With the spread of COVID-19 in the U.S., many insurers are preparing for possible COVID-19 related first party property claims by reviewing what coverages and exclusions might be applicable to such claims. While any claim is dependent on the specific terms of the policy issued to each insured, insurance companies should consider certain coverages and exclusions as a checklist. Partners Karen Karabinos and Eric Mull will address a coverage provision or exclusion each day. Today, we focus on a general discussion of bad faith claims in Georgia and recommendations for handling of Georgia COVID-19 claims to hopefully avoid a jury awarding bad faith damages to an insured.
Under Georgia law, an insurer is not in bad faith, nor subject to statutory bad faith penalties, when there is a closely contested dispute on a claim submitted by its insured. The applicable law on bad faith in Georgia is as follows:
Where there is a reasonable basis for doing so, an insurer is entitled to maintain and defend its position as to the amount of its liability
without the imposition of penalty and attorney’s fees, even if doing so results in considerable delay in bringing the matter to a conclusion. ‘Any rule or principal which would deny the company that right of full and free litigation’ on the question of its liability or the amount thereof, is wrong. Travelers Ins. Co. v. Sheppard, 85 Ga. 751 815, 12 S.E. 18 (1890). To authorize imposition of the penalty and attorney’s fees it must appear that the basis of the company’s position as to the amount of liability was frivolous and unfounded . . . .
Georgia Farm Bureau Mut. Ins. Co. v. Boney, 113 Ga. App. 459, 460, 148 S.E.2d 457 (1966).
In sum, Georgia law requires that reasonable disputes must be allowed to be heard and litigated, with the standard being that bona fide disputes are exempt from the question of bad faith as a matter of law. Georgia Intern. Life Ins. Co. v. Harden, 158 Ga. App. 450, 280 S.E.2d 863 (1981). The Georgia Supreme Court has ruled on this issue, stating that there can be no finding of bad faith if “it can be said as a matter of law that there was a reasonable defense which vindicates the good faith of the insurer,” in that “the insurer had reasonable and probable cause for making a defense to the claim. Colonial Life & Accident Ins. Co. v. McClain, 243 Ga. 263, 265, 253 S.E.2d 745 (1979).
When an insured pursues a bad faith claim in Georgia, the insured is limited to claims for breach of contract and bad faith penalties pursuant to O.C.G.A. § 33-4-6. In application, an insured, in addition to pursing a bad faith penalty, may not also seek attorney’s fees under other Georgia statutes, such as O.C.G.A. § 13-6-11. See Thompson v. Homesite Ins. Co. of GA, 812 S.E.2d 541, 546 (Ga. Ct. App. 2018) (where claims are predicated upon insurer’s failure to pay a claim, “OCGA § 33-4-6 is the exclusive vehicle through which the insured may make a claim for attorney fees against the insurer.”); Gross v. Conn. Gen. Life Ins. Co., 2005 WL 8155651, at *7 (N.D. Ga. Jan. 14, 2005) (dismissing claim for an attorneys’ fees under O.C.G.A. § 13-6-11 because “[i]t is well-settled that O.C.G.A. § 33-4-6 provides the exclusive extra-contractual remedy for an insurer’s bad-faith refusal to pay”).
In order to bring a bad faith claim against an insurer in Georgia, the insured must make a demand for payment at least 60 days prior to filing suit against the insurer. Georgia courts have not required that any specific language be used in making a demand for payment. See Cotton States Mut. Ins. Co. v. Clark, 114 Ga. App. 439, 151 S.E.2d 780 (1966); see also Hanover Ins. Co. v. Hallford, 127 Ga. App. 322, 193 S.E.2d 235 (1972) (demand which did not include a specific dollar amount was valid to show bad faith). As long as there is some “final” demand for payment, the procedural requirement of § 33-4-6 will be satisfied.
With the anticipated onslaught of business income claims resulting from COVID-19, we will likely see a number of associated bad faith claims. In fact, just last week, a bad faith claim was asserted along with a breach of contract claim in Big Onion Tavern Group, LLC, et al. v Society Ins. Co. (No. 120-cv-02005), filed in the United States District Court for the Northern District of Illinois. The plaintiffs in Big Onion are separate businesses that operate in the Chicago area and had in place business interruption insurance from Society Insurance. The basis of the plaintiff’s claims in Big Onion originate with Illinois Governor J.B. Pritzker’s March 15, 2020 order closing all restaurants, bars, movie theaters, etc. to help stop the spread of COVID-19. The suit seeks coverage under the plaintiffs’ commercial business insurance policies, “which provide coverage for losses incurred due to a ‘necessary suspension’ of their operations, including when their business are forced to close due to a government order.” Further, the suit asserts that the Society Insurance policy promises to cover their losses when the government forces closure interruption of their businesses and does not exclude contamination due to communicable disease and/or viruses.
Concerning their bad faith claim, the plaintiffs in Big Onion allege that Society Insurance issued blanket denials of their claim for business interruption losses that have resulted from the governor’s closure order “often within hours of receiving Plaintiffs’ claims – without first conducting any meaningful coverage investigation, let alone a ‘reasonable investigation based on all available information’ as required under Illinois law.” Further, the suit provides that Society Insurance COE Rick Parks issued a memorandum to “agency partners” providing that under Illinois law, the Society Insurance policies would likely not cover such stoppages. The memorandum provides (in pertinent part):
Whether it be a full shutdown of business, a partial suspension of operations or an alteration in business operations that remain open, Business Income coverage must be due to a suspension caused by direct physical loss of or damage to covered property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss. Extra Expense coverage also requires the same coverage triggers. In general, a quarantine of any size, or brought about by a governmental action without a Covered Cause of Loss, would likely not trigger Business Income or Extra Expense coverages under our policies.
As with the Oceana Grill case, which we discussed last week, the plaintiffs in Big Onion are attempting on satisfying the direct physical loss requirement by asserting how coronavirus survives on surfaces. As discussed below, the claims-handling and bad faith allegations in Big Onion illustrate the importance of conducting a diligent investigation into each claim, regular communication with insureds, and the implications of preparing blanket statement suggesting the lack of coverage prior to receiving and reviewing actual claims.
Having defended numerous bad faith claims over the last years, we have found that practicing good customer relations is one of the keys to avoid bad faith. Insureds want to be kept in the loop of what is going on with their claims. Return an insured’s call, even if there is no new information to provide. Customer service, however, is not the only key to avoiding bad faith.
Insureds also want someone who is knowledgeable of the provisions of their policy. Adjusters must know the applicable policy inside and out. This is especially true in connection with any COVID-19 related claims that may be filed. The insureds likely do not understand how the provisions of the policy might or might not cover any business interruption claims. Any confusion on the part of the adjuster or misinterpretation of the policy provisions will be seen by insureds as an attempt by the insurer to deny their claim in bad faith.
Another key to avoid bad faith claim is the insurer must investigate the insured’s claim. A lack of investigation appears to be an issue raised by the Plaintiffs in Big Onion. An insurance company will have a difficult time defending a bad faith claim if the coverage decision is made quickly and without any investigation. The insurer’s investigation must be a reasonable one, but what does a reasonable investigation look like? The investigation must include an interview of the insured, gathering the facts of the claim, and a request for documentation, if needed. The facts of the claim must be evaluated in light of the applicable policy provisions, and the claim file should document the details of that evaluation.
Following these pointers will not prevent an insured from filing a bad faith claim, but these pointers, if followed, may prevent a jury from assessing bad faith damages against the insurance company.