Ethics in UM/UIM Cases
The Preamble to the Georgia Rules of Professional Conduct states “In the nature of law practice conflicting responsibilities are encountered. Virtually all difficult ethical problems arise from conflict among a lawyer’s responsibilities to clients, to the legal system and to the lawyer’s own interest in remaining an upright person. The Rules of Professional Conduct prescribe terms for resolving such conflicts. Within the framework of these Rules, many difficult issues of professional discretion can arise. Such issues must be resolved through the exercise of sensitive professional and moral judgment guided by the basic principles underlying the Rules.” While, as explained by the Rules of Professional Conduct, all lawyers face ethical dilemmas from time to time, given the intricate relationship between uninsured and underinsured motorist (hereinafter “UM”) carriers, lawyers, and tortfeasors, lawyers working on UM claims face additional ethical considerations. The purpose of this paper is to identify some of the specific ethical dilemmas that arise in the scope of UM claims for benefits and to offer some guidance to attorneys handling UM claims on how to best represent their clients without subverting their ethical obligations.
A. Conflicts of Interest
Georgia Rule of Professional Conduct 1.7(a) states that “[a] lawyer shall not represent or continue to represent a client if there is a significant risk that the lawyer’s own interests or the lawyer’s duties to another client, a former client, or a third person will materially and adversely affect the representation of the client….” Conflict of interest issues often arise in insurance defense cases due to the tripartite relationship between the attorney, the insured, and the insurer. While it may be clear to experienced attorneys and adjusters who the attorney is representing, the nature of UM representation and the fact that the attorney is hired by the insurance company can blur the lines of representation, leading to confusion on the part of the insured and possible ethical issues for the attorney. In the specific context of UM cases, the conflict of interest analysis depends largely on how the attorney and the UM carrier decide to defend the case. The UM carrier has three options to respond to the Plaintiff’s Complaint under Georgia law. First, the UM carrier may file an answer in its own name. See Hulsey v. Standard Guar. Ins. Co., 195 Ga. App. 803 (1990) (holding that a UM carrier is “permitted to become a party; it has the option and may elect to do so.”) Second, the UM carrier may file an Answer in the name of the named defendant. See Moss v. Cincinnati Ins. Co., 154 Ga. App. 165, 167 (1980). Third, the UM carrier may “do nothing” and not file any responsive pleadings whatsoever. See Knight v. Georgia Farm Bureau Mut. Ins. Co., 184 Ga. App. 312 (1987), compare Kelly v. Harris, 329 Ga. App. 752 (2014) (holding that the premise that a UM carrier may never be in default is at odds with Georgia law and that the Rules of Civil Procedure governing parties’ filings of responsive pleadings apply to UM carriers). Given the Court’s ruling in Kelly, the “do nothing” approach has fallen out of favor with carriers, attorneys, and judges.
If the UM carrier answers in its own name it largely avoids any potential conflict of interest issues. Other benefits to this approach are that the UM carrier enjoys the same rights as a party defendant. It may fully participate in the litigation, including discovery, see Hall v. Regal Ins. Co., 202 Ga, App, 511 (1991) and, most notably, the UM carrier has the opportunity to litigate coverage issues without incurring the costs of a separate action. This obviously drastically decreases the cost of litigating any coverage issues as to the UM benefits by allowing those issues to be decided without the added cost of a declaratory judgment action. The downside to this approach is that it allows for a potentially prejudicial interjection into the case of the presence of insurance coverage. When a UM carrier answers in its own name, many Plaintiffs’ attorneys will jump on the opportunity to remind jurors that an insurance company is footing the bill of any adverse judgment they return against the tortfeasor, a fact that any defense attorney will go to lengths to keep from juries. Some Plaintiff’s attorneys even go so far as to argue that once a UM carrier has answered in its own name, it cannot then withdraw its answer and answer in the name of the tortfeasor. However, the Georgia Court of Appeals has made clear that the decision of a UM carrier to answer in its own name is reversible. Allen v. Spiker, 301 Ga. App. 893 (2009); see also Keenan v. Hill, 190 Ga. App. 108 (1989) (“The statute [O.C.G.A. § 33-7-11] shows the choice to participate or not to participate is left to the insurer, but nothing in the statute prevents the insurer from changing its position during the course of litigation”); see also Singleton v. Phillips, 229 Ga. App. 286, 288 (1997). While it is clear that a UM carrier would be within its rights to answer in its own name, litigate any coverage issues on summary judgement, then, if unsuccessful, withdraw its answer and defend in the name of the tortfeasor at trial, there remain some questions as to the effect that this withdrawal has on any potential appellate arguments on the coverage issues. Georgia appellate courts could view the UM carrier’s withdrawal of its answer as a waiver by the UM caAvoidrrier to any right to appeal the adverse decision of the trial court as to the coverage issues. Given the uncertainty of how the appellate courts may address the waiver, if the attorney representing the UM carrier truly believes the coverage question is a legitimate appellate issue, the UM carrier should not abandon that issue by withdrawing to defend in the name of the tortfeasor.
