they issued their opinion in Southern General Insurance Co. v. Wellstar Health
Systems, Inc., 2012 WL 917604 (Ga.App.). In short, the Court set forth a roadmap
...
Southern General v. Wellstar and McReynolds v. Krebs
Court found that request to be a counteroffer and therefore a rejection of the Holt demand. The Supreme Court makes no mention of Wellstar and it is not even clear from the opinion whether or not they were aware of it.2
Did the “Safe Harbor” Provision Survive?
So how can we resolve these seemingly conflicting appellate decisions issued in the same week? This article is an analysis of the two decisions and a look at one perspective on how they can perhaps be reconciled in a manner that salvages the “safe harbor” provision created by Wellstar.
By: Jason W. Hammer The dilemma in the wake of Southern General v. Holt1 and its progeny, specifically the Supreme Court decision in Frickey v. Jones, 280 Ga. 573 (2006), has been that when faced with a demand for policy limits, an insurer could not accept the demand and request satisfaction of pending hospital liens without arguably countering / rejecting the demand. This left insurers weighing the lesser of two evils - a potential bad faith claim or a claim by the hospital for failure to satisfy the liens. Ultimately, this created two scenarios in which the insurer could be obligated to pay an amount beyond the limits of the policy. If the insurer did everything right with respect to the Holt demand and settled with the plaintiff for policy limits, it may still be statutorily obligated to satisfy the hospital liens (assuming the hospital did not consent to the settlement). If the insurer followed the statutory scheme for satisfaction of the hospital lien and either paid the lien directly, or insisted that the hospital be a party to the settlement, the Holt demand would not be met and the insurer may be exposed to bad faith. On March 20, 2012, the Georgia Court of Appeals took a significant step that seemingly resolved this dilemma when they issued their opinion in Southern General Insurance Co. v. Wellstar Health Systems, Inc., 2012 WL 917604 (Ga.App.). In short, the Court set forth a roadmap for insurers to meet a Holt demand while still requesting “a reasonably and narrowly tailored provision assuring that the plaintiff will satisfy any hospital liens from the proceeds.” The Court held that if the plaintiff “unreasonably refused to give the requested assurance,” the insurer may then satisfy the lien directly with the hospital and tender any remaining funds to the plaintiff, without being in bad faith. According to the Court of Appeals, such a request could not, as a matter of law, be in bad faith and following this procedure created a “safe harbor” for the insurer. With what appeared to be a resolution to this issue in place, it took only three days for the waters to be muddied again. On March 23, 2012, the Georgia Supreme Court issued their opinion in McReynolds v. Krebs, 2012 WL 1034449 (Ga.). In short, the Court held that a motion to enforce a settlement agreement was properly denied when in response to a Holt demand, the insurer, while agreeing to meet the demand, asked for a phone call to discuss how the pending hospital lien would be resolved as part of the settlement. The Krebs 6
Southern General v. Wellstar In September of 2007, Norman Gray was riding a bicycle when he was struck by a Southern General insured with a minimum limits policy of $25,000. Mr. Gray incurred over $22,000 in medical expenses with Wellstar. In October of 2007, Wellstar notified Southern General and Mr. Gray of its intent to file liens and subsequently filed them the following month. Before the liens were filed, however, Southern General tendered its limits to Mr. Gray and indicated that either Wellstar’s liens had been discussed and Southern General had confirmation that the liens would be satisfied, or there would be an indemnification agreement prior to issuing the funds. In response to the tender, Mr. Gray sent Southern General a demand for policy limits with a 5-day time limit. The funds were tendered and a release was executed that omitted any indemnification regarding the outstanding lien, and presumably did not include any provision that Mr. Gray would satisfy the lien (the opinion does not specify either way). Wellstar filed suit against Southern General to enforce their hospital liens pursuant to O.C.G.A. § 44-14-473(a).3 Southern General moved for summary judgment, arguing that the settlement was made in compliance with a time-limited demand and that Holt and Frickey were irreconcilable with the statutory scheme for satisfaction / enforcement of hospital liens.4 The trial court denied Southern General’s Motion, ruling that the tender of limits in response to a time-limited demand is not a defense to enforcement of a hospital lien. The trial court found that if Southern General had paid the hospital lien, Mr. Gray would still have had the full benefit of the insurance proceeds he demanded. The trial court granted summary judgment to Wellstar sua sponte and the Court of Appeals affirmed the trial court’s order in its entirety. The Court of Appeals’ analysis starts by walking through an insurer’s obligations in responding to a time-limited settlement demand within the policy limits, and its obligations with respect to satisfaction of pending hospital liens. The Court notes that “the question before us is whether an insurance company’s common law and statutory duties are reconcilable under the law, and we agree with the trial
