Clarification Or Counteroffer? Choose Your Words Carefully

A recent opinion out of the Georgia Court of Appeals is forcing insurers to choose their words carefully when seeking clarification regarding time-limited settlement demands. In Yim v. Carr, the Court of Appeals reversed a ruling that a defendant driver's insurer had accepted the plaintiff's time-limited demand for the policy's limits, holding instead that the insurer's request for clarification regarding the scope of the offer's release was not an “unequivocal acceptance” of the offer, but rather a counteroffer. The holding is likely to be appealed to the Supreme Court of Georgia, but in the meantime, it is causing some hand-wringing among insurance representatives and the defense bar.

Time-limited settlement demands in automobile injury cases are governed by O.C.G.A. § 9-11-67.1, which codifies the Supreme Court of Georgia's holding in Southern General Co. v. Holt, 262 Ga. 267 (1992). In Holt, the Court held that an insurer with knowledge of its insured's liability and damages exceeding policy limits can be subject to bad faith damages if its failure to settle within policy limits subjects the insured to a judgment in excess of those limits. This holding has led to the proliferation of time-limited settlement demands, or Holt demands, in which an injured party's attorney sends a letter to the at-fault party's insurer setting forth the insured's clear liability and the existence of damage exposure in excess of the policy limits. To constitute a valid Holt demand, the offer must contain certain material terms:

(1) The time period within which such offer must be accepted, which shall be not less than 30 days from receipt of the offer;

(2) Amount of monetary payment;

(3) The party or parties the claimant or claimants will release if such offer is accepted;

(4) The type of release, if any, the claimant or claimants will provide to each releasee; and

(5) The claims to be released.

O.C.G.A. § 9-11-67.1(a). Once an insurer receives a valid Holt demand, it may accept the offer by stating in writing that it accepts the material terms outlined abovein their entirety. Id. at (b). The insurer doeshave the right to seek clarification regarding terms, liens, subrogation claims, standing to release claims, medical bills, medical records, and other relevant facts, and the insurer'sattempt to seek reasonable clarification shall not be deemed a counteroffer. Id. at (d). If the insurer is deemed not to have accepted the offer in its entirety, however, it...