Fife M. Whiteside v. GEICO Indemnity Company

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 18-15074
________________________
D.C. Docket No. 4:16-cv-00313-CDL
FIFE M. WHITESIDE,
Plaintiff-Appellee,
versus
GEICO INDEMNITY COMPANY,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Middle District of Georgia
________________________
(September 28, 2020)
Before WILSON and GRANT, Circuit Judges, and MARTINEZ, * District Judge.
GRANT, Circuit Judge:
*
Honorable Jose E. Martinez, United States District Court for the Southern District of Florida.
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In this bad-faith suit, GEICO has been found liable for rejecting a policy-
limits demand against one of its insureds. The measure of damages in this suit
came from an earlier negligence case that GEICO neither knew about nor
participated in. The attorney for the injured party did not notify GEICO about the
negligence suit—even though he and the insurance company had been
communicating about the injured party’s claim. For her part, GEICO’s insured
driver thought GEICO was handling the case, so she threw away her summons and
complaint, failed to answer either, and decided against notifying GEICO. The case
against her thus went into default, to the tune of $2.9 million. GEICO now finds
itself on the hook for almost 70% of the default judgment entered there.
This case presents at least three novel issues of Georgia law. First,
Georgia’s notice statute relieves insurers not notified of lawsuits against their
insured from “any liability to pay any judgment or other sum on behalf of its
insureds.” O.C.G.A. § 33-7-15. Does that statute, along with a virtually identical
insurance policy provision, relieve an unnotified insurer of bad-faith liability for a
default excess judgment entered in a case against its insured? Second, if the notice
provisions themselves do not bar liability for a bad-faith claim in that context, can
an insured sue an insurer for bad faith when, after the insurer refused to settle but
before judgment was entered against the insured, the insured lost coverage for
failure to comply with those notice provisions? And third, under Georgia’s
Constitution, does an insurer who had no notice of or participation in an action
against its insured have the right to contest the damages awarded in the original
suit before that amount can be used as the measure of damages in a follow-on suit
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for bad faith? Lacking any clear answers to these questions, we certify them to the
Georgia Supreme Court.
I.
A.
While driving her friend’s Ford Explorer eight years ago, Bonnie Winslett
ran into a cyclist named Terry Guthrie. The cyclist was taken to the hospital for
what the accident report called “side and hip pain.” There, he received pain
medicine, antibiotic cream and bandages for his wounds, and several X-rays. His
pain kept giving him trouble, though, so the cyclist returned to the hospital for
further treatment.
The vehicle that hit the cyclist was insured by GEICO Indemnity Company,
the defendant in this suit. GEICO accepted responsibility for the accident and
notified the insured driver in a letter that “we will be handling this injury directly”
with the cyclist’s attorney. As far as the record shows, GEICO did not ask the
insured driver to forward any accident-related legal documents, even though its
claims manual instructs it to do so. Nor did GEICO inform the insured driver (who
was not the policyholder) that she had an obligation to notify GEICO of any
lawsuit.
The cyclist’s lawyer sent a demand letter to GEICO for the policy limit of
$30,000, and the insurance company counteroffered for about $12,000. Though
GEICO received no response to its offer, its claims adjuster continued in her
attempts to contact the cyclist’s attorney about settlement. She first followed up on
GEICO’s offer about a week after it was made, calling the cyclist’s attorney and
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leaving a voicemail when she got no answer. Nearly a month went by without any
word, so the GEICO adjuster called again and left yet another voicemail. After
several more weeks of radio silence, the claims adjuster once more called the
attorney’s office. That time she was told that both the attorney and his paralegal
were unavailable. No response ever came.
Neither the cyclist nor his attorney had forgotten about the claim, however.
Six days after GEICO’s settlement offer, the cyclist filed suit against the driver—
without telling the insurance company or responding to its counteroffer. No one
else notified GEICO about the suit either. The driver, who as we have said
received a summons and complaint, did not notify the insurance company. She
called the cyclist’s law firm and was instructed by a paralegal to contact GEICO
about the lawsuit. Rather than reach out to the insurer, she “wadded” up the legal
documentation, “threw it away,” and said, “To hell with this shit.” She later said
that she did not feel the need to notify GEICO because she thought that the
company was already handling the case. So the driver never answered the legal
filings, never passed them on to GEICO, and never showed up to court.
