In Georgia insurance law, “bad faith” describes an insurance company’s improper refusal to pay a valid claim. An insurer that issues a policy takes on a duty to deal fairly with the policyholder. When an insurer refuses to pay a covered loss without a reasonable basis, Georgia law treats that as bad faith and provides a way for the policyholder to recover additional money beyond the loss itself. This guide explains the concept of insurance bad faith under Georgia law, the controlling statute, what must be shown, and the remedies the law allows.
What Bad Faith Means
An insurance policy is a contract. The insurer agrees to pay covered losses in exchange for premiums. Bad faith arises when the insurer breaches the duty of good faith that accompanies that contract. Georgia courts have described insurance bad faith as a frivolous and unfounded refusal to pay a claim. It is not simply any denial. An insurer is allowed to deny a claim when it has a reasonable, lawful ground to do so. The wrong is a refusal that has no reasonable foundation.
The Controlling Statute: O.C.G.A. Section 33-4-6
The principal statute governing first-party insurance bad faith in Georgia is O.C.G.A. Section 33-4-6. A first-party claim is one a policyholder makes under the policyholder’s own policy, such as a homeowner claiming under a property policy or an insured claiming under uninsured motorist coverage.
Under this statute, if an insurer refuses to pay a covered loss in bad faith, the insurer can be held liable not only for the loss but also for an additional penalty and for the policyholder’s reasonable attorney’s fees in the action. The statute sets the penalty at not more than 50 percent of the insurer’s liability for the loss, or $5,000.00, whichever amount is greater. The reasonable attorney’s fees are determined separately based on competent evidence of the value of the legal services.
The 60-Day Demand Requirement
O.C.G.A. Section 33-4-6 contains an important procedural condition. Before a bad faith claim can be pursued, the policyholder must make a demand for payment of the loss, and a lawsuit cannot be filed on the bad faith claim until more than 60 days have passed after that demand.
The statute does not prescribe a specific form for the demand. Georgia courts have indicated that the demand needs to give the insurer clear notice that the policyholder is seeking payment of a covered loss, so that the insurer has a genuine opportunity to pay before litigation begins. The 60-day window gives the insurer that opportunity.
The statute also provides that the bad faith claim is not abated, meaning it is not extinguished, simply because the insurer pays after the 60-day period has run. An insurer that delayed unreasonably and then paid late may still face the penalty and fees if bad faith is found.
What Must Be Shown
To recover under the bad faith statute, the policyholder generally must establish three things. First, the claim was covered by the policy and the loss occurred. Second, the insurer received a proper demand and failed to pay within 60 days. Third, the insurer’s refusal to pay was made in bad faith, meaning it was frivolous and unfounded rather than based on a reasonable ground.
The question of whether a refusal was in bad faith is ordinarily a question for the jury. Georgia law provides that the testimony or opinion of an expert witness alone cannot serve as the sole basis for a summary judgment or directed verdict on the bad faith issue. If the insurer had any reasonable and probable cause to contest the claim, a finding of bad faith is generally not appropriate, even if the insurer ultimately turns out to be wrong about coverage.
How Penalty and Fees Are Decided
When a bad faith claim reaches trial, the jury decides whether the refusal was in bad faith and, if so, fixes the penalty within the statutory limits. The amount of reasonable attorney’s fees is also determined by the trial jury and is included in the judgment. Georgia law directs that the attorney’s fees be based on competent expert evidence about the reasonable value of the legal services, considering the time spent, the legal and factual issues involved, and the prevailing fees in the locality where the action is pending.
First-Party and Third-Party Distinctions
Georgia law treats first-party and third-party bad faith differently. O.C.G.A. Section 33-4-6 addresses first-party situations, where the policyholder is seeking payment under the policyholder’s own coverage. Georgia courts have generally treated this statute as the exclusive remedy for that type of bad faith, rather than allowing a separate common law claim for the same conduct.
Third-party bad faith involves a different scenario. It typically arises when a liability insurer fails to settle a claim brought by an injured outside party within the policy limits, exposing its own insured to a judgment larger than the coverage. Georgia recognizes a separate body of law addressing an insurer’s duty regarding the settlement of claims against its insured, which operates on principles distinct from the Section 33-4-6 framework.
Why the Doctrine Exists
The bad faith doctrine serves a balancing function. It recognizes that policyholders pay premiums in exchange for a promise of protection and that an insurer holds significant power over whether and when a claim is paid. At the same time, the law preserves the insurer’s right to investigate and to contest claims it has a genuine reason to question. The frivolous and unfounded standard draws the line between a legitimate coverage dispute and an improper refusal.
Summary
Insurance bad faith in Georgia refers to an insurer’s frivolous and unfounded refusal to pay a covered loss. The governing statute for first-party claims, O.C.G.A. Section 33-4-6, allows recovery of the loss, a penalty of up to 50 percent of the insurer’s liability or $5,000.00 whichever is greater, and reasonable attorney’s fees. The statute requires a demand for payment and a 60-day waiting period before suit, and it prevents the claim from being defeated merely by a late payment. Whether a refusal amounts to bad faith is generally a jury question, and an insurer with a reasonable ground to contest a claim is not acting in bad faith.
Disclaimer
This article is provided strictly for general educational and informational purposes. It is intended to explain how Georgia law works as a matter of public legal education, and it does not constitute legal advice, a legal opinion, or a recommendation about any particular course of action. Reading this article, or contacting the website on which it appears, does not create an attorney-client relationship between the reader and any law firm, attorney, or author.
The law changes over time. Statutes, regulations, court rules, and judicial decisions discussed here may have been amended, repealed, superseded, or reinterpreted after the date of publication, and citations to specific code sections or cases reflect the law only as it was understood when this article was written. The application of any legal principle also depends heavily on the specific facts and circumstances of an individual matter, and outcomes vary from case to case.
For these reasons, no one should rely on this article as a substitute for advice from a licensed Georgia attorney who can review the particular facts involved. The author and publisher make no warranty, express or implied, regarding the accuracy, completeness, timeliness, or applicability of the information provided, and disclaim any liability for any action taken or not taken based on this content.