In this case, a semi-truck owned by Joginder Singh was at fault for an accident which ultimately involved sixteen vehicles (one of which was a logging truck). In one of those vehicles, a nine-year-old passenger was killed. An adult named Brian Sykes was in another of the vehicles. The estate for the child that was killed filed a claim against the semi-truck company and the logging truck company. In January of 2013, Singh’s counsel asked Singh’s insurer to permit him to personally contribute $1,000 towards a $1,000,000 settlement offer to the estate. With this strategy, there would remain some indemnity monies left on the policy, which would permit Singh to continue having a defense while also tendering what would be an amount equal to the policy limits.

Rather than agree to that strategy, the insurance carrier instructed Singh’s attorney to offer the full limits. The case settled to Singh’s limits, as well as the limits of the logging truck company, except that $100,000 was held in reserves for any future claims against the logging truck company. Despite limits being paid, the insurance carrier for a time continued to pay for Singh’s defense.

Mr. Sykes filed suit against Singh related to the accident shortly before the statute of limitations expired, despite first providing informal notice of his claim much earlier. Because Singh’s policy limits had been exhausted on the prior claim, the insurer informed him that they had no duty to defend him.

Singh ultimately sued his insurer for bad faith in failing to defend him. He claimed that his insurer settled for its policy limits so that it could refuse to defend him against future claimants. The carrier argued that its decision to pay limits was in good faith, and that it had the right to terminate defense following that settlement in accordance with unambiguous contract provisions. As that case progressed, Singh and Mr. Sykes entered into a stipulated judgment with a covenant not to execute against Singh personally except for $10,000.

The carrier argued that under Singh’s arguments, its obligations under the insurance contract would be expanded and that there was no provision limiting its rights to settle with the Estate for its policy limits. The court held that there was no firm rule excusing an insurer from its duty to defend once coverage was exhausted in cases where there are multiple claimants and excess exposure. It found that if the insurer acted in bad faith when it was negotiating a policy limits settlement, it could not then use exhaustion as the reason to deny an ongoing duty to defend. In doing so, the court focused on the insurance carrier’s refusal to permit Singh to personally contribute $1,000 so as not to exhaust his policy limits. The court upheld the jury’s finding of bad faith on the part of the insurance carrier.