UNFAIR CLAIMS SETTLEMENT PRACTICES ACT
S.C. CODE ANN. §§ 38-59-10 to
South Carolina courts have held that coverage is a prerequisite to a claim for bad faith refusal to pay. Also, more broadly, courts have noted that one element of a bad faith claim is a refusal to pay benefits due. While the South Carolina Supreme Court has held that breach of an insurance policy is not a prerequisite to a bad faith action, that ruling came in a unique fact pattern, where the insurer acted in bad faith prior to ultimately paying the claim (and essentially admitting coverage). An insured cannot successfully claim that an insurer has refused to pay a claim in bad faith where no coverage exists. BMW of N. Am., LLC v. Complete Auto Recon Servs., Inc., 399 S.C. 444, 453 (S.C. Ct. App. 2012). “To demonstrate bad faith, plaintiff must present evidence of 1) the existence of a mutually binding contract of insurance between the plaintiff and the defendant; 2) a refusal by the insurer to pay benefits due under the contract; 3) resulting from the insurer’s bad faith or unreasonable action in breach of the implied covenant of good faith and fair dealing arising under the contract; 4) causing damage to the insured.” Lewis v. Omni Indem. Co., 970 F. Supp. 2d 437, 454-55 (D.S.C. 2013)(internal citation omitted). “[W]e decline to make breach of an express contractual provision a prerequisite to bringing the action.” Tadlock Painting Co. v. Maryland Cas. Co., 322 S.C. 498, 504 (S.C. 1996). Because insurer did not owe coverage, its conduct during settlement negotiations in the underlying lawsuit could not even potentially have constituted bad faith. Twin City Fire Ins. Co. v. Colonial Life & Acc. Ins. Co., 375 F.3d 1097 (11th Cir. 2004).
FIRST PARTY BAD FAITH:
Nichols v. State Farm Mut. Auto. Ins. Co., 279 S.C. 336, 306 S.E.2d 616 (1983), the Supreme Court held that if an insured can demonstrate bad faith or unreasonable action by the insurer in processing a claim under the mutually binding insurance contract, he can recover consequential damages in a tort action. Actual damages are not limited by the contract. Further, if he can demonstrate the insurer’s actions were willful or in reckless disregard of the insured’s rights, he can recover punitive damages.
All bad faith actions--including claims based on bad faith processing of the claims when there is no breach of the insurance contract--arise out of the implied warranty of good faith and fair dealing. Ocean Winds Council of Co-Owners, Inc. v. Auto-Owners Ins. Co., 241 F.Supp.2d 572, 577 (D.S.C. 2002), citing Tadlock Painting Co. v. Maryland Cas. Co., 322 S.C. 498, 473 S.E.2d 52 (1996).
The South Carolina Supreme Court has ruled that a legitimate dispute over a novel legal issue is a reasonable basis to deny a claim as a matter of law. Myers v. Government Employees Ins. Co., 279 S.C. 70, 302 S.E.2d 331, 333. However, an insurer is not insulated from liability for bad faith merely because there is no clear precedent resolving a coverage issue raised under the particular facts of a case. Mixson, Inc. v. American Loyalty Ins. Co., 349 S.C. 394, 562 S.E.2d 659 (Ct. App. 2002).
An insured is not entitled to a judgment for bad faith against an insurer merely because the insured obtained judgment as a matter of law on the issue of coverage. Strickland v. Prudential Ins. Co. of America, 278 S.C. 82, 292 S.E.2d 301, 304 (1982)(affirming special referee’s judgment as to the existence of coverage, but reversing the judgment as to bad faith).
Attorney’s fees are recoverable if the insurer fails to pay a covered claim and the trial judge finds the refusal to pay the policyholder's claim was without reasonable cause or in bad faith. S.C. Code § 38-59-40 (Supp.2001). This statute applies only to breach of contract causes of action, not to tort causes of action. Nichols v. State Farm Mut. Auto. Ins. Co., 279 S.C. 336, 341, 306 S.E.2d 616, 620 (1983),
Consequential damages. Nichols v. State Farm Mut. Auto. Ins. Co., 279 S.C. 336, 340, 306 S.E.2d 616, 619 (1983).
Punitive Damages. Nichols v. State Farm Mut. Auto. Ins. Co., 279 S.C. 336, 340, 306 S.E.2d 616, 619 (1983).
THIRD PARTY BAD FAITH:
Chartwell Law represents the interests of insurers and employers, as such, we continue to continue to monitor the legal landscape. If you have any questions about issues associated with right of action for bad faith claims, our attorneys are available to help. Please contact your Chartwell Law attorney.