Atlanta Business Chronicle January 23-29, 2004

Money Strategies, by Dan Kolber

As a result of the tough economy, some insurance companies are going through some hard times. Sharon Rowen, an attorney with the Atlanta law firm of Rowen and Klonoski, P.C., of the past 24 years has been suing insurance companies that wrongfully refuse to pay claims. She said that insurance company investment portfolios are down, and as a result “many insurance companies have decided not to pay claims as quickly and as fairly as they do in better economic times.”

Fortunately, Georgia has two powerful statutes that will assist you if your insurance company doesn’t pay when it should. O.C.G.A. 33-4-6 is the ammunition you use against the stubborn insurance company for all types of insurance except for motor vehicle insurance and insurance policies obtained though employee benefit plans (which are handled exclusively under the federal ERISA statute). Insurance Companies that don’t pay your motor vehicle claims are covered by a separate statute, O.C.G.A. 33-4-7.

Linda Klein, former president of the Georgia State Bar and currently the chairwoman of the American Bar Association’s Tort Trial and Insurance Practice Section said, “These bad faith statutes help keep insurance companies honest. They allow for recovery of punitive damages and attorney fees, which otherwise would not be recoverable in a suit on a contract, which is what an insurance policy is. That is why these statutes are so important.”

Rowen agreed. “Insurance companies make profits partly by not paying out one dollar more than they are forced to pay. Many times, they stretch what they consider their legal right to deny a valid claim.”

Under Georgia law, two things must happen for your insurance company to get slapped in court. First, your insurance company has to fail to pay your claim within 60 days of your written demand to them to do so. Second, the insurance company’s refusal to pay you has to be in bad faith. It is not clear what is meant by “bad faith”. Georgia courts have held that “bad faith” generally means a frivolous and unfounded refusal to pay a claim. In other words, the insurance company is not acting in bad faith if it has any reasonable ground to contest your claim and where there is a disputed question of fact.

If your insurance company is acting in bad faith, this is what you should do.
- Just filing a claim of loss with your insurance company is not enough to get relief under these two Georgia insurer bad faith statutes. You must make a demand for payment, and you should also use the magic words asserting “bad faith” in your demand to the insurance company.
- Make sure you send your demand notice by overnight delivery or certified mail, return receipt requested.
- You must then wait 60 days before filing your lawsuit. Warning: If the statute of limitations on your claim expires earlier than the 60 days, don’t wait to file your suit even though you will lose the extra rights under the bad faith statutes.

Attorney Rowen said that many times just making the written demand to your insurance company and asserting the claim for bad faith is enough to cause the recalcitrant insurance company to do what they were supposed to do in the first place.

If you make your demand and your insurance company still doesn’t pay after 60 days, what do you win if the judge or jury finds your insurance company acted in bad faith? The statutes are very clear. The insurer will be liable to pay you, in addition to your loss, not more than 50 percent of the insurer’s liability for the loss or $5,000.00, whichever is greater. You would also be entitled to all reasonable attorney’s fees for bringing the lawsuit against the insurer.

Because of an increase in the number of cases of insurance companies acting in bad faith, the Georgia legislature amended the law in 2001. This amendment increased the penalty charged to the insurance company form 25 percent to 50 percent of the loss. The amendment also added the provision that the minimum recovery would be $5,000.00.

Some insurance companies are better than others. According to Rowen, some companies simply need to be reminded of their responsibilities from time to time. Rowen said, “I’ve noticed that some insurance companies will demonstrate a pattern of not paying claims until some policyholder successfully sues them. Then the insurance company changes its practice in settling claims.

The author, Dan Kolber, is an Atlanta attorney and partner
with Gambrell & Stolz, Atlanta, Georgia.

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