A federal court in South Carolina recently found that an insured had stated a claim for bad faith where the complaint alleged that the insurer improperly reassigned a pending claim to a new law firm in the middle of litigation and failed to send a representative with settlement authority to participate in mediation. Agape Senior Primary Care, Inc. v. Evanston Ins. Co., 2016 WL 4804066 (D. S.C. Sept. 14, 2016).

The insured’s first claim was that the insurer unjustifiably reassigned counsel in the middle of litigation, resulting in the new law firm spending unnecessary time and money getting up to speed on the case and thus eroding the coverage available under the policy. The insurer countered that it had the right to choose defense counsel, and thus it could not have acted in bad faith by reassigning pending claims to new counsel. The court, however, found that allegations that the original attorneys were doing their job, the new counsel was located further away, significant and unnecessary attorneys’ fees were incurred “retracing the steps” of the prior attorneys, and the switch eroded available policy benefits were sufficient to state a claim for bad faith.

The court also held that the insured had stated a claim for bad faith by alleging that the insurer violated the South Carolina Alternative Dispute Resolution Rules (“SCADR”) by failing to send a representative with authority to settle to a scheduled mediation, resulting in delay and unnecessary expense. Moreover, the court found the insured did not violate the confidentiality of a settlement conference by making such allegations, because the SCADR protects the confidentiality of “communications during a mediation settlement conference,” but does not necessarily prohibit “disclosure of those present or not present at the mediation.”