After Refusing $30K Settlement Offer, Bad Faith Suit May Cost GEICO $2.7M

More than eight years after Bonnie Winslett tore up and threw away a summons that notified her she was being sued, the Georgia Supreme Court is being asked to resolve questions of law that will determine whether GEICO Indemnity Co. must pay approximately $2.7 million of a court’s award against her.

The 11th Circuit Court of Appeals on Monday sent three certified questions to the state’s high court. Once answered, the federal appellate court can then rule on an appeal of a district court’s order in a bad faith case that requires GEICO to pay 70% of the nearly $2.9 million in damages awarded by the jury, plus interest.

The long legal battle began on Feb. 26, 2012, when Winslett borrowed a friend’s Ford Escort for a trip from her apartment in Columbus, Georgia to a nearby store. Along the way, Winslett ran the vehicle into bicycle rider Terry Guthrie.

Guthrie sought treatment at hospital emergency room and owes nearly $10,000 in medical bills, his lawyers say. Winslett went to jail for driving with a suspended license. She would spend the next several years at times incarcerated and at other times homeless or living with a boyfriend, according to court documents.

The owner of the Escort notified GEICO about the accident. Although the insurer was told differing versions of how Winslett ended up behind the wheel, the insurer initially accepted responsibility.

Guthrie filed a lawsuit against Winslett in Muscogee County Superior Court, which issued a default judgment of $2,916,204 after she failed to show up for hearings. According to a deposition taken later, Winslett said she suffered from “multiple mental disorders” and relies on Social Security benefits and nonprofit groups for food and housing.

GEICO would later regret a letter that its claims adjuster sent to Winslett in 2012 saying that it “would be handling resolution of the matter.” When Winslett received notice that a lawsuit against her had been filed, “she said ‘the hell with this shit’ and ripped up the papers,” according to a district court judge.

GEICO says it learned about the lawsuit only after the default judgment was entered. The carrier petitioned the court to set the judgment aside, but the Court of Appeals affirmed the ruling and the state supreme court refused to hear the case.

Lawyers for Guthrie had given GEICO an opportunity to settle the case for the $30,000 policy limit, but the carrier refused to go higher than $12,409. That decision became the impetus for a bad faith lawsuit filed by Guthrie against the insurer.

Attorney Fife Whiteside, on Guthrie’s behalf, first filed an involuntary bankruptcy lawsuit against Winslett, which would have discharged her from the debt but retain liability for GEICO. The insurer hired attorneys to fight the petition, but failed to block the bankruptcy.

Whiteside, as a trustee for Winslett’s estate, then filed a bad-faith action against GEICO. The lawsuit asserts that the insurer has a duty to represent Winslett’s interest and should have paid the $30,000 that settlement that was offered. Because the carrier acted in bad faith, under Georgia law the policy’s $30,000 limit for bodily injury claims no longer applies, the lawsuit asserts.

After a trial in federal court in Columbus, a jury agreed and ordered GEICO to pay $2,886,204, less 30% to represent Winslett’s share of the fault. With interest, the judgment amounts to about $2.7 million now, according to court papers. U.S. District Court Judge Clay D. Land refused GEICO’s request to set aside the verdict.

GEICO appealed to the 11th Circuit. The carrier argues it is not liable for the cost of the verdict — and could not have committed bad faith when handling the claim — because it never received notice of the underlying lawsuit.

Instead of deciding the case, the appellate panel asked the Supreme Court to answer three questions:

1. When an insurer has no notice of a lawsuit against its insured, does Georgia law relieve the insurer of liability from a follow-on suit for bad faith?
2. If the notice provisions do not bar liability for a bad-faith claim, can an insured sue the insurer for bad faith, when after the insurer refused to settle but before judgment was entered against the insured, the insured lost coverage for failure to comply with a notice provision?
3. Does a party have the right to contest actual damages in a follow-on suit for bad faith if that party has no prior notice of or participation in the original suit?

“Though we have our own guesses about the answers to these questions, we do not think it appropriate to substitute our own intuition for the views of the Georgia Supreme Court in deciding these novel issues of state law, at least one of which has significant consequences for Georgia’s public policy on motor vehicle insurance,” Circuit Judge Britt C. Grant wrote for the panel.