Two months after the driver was served, the Superior Court of Muscogee
County held an hour-long hearing that was neither recorded nor transcribed, and
then entered a default judgment of $2.9 million against her. One week later, the
cyclist’s attorney apparently found GEICO’s contact information and informed it
of the default judgment. This notice came just after the Superior Court began a
new term of court—leaving that court with limited power under Georgia law to set
aside the judgment. O.C.G.A. § 15-6-3(8)(D); Lee v. Rest. Mgmt. Servs., 232 Ga.
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App. 902, 903 (1998). GEICO stepped in to represent its insured driver, but its
efforts to have the judgment set aside were unsuccessful. Winslett v. Guthrie, 326
Ga. App. 747 (2014).
B.
Seeking to collect on the default judgment, the cyclist filed a petition under
Chapter 7 to put the driver into involuntary bankruptcy. When the petition proved
successful, the attorney who helped the cyclist file the petition was named the
trustee of the driver’s estate. Soon after he was named trustee, the bankruptcy
attorney selected the cyclist’s negligence attorney to represent the estate in the bad-
faith litigation. So, to summarize, the cyclist’s attorney who handled the GEICO
negotiation did not respond to the insurance company’s settlement request; did not
return GEICO’s calls; sued the driver over the accident; received a default
judgment; and waited to notify GEICO of the lawsuit until after both the default-
judgment hearing and the term of court were over. And then the cyclist’s
bankruptcy attorney pushed the driver into bankruptcy because the driver could not
pay the default judgment; arranged to be named the bankruptcy trustee for the
driver that he had just pushed into bankruptcy; and asked the cyclist’s first attorney
to represent him.
The next step for the attorneys, who now represented both the cyclist and—
effectively—the insured driver, was to sue GEICO for bad faith in not accepting
the cyclist’s original settlement demand.1 Notice, or rather the lack of it, took
1
In Georgia, an insurance company that acts negligently or in bad faith in rejecting a time-
limited demand to settle a covered claim within the limits of the insurance policy may be liable
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center stage throughout the bad-faith litigation. GEICO argued that, under both
Georgia’s notice statute and its policy’s notice provision, it was relieved “of any
liability to pay any judgment” because it never received notice of the original suit.
See O.C.G.A. § 33-7-15(b). GEICO also argued that it could not be the proximate
cause of the default judgment given the driver’s decision not to notify it of the
lawsuit. Last, it urged that it would be unfair and unconstitutional to use the
default judgment as the measure of damages when GEICO did not have the chance
to contest the cyclist’s damages in the first lawsuit.
GEICO lost on all three arguments. Before trial, the district court held that
neither the notice statute nor the policy’s notice provision relieved GEICO of
paying for a tort against its own insured. That meant that ordinary tort principles
would apply; if GEICO were the proximate cause of the default judgment, it would
be responsible for paying the damages. The district court also held that proximate
cause was a question of fact: some evidence supported a finding that GEICO
caused the default judgment through its failure to pay policy limits to the cyclist
and its interactions with the driver; other evidence would put the responsibility on
the driver for not notifying GEICO about the lawsuit. While the first issue was a
legal decision (that the notice statute and policy provision did not shield GEICO
from liability for the default judgment), the second was a factual one (whether the
facts showed that GEICO, the driver, or both were the cause of the default
judgment). The district court also used the amount of the default judgment from
for a subsequent judgment against its insured in excess of the policy limits. See First Acceptance
Ins. Co. of Ga., Inc. v. Hughes, 305 Ga. 489, 492 (2019).
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the original action that exceeded the policy limits—about $2.9 million—as the
measure of damages, disagreeing with GEICO’s argument that it would violate due
process to hold the company liable for damages obtained in a suit that it had no
opportunity to defend. The jury found that the driver was 30% liable for the
default excess judgment and that GEICO was 70% liable, which left GEICO owing
the driver’s estate more than $2.7 million after interest was added.
II.
Under our precedent, “we should certify questions to the state supreme court
when we have substantial doubt regarding the status of state law.” Peoples Gas
Sys. v. Posen Constr., Inc., 931 F.3d 1337, 1340 (11th Cir. 2019) (quotation marks
omitted). Certifying questions is a useful tool “to avoid making unnecessary Erie
‘guesses’ and to offer the state court the opportunity to interpret or change existing
law.” CSX Transp., Inc. v. City of Garden City, 325 F.3d 1236, 1239 (11th Cir.
