household.

The property was later destroyed by a fire that took Mr. Constable’s life. Mr. Lee filed a claim with the insurance carrier, Mercury Insurance Company of Georgia (“Mercury”), which denied his claim.

Mr. Lee brought suit against Mercury. Mercury moved for summary judgment on the basis that it was misrepresented on the policy application that the home was Mr. Lee’s primary residence, when he did not reside there as required by the policy.

The trial court granted Mercury’s motion and he appealed.

The policy contained the following language:


We cover:

the dwelling on the residence premises shown in the Declarations used principally as a private residence, including structures attached to the dwelling; materials and supplies located on the residence premises used to construct, alter or repair the dwelling or other structures on the residence premises.…
* * * * *
Residence premises means the one, two, three or four family dwelling, condominium or rental unit, other than structures and grounds, used principally as a private residence; where you reside and which is shown in the Declarations.

The appellate court reversed the trial court’s rulings on both motions for summary judgment. The appellate court ruled that the definition of “residence premises” could be read as having two different definitions, based on the placement of the semicolon, which is typically used in, “marking off a series of sentences or clauses of coordinate value.” The court further observed that a semicolon is used to mark, “separate consecutive phrases or clauses which are independent of each other grammatically, but dependent alike on some word preceding or following.” Id. at 734. The appellate court concluded that the above policy language could be read to mean, “the one, two, three or four family dwelling condominium or rental unit, other than structures and grounds, used principally as a private residence” or “where you reside and which is shown in the Declarations.”

Ambiguity in insurance policies is construed in a light most favorable to the insured, which is what occurred in this case. Other courts have ruled in a similar fashion.
1 Lee v. Mercury Ins. Co., No. A17A0624 (Ga. App. Nov. 3, 2017).

Claims Handling Requirements by State – Georgia

Robert Trautman | Property Insurance Coverage Law Blog | March 7, 2018

Steaming ahead on our 50-State claims handling tour, we now pull in to the Peach State – Georgia. Insurance carriers operating in Georgia are subject to both the Unfair Claims Settlement Practices Act1 and regulations that set forth the guidelines they must follow.

An insurer in Georgia must acknowledge receipt of a first party claim within 15 days of the notice of claim being filed.2 The insurer must also provide proof forms and instructions for completing them within 15 days of the notice of claim being filed.3 The failure to provide the proof of loss forms would be considered an unfair claims practice.4 The carrier must affirm or deny coverage within 15 days of receipt of the proof of loss (30 days from the notice of claim if there is no proof of loss required.5 If the carrier needs more time, they must inform the insured within 5 days of the expiration of the applicable time period and advise why more time is needed and an estimate of how much additional time is needed, although the total time period for a claim decision may not exceed 60 days from the notice of claim.6 Once liability has been determined, claims must be paid within 10 days.7

Further, Ga. Code Ann. §33-6-34 provides that the following actions, if flagrant or if committed with sufficient frequency to constitute a business practice are considered unfair claims practices:

(1) Knowingly misrepresenting to claimants and insureds relevant facts or policy provisions relating to coverages at issue;

(2) Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies;

(3) Failing to adopt and implement procedures for the prompt investigation and settlement of claims arising under its policies;

(4) Not attempting in good faith to effectuate prompt, fair, and equitable settlement of claims submitted in which liability has become reasonably clear;

(5) Compelling insureds or beneficiaries to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them;

(6) Refusing to pay claims without conducting a reasonable investigation;

(7) When requested by the insured in writing, failing to affirm or deny coverage of claims within a reasonable time after having completed its investigation related to such claim or claims;

(8) When requested by the insured in writing, making claims payments to an insured or beneficiary without indicating the coverage under which each payment is being made;

(9) Unreasonably delaying the investigation or payment of claims by requiring both a formal proof of loss and subsequent verification that would result in duplication of information and verification appearing in the formal proof of loss form; provided, however, this paragraph shall not preclude an insurer from obtaining sworn statements if permitted under the policy;

(10) When requested by the insured in writing, failing in the case of claims denial or offers of compromise settlement to provide promptly a reasonable and accurate explanation of the basis for such actions. In the case of claims denials, such denials shall be in writing;

(11) Failing to provide forms necessary to file claims within 15 calendar days of a request with reasonable explanations regarding their use;

(12) Failing to adopt and implement reasonable standards to assure that the repairs of a repairer owned by the insurer are performed in a workmanlike manner;

(13) Indicating to a first-party claimant on a payment, draft check, or accompanying letter that said payment is final or a release of any claim unless the policy limit has been paid or there has been a compromise settlement agreed to by the first-party claimant and the insurer as to coverage and amount payable under the contract; and

(14) Issuing checks or drafts in partial settlement of a loss or claim under a specific coverage which contain language which releases the insurer or its insured from its total liability.

As you can see, Georgia is protective of its insureds and make certain the insurance carriers play by the rules. This is especially true given the trend we are seeing now with managed repair programs, Georgia is ahead of the curve by considering it an unfair claims practice for the insurance carrier to not make certain the repairs are done properly.

1 Ga. Code Ann. §33-6-30.
2 Ga. Comp. R. & Regs. 120-2-52-03(1).
3 Ga. Comp. R. & Regs. 120-2-52-03(2).
4 Ga. Code Ann. §33-6-34(11).
5 Ga. Comp. R. & Regs. 120-2-52-03(3).
6 Ga. Comp. R. & Regs. 120-2-52-03(5).
7 Ga. Comp. R. & Regs. 120-2-52-03(4).

