§ 11.1 Introduction

• Library: Guide to South Carolina Liability and Property Insurance Law (SCBar) (2019 Ed.)

§ 11.1 Introduction

Under South Carolina law, every contract contains an implied covenant of good faith and fair dealing that neither party will do anything that will injure the right of the other to receive the benefits of the agreement.¹ The issue of whether an insurer has acted in bad faith in handling a claim or failing to settle a claim is often an issue in coverage litigation in South Carolina. In fact, it is very rare that a suit by an insured against an insurer does not include allegations of bad faith. It has been recognized that "'[u]nder South Carolina law, the crux of a bad faith case is whether "there is a reasonable ground for contesting a claim...."'"² "[A]n insurer, acts in bad faith when there is no reasonable basis to support the insurer's decision."³ "[I]f there is any reasonable ground for contesting the claim, there is no bad faith."⁴ In addition, courts will typically not determine that an insurer acts in bad faith in cases involving novel issues in which the insurer has brought a declaratory judgment action.⁵ Further, South Carolina courts have determined that the insured did not need to prove a breach of an express contractual provision as a prerequisite to bringing a bad faith cause of action.⁶

South Carolina courts have consistently determined that only the policyholder may bring a cause of action for bad faith under an insurance policy.⁷ "South Carolina courts have repeatedly denied actions for bad faith refusal to pay claims by third parties who are not named insureds."⁸

South Carolina courts have articulated factors to consider in determining whether an insurer has acted in bad faith.⁹ The South Carolina Supreme Court has specifically stated that the elements of an action for bad faith under an insurance contract include the following:

(1) the existence of a mutually binding contract of insurance between the plaintiff and the defendant; (2) 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.¹⁰

In determining "[w]hether an insurance company is liable for bad faith [the conduct] must be judged by the evidence before it at the time it denied the claim or if the insurance company did not specifically deny the claim by the evidence it had before it at the time the suit was filed." Therefore, "[e]vidence that arises after the denial of the claim is not relevant to propriety of the conduct of the insurer at the time of its refusal" and "if the insurance company did not specifically deny the claim evidence that arises after the filing of the bad faith claim is not relevant."¹¹

South Carolina courts have addressed these bad faith case claims in a number of contexts in both first- and third-party actions, and with regard to the claims handling process,¹² investigation of claims,¹³ and settlement of...