court that they are.” [The Court of Appeals] concludes that it is possible for an insurance company to create a “safe harbor” from liability under Holt and its progeny when (1) the insurer promptly acts to settle a case involving clear liability and special damages in excess of the applicable policy limits, and (2) the sole5 reason for the parties’ inability to reach a settlement is the plaintiff’s unreasonable refusal to assure the satisfaction of any outstanding hospital liens. To explain its reasoning, the Court sets forth a hypothetical scenario where an insurer, faced with clear liability and special damages in excess of policy limits, offers in a timely fashion to tender its limits to the plaintiff, subject to “a reasonably and narrowly tailored provision assuring that the plaintiff will satisfy any hospital liens” from the settlement proceeds. The Court even suggests an example of what would constitute such a reasonable and narrowly tailored provision: The insurance company could request that plaintiff’s counsel or a third party hold a portion of the settlement proceeds (in an amount equal to that of the hospital lien) in escrow to allow the plaintiff an opportunity to investigate the validity of the liens and to negotiate with the hospital. And once the relevant lien-resolving documents have been executed by the parties, the held-back settlement funds could then be disbursed to the plaintiff. The Court held that if an insurer made such an offer, or made the request as a timely counteroffer to a Holt demand, and the plaintiff “unreasonably refused to give the requested assurance, the insurer is (at that point) under no obligation to tender policy limits directly to the plaintiff.” (emphasis added). Then “the insurer would be free “to simply verify the validity of any liens, make payment directly to the hospital, and then disburse any remaining funds to the plaintiff.” The Wellstar Court is careful to note, however, that this scenario in no way “condones or encourages” the insurer satisfying the liens before engaging in good-faith settlement negotiations with the plaintiff. Assuming the scenario above is followed by the insurer, the Court of Appeals held that “the insurer would create a safe harbor from liability under Holt and its progeny.” In such a scenario, when the failure to settle a Holtscenario claim is based solely on the plaintiff’s unreasonable refusal to agree to a reasonably and narrowly tailored provision assuring that any hospital liens will be satisfied from the settlement proceeds, that cannot, as a matter of law, constitute a bad faith failure to settle
Firm News
& Notes
South Carolina Super Lawyers® continued from page 5
Carlock, Copeland & Stair Attorneys Selected for South Carolina Super Lawyers® and Rising Stars® Rising Stars
From left: David W. Overstreet, Amanda K. Dudgeon, Jackson H. Daniel, Michael B. McCall
David W. Overstreet is a partner in the Charleston office who focuses his practice on commercial litigation. A significant amount of his time is spent defending professionals, including lawyers, accountants, real estate agents, and others. A smaller portion of his practice includes handling general liability matters with sizeable exposure. Amanda K. Dudgeon is a member of the Charleston office’s commercial litigation team and focuses her practice on the defense of attorneys, appraisers, real estate agents, accountants, and other professionals. She also handles director and officer claims and construction defect matters. Jackson H. Daniel focuses his practice primarily on Construction Litigation. He has a significant amount of trial experience, much of it obtained during his four years of prosecuting criminal offenses in South Carolina. Michael B. McCall practices primarily in the areas of legal and accounting malpractice, premises and products liability, and insurance coverage. Mike has a significant amount of trial experience defending personal injury claims in state and federal courts throughout South Carolina, including over 75 cases tried to verdict. This is the first year that Rising Stars have been selected for South Carolina. Rising Stars is a listing of exceptional lawyers who are 40 years of age or under, or who have been practicing for 10 years or less, and have attained a high degree of peer recognition and professional achievement. Only 2.5 percent of the total lawyers in the state are honored on the Rising Stars list. 7
when the insurer is merely attempting to comply with its legal obligations. (emphasis added).
Grady Memorial Hospital) will be resolved as part of this settlement.
