Another One Caught in the Holt Trap
By: Derek Goff
The Holt Doctrine, put simply, states if an insurer refuses to settle an auto-accident claim against its insured, and does so in bad faith, the insurer may be liable for the full amount of any excess judgment against the insured. Southern General Insurance Company v. Holt, 262 Ga. 267 (1992). The rationale behind the doctrine is easy to understand: an insurer defending its insured should not risk its insured’s finances by pursuing risky litigation likely to result in an excess verdict. For Georgia insurers, the Holt Doctrine has a strange irony. From their perspective, what is meant to prevent bad faith on the part of insurers has incentivized bad faith on the part of plaintiffs’ attorneys.
Imagine the following scenario: An automobile accident occurs in Georgia leading to the death of one of the drivers. The attorney for the deceased’s estate sends a time-limited settlement demand to the tortfeasor’s insurer requesting the full policy limit of $25,000.00. The seven-page, single-spaced offer of compromise is conditioned on being accepted “unequivocally and without variance of any sort.” The offer of compromise provides 35 days to accept the offer, and the offer can only be accepted by providing written acceptance of the material terms, mailing monetary payment of the policy limits and drafting and providing a very specific release – short of a full and final release – which complies with every specific term set forth in the lengthy offer letter and permits “no additional terms.”
The insurer timely responds to the demand, stating it is “unconditionally, unequivocally and without variance accepting the terms and conditions of your offer of settlement.” The insurer promptly sends a check for $25,000.00 as required, as well as a painstakingly drafted release which meets every requirement set forth in the attorney’s lengthy offer letter.
All conditions appear to have been met, and the insurer can now rest easy knowing it has effectively accepted the settlement offer. There is no way the insurer can face a bad faith damages claim for failing to settle the claim within policy limits now, right? One month later, the check is returned to the insurer along with a letter stating the insurer has actually rejected the offer of settlement by sending an invalid release and payment. The letter further advises that suit will be filed.
How did the insurer get it wrong? The check, issued by the insurer’s bank, included the standard check language, “VOID IF NOT PRESENTED WITHIN 90 DAYS.” Not only was this language standard for financial institutions, but it was also imposed pursuant to Georgia statute (although Georgia statute provides for 180 days rather than 90). To make matters worse, “a comma was not included in the name of Plaintiffs’ law firm.”
When suit was filed, the insurer sought to enforce the settlement agreement and avoid bad faith exposure, arguing its acceptance materially complied with all of the terms of the offer. The trial court agreed, noting the 90-day time limit was imposed by the bank and not the insurer, and both the Georgia statute and settlement offer permitted payment by check. The trial court asked the insurer to re-deliver the payment check and granted summary judgment to the insurer.
The plaintiffs appealed, and the Georgia Court of Appeals reversed, holding the insurer’s bank’s standard statute-based check language constituted a rejection and “counter-offer” on the part of the insurer. Since the insurer technically rejected a policy-limits demand, it was now exposed to virtually limitless damages under Georgia’s bad faith statute.
These are the facts of Patrick v. Kingston, decided by the Georgia Court of Appeals on February 13, 2024. No. A23A1527, 2024 WL 566609 (Ga. Ct. App. Feb. 13, 2024). This decision follows a long line of cases where insurers clearly intend to accept a plaintiff’s settlement demand, but the demand itself seems drafted to make proper acceptance nearly impossible. Then, as appears to be the drafter’s objective, the insurer falls into one of the drafter’s “Holt traps” by making some minor error – even as minor as a misplaced comma – in their attempt to accept. This minor error now invalidates the insurer’s attempted acceptance, converting it to a rejection and counter-offer, and the insurer may now be subject to exposure for the full extent of damages regardless of the policy limits.
Ga. Code Ann. § 9-11-67.1 sets up the material terms of a settlement offer. The offer must be made before an answer is filed (though they are typically made pre-suit), it must include the time period for acceptance (minimum of 30 days), the payment amount, the identity of the releasees, whether the release is full or limited in scope and the claims to be released. However, these terms have been held not to serve as an exhaustive list of settlement terms. de Paz v. de Pineda, 361 Ga. App. 293, 864 S.E.2d 134 (2021).
Georgia plaintiffs’ attorneys have found creative ways to set up these “Holt traps” which can be reused repeatedly. Shortly before Patrick v. Kingston, the Georgia Court of Appeals decided a similar case involving the same plaintiffs’ attorneys and the same underlying trial court judge. In that case, Pierce v. Banks, the plaintiff argued that since the settlement check stated, “void after 180 days,” it failed to comply with the terms of the offer. 368 Ga. App. 496, 499, 890 S.E.2d 402 (2023), cert. denied (Jan. 9, 2024). They also argued an omitted comma in the name of the law firm invalidated the acceptance. Id. Further, they argued the offer was rejected because the settlement demand stated payment was to be received “on the 15th day after acceptance,” and the check was delivered sooner. Although the insurer argued it was “utterly absurd” that plaintiffs complained about early payment, the court of appeals found the early payment and the bank’s form check language stating “void after 180 days” invalidated the insurer’s acceptance.
In a concurrence to the opinion in Pierce v. Banks, Presiding Judge Dillard and Chief Judge Rickman warned the judicial requirement that an offeree accept the settlement offer “unequivocally and without variance of any sort . . . at times can be a trap for the unwary, leading us to caution parties to avoid crossing the line from vigorous advocacy to gamesmanship” or not. If you find yourself on the receiving end of such a demand, whether based in “vigorous advocacy of gamesmanship,” the recent Georgia Court of Appeals decisions show that exacting precision is key and every term may be considered a material one by the court.
Attorney Contact Info
Derek Goff
derek.goff@swiftcurrie.com
205.314.2408