§ 11.2 When Is a Claim of Um/uim Bad Faith Ripe?

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

§ 11.2 When Is a Claim of UM/UIM Bad Faith Ripe?

There have been numerous cases involving the time when an insured may bring a civil action against the UM/UIM carrier for bad faith. The discussion is often couched in terms of when the duty to act in good faith arises, but since the duty to act in good faith arises out of the covenant of good faith and fair dealing that is implied in every contract, the duty should be viewed as arising at the time of contract formation. That is a significantly different question from the question of when the insured may file a civil action against the UM/UIM carrier for breach of the duty. The latter is controlled by the UM and UIM statutes, South Carolina Code sections 38-77-150 and -160, respectively.

The UM statute provides: "No action may be brought under the uninsured motorist provision unless copies of the pleadings in the action establishing liability are served in the manner provided by law upon the insurer writing the uninsured motorist provision."¹² The UIM statute similarly provides: "No action may be brought under the underinsured motorist provision unless copies of the pleadings in the action establishing liability are served in the manner provided by law upon the insurer writing the underinsured motorist provision."¹³ The Court of Appeals has observed that the UM and UIM statutes are identical in this regard.¹⁴

In Williams v. Selective Insurance Company of the Southeast, the Supreme Court upheld the dismissal of an insured's causes of action for both breach of contract and insurance bad faith against her UIM carrier because she had not first filed and served an action against the underinsured at-fault motorist.¹⁵ The Court reasoned: "Since § 38-77-160 bars an action for underinsured benefits absent compliance with the requirement that pleadings in the action establishing liability be served on the underinsured carrier, [the insured] cannot maintain her action against Insurer."¹⁶

In Ex parte Allstate Insurance Company, the Court of Appeals held that the statutory requirement of service of the pleadings against the at-fault driver upon the UM/UIM carrier is "absolute."¹⁷ There, the insured had failed to send the pleadings to his UIM carrier until after the jury had already delivered a verdict in the case against the at-fault driver. The court denied the insured's claim to UIM benefits, as he had failed to comply with the UIM statute.¹⁸

In Ecker v. Liberty Mutual,¹⁹ the District Court held that the insured's complaint against the UM/UIM carrier must contain an allegation that the insured had commenced the action against the at-fault driver and served the pleadings in that action on the carrier.²⁰ Failing to include this "essential element" of the UM/ UIM bad-faith claim warranted dismissal for failure to state a claim.²¹

Importantly, while the insured must file and serve the underlying action against the uninsured or underinsured at-fault driver and serve the pleadings on the UM/UIM carrier before pursuing a bad-faith claim, the insured does not have to wait for final adjudication and judgment against the at-fault driver. Note that the rule is different for a breach-of-contract claim against the carrier. To bring a breach-of-contract claim against a UM/UIM carrier, the insured does have to obtain judgment against the at-fault driver.

As to the contract claim, in Lawson v. Porter the Supreme Court ruled as follows:

Recovery under the uninsured endorsement is subject to the condition that the insured establish legal liability on the part of the uninsured motorist. Such an action is one Ex delicto and the only issues to be determined therein are the liability and the amount of damage. After judgment is entered against the uninsured motorist, a direct action Ex contractu can be brought to recover from the insurance company on its [UM] endorsement and in such action policy defenses may be properly raised by the insurance company.²²

UM/UIM carriers have argued that the rule from Lawson as to contract actions should be applied to bad-faith actions lying in tort. The courts have disagreed and held that in order to...