2003). Today we ask for the Georgia Supreme Court’s help in deciding three
questions of Georgia law because, as the district court noted, “no Georgia cases
squarely addressing the precise issues in this unique case” have come to light. See
also O.C.G.A. § 15-2-9(a) (permitting certification where key questions lack “clear
controlling precedents”).
Our decision is not disturbed by GEICO’s waiting for the jury verdict before
asking for certification. To be sure, many courts have treated a party’s delay in
suggesting certification as undermining its request. See 17A Charles Alan Wright
et al., Federal Practice and Procedure § 4248 (3d ed. 1998) (collecting cases).
But certification turns much more on federalism concerns than on timeliness
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concerns. In fact, a party need not raise the issue at all: “Ordinarily a court will
order certification on its own motion,” given that it is in the “best position to
determine whether it feels confident in its reading of the state law.” Id. Moreover,
this Court has repeatedly certified questions even after a jury trial. See, e.g.,
Chalfonte Condo. Apartment Ass’n, Inc. v. QBE Ins. Corp., 561 F.3d 1267 (11th
Cir. 2009); Lowe’s Home Ctrs., Inc. v. Gen. Elec. Co., 381 F.3d 1091 (11th Cir.
2004). We now do so again.
A.
The district court sent this case to the jury on questions of proximate cause.
We have no quarrel with the jury’s conclusion under the facts as presented to them.
But under Georgia law, it may well be that the question never should have gotten
to the jury in the first place. By statute, a Georgia motor vehicle insurance policy
must contain a provision that “specifically requires the insured to send his insurer,
as soon as practicable after the receipt thereof, a copy of every summons or other
process relating to the coverage under the policy.” O.C.G.A. § 33-7-15(a). An
insured’s failure to notify the insurance provider “shall constitute a breach of the
insurance contract which, if prejudicial to the insurer, shall relieve the insurer of its
obligation to defend its insureds under the policy and of any liability to pay any
judgment or other sum on behalf of its insureds.” Id. § 33-7-15(b).
That said, the statute has an exception to the notice-from-the-insured
requirement. If an insurance provider is timely notified by anyone of a covered
lawsuit against its insured, the notice statute will not cut off the provider’s liability,
regardless of what the insured does. See id. § 33-7-15(c). Using that provision,
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someone suing an insured can always guarantee that the notice statute is satisfied
simply by sending a copy of a summons to the insurance provider. But the flip
side is also true: if no one tells the insurance company about a lawsuit, the
company does not have any liability for the outcome of that suit. As the Georgia
Court of Appeals has said, failure to notify the insurer of a lawsuit “relieves the
insurer from any duty to defend and any liability on any judgment resulting from
the suit.” Berryhill v. State Farm Fire & Cas. Co., 174 Ga. App. 97, 99 (1985)
(emphasis added).
Many of the relevant facts are not in dispute here. For starters, the parties
agree that GEICO’s policy requires the insured to send any relevant court filings in
short order. They also agree that GEICO received notice from no one—no one,
that is, until the cyclist’s attorney reached out to GEICO after the default judgment
was already entered. Finally, the parties do not question that GEICO was
prejudiced by not having notice.
What the parties dispute is how the notice statute interacts with the tort of
bad-faith failure to settle. On the one hand, the statute’s language may be read to
cover only a contract claim made by third parties against an insurer rather than a
subsequent tort claim made by an insured against the insurance company. Some of
the text might bear this out: the statute says, after all, that failure to notify the
insurer “shall constitute a breach of the insurance contract.” O.C.G.A. § 33-7-
15(b). And the statute relieves an unnotified insurer “of its obligation to defend its
insureds under the policy” or of paying a judgment “on behalf of its insureds.” Id.
Here, the lawsuit is brought, effectively, by the insured driver against the insurance
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company. That may mean that, although GEICO had no liability “on behalf of its
insureds” in the original lawsuit against the driver—because no one provided
notice of the suit—liability could still attach in this follow-on lawsuit for bad faith,
which was brought by the driver herself against the insurance company for failure
to settle within policy limits.2
On the other hand, the statute also has some broader language, which might
be taken to apply even to a judgment that lays the foundation for a bad-faith tort.
The statute relieves the unnotified insurer “of any liability to pay any judgment or
other sum on behalf of its insureds,” and the terms “any liability” for “any
judgment” may well reach liability for a bad-faith lawsuit over an excess judgment
that the insurer had no opportunity to defend against. Id. And in a real sense,
payment here would amount to payment “on behalf of” GEICO’s insured. As the
bankruptcy trustee’s attorney (who was also the cyclist’s attorney) pointed out in
his closing arguments before the jury, “this case is about Terry,” the injured
cyclist: the bankruptcy trustee “is merely a conduit as the trustee in bankruptcy.”
