Morris Manning & Martin, LLP

Insurer Loses Discovery Battle Over Production of Settlement Negotiations

12.04.2015

On September 14, 2015, a divided Georgia Court of Appeals reversed the Trial Court’s grant of summary judgment to Liberty Mutual Fire Insurance Company (“Liberty Mutual”) in a case brought by Collie and Sharon Chandler alleging breach of contract and bad faith based upon Liberty Mutual’s denial of their claim under Sharon Chandler’s uninsured motorist policy (the “UM Policy”).  At issue was whether Liberty Mutual should have produced settlement documents from a separate but related claim file. 

The Chandlers, their daughter, and Collie’s brother (the “Brother”) were injured in an automobile accident caused by Evans Johnson III ("Johnson").  Liberty Mutual insured both the Chandlers and Johnson.  Johnson had a minimum limits automobile policy with coverages of $25,000 per person, and $50,000 per accident for bodily injury claims.  The UM Policy had limits of $100,000 per person, and $300,000 per accident.  The Chandlers and the Brother were injured in the accident, and the Chandler’s vehicle was damaged. 

Attorney Paula McGill initially represented the Chandlers and the Brother, but the Brother later retained separate counsel.  During settlement negotiations, Liberty Mutual informed Ms. McGill that damages not covered by Johnson’s liability policy would be paid under the UM Policy.  Ms. McGill sent a letter to Liberty Mutual demanding $15,250 to settle Collie Chandler’s claims, $13,250 to settle Sharon Chandler’s claims, and $9,000 to settle their daughter’s claim.  In the same letter, Ms. McGill sought to settle the remaining claims under the UM Policy for $241,000. 

Liberty Mutual accepted all demands under Johnson’s policy and issued checks to the Chandlers for a total of $37,500.  Ms. McGill cautiously held the checks for several months, pending confirmation from Liberty Mutual that the Brother also had settled under Johnson’s liability policy.  Liberty Mutual advised Ms. McGill that the limits of the liability policy had been exhausted.  Based upon this information, Ms. McGill deposited the settlement checks. 

When the Chandlers sought to recover under the UM Policy, Liberty Mutual refused to pay contending the limits of Johnson’s liability policy had not been exhausted.  The parties were unable to resolve the dispute, and the Chandlers filed a lawsuit alleging Liberty Mutual breached its contract and/or negotiated in bad faith.   In support of these claims, the Chandlers argued Liberty Mutual waived the requirement of exhaustion of the limits of the liability policy when Liberty Mutual promised to pay the claims under the UM Policy, or in the alternative, that Liberty Mutual intentionally misled the Chandlers regarding their purported intent to pay the claims under the UM Policy.

In discovery, the Chandlers requested any Liberty Mutual documents relating to the settlement negotiations between Liberty Mutual and the Brother.  Liberty Mutual refused to produce the documents arguing they were not relevant.  Thereafter, the Chandlers served Liberty Mutual with a subpoena to produce all documents relating to the settlement negotiations with the Brother, and Liberty Mutual filed an emergency motion to quash. 

The trial court ordered Liberty Mutual to disclose all documents related to any settlement with the Brother for an in-camera review.  During that review, the trial court found nothing in the file was discoverable and denied the Chandler’s discovery request.  The Chandlers appealed that decision and the trial court’s grant of summary judgment to Liberty Mutual with respect to the breach of contract and bad-faith claim. 

At the Court of Appeals, a discovery ruling by the trial court must stand unless the Court finds an abuse of discretion.  In its opinion, the Court of Appeals noted that relevance is to be interpreted very broadly to mean any matter that is relevant to anything that is or may become an issue in the litigation. The Court also noted plaintiffs may pursue UM claims only after an insurer offers, and the plaintiffs accept, an amount equal to the limits stated in the liability policy, and the plaintiffs execute a limited release.  The insurer, the Court observed, can waive conditions precedent to recovery where the insurer has led the insured to believe it will pay claims either through the insurer's actions during settlement negotiations or by directly promising to pay citing Jones v. Cotton States Mut. Ins. Co., 185 (Ga. Apps. 66, 69;) 363 S.E. 2nd 303 (1987.)  The Court also noted that an insurer may not in bad faith refuse to pay a covered uninsured motorist claim, citing O.C.G.A.  § 33-7-11(j.) 

The trial court in reviewing the Brother’s claim file took a narrow view of the relevance and concluded that because there were no documents pertaining specifically to the exhaustion of the limits of the liability policy, the file was not discoverable.  The Court of Appeals disagreed with this, noting the file contained evidence that before Ms. McGill deposited the checks settling the Chandlers’ claims under the liability policy, Liberty Mutual did indeed consider the Brother’s claims settled for an amount sufficient to exhaust the limits of Johnson’s liability policy.  This evidence corroborates the Chandlers’ claim.  Accordingly, the Court of Appeals held the trial court abused its discretion in protecting the claim file.  Notably, the dissent in the Court of Appeals’ opinion, which included three of the seven judges, found the documents inspected by the Trial Court would not have created a genuine issue of material fact as to whether Liberty Mutual promised to pay the UM claims regardless of exhaustion of misled the Chandlers by representing that the limits had been exhausted.