‘Good Case for Bad Faith’: How a Denied Insurance Claim Came Knocking on the Door at Ga. Supreme Court
Jim Johnston is a “deal lawyer” who finds himself litigating an insurance dispute now pending at the Georgia Supreme Court.
By Katheryn Hayes Tucker | February 28, 2022

Jim Johnston. (Courtesy photo)

Jim Johnston of the Johnston firm in Atlanta is the first to tell you he is not an insurance lawyer. Or a litigator.

“I’m a deal lawyer,” Johnston said right out of the gate into a long conversation with the Daily Report about how he wound up—or as he put it with a laugh, “got drug into”—litigating an insurance dispute for the past six years. “Most of my practice for 36 years has been doing deals. I buy and sell companies and do M&A work,” he said. “This client insisted that I do this case.”

Whether a litigator or a deal-maker, Johnston now finds himself at the center of a case that illustrates what can go wrong between insurance companies and their customers who’ve been sued, and the additional round of litigation that can result over allegations of acting in bad faith.

Johnston’s client in this case is Mountain Express Oil Co., which sells gasoline to service stations and convenience stores and also owns retail businesses. Johnston has done transactional work for the Mountain Express since 2005. He also represented the company when it was sued by a competitor, Empire Petroleum Partners, eight years ago. Johnston settled the case confidentially two years later.

After that, Johnston said his client then told him, “Look, you’ve got to sue the insurance company, because we’ve spent a million two on defending ourselves, and they’ve only paid us $40,000. You need to go get that back. After all, we’re paying ten or twenty thousand a month for insurance.”

So Johnston filed a claim with the insurer, Southern Trust Insurance. “They didn’t pay it, and I had to sue,” Johnston said. “You see where we are.”

The case is now at the Georgia Supreme Court—for the second time. Two trial judges in Macon have granted summary judgment in favor of Mountain Express—one on the question of liability and one on damages—which with penalties and interest total upward of $1.8 million. Both times, Southern Trust appealed. The Georgia Court of Appeals affirmed both trial judges. The Supreme Court declined to take the case the first time and is considering whether to take it now.

“It’s a good case for bad faith,” Johnston said—“given the fact that they required us to sue them to collect.”

The story highlights the maneuvers lawyers go through when an insurance company denies a claim that its customer contends is valid. It’s a long and complicated struggle because it involves two lawsuits—the underlying case and then, after that’s resolved, a new case against the party’s own insurance company. The stakes are high for both sides. Georgia law provides steep penalties when an insurer is judged to have denied a claim it should have paid, and equally substantial rewards to those who prove it. An insurer found to have acted in “bad faith” must pay not only the actual damages, but 50% more. On top of that, an insurer judged to have appealed a bad faith order for the purpose of delaying the owed payment can be subject to another 10% penalty. All those factors come into play with Southern Trust v. Mountain Express, Supreme Court Case No. S22C0529.

Southern Trust’s legal team includes: Lee Gillis Jr. and Edgeley Myers of James Bates Brannan Groover; and Brandon Oren and Christopher Arnold of Jones Cork. Both firms are in Macon, where Southern Trust is based. They were not available to comment for this story, but their objections to the claim are clear in their brief supporting their petition for writ of certiorari to the Supreme Court.

“Prior rulings in this case limited Mountain Express to recovering the reasonable, unreimbursed fees incurred,” the Southern Trust lawyers said in their brief supporting their petition for writ of certiorari to the Supreme Court. “Georgia’s bad faith statute, O.C.G.A. § 33-4-6, requires the insured to prove that the insurer’s refusal to pay a proper demand was made in bad faith. If an insurer has reasonable grounds to contest a claim, including questions of liability or questions as to the amount demanded, the insurer cannot be held liable for bad faith.”

Southern Trust lawyers argued the insurer had “reasonable questions as to liability and the amount demanded” and “reasonable grounds not to pay.” In their 32-page brief, the lawyers used the word “reasonable” 37 times.

“I suspect the insurance company thought they were acting reasonably to work out a means where defense could be provided even on uncovered claims,” said insurance defense lawyer Matthew Moffett of Gray, Rust, St. Amand, Moffett & Brieske in Atlanta. But, he added, “there was no meeting of the minds” that the judges could see in the record.

“I think the takeaway is there has to be a clear understanding in writing between the insured and the insurer as to what the agreed upon coverage and representation is going forward,” Moffett said.

Lacking that, an insurance company has to file another lawsuit called a declaratory judgment action so a court can rule on exactly what must be covered, Moffett said. In this case, Southern Trust never filed a declaratory judgment action, although such lawsuits are growing in number. “I think we’re seeing many more declaratory judgment actions filed by insurance companies than 20 years ago certainly,” Moffett said. “In fact, we are seeing there are lawyers who specialize in advising and representing insurance companies in those declaratory judgment actions.”

If there was a failure to communicate between Mountain Express and Southern Trust, it started with the underlying lawsuit. Empire sued Mountain Express alleging breach of contract and 10 other offenses, including slander and libel. Southern Trust “was in no hurry to respond,” Johnston said in a brief for the Georgia Court of Appeals. After 96 days, Southern Trust denied coverage for all claims except slander and libel, and for that assigned the case to its go-to insurance defense firm Swift, Currie, McGhee & Hiers.

By then, Johnston was already defending the case, with the help of litigation boutique Bondurant Mixson & Elmore, which had the expertise and resources he needed. The legal tab for both firms at that point was already $286,000, according to the briefs. “It made no sense to have the Southern Trust lawyer defend the one claim,” Johnston said. “They had the obligation to defend all the claims—which they refused to do.”

By the time Mountain Express settled with Empire in 2016, the legal fees and costs added up to $1,237,508, according to Johnston’s briefs. Southern Trust paid $40,360. Johnston is still trying to collect the other $1,197,148—plus penalties and interest, which would now be approaching $1.9 million.

“I will say Bondurant collected the lion’s share of the money,” Johnston said. “Out of the million two, I got one seventy and they got the rest.” Meaning Johnston’s firm billed $170,000 of the $1.2 million.

But Southern Trust refused to pay Bondurant’s rates, or Johnston’s, he said. The insurer would only pay Swift Currie rates.

“Their 20-year partners were billing at $250 an hour,” Johnston said of Swift Currie. Bondurant billed $670 an hour for this case. “My rate was $375 an hour – which was a special rate for a longtime client,” he said.

Johnston said some Bondurant partners bill $1,000 an hour, and they’re worth it. “They can justify their fees,” he said. “They are brilliant, I’ll give you that. I haven’t met a dumb one in the crowd.”

Bondurant also has some of Georgia’s most successful appellate lawyers. But if the Supreme Court grant’s Southern Trust’s cert petition and hears the case, Johnston expects to argue it himself.

Granted, he’s not an appellate lawyer either. But he does have an advantage. Before he was a lawyer, he was a CPA. He has an accountant’s recall of the numbers in the 1,500-page record in this case. Plus he has a plan to prepare: “Go down to Bondurant and let those guys beat up on me. They’ve got a courtroom down there. That’s what they do internally. They practice their oral arguments.”

Between two years defending Mountain Express in the Empire case and six years litigating the legal fees, Johnston has spent eight years on the dispute that the Supreme Court could be hearing soon. It all reminds him of why he gave up his job as a CPA at a big accounting firm, back when there were eight, and went to law school at the University of Georgia. He wanted interesting, nonrepetitive work.

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Katheryn Hayes Tucker

Reporter, Daily Report, Litigation Desk, ALM

Mobile:  706-969-9771

ktucker@alm.com