In short, the Court of Appeals held that refusal to settle for policy limits in the absence of plaintiff’s agreement to satisfy the hospital liens is not, as a matter of law, an “unreasonable” refusal, as required to trigger a claim for bad faith.
A subsequent letter from the insurer indicated that it “tendered its full policy limit of $25,000 to Ms. Krebs, subject to liens.”
Interestingly, the Court of Appeals commented that “when Gray demanded Southern General’s policy limits without also agreeing to assure satisfaction of Wellstar’s hospital liens, Southern General was effectively faced with a settlement demand in excess of its policy limits.” Although the Court of Appeals does not take this next step, it could be argued based on this language that a Holt demand for policy limits without an offer to satisfy a hospital lien is not a Holt demand at all, as it is “effectively” a demand in excess of the limits and does not provide an opportunity to settle the case within the limits of the policy. There are a few subtleties in Wellstar worth noting. The holding of this case is exclusive to hospital liens and the Court’s reasoning is based on the statutory scheme specific to hospital liens and the obligations on insurers created thereby. It would be unwise to rely on Wellstar in the face of a Holt demand to insist that other types of liens or obligations be satisfied by the plaintiff. Moreover, Wellstar provides for satisfaction of hospital liens, but makes no comment on indemnity protection for those liens. Wellstar does not appear to provide any authority to insist on indemnity protection for claims arising out of or relating to enforcement of hospital liens. Additionally, the Court makes multiple references in this case to Holt demands only being applicable to cases of clear liability where the special damages exceed the policy limits. In fact, the Court uses italics almost every time it uses the word “exceed.” However, it should not be assumed that the law necessarily precludes a bad faith claim in a case where the special damages do not exceed the policy limits. McReynolds v. Krebs Carmen McReynolds was the driver of a vehicle that struck a General Motors vehicle on I-75, in which Lisa Krebs was a passenger. Krebs brought suit against McReynolds and GM. McReynolds filed a crossclaim against GM, the results of which are significant for the apportionment discussion, but not relevant to the Wellstar analysis. Krebs made a policy limits demand to McReynolds’s insurer on September 6, 2005. On September 1, 2005, the insurer responded in part as follows: This fax will confirm receipt of your letter dated 8/24/05 in which you made a demand for the bodily injury limits available under [the] policy.... Our limits are $25,000/$50,000 and we agree to settle this matter for the $25,000 per person limit. Please call me in order to discuss how the liens (specifically, but not limited to the $273,435.35 lien from 8
The trial court, relying on Frickey, ruled that this language of the insurer’s September 1, 2005 response was not an unequivocal acceptance of the demand because it was conditioned on the resolution of the hospital lien. Therefore, the trial court denied McReynolds’s Motion for Summary Judgment as to the enforceability of the lien, and the Court of Appeals affirmed with little discussion beyond citation to Frickey. McReynolds v. Krebs, 307 Ga.App. 330 (2010). The Supreme Court granted certiorari to answer the question, “Did the Court of Appeals correctly find that McReynolds’s insurer made a counteroffer in response to Krebs’s settlement demand?”, which they answered in the affirmative. The Supreme Court’s reasoning tracked Frickey and the Court placed great emphasis on the “as part of this settlement” language of the September 1, 2005 fax. The Court noted that under Frickey, the “resolution of... actual and potential liens of health care providers” will transform a purported acceptance into a counteroffer, as it is an added condition. The Supreme Court makes no reference whatsoever to the Wellstar decision. Can They Be Reconciled? So what are we to make of Wellstar in the wake of McReynolds? Outwardly, McReynolds seemed a logical opportunity for the Supreme Court to either endorse or disapprove of the “safe harbor” provision created by Wellstar. With no comment either way, we are left wondering whether or not the “safe harbor” provision survived. The following is an argument that it did, but one that should be viewed with caution. Perhaps a look at what the McReynolds Court did not say is more helpful than what it did. McReynolds is not an opinion about bad faith. In fact, the term “bad faith” never appears in the Court of Appeals or Supreme Court decisions. McReynolds was about offer and acceptance - basic contract law. Although McReynolds affirmed the Frickey holding that responding to a Holt demand agreeing to pay the limits, but also inquiring into the satisfaction of liens “as part of” the settlement, constitutes a counteroffer / rejection of the demand, the Court did not go the next step in holding that such a counteroffer / rejection of the demand is made in bad faith (or even that it creates a jury question of bad faith). Bad faith was not an issue before the Court in McReynolds, nor was it at issue