Should the UM carrier invoke the second seemingly more favorable option and file an answer in the name of the tortfeasor, it avoids any potential interjection of insurance coverage into the case. However, this option has two potential downsides, the second of which has the potential to create a huge conflict of interest for the UM carrier’s attorney. First, in situations where the tortfeasor faces allegations of punitive damages, driving under the influence or other unsavory conduct, the UM carrier may not want to appear in the name of the undesirable defendant to whom the carrier owes no obligation. Weighing the negative impression of the undesirable defendant with the carrier’s desire to keep insurance coverage out of a potential trial is a consideration that the attorney for the UM carrier and the adjuster must consider carefully in considering how to approach cases involving these undesirable defendants.
B. Subrogation
The second downside to answering in the name of the tortfeasor involves subrogation and the risk of a conflict of interest. If a UM carrier answers the plaintiff’s complaint in the name of the named defendant, the UM carrier may not assert a cross-claim against the named defendant for subrogation in its answer as this would be an irreconcilable conflict of interest. It is difficult to imagine a situation in which the UM carrier would answer in the name of the defendant tortfeasor, defend the case on behalf of that tortfeasor, and then turn around and pursue a cross-claim against the defendant tortfeasor for subrogation. In that scenario, and in the absence of any express waiver of subrogation rights by the UM carrier, the tortfeasor has no real motivation to cooperate with the UM carrier, other than to arguably reduce his or her own subrogation exposure in the event of an excess judgment. Furthermore, and more problematically from an ethics perspective, the UM carrier would be appearing in the name of the named defendant while maintaining a cross-claim against that named client, an action that is impermissible under Georgia Rules of Professional Conduct 1.7. Because of this conflict of interest and the tortfeasor’s lack of motivation to cooperate with the litigation, the common practice is for the agreement for the UM carrier to defend the case in the name of the tortfeasor to be accompanied by an agreement that the tortfeasor will cooperate with the defense in exchange for a waiver of subrogation rights. Essentially if the UM carrier wants to defend in the name of the insured and keep their existence outside the knowledge of the jury, they must give up their claim to subrogation against the insured.
C. Informed Consent
Rule 1.7 explains that in certain circumstances, clients may provide informed consent to what might otherwise be viewed as a conflict of interest.
(b) If client informed consent is permissible a lawyer may represent a client notwithstanding a significant risk of material and adverse effect if each affected client or former client gives informed consent, confirmed in writing, to the representation after:
- consultation with the lawyer, pursuant to Rule 1.0(c);
- having received in writing reasonable and adequate information about the material risks of and reasonable available alternatives to the representation, and
- having been given the opportunity to consult with independent counsel.
- Client informed consent is not permissible if the representation:
- is prohibited by law or these Rules;
- includes the assertion of a claim by one client against another client represented by the lawyer in the same or substantially related proceeding; or
- involves circumstances rendering it reasonably unlikely that the lawyer will be able to provide adequate representation to one or more of the affected clients.
While the doctrine of informed consent can resolve the ethical issues surrounding some conflicts of interest, it is not a solution for the UM carrier looking to get the best of both worlds by answering in the name of the insured and obtaining a waiver for the conflict regarding a potential subrogation claim. First, any sophisticated tortfeasor is not going to be willing to consent to the conflict and give up his or her chance at obtaining a subrogation waiver. Second, because the attorney that has elected to answer in the name of the tortfeasor is representing both the UM carrier and the tortfeasor, the exclusion of Rule 1.7(2) is invoked and the attorney would be in violation of his ethical responsibilities.
D. Bad Faith Considerations
Outside of the considerations of conflicts of interest, UM attorneys and claims adjusters must also be sure they do not subject themselves to bad faith penalties. A bad faith claim against a UM carrier in Georgia is statutory in nature. O.C.G.A. § 33-7-11(j) provides, in pertinent part, as follows:
If the insurer shall refuse to pay any insured any loss covered by this Code section within 60 days after a demand has been made by the insured and a finding has been made that such refusal was made in bad faith, the insurer shall be liable to the insured in addition to any recovery under this Code section for not more than 25 percent of the recovery and all reasonable attorney’s fees for the prosecution of the case under this Code section.
As explained in the statute, in order to make a bad faith claim against a UM carrier, an insured must make a demand and allow 60 days for the insurer to respond. In preparing this demand the claimant should provide as much information as possible to give the UM carrier the opportunity to evaluate the claim. Similar to third-party bad faith claims, if the carrier does not have the information necessary to evaluate the claim and determine whether its value meets or exceeds the amount of the demand, it will be difficult to show the carrier acted in bad faith in refusing to pay the claim. After an insurer refuses to meet a demand under the UM statute, the plaintiff must obtain an excess judgment against the tortfeasor. Only after obtaining that judgment does a potential UM bad faith claim arise. Once an insurer fails to meet a demand and the plaintiff obtains an excess judgment against the tortfeasor, the question then becomes whether or not the insurer’s refusal to pay was in fact in bad faith. As is also explained in the statute, the relevant time period for purposes of determining bad faith is the time of the refusal. O.C.G.A. 33-7-11(j). In other words, a court must look at whether the insurer’s refusal was made in bad faith on the basis of the facts appearing to the insurer at the time of the refusal.
