§ 2.3 Elements of Cause of Action for Insurance Bad Faith

• Library: Insurance Bad Faith: A Primer on the Law in South Carolina (SCBar) (2022 Ed.)

§ 2.3 Elements of Cause of Action for Insurance Bad Faith

Three years after the Supreme Court issued Nichols, the Court of Appeals issued an opinion²² delineating the formal elements of a first-party claim of insurance bad faith:

(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 an implied covenant of good faith and fair dealing arising on the contract;

(4) causing damage to the insured.²³

In 1992, in Crossley v. State Farm,²⁴ the Supreme Court expressly adopted these elements of a first-party cause of action for insurance bad faith. These elements have remained in place ever since.²⁵

Notably, the District Court has found that these same elements apply to a third-party claim of insurance bad faith. In Skinner v. Horace Mann Insurance Company,²⁶ a third-party claim, the insurer asserted that the four elements set forth in Crossley were "frequently cited in bad-faith refusal to pay first[-]party benefits and that no South Carolina court had recognized and applied these elements in the context of a bad[-]faith third-party liability claim."²⁷ The court observed that in Nichols the Supreme Court had explained that the cause of action for first-party bad faith "is in reality merely a different aspect of the duty first identified by this Court in Tyger River" in the third-party context.²⁸ The court sensibly determined that elements of the cause of action should be the same regardless of the context.

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Notes:

^[22] Bartlett v. Nationwide Mut. Fire Ins. Co., 290 S.C. 154, 348 S.E.2d 530 (Ct. App. 1986), overruled on other grounds, Chas. Co. Sch. Dist. v. State Budget and Control Bd., 313 S.C. 1, 438 S.E.2d 6 (1993) (discussed, infra, regarding the issue whether a first-party claim of insurance bad faith lies in tort or contract).

^[23] Bartlett, 290 S.C. at 158, 348 S.E.2d at 532.

^[24] Crossley v. State Farm Mut. Auto. Ins. Co., 307 S.C. 354, 359-60, 415 S.E.2d 393, 396-97 (1992) (citing Bartlett).

^[25] See, e.g., Cock-N-Bull Steak House v. Generali Ins. Co., 321 S.C. 1, 6, 466 S.E.2d 727, 730 (1996); BMW of N. Am., LLC v. Complete Auto Recon Servs., Inc., 399 S.C. 444, 453, 731 S.E.2d 902, 907 (Ct. App. 2012); Collins v. Auto-Owners Ins. Co., 438 Fed. Appx. 247, 249 (4th Cir. 2011); Dan Ryan Builders W.V., LLC v. Main Street Am Assurance Co., 452 F. Supp. 3d...