Recently, the Georgia Supreme Court found in favor of an insurer in a suit alleging failure to settle a claim in bad faith. Trinity Outdoor, LLC v Central Mut. Ins. Co., No. SO9Q0605 (June 1, 2009). In that matter, the insured, Trinity, had demanded that its insurer, Central Mutual, pay its policy limits of $2 million to settle a premises liability/wrongful death matter. The claims against Trinity were settled during pretrial mediation for a payment of $954,530, which consisted of $200,000 from Central Mutual, and the remainder from the insurer of a co-defendant, against which Trinity had filed a demand for indemnity and contribution.
In its opinion, the Court held that an Central Mutual could not be liable to Trinity for bad faith in the absence of a jury verdict against it. It further found that Central Mutual had provided a defense to Trinity, that the additional $754,530 paid by the co-defendant’s insurer was a “voluntary payment” to which Central Mutual had not consented, and that the policy’s language did not subject the insurer to liability for such payments. Further, the Court noted that Trinity’s liability was debatable.
Alabama precedent suggests that its courts would come to similar holdings. In National Security v Bowen, 417 So.2d 179 (Ala. 1982), the Court held that:
An insurer is liable for its refusal to pay a direct claim when there is no lawful basis for the refusal coupled with actual knowledge of that fact. No lawful basis means that the insurer lacks a legitimate or arguable reason for failing to pay the claim. When a claim is “fairly debatable,” the insurer is entitled to debate it, whether the debate concerns a matter of fact or law.
In Waters v. American Cas. Co., 261 Ala 252, 73 So.2d 524 (1953), this Court recognized that if an insurer negligently failed to settle a case, the insurer should be liable for the full amount of any judgment, including any excess over the policy limits. This Court has on several occasions addressed the tort of negligent or bad-faith failure to settle. Each time, the Court has held that a cause of action arising out of a failure to settle a third-party claim made against the insured does not accrue unless and until the claimant obtains a final judgment in excess of the policy limits. Federal Ins. Co. v. Travelers, 843 So.2d 140 (Ala. 2002).