Chapter 6 Standing to Bring Claim Against Insurer

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

Chapter 6 Standing to Bring Claim Against Insurer

A threshold question for a lawyer evaluating any potential bad-faith claim is whether the client has standing to bring the claim. With third-party claims, the law is clear that the injured third party lacks standing to bring an action against the at-fault's insurance carrier. This is because the third party is not in privity of contract with the tortfeasor's insurance carrier. In Kleckley v. Northwestern National Casualty Company,¹ the South Carolina Supreme Court held that "[a] tort action for an insurer's bad faith refusal to pay benefits does not extend to third parties who are not named insureds."² This is in line with the first element of a cause of action for insurance bad faith: "the existence of a mutually binding contract of insurance between the plaintiff and the defendant."³

Thus, for example, the injured party in a car wreck does not have standing to bring an action against the insurance carrier for the at-fault driver. Often, the insured at-fault driver will assign his or her right of action for breach of contract and bad faith against the carrier to the injured third party in exchange for a covenant not to execute against the insured at-fault driver. The assignability of such claims is discussed later in Chapter 7.

In the first-party arena, the rule that only a "named insured" has standing to bring a bad-faith claim is more problematic. Does a life-insurance beneficiary not have standing? Does a permissive user of an insured vehicle not have standing? What about the spouse of the named insured? As a resident relative, the spouse is an "insured"—and a "Class I insured" at that. If the spouse is not a "named insured," then should he or she not nonetheless have standing?

The South Carolina Supreme Court and Court of Appeals have not yet directly addressed these issues. The only time that an exception to the "named insured" rule has been expressly recognized was in Ateyeh v. Vokswagen of Florence, Inc.,⁴ in which the Supreme Court held that a widow had standing to bring a bad-faith claim against her deceased husband's health-insurance carrier. The Court held: "By virtue of the necessaries doctrine, [the widow] stands in a derivative policyholder position, and her interest in enforcement of the policy is not merely contingent."⁵ The "necessaries doctrine" provides that a spouse "may be held individually liable for medical benefits furnished to the other spouse."⁶

The South Carolina District Court noted the limited reach of the Ateyeh exception in Auto-Owners Insurance Company v. Woodland Mobile Home Park, LLC.⁷ In that case, a family owned business was the named insured of a policy that had underinsured-motorist coverage. A co-owner of the business was in a collision caused by someone else. After she settled with the at-fault driver and his liability carrier, she pursued a claim with her family business's UIM carrier.⁸ There was no question that she was a permissive user of the vehicle and thus an "insured." The problem was that she was not a "named insured," and pursuant to Kleckley, she therefore lacked standing to assert a bad-faith claim against the UIM carrier. The District Court observed that the only known exception to the rule is the limited one from Ateyeh, which did not apply.⁹

National Union Fire Insurance Co. of Pittsburgh v. Bettencourt¹⁰ involved a similar scenario in which a permissive user had brought a bad-faith claim against a UIM carrier. The District Court was faced with the issue...