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Georgia Court Limits Scope of Liability Insurer’s Fiduciary Duties to Insureds


Establishing new precedent, the District Court for the Northern District of Georgia recently issued an order limiting the breadth of an insurer’s fiduciary duties to its insured when defending them. Georgia courts have long held that an insurer has a fiduciary obligation to consider its insured’s financial interests in connection with settling a case within policy limits, although Georgia law has been less clear on the scope of an insurer’s duties in connection with the defense it provides in an underlying suit. As the District Court ruled, however, such duties are limited.

Indeed, an insurer does not owe broad fiduciary duties to its insured when defending them. When an insurer provides an insured a defense in underlying litigation, Georgia law does not provide the insured with an unlimited claim for breach of fiduciary duty to assert any criticisms the insured may have thereof. Thus, Georgia courts should dismiss such overbroad claims.

In Am. Fam. Ins. Co. v. Almassud, No. 1:16-cv-4023 (N.D. Ga. July 21 2022), the insurer had provided a defense to its insured in an underlying car accident case. Unsatisfied with that defense, in the subsequent federal insurance coverage litigation, the insured asserted a counterclaim, alleging the insurer owed and breached a wide variety of duties to its insured in the underlying defense. The insureds’ myriad of allegations included: the insurer failed to sufficiently investigate the claim pre-suit, the insurer failed to warn the insured of the potential for an excess verdict, the insured hired substandard counsel, the insured paid defense counsel on a flat fee and disincentivized counsel to work on the file, the insurer should have “split the file” because a conflict arose between the insurer and insured, the insurer provided an improper reservation of rights (ROR) to the insured, the insurer should have provided independent (Cumis) counsel to the insured, the insurer mistreated the insured in the federal litigation, and more.

Under Georgia law, however, an insurer generally does not owe fiduciary duties to its insureds. Although courts have recognized some exception to that principle and noted an insurer has “somewhat” of a fiduciary obligation when defending its insured, such duties have not been clearly articulated by the courts. On that basis, in Almassud, the insurer moved for summary judgment on the grounds that the insureds’ claims are not cognizable.

By Order dated July 21, 2022, District Court Judge Richard W. Story largely agreed and granted the insurer summary judgment on nearly all of the insureds’ allegations of fiduciary duty breach. Almassud, ECF Dkt. 411. For example, the Court held that “[i]n Georgia, insurers do not have a duty to automatically split an insured’s file.” Likewise, “the Court is unaware of any Georgia law stating that insurers have a fiduciary duty when drafting and issuing RORs.” And, “Georgia does not require insurers to provide independent counsel by statute or common law.” In general, after dismissing nearly all of the insured’s allegations, Judge Story found only that insurer has a fiduciary duty to provide its insured with “competent” defense counsel and to make accurate representations to its insured.

Seslee Smith and Ryan Burke represent the insurer in Almassud. If you have questions about the Court’s opinion in that case or if you would like assistance in evaluating or defending such claims, please reach out to them or a member of the MMM Insurance Coverage team.