in Frickey. Perhaps this explains the McReynolds Court’s silence on Wellstar. On the other hand, Wellstar clearly addressed bad faith and is the only case that analyzes whether or not such a response to a Holt demand constitutes bad faith - concluding that it does not. Reading McReynolds and Wellstar together in this light arguably leads to this conclusion: If a plaintiff makes a Holt demand in a case with a pending hospital lien and the insurer accepts the demand, but requests “a reasonably and narrowly tailored provision assuring that the plaintiff will satisfy any hospital liens from the proceeds,” that constitutes a counteroffer / rejection of the Holt demand pursuant to Frickey and McReynolds. However, pursuant to Wellstar, such a counteroffer / rejection is not unreasonable and therefore, not bad faith as a matter of law. All that being said, this argument should be approached with caution, particularly since McReynolds is a Supreme Court case and Wellstar is a Court of Appeals decision. Plaintiffs’ attorneys will certainly argue that McReynolds overruled Wellstar, even if not expressly. A motion for reconsideration citing Wellstar was filed in the McReynolds case and it was denied by the Supreme Court. Presumably, if the Supreme Court viewed these two cases as inconsistent it would have taken that opportunity to comment on Wellstar one way or the other, particularly in light of Justice Melton’s dissenting opinion, in which he distinguished Frickey. For the time being, it appears insurers have an argument that addressing hospital liens in response to a Holt demand is not bad faith as a matter of law, although the dust continues to settle.
Resources 1. Recognizing the potential confusion caused by
Firm News
& Notes
CCS Partner Honored as a Charleston Forty under 40 David Overstreet, Partner in the Charleston office of Carlock, Copeland & Stair, has been honored with the Charleston Regional Business Journal’s Forty under 40 Award. This annual award honors the professional successes and community involvement of forty people younger than 40 years of age who are making their mark on the region’s business community. All 40 winners were interviewed and featured in the Charleston Regional Business Journal published on March 26, 2012. Carlock, Copeland & Stair Attorneys Join Claims And Litigation Management Alliance Carlock, Copeland & Stair, LLP is pleased to announce that Adam L. Appel and David J. Harmon have accepted nominations to join the prestigious Claims and Litigation Management Alliance (CLM). The CLM is an alliance of insurance companies, corporations, corporate counsel, litigation and risk managers, claims professionals and attorneys. CLM’s goal is to promote and further the highest standards of litigation management in pursuit of client defense. Attorneys and law firms are extended membership by invitation only based on nominations from CLM Fellows, in-house claims professionals.
Southern General being the plaintiff in both the Holt case and the Wellstar case, this article refers to Southern General v. Holt as the “Holt” case and Southern General v. Wellstar as the “Wellstar” case. 2. Significantly for insurers, but not relevant to this article, the Supreme Court in Krebs held in a separate division that liability may be apportioned among defendants in the absence of plaintiff’s negligence pursuant to O.C.G.A. § 51-12-33.
3.
Southern General filed suit against Mr.
Gray seeking indemnity, which was resolved by default judgment against Mr. Gray. The viability of Southern General’s third-party claim against Mr. Gray is not addressed in the opinion. 4.
Southern General also made a constitu-
tional equal protection argument, which was not addressed on appeal. 5. The Court of Appeals italicized “sole,” which should not be lost on anyone. It is repeated throughout the opinion.
Jason W. Hammer Associate, Atlanta Office General Liability Health Care Litigation 404.221.2306
[email protected]
Carlock, Copeland & Stair Welcomes New Executive Director
We are pleased to announce that Roger P. Flower has joined the firm as Executive Director. Roger will oversee all business activity for both the Atlanta, GA and Charleston, SC offices.
Roger brings over 25 years of legal administration experience to Carlock, Copeland & Stair. Immediatly prior to joining Carlock, Copeland & Stair, Roger was employed by one of the 75 largest law firms headquartered in the U.S. Stay tuned for an interview with Roger, which will be published in the Fall 2012 Newsletter.
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