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The Conflicting Obligations of Time Limit Demands and Court Approval for Settlements Involving Minors

March 31, 2016 BY Def Admin

Imagine the following scenario. Your insured is involved in a car accident in which he injures a minor.  Your insured is at fault and he has a $50,000 automobile insurance policy, but the minor’s medical bills are more than your insured’s $50,000 automobile policy limit. After filing a lawsuit, the plaintiff attorney sends you a valid time-limit demand on behalf of his minor client, demanding your insured’s policy limits of $50,000. You know that, because the proposed gross settlement amount is more than $15,000, the settlement must be submitted for approval to the court in which the action is pending. See O.C.G.A. § 29-3-3(e) (“If legal action has been initiated and the proposed gross settlement of a minor’s claim is more than $15,000, the settlement must be submitted for approval to the court in which the action is pending.”). Because you only have 15 days to respond to the time limit demand, there is not enough time for the court to approve the gross settlement amount.

In such a scenario, do you agree to pay the time-limit demand, but make payment of the demand contingent on obtaining court approval as seemingly required by O.C.G.A. § 29-3-3(e)? Although the Georgia Court of Appeals has not provided guidance in this area, a recent opinion sheds some light on this issue. The short answer is no. If a valid time-limit demand has been made on behalf of a minor and the demand requires payment as a condition of acceptance, you cannot condition payment of the demand on first obtaining court approval for the proposed gross settlement amount. Otherwise, you run the risk of not accepting the time-limit demand, which can invite a bad faith action by your insured.

In Benton v. Gailey, 334 Ga. App. 548, 779 S.E.2d 749 (2015), the defendant caused an automobile accident that injured a minor.  The minor sustained significant injuries from the car wreck and incurred more than $500,000 in medical bills. Defendant had a $50,000 automobile insurance policy.  Sometime after filing the lawsuit, the minor’s attorney sent a time-limit demand to defense counsel, saying that he was authorized to extend an offer to settle the claims of the parents and the minor.  In order to accept the demand, the insurance carrier would have to pay the limits of the defendant’s automobile insurance policy by a specific date and time. 

Before the expiration of the time-limit demand, the defendant’s attorney responded by letter saying that the defendant accepted minor’s offer “but is statutorily required to have probate court approval of this settlement pursuant to [O.C.G.A. § 29-3-3] and therefore our acceptance is subject to probate court approval. . . .” Id. at 549.  Although the defendant agreed to pay the minor, the defendant did not enclose payment as required by the minor’s time-limit demand.

The defendant argued that it was not required to pay the minor’s time-limit demand without first obtaining court approval as required by O.C.G.A. § 29-3-3. But the Georgia Court of Appeals noted that, whether “court approval was necessary for a valid settlement of the minor’s claim is immaterial to our analysis of whether the [minor’s] offer was accepted.” Id. at 551. The court held that the defendant did not accept the minor’s time-limit demand because the defendant did not make the demanded-for payment as required by the minor’s demand letter. The court used traditional contract principles to arrive at this holding, noting that “[a]n answer to an offer will not amount to an acceptance, so as to result in a contract, unless it is unconditional and identical with the terms of the offer.” Id. at 550.   The court also observed that the “offer must be accepted in the manner specified by it; and if it calls for a promise, then a promise must be made; or if it calls for an act, it can be accepted only by doing of the act.” Id. at 550 – 551.

This opinion provides tremendous leverage to any attorney representing a minor with significant injuries and/or medical bills against an insured with minimum insurance coverage.  Although the language of O.C.G.A. § 29-3-3 requires proposed gross settlements to be submitted for approval to the court in which the action is pending, the Benton opinion puts time-limit demand recipients in the perilous position of either following O.C.G.A. § 29-3-3 or running the risk of not accepting a valid time-limit demand. This opinion has troubling implications because an insurer may be liable for damages to its insured “for failing to settle the claim of an injured person where the insurer is guilty of negligence, fraud, or bad faith in failing to compromise a claim.” Southern General Ins. Co. v. Holt, 262 Ga. 267, 268, 416 S.E.2d 274 (1992). When an insurance company “has knowledge of clear liability and special damages exceeding the policy limits” a jury will typically be allowed to decide if an “insurer acted unreasonably [or negligently] in declining to accept a time-limited demand settlement offer.” Id. at 269.

Although the Georgia Court of Appeals noted that court approval of the proposed gross settlement might be a defense to a bad faith action, it unhelpfully stated that it “expressed no opinion on the merits of this position.” Benton, 334 Ga. App. at 551 n. 1.  In other words, we will have to wait for future cases to trickle through the Georgia Court of Appeals to see if insurers can use the language of O.C.G.A. § 29-3-3 (requiring court approval for gross settlements that are more than $15,000) as a valid defense to a bad faith action. 

The Journal is a publication for the clients of Drew Eckl & Farnham, LLP. It is written in a general format and is not intended to be legal advice to any specific circumstance. Legal Opinions may vary when based upon subtle factual differences. All rights reserved. 

Editorial Board:

H. Michael Bagley