TWO RULES OF THREE, OR IS IT?

In the case of John F. Kennedy ex rel. Education Corp. of Am. v. Nat'l U. Fire Ins. Co. of Pittsburgh, Pa., No. 5:24-cv-00082-TES, 2024 WL 3891489 (M.D. Ga. Aug. 21, 2024), a federal judge applied two rules of three under Georgia bad faith law.  Or perhaps more accurately, the federal judge applied one rule of two with a complete defense, and one rule of three with a complete defense.

          Whatever.

          The only remedy for insurer bad faith under Georgia law is afforded by a statute, Ga. Code Ann. § 33-4-6.  Without strict construction of its three requirements, it has been held that the Georgia statute "would impose a penalty on any wayward company."  John F. Kennedy, 2024 WL 3891489, at *9.

          The statute requires that bad faith be proven by a plaintiff meeting three elements which the federal judge explained as follows:

1. "First, the claims must be covered under the policy."
2. "Second, the insured must make a demand for payment against the insurer within 60 days prior to filing suit."
3. "And third, the insured must prove that the insurer's failure to pay was motivated by bad faith."

  John F. Kennedy, 2024 WL 3891489, at *11.  However, Georgia law recognizes a complete defense to insurer bad faith claims if the insurance carrier "'has any reasonable ground to contest the claim[.]'"  John F. Kennedy, 2024 WL 3891489, at *11.

          In this case, the Estate of Education Corporation of America was the first named plaintiff and it was represented by Mr. Kennedy, its Receiver.  The plaintiff dismissed an earlier suit, sent a bad-faith demand letter, and then re-filed what became the instant case.  National Union raised several arguments in its motion to dismiss the bad faith claims at bar.  "Most notably, it argues Georgia law does not allow a plaintiff to dismiss a suit, send a bad-faith demand letter, and then refile under the renewal statute [Section 33-4-6]."  John F. Kennedy, 2024 WL 3891489, at *9.

          The Georgia bad faith statute interpreted by the federal judge in this case was held to have several requirements which some lawyers may call conditions precedent, although the Court does not appear to have used that description in this case.  The first requirement is that "the policyholder must first send a demand notifying the insurance company of an impending bad-faith claim."  John F. Kennedy, 2024 WL 3891489, at *9 (emphasis added).  The italicized language shows the nub of National Union's argument on this point:  The first time that the same claims were presented to National Union, it was apparently a lender and not the "policyholder" that presented them, which the policyholder cured if you will after it voluntarily dismissed its earlier coverage case and before it refiled its new case including claims for bad faith.

          The second requirement as the Georgia bad faith statute has been interpreted, requires that the policyholder's demand "must be sent 60 days before the policyholder files suit claiming damages and fees under § 33-4-6."  John F. Kennedy, 2024 WL 3891489, at *9.

          The third requirement is not really a condition precedent but is more in the nature of a complete defense to bad faith claims under Georgia law:  "This statute operates as the exclusive remedy for claims of bad faith in the world of insurance-coverage disputes governed by Georgia law."  John F. Kennedy, 2024 WL 3891489, at *9.

          On the facts alleged in the Amended Complaint before him, the federal judge presiding over this case denied National Union's motion to dismiss the bad faith claims alleged against it here.  John F. Kennedy, 2024 WL 3891489, at *11.

          The federal judge's opinion in this case was scholarly and well-researched.  It was also by far the most fun opinion I have read written by any federal judge appointed during the American Apocalypse between the afternoon of January 20, 2017 and the morning of January 20, 2021, as this judge was.  It would be interesting to read opinions written by this same judge involving different claims than the claims presented in this case.

Civil remedy notices of insurer violation, like the demand notices in the John F. Kennedy case in Georgia, are discussed in 1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH §§ 3:30 & 5:57 (Thomson Reuters West Publishing Co. 3d Edition & 2024 Supplements).  The defense that the carrier had a fairly or reasonably debatable claim is addressed in id. §§ 5:16 &  5:51.

          All these discussions concern third-party claims like those at issue in the John F. Kennedy case.  First-party cases are discussed in 2 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH §§ 9:21, 11:17  & 11:24 (Thomson Reuters West Publishing Co. & 2024 Supplements).

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