Georgia Court of Appeals Holds That Sovereign Immunity Shields County From Contractor’s Claims Based Upon Unwritten Change Orders

Robert A. Gallagher | Pepper Hamilton LLP | December 28, 2017

Fulton County contracted with SOCO Construction Company (“SOCO”) to build a cultural center near the Fulton County Airport. The contract specified that the contract sum and the contract time could only be changed according to County procedure, which required “a written, bilateral agreement (Modification) between the County … and the contractor.”

Adverse weather conditions, design delays, change order requests, and a federal government shutdown allegedly delayed the project. Despite the County’s program manager listing more than 30 change orders in the project’s change order evaluation log, the County never issued any written change orders, including any change orders extending the contract time to account for the delays. The County also withheld payment from SOCO.

SOCO sued the County for breach of contract and bad faith performance of contract, and it sought attorney fees and injunctive relief.

The parties filed cross-motions for summary judgment on all claims. The County based its motion on the grounds that sovereign immunity barred any claims arising from unwritten change orders. The trial court denied the County’s motion for summary judgment. The trial court ultimately granted SOCO summary judgment on all claims based, in part, upon Requests for Admissions to which the County had failed to timely respond, and awarded SOCO attorney fees.

The County appealed the trial court’s decision to the Court of Appeals of Georgia (Fourth Division). The Court of Appeals reversed the trial court’s summary judgment rulings and vacated and remanded the trial court’s ruling on attorney fees.

The Court of Appeals held that the County did not waive its sovereign immunity for claims arising from unwritten contract modifications. The Court noted that “the doctrine of sovereign immunity has constitutional status and may be waived only by an act of the [Georgia] General Assembly or by the constitution itself.” The Court agreed with the County’s argument that although it had a written contract with SOCO, it did not waive its sovereign immunity defense for claims arising from unwritten contract modifications, which did not follow the County’s procedure.

The Court specifically disagreed with the trial court’s finding that the parties complied with the County’s protocol. The trial court had found that an exception to the protocol applied because “extraordinary circumstances” existed, which caused the County administrators to order the changed work to avoid delay. The Court of Appeals noted a lack of evidence to support that conclusion.

The Court also disagreed with SOCO’s argument that the County had waived its sovereign immunity based upon the fact that the County had requested changes to the work, the parties’ conduct, and certain facts which were deemed admitted. While acknowledging the harsh result, the Court held that “parties are presumed to know the law, and are required ‘at their peril’ to ascertain the authority of a public officer with whom they are dealing.” The appeals court refused to create an exception to the rules regarding waiver of sovereign immunity based upon any reliance SOCO may have placed upon the County’s actions or the facts deemed admitted. As a result, the Court dismissed all of SOCO’s claims arising from unwritten contract modifications.

Out-of-State Contractors and Design Professionals Beware: The Georgia Removal Statute Does Not Apply to You

William R. Wildman, Jesse W. Lincoln and Matthew J. Bowness | Eversheds Sutherland | November 30, 2017

Out-of-state contractors and design professionals working on projects in Georgia should consider including venue selection clauses in their contracts. Under O.C.G.A. § 14-2-510(b)(4), venue for tort actions lies “in the county where the cause of action originated,” i.e., generally in the county where the project is located. Thus, even if a contractor’s primary Georgia office is located in Atlanta’s Fulton or DeKalb counties, the contractor is subject to being sued in the project’s county.

An in-state contractor that is sued in an unfavorable venue has the statutory right to remove the suit to its home county—the county in which it maintains its “principal place of business.” The Supreme Court of Georgia, however, has made it clear that out-of-state contractors do not have this right.

In Kingdom Retail Grp. v. Pandora Franchising, 334 Ga. App. 812, 816 (2015) (aff’d Pandora Franchising v. Kingdom Retail Grp., 299 Ga. 723 (2016)), the plaintiff sued the defendant in the Superior Court of Thomas County. Id. at 812. The defendant filed a notice of removal of venue, arguing that it had the right to remove the action to the Superior Court of Gwinnett County, where it “maintain[ed] its registered office as its principal place of business in the State of Georgia.” Id. at 813. It attached with its motion an affidavit attesting to the fact that it did “not have any other principal office or principal place of business in the State of Georgia.” 813 (emphasis added).

The Superior Court conducted a hearing on the matter and then ordered that venue be removed to the Superior Court of Gwinnett County. Id. at 812. The plaintiff immediately appealed.

On appeal, the court held that the term “principal place of business” referred to a single place in the world meeting a certain standard, not to a place within Georgia meeting that standard. Id. at 816. The court further held that the venue removal statute “allows a transfer only if a defendant’s principal place of business, as defined above, is located in Georgia.” Id. at 817. Because the defendant’s principal place of business was in Columbia, Maryland, the court held that the Superior Court had erred by ordering removal to Gwinnett County. Id. at 817. It thus remanded the case to the Superior Court of Gwinnett County with instruction to remand the case back to the Superior Court of Thomas County. Id. at 817.

The defendant subsequently appealed to the Supreme Court of Georgia. Pandora Franchising v. Kingdom Retail Group, 299 Ga. 723 (2016). The Supreme Court unanimously affirmed, holding that “the language of subsection (b)(4) confers the right of a company to remove an action in which venue is based upon this subsection only to the county in Georgia where the defendant maintains its worldwide principal place of business.” Id. at 727 (emphasis added). The court further held that “[i]f that place is not located in a Georgia county, then no right to remove is granted.” Id. at 727.

Thus, under Kingdom Retail, out-of-state corporations cannot avail themselves of Georgia’s venue removal statute if they find themselves embroiled in litigation in an unfriendly county. Accordingly, out-of-state contractors and design professionals working on projects in Georgia should take care to include strong venue selection clauses in their contracts to avoid being sued in plaintiff-friendly counties. Such clauses should apply to all claims arising out of or relating to the contract and should specify that such claims must be brought in the contractor’s preferred venue.