B. Actual and Consequential Damages

• Library: South Carolina Damages (SCBar) (2009 Ed.)

B. Actual and Consequential Damages

An insured who otherwise proves bad faith liability is entitled to recover actual and consequential damages proximately caused by the insurer's bad faith.²⁸ What remains somewhat unclear from South Carolina case law is the nature and scope of damages allowed under this general rule.²⁹ However, several principles for a bad faith damages claim are established.

Damages include the contract benefits withheld or delayed.³⁰ The successful plaintiff may recover all benefits that would have been paid if insurer performed. Additionally, bad faith damages are not limited by the insurance contract.³¹ In third party contexts, the insured or the insured's assignees may recover the amount of the judgment against the insured even if it is in excess of the policy limits when the insurer fails to settle within the limits or breaches its duty to defend its insured.³² Similarly, damages for the bad faith cause of action are not limited by "the rule that damages for breach of an obligation to pay money are generally limited to the amount due plus interest."³³ In Nichols, the court explained that, if damages were so limited, an "insurance company [could], with complete impunity, deny any claim they wish[ed], whether valid or not."³⁴

The South Carolina Supreme Court has not expressly defined the scope of consequential damages in bad faith actions. However, the court of appeals has used foreseeability for defining tort recovery in bad faith cases: "[I]f a reasonable person in the insurer's position with its knowledge could have reasonably foreseen the additional damages resulting from the refusal to pay a claim under the contract, those damages are recoverable."³⁵ By comparison, foreseeability in contract actions is much different than in tort actions: the former focuses on the contemplation of the parties at the time of contracting, before any breach, and the latter focuses on what reasonably flows from a breach of duty at the time of the breach.³⁶ Thus, by the South Carolina courts allowing recovery in tort for foreseeable losses from bad faith, insureds should receive the protection and security bargained for when contracting for insurance.³⁷

South Carolina courts have recognized that consequential damages may include economic loss. For example, in Brown v. South Carolina Insurance Co.,³⁸ the court of appeals found that the insured's lost income, which resulted from his insurer's bad faith refusal to perform the insurance contract, was recoverable.³⁹ In Orangeburg Sausage Co. v. Cincinnati Insurance Co.,⁴⁰ the South Carolina Supreme Court suggested that lost profits are properly recoverable, although the defendant did not actually challenge the propriety of those damages.⁴¹ There, the lost profits were caused by delay in not timely processing the claim, which "prevented [Orangeburg Sausage Co.] from replacing and reselling the damaged inventory."⁴² Other jurisdictions agree that consequential damages may include economic loss, depending on the facts of the case.⁴³ Additional examples of economic loss might include damage to credit rating or loss from a forced sale of stock.

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Notes:

^[28] Nichols v. State Farm Mut. Auto. Ins. Co., 279 S.C. 336, 340, 306 S.E.2d 616, 619 (1983) ("[I]f an insured can demonstrate bad faith or...