An insured who voluntarily agrees to pay a settlement that is not dictated by a jury verdict cannot sue its insurance company for bad faith failure to defend, even if the settlement is within the policy limits, the Georgia Supreme Court has ruled.
“A voluntary payment does not constitute a legal obligation,” the court said.
The decision came in a case involving a company, Trinity Outdoor, which voluntarily agreed to pay $754,530 to settle claims after an improperly-installed billboard on its property collapsed and killed two people. The company sued its insurer, Central Mutual Insurance Co., after the insurer refused to reimburse it for the payment under a $2 million general liability policy because it had not agreed to the settlement.
On Aug. 1, 2002, a billboard owned by Trinity Outdoor, LLC fell while it was being installed on Trinity’s property, killing Anthony Fowler and Joshua Fowler. The billboard had been manufactured by Phoenix Outdoor, LLC, which carried a $20 million policy with Great American Alliance Insurance Co. Trinity reported the accident and injuries to Central Mutual Insurance Co., with which Trinity had a $2 million general liability policy.
Phoenix conceded liability after it learned that an improperly installed a bolt on the billboard apparatus apparently broke before the accident.
The Fowler family sued Phoenix and Trinity, and Trinity cross-claimed against Phoenix for contribution and indemnification.
Lawyers for both Central and Trinity believed that Trinity was not liable to the Fowlers; however, Trinity’s outside counsel believed that the Fowlers possibly could have a viable premises liability claim because Trinity owned the property on which the billboard fell. On Sept. 22, 2005, the Fowlers made a limited time demand on Central to settle the case for $2 million, the face value of its policy with Trinity. Trinity’s counsel demanded that Central accept the settlement because she believed that trial could expose Trinity to a verdict over policy limits.
However, Central resisted the settlement, believing that there were valid arguments that Trinity was not responsible for the accident.
The trial court ordered the parties to mediation. Great American offered $10 million on behalf of Phoenix, and Central offered $200,000 on behalf of Trinity, although the Fowlers demanded $1.37 million from Trinity at that time. The litigation ultimately settled for $12 million. Of that amount, Trinity, without Central’s approval, agreed to contribute $954,530, comprised of the $200,000 offered by Central and $754,530 from Great American in satisfaction of Trinity’s earlier judgment against Phoenix.
Central deemed Trinity’s payment of the additional $754,530 to be a
voluntary payment that Central was not required to pay based on clauses in the insurance contract that included one stating that “no insured shall make a voluntary payment without Central’s prior consent” and another that Central will only pay what it is legally obligated to pay.
Trinity sued Central, claiming Central breached the insurance agreement and refused to settle with the Fowlers in bad faith. Trinity also asserted claims for negligent failure to settle and punitive damages.
But the court ruled that Trinity’s claim against Central was “untenable” for several reasons. First, the court found that Trinity’s payment of $754,530 was voluntary in nature. Second, the contract clearly states that Central will be liable to pay those sums
that Trinity is legally obligated to pay and pay a settlement to which it has agreed or that came in a final judgment entered after an actual trial.
According to the ruling, Trinity’s payment was neither one Central agreed to nor the result of a jury verdict.
While an insurer cannot abandon its insured and then shield itself with a no settlement clause if the claim was covered by the policy, that was not the situation in this case, according to the court:
“Central provided Trinity with a defense. It did so pursuant to an insurance contract which specifically stated that Trinity had no right to make unilateral settlements or voluntary payments to third parties without Central’s permission. The insurance contract also made it clear that Trinity could sue Central only about agreed upon settlements and judgments following a jury trial. This is the bargain that Trinity struck with Central…”