In late 2020, the U.S. Court of Appeals for the Eleventh Circuit certified to the Supreme Court of Georgia three questions of Georgia law relating to a lawsuit brought in federal district court by Fife Whiteside, the trustee of the bankruptcy estate of Bonnie Winslett. On April 19, 2021, the Supreme Court of Georgia issued its opinion on the case in response to the Eleventh Circuit’s certifications. In its discussion of the background principles of law, the court cites Comment a of § 27, Remedies for Breach of the Duty to Make Reasonable Settlement Decisions, of Restatement of the Law, Liability Insurance.

In Geico Indemnity Co. v. Whiteside, “Whiteside sued GEICO to recover the value of Winslett’s failure-to-settle tort claim against GEICO so that the bankruptcy estate could pay creditor Terry Guthrie, who was injured in an accident caused by Winslett.”

The below is excerpted from the Opinion (footnotes omitted):

As in Georgia, a majority of jurisdictions have adopted the principle that, “if the insurer’s breach of the duty to make a reasonable settlement decision causes an excess judgment against the insured, the insured is entitled to recover from the insurer, in addition to the policy limit, the difference between the policy limit and the underlying judgment.” Indeed, “[t]his is the paradigmatic measure of damages in a breach-of-settlement-duty lawsuit against an insurer.”

NOTE: The Supreme Court of Georgia incorrectly cites the above quote as a Reporter’s Note. The quote is from Comment a. to § 27, not a Reporter’s Note.

The Restatement was published in 2019, and is organized into four chapters covering a range of liability insurance law topics: Basic Liability Insurance Contract Rules; Management of Potentially Insured Liability Claims; General Principles Regarding the Risks Insured; and Enforceability and Remedies.

Below is a copy of the black letter to Section 27 and Comment a. The publication contains additional Comments (with Illustrations) and Reporters’ Notes.

§ 27. Remedies for Breach of the Duty to Make Reasonable Settlement Decisions
(1) An insurer that breaches the duty to make reasonable settlement decisions is subject to liability for any foreseeable harm caused by the breach, including the full amount of damages assessed against the insured in the underlying legal action, without regard to the policy limits.
(2) When an insurer has breached the duty to make reasonable settlement decisions, the insured may settle the action without the insurer’s consent and without violating the duty to cooperate or other restrictions on the insured’s settlement rights contained in the policy if:

  • (a) The insurer receives all information reasonably necessary to evaluate the legal action and has a reasonable amount of time to do so;
  • (b) The insurer is given a reasonable opportunity to participate, and is kept reasonably informed of developments, in the settlement process;
  • (c) The insured makes a reasonable effort to obtain the insurer’s consent or approval of the settlement, including by providing the insurer with a reasonable amount of time to evaluate all the terms of the settlement agreement; and
  • (d) The settlement agreed to by the insured is one that a reasonable person who bears the sole financial responsibility for the full amount of the potential covered judgment would make.

Comment:

a. Liability for excess judgment. If the insurer’s breach of the duty to make a reasonable settlement decision causes an excess judgment against the insured, the insured is entitled to recover from the insurer, in addition to the policy limit, the difference between the policy limit and the underlying judgment. This is the paradigmatic measure of damages in a breach-of-settlement-duty lawsuit against an insurer.

Jennifer Morinigo

The American Law Institute

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