So a win for the bankruptcy-trustee-and-cyclist’s-attorney will just channel
GEICO’s money into the cyclist’s pocket. And what will have put it there is the
default judgment the cyclist has against the driver—the judgment entered without
any notice to GEICO.
The parties have not found a case resolving how the notice statute applies in
this context. Some cases have held that the statute prevents recovering on a default
2
Because no party has raised this issue, we do not consider whether a bankruptcy trustee is the
equivalent of the bankrupt individual for purposes of O.C.G.A. § 33-7-15. We proceed as if the
two are the same.
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judgment from an insurance provider who was not notified of the original suit.
See, e.g., Chadbrooke Ins. Co. v. Fowler, 206 Ga. App. 778, 779 (1992); Berryhill,
174 Ga. App. at 99. Under the analysis of those cases, GEICO would not be liable
to pay for the default judgment if the cyclist had sued the insurance company
directly to recover under the insurance policy.
But those cases were not about a tort committed against the insured.
Another case from the Georgia Court of Appeals may shed more light. In Canal
Indemnity Co. v. Greene, the court considered a bad-faith claim assigned to
someone who had won a default judgment against the insured. See 265 Ga. App.
67 (2003). Even so, the court said that the insurance company “was relieved of its
obligations” to “pay any judgment” against its insured, unless the company was
properly notified. Id. at 69. That observation has some force because, even if the
notice statute focuses on contracts, it’s not as if the bad-faith tort is completely
separate from the contract: to the contrary, it could not exist without it. See First
Acceptance Ins. Co. of Ga., Inc. v. Hughes, 305 Ga. 489, 492 (2019) (noting
liability for an insurer who refuses in bad faith to settle a claim within the
contract’s policy limits). At the same time, the court’s comment in Canal is not a
holding because it found that the insurance company did have notice of the lawsuit,
and thus it is not a controlling precedent. Id. at 71–72. That leaves the question
open, at least from our perspective.
B.
The parties also dispute another unclear question of Georgia law, one that
could matter if the notice provisions do not bar liability for a bad-faith claim: when
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an insurer refuses to settle in bad faith and the insured subsequently loses coverage
for failure to comply with a notice provision, can the insured still sue the insurer
for bad faith? Here, the parties agree that the insured driver was covered when
GEICO refused to settle. They also agree that by the time the default judgment
was entered, the insured driver had lost coverage for failure to notify GEICO of the
lawsuit. This posture matters because an insured cannot sue in Georgia for bad
faith if there is no coverage for a claim. See BayRock Mortg. Corp. v. Chi. Title
Ins. Co., 286 Ga. App. 18, 19 (2007) (bad-faith failure to settle can only occur if
the claim was in fact covered under the policy). That makes sense—breach of a
duty to settle is impossible if the insurer, unbound by coverage obligations, had no
duty to settle. See Delancy v. St. Paul Fire & Marine Ins. Co., 947 F.2d 1536,
1546–47 (11th Cir. 1991) (under Georgia law an “insured may sue the insurer for
failure to settle only when the insurer had a duty to settle the case, breached that
duty, and its breach proximately caused” a judgment in excess of the insurance
policy). But it is unclear when coverage is relevant to the bad-faith claim under
Georgia law.
The bankruptcy trustee says that a bad-faith claim requires coverage only at
the time of the insurer’s bad-faith failure to settle. If that’s so, all that matters is
whether the insured had coverage when the bad faith occurred. Some Georgia law
may support this view. See, e.g., S. Gen. Ins. Co. v. Holt, 262 Ga. 267, 268–69
(1992) (“The jury generally must decide whether the insurer, in view of the existing
circumstances, has accorded the insured the same faithful consideration it gives its
own interest.” (emphasis added) (internal quotation mark omitted)).
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GEICO, on the other hand, says that coverage must be in place when the
bad-faith claim accrues with the entry of a default judgment. If that’s so, all that
matters is whether coverage was in place when the default judgment was entered;
if not, no bad-faith judgment can follow. Cases from other jurisdictions may
support this view. See, e.g., Evans v. Mut. Assurance, Inc., 727 So. 2d 66, 67 (Ala.
