Whiteside v. Geico Indem. Co., No. 18-15074

• Decision Date: 28 September 2020
• Docket Number: No. 18-15074
• Parties: Fife M. WHITESIDE, Plaintiff-Appellee, v. GEICO INDEMNITY COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

977 F.3d 1014

Fife M. WHITESIDE, Plaintiff-Appellee,

v.GEICO INDEMNITY COMPANY, Defendant-Appellant.

No. 18-15074

United States Court of Appeals, Eleventh Circuit.

September 28, 2020

Timothy Scot Rigsbee, Frank M. Lowrey, IV, Michael B. Terry, Bondurant Mixson & Elmore, LLP, Atlanta, GA, Miranda J. Brash, Charles A. Gower, Shaun P. O'Hara, Charles A. Gower, PC, Columbus, GA, for Plaintiff-Appellee.

Leah Ward Sears, Edward Henry Wasmuth, Jr., Smith Gambrell & Russell, LLP, Atlanta, GA, Joseph Robb Cruser, Kathleen M. Hurley, Cruser Mitchell Novitz Sanchez Gaston & Zimet, LLC, Norcross, GA, Wallace Miller, III, Wallace Miller III, LLC, Macon, GA, for Defendant-Appellant.

Before WILSON and GRANT, Circuit Judges, and MARTINEZ,^* District Judge.

GRANT, Circuit Judge:

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 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 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. App. 902, 903, 503 S.E.2d 59 (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, 755 S.E.2d 287 (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 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 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...