Battling Extracontractual Claims in Georgia First-Party Coverage Claims
By: Sean Farrell
Plaintiff’s attorneys in first-party coverage claims are increasingly filing lawsuits asserting extracontractual causes of action (claims for damages in addition to or outside of a contract of insurance) in an effort to cause undue burden and expense for insurers and expand the potential recovery for their clients. Fortunately, Georgia statutes and case law narrow the scope of permissible extracontractual claims allowing insurers an avenue to seek dismissal or early disposition of these claims.
Typical first-party coverage lawsuits between an insurer and its insured usually include counts for (1) breach of contract and (2) bad faith pursuant to O.C.G.A. § 33-4-6. The basis for the breach of contract action involves an insured’s allegation that the insurer did not pay for covered damages under the insurance policy (the contract) or otherwise failed to comply with a provision in the policy. Under Georgia law, the only permissible claim for extracontractual damages based on an insurer’s alleged failure to pay its insured’s claim is for bad faith penalties and attorneys’ fees under O.C.G.A. § 33-4-6. To recover bad faith damages under O.C.G.A. § 33-4-6, an insured must meet the following requirements:
- The “event of a loss” must be “covered by a policy of insurance”;
- The insured must make a demand for payment of the claim that the insurer then refuses or fails to pay within 60 days; and
- There is a finding by a court or jury “that such refusal was in bad faith.”
We are increasingly seeing insureds file complaints alleging extracontractual claims aside from claims under O.C.G.A. § 33-4-6. However, Georgia law is clear that O.C.G.A. § 33-4-6 is the sole manner by which an insured can recover extracontractual damages in a first-party dispute over payment of insurance benefits. Under Georgia law, a plaintiff may not sue in tort for a defendant’s mere breach of duty imposed by an insurance contract. Delancy v. St. Paul Fire & Marine Ins. Co., 947 F.2d 1536, 1545 (11th Cir. 1991). This is true even if the contract was breached in bad faith. ServiceMaster Co., L.P. v. Martin, 252 Ga. App. 751, 754 (2001).
A plaintiff in a breach of contract case has a tort claim only where he can show the defendant breached an independent duty imposed by law, in addition to the alleged breach of contract. Id. Based on the foregoing, insurers can typically defeat claims alleging improper claim handling, fraud, negligence and other tort allegations asserted by an insured against an insurer.
While common law and statutory fraud is a tort, fraudulent inducement sounds in contract. To establish a claim for fraud in the inducement, or inceptive fraud to enter into a contract, a plaintiff must prove both the defendant failed to perform a promised act and the defendant had no intention of performing when the promise was made. Clary v. Allstate Fire & Cas. Ins. Co., 340 Ga. App. 351, 357 (2017). Practically speaking, it would be nearly impossible for an insured to allege facts that an insurer issued a policy without the intention of fulling the duties under that policy.
In addition, a creative plaintiff’s attorney might think some statutory claims for attorneys’ fees or punitive damages will increase the recovery in a first-party coverage lawsuit. Under Georgia law, that attorney would be mistaken according to O.C.G.A. § 33-4-6. Even where the insured alleges other theories of recovery distinct from a bad faith claim — absent a special relationship beyond that of insured and insurer — if such claims are predicated on the insurer's failure to pay a claim, O.C.G.A § 33-4-6 is the exclusive remedy through which the insured may make a claim for attorneys’ fees against the insurer. Id. at 189. Likewise, statutory claims, such as the Unfair Claims Settlement Practices Act, O.C.G.A. § 33-6-30 et seq., and the Fair Business Practices Act, O.C.G.A. § 10-1-390 et seq., are also improper in a first-party coverage case.
In sum, despite recent efforts by plaintiff’s attorneys to expand the scope and permissible claims and damages in first-party insurance cases, absent unusual circumstances, Georgia law is clear an insured is limited to claims for breach of contract and the extracontractual damages permitted by O.C.G.A. § 33-4-6 in a claim against an insurer.
Attorney Contact Info
Sean Farrell
sean.farrell@swiftcurrie.com
404.888.6152