1999) (“[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.”); Amdahl v. Stonewall Ins. Co., 484
N.W.2d 811, 813 (Minn. App. 1992) (“[C]ourts in other jurisdictions have
generally held that an action against a liability insurer for failure to settle a claim
does not accrue . . . until the judgment against the insured is final.”). But we have
found no Georgia cases deciding the question.
In short, if the trustee is right that a bad-faith failure-to-settle claim under
Georgia law requires only that coverage existed when the insurer refused to settle,
then he could sustain a bad-faith claim even after the insured driver lost coverage
for failure to notify. This contention rests on the assumption that the insured’s
failure to comply with the notice provisions does not bar the bad-faith claim
outright. But if GEICO is right that the insured driver needed coverage when the
default judgment was entered in order for the bad-faith claim to accrue, then the
trustee would be unable to state a claim for bad faith after the failure to notify. The
relevance of this debate, of course, may hinge on what we learn about O.C.G.A.
§ 33-7-15, but we ask the question in case we need the answer.
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C.
Finally, this case raises a novel due process question. “The constitutionally-
guaranteed right to due process of law is, at its core, the right of notice and the
opportunity to be heard.” Cobb Cnty. Sch. Dist. v. Barker, 271 Ga. 35, 37 (1999).
Notice “is the very bedrock of due process.” Thompson v. Lagerquist, 232 Ga. 75,
76 (1974). Although GEICO had no notice of the lawsuit against its insured, the
default judgment in that case was used as the measure of damages in this case.
GEICO proposes that, assuming the bad-faith lawsuit can go forward, it is
unfair to use the excess default judgment as the measure of damages not only
because the insurer never had a chance to contest those damages but also because
that dollar figure far exceeded the true value of the cyclist’s damages. On that
score, GEICO’s expert pegged the value of the cyclist’s claim in the first lawsuit as
being worth $15,000; the bankruptcy trustee’s expert testified that it could be
worth up to $500,000. For his part, the trustee says it is enough that GEICO had a
chance to argue that it was not liable for the default judgment, which provides a set
and indisputable amount of damages to the driver.
A slew of non-Georgia cases hold that a default judgment cannot be the
measure of damages in a later suit against an insurance provider who had no notice
of or participation in the original suit. See, e.g., Burge v. Mid-Continent Cas. Co.,
933 P.2d 210, 214 (N.M. 1996); Nationwide Mut. Ins. Co. v. Webb, 436 A.2d 465,
481 n.12 (Md. 1981). Those cases, however, were not about an insurance
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company’s own bad faith during settlement negotiations, and in any event, out-of-
state cases do not speak for Georgia. 3
III.
Though we have our own guesses about the answers to these questions, we
do not think it appropriate to substitute our own intuition for the views of the
Georgia Supreme Court in deciding these novel issues of state law, at least one of
which has significant consequences for Georgia’s public policy on motor vehicle
insurance. So we respectfully certify the following questions:
1. When an insurer has no notice of a lawsuit against its insured, does
O.C.G.A. § 33-7-15 and a virtually identical insuring provision relieve
the insurer of liability from a follow-on suit for bad faith?
2. If the notice provisions do not bar liability for a bad-faith claim, can
an insured sue the insurer for bad faith when, after the insurer refused
to settle but before judgment was entered against the insured, the
insured lost coverage for failure to comply with a notice provision?
3. Does a party have the right to contest actual damages in a follow-on
suit for bad faith if that party had no prior notice of or participation in
the original suit?
In asking these questions, “we do not intend to restrict the issues considered
by the state court or to limit the state court’s discretion in choosing how to frame
3
Our question is limited to Georgia’s Constitution. See City of Houston v. Hill, 482 U.S. 451,
471 n.23 (1987). GEICO has not cited a case persuading us that the United States Constitution
applies in the way it had hoped, but “the Georgia Constitution has been construed as providing
greater protection to its citizens tha[n] does the federal constitution.” Powell v. State, 270 Ga.
327, 331 n.3 (1998).
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or to answer these issues in the light of the facts of this case.” F.D.I.C. v. Skow,
741 F.3d 1342, 1347 (11th Cir. 2013). Indeed, we know that the Court may do as
it wishes. With that caveat in mind, we “ask broadly for the state court’s help in
getting the state law right in this case.” Id.The record in this case and copies of the parties’ briefs are sent with this
certification, as is our sincere appreciation for the Court’s time and consideration.
QUESTIONS CERTIFIED.
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