There are not many cases interpreting what “bad faith” means in the context of a UM claim. However, a “bad faith” refusal has been defined as “any frivolous and unfounded refusal in law or in fact to comply with the demand of the policyholder to pay according to the terms of the policy.” Fortson v. Cotton States Mut. Ins. Co., 168 Ga. App. 155,156, 308 S.E.2d 382, 384 (1983). This definition of “bad faith” has been applied in the context of UM claims. See Georgia Farm Bureau Mut. Ins. Co. v. Williams, 266 Ga. App. 540, 597 S.E.2d 430 (2004) citing Fortson v. Cotton States Mut. Ins. Co., 168 Ga.App. 155, 157, 308 S.E.2d 382, 385.
Although the question of bad faith is ordinarily reserved for the jury, courts disallow the imposition of bad faith penalties as a matter of law in certain circumstance. Where there is “no evidence of a frivolous or unfounded reason” for refusing to pay a demand the Georgia Court of Appeals has upheld judgement as a matter of law on a plaintiff’s bad faith claim. Govt. Employees Ins. Co. v. Presley, 174 Ga. App. 562,566, 330 S.E.2d 779, 784 (1985) citing Georgia Farm Bureau Mut. Ins. Co. v. Matthews, 149 Ga. App. 350, 254 S.E.2d 413 (1979). See also Sentry Indem. Co. v. Peoples, 856 F.2d 1479, 1481 (11th Cir. 1988). Additionally, courts have found that, as a matter of law, insurers that act reasonably do not act in bad faith. “The general rule is that the issue of an insurer’s bad faith depends on whether the insurance company acted reasonably in responding to a settlement offer.” Cotton States Mut. Ins. Co. v. Brightman, 276 Ga.683, 685 580 S.E.2d 519 (2003) (applying the standard of the ordinarily prudent insurer). See also Baker v. Huff, 323 Ga.App. 357, 747 S.E.2d 1 (2013) (“no reasonable trier of fact could conclude that [the insurer] acted unreasonably when it failed to tender the $100,000 policy limits…”). “If there is any reasonable ground for contesting the claim, there is no bad faith, and it is error to award penalty and attorney’s fees.” Home Indem. Co. v. Godley, 122 Ga. App. 356, 177 S.E.2d 105 (1970) (citing Dependable Ins. Co. v. Gibbs, 218 Ga. 305, 316, 127 S.E.2d 454 (1962)).
While courts have interpreted the UM bad faith provision strictly to apply in only the most egregious of situations, UM attorneys and adjusters must nevertheless be aware of the possibility of recovery by plaintiffs and protect against this possibility by carefully considering any UM demand they receive in the context of whether a refusal of that demand could subject the carrier to bad faith penalties.
E. Statutory Offers of Settlement
A claim for UM benefits under Georgia law is a claim that sounds in contract law. Williams v. Safeway Ins. Co., 223 Ga. App. 93 (1996). Naturally, for the action to arise under the contract, a tort must have occurred. But the plain language of O.C.G.A. § 9-11-68 suggests that an Offer of Settlement pursuant to this Code section is invalid, although Georgia appellate courts have not weighed in on the issue. O.C.G.A. § 9-11-68 reads in relevant part:
“(a) At any time more than 30 days after the service of a summons and complaint on a party but not less than 30 days (or 20 days if it is a counteroffer) before trial, either party may serve upon the other party, but shall not file with the court, a written offer, denominated as an offer under this Code section, to settle a tort claim for the money specified in the offer and to enter into an agreement dismissing the claim or to allow judgment to be entered accordingly.
O.C.G.A. § 9-11-68(a) (emphasis added). While the courts have not decided the issue, for two separate reasons, it is anticipated that the Georgia appellate courts would find that an Offer of Settlement under O.C.G.A. § 9-11-68 made by or to a UM carrier is legally invalid. First, the only way that a UM carrier assumes the status of a “party” as is contemplated by the statute is by filing an answer in its own name and participating in the litigation as a named party. See Hall v. Regal Ins. Co., 202 Ga. App. 511 (1991). It is not clear that this is the type of “party”
contemplated by the statute. Second, even if the UM carrier assumes the status of a named party, a claim for UM benefits under Georgia law sounds in contract law but, by the language of the statute, an Offer of Settlement under O.C.G.A. § 9-11-68 can only offer to settle tort claims. The fact that the contract action arises out of a tort is likely irrelevant because the plaintiff must prove the existence of the insurance policy before recovering anything against the UM carrier. A suit to recover benefits on that policy stems from the plaintiff’s payment of insurance premiums to the UM carrier in exchange for a determined amount of UM coverage. See Williams v. Safeway Ins. Co., 223 Ga. App. 93 (1996). This foundation in contract law is what would likely prevent the application of O.C.G.A. § 9-11-68 in the UM context.
Jennifer Pridgeon is an attorney in the firm’s Buckhead office where she focuses her practice on general liability defense and insurance disputes. Jennifer has represented clients at trial, in mediation, and in settlement negotiations throughout the state of Georgia in both State and Federal Courts. She can be reached at jpridgeon@luederlaw.com