F. Limitations

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

F. Limitations

An insurer may avoid bad faith liability simply by having a reasonable ground for contesting a claim.⁹⁵ Where the insurer's actions are based upon a reasonable interpretation of the terms of the policy, including its exclusions, no bad faith can be found.⁹⁶ However, the investigation may not be prolonged to the point at which the insurer has unreasonably exhausted all evident avenues of investigation, even if it continues to entertain suspicions regarding the claim.⁹⁷

Insurers retain general protections for damages awards. In particular, no double recovery is permitted for breach of contract and bad faith.⁹⁸ Likewise, plaintiffs must elect remedies to prevent double recovery for a single wrong.⁹⁹ Even without the election of remedies, "[a]ctual damages are limited by the contract absent a finding of bad faith."¹⁰⁰

Moreover, damages must be causally linked to the bad faith. "Neither the existence, causation, nor amount of damages can be left to conjecture, guess or speculation."¹⁰¹ In Barton, retired supreme court Justice Lewis Powell, sitting by designation,¹⁰² held that all evidence of emotional distress emanated from the loss itself and not the insurer's bad faith. Thus, the court reversed the award of emotional distress because those damages were not proximately caused by the insurer's bad faith.¹⁰³

The Fourth Circuit in Barton also recognized that bad faith should depend on the circumstances existing at the time of the denial.¹⁰⁴ The South Carolina Supreme Court has agreed: "Whether an insurance company is liable for bad faith 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."¹⁰⁵ Therefore, an insured is probably not entitled to use evidence of the insurer's actions after the bad faith suit has been filed as proof of bad faith or damages.

An insured's failure to cooperate may bar recovery under a policy where the insurer can show prejudice from the failure to cooperate.¹⁰⁶ An insurer must establish a causal link between a policy exclusion and the loss before recovery may be defeated.¹⁰⁷

Policy provisions may also provide specific defenses to recovery, particularly those requiring cooperation by the insured. For example, the policy may require notice or proof of loss,¹⁰⁸ examination under oath,¹⁰⁹ exhibition of property, or appraisal. However, if the policