A federal district court in South Carolina recently held that an insurer must concede coverage and assume the defense of its insured before it can be held liable under the Tyger River doctrine, under which an insured can be entitled to recover excess judgment beyond the policy limits from its insurer if the excess judgment was caused by the insurer’s bad-faith refusal to settle or defend a case. Church Creek Constr., LLC v. Mt. Hawley Ins. Co., 2019 U.S. Dist. LEXIS 25711 (D. S.C. Feb. 19, 2019).
After judgment was entered against an insured, the judgment creditor sued the insured and its insurers to determine responsibility for payment of the judgment and, as to the insurers, for negligent failure to settle the claim. The insurers moved to dismiss, arguing that because they never agreed to defend, they could not be held liable for the excess judgment beyond the policy limits pursuant to the Tyger River doctrine. It provides that an insurer may be liable to both the insured and the claimant when an insured suffers a loss because the insurer took control and management of negotiations for settlement of a claim and negligently and in bad faith, with a view to its own interests alone, neglected and refused to settle the claim.
The court acknowledged that South Carolina courts have not considered whether the Tyger River doctrine applies in circumstances where an insurer never assumed the defense of the insured. However, the court also recognized that the South Carolina Supreme Court’s discussion of the Tyger River doctrine assumes that the insurer accepted the defense of the insured. The court also cited a prior ruling in which the court distinguished a claim for refusing to defend an insured and a Tyger River claim by explaining that in the first claim, the insurer had denied coverage, while in the other, the insurer conceded coverage. The court held that an insurance company must concede coverage and assume the defense of its insured before it can be liable under the Tyger River doctrine, and granted the insurers’ motion.