South Dakota has a statute which defines standards for insurance carriers, but it specifically states that the standards do not create a private cause of action. The statute provides:
In dealing with the insured or representative of the insured, unfair or deceptive acts or practices in the business of insurance include, but are not limited to, the following:
1. Failing to acknowledge and act within thirty days upon communications with respect to claims arising underinsurance policies and to adopt and adhere to reasonable standards for the prompt investigation of such claims;
2. Making claims payments to any claimant, insured, or beneficiary not accompanied by a statement setting forth the coverage under which the payments are being made;
3. Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement;
4. Failing to promptly settle claims, where liability has become reasonably clear under one portion of the insurance policy coverage to influence settlements under other portions of the insurance policy coverage;
5. Requiring as a condition of payment of a claim that repairs to any damaged vehicle shall be made by a particular contractor or repair shop;
6. Failing to make a good faith assignment of the degree of contributory negligence in ascertaining the issue of liability;
7. Unless permitted by law and the insurance policy, refusing to settle a claim of an insured or claimant on the basis that the responsibility should be assumed by others. 
That section is followed by another which states, “Nothing in §§ 58-33-66 to58-33-69, inclusive, grants a private right of action.” Instead, bad faith claims are governed by common law, under which those claims are considered both a tort and a breach of contract. “An insurer’s violation of its duty of good faith and fair dealing constitutes a tort, even though it is also a breach of contract. Such tortious conduct is demonstrated where there is an unreasonable delay in performing under a contract, including delays in settlement under a liability policy.”
Similarly, an insurer has a duty to reasonably assess claims and in so doing must give the insured’s interests at least “equal consideration” as those of the insurer. Wrongful failure to settle can be a basis forbad faith. Although the insurer has a duty to fairly investigate claims, the South Dakota Supreme Court has implied that an insurer has much more leeway to avoid a bad faith claim when its denial is based on an issue of first impression.
Under South Dakota law, bad faith is an intentional tort and requires the insurer to consciously engage in wrongdoing when processing or paying policy benefits to its insured. The insured must show 1) the absence of a reasonable basis for denial of policy benefits or for the insurer’s failure to comply with a duty under the contract; and 2) the insurer’s knowledge, reckless disregard, or the lack of a reasonable basis for denial.
An injured third party cannot maintain a direct action against the tort feasor’s insurance company in the absence of malfeasance by the insurer against the third party. However, where an insurance company acts tortiously in its dealings with an injured third party, such claim is not barred by the statutory rule against direct actions. Unlike the intentional nature of first party bad faith claims, a third party claim is tantamount to negligence.
 S.D.C.L.§ 58-33-67.
 S.D.C.L.§ 58-33-69.
 Champion v. United States Fidelity & Guaranty Co., 399 N.W.2d 320, 322 (S.D.1987).
 Kunkel v. United Sec. Ins. Co., 168 N.W.2d 723 (S.D. 1969).
 Hein v. Acuity, 731 N.W.2d 231, 235 (S.D. 2007).
 Mudlin v. Hills Materials Co., 742 N.W.2d 49, 53-54 (S.D. 2007).
 Phen v. Progressive Northern Ins. Co., 672 N.W.2d 52, 59 (S.D. 2003).
 S.D.C.L.§ 58-23-1; Trouten v. Heritage Mut. Ins. Co., 632 N.W.2d 856 (S.D.2001).
 Railsback v. Mid-Century Ins. Co., 680 N.W.2d 652 (S.D. 2004).
 Kunkel, supra, 168 N.W.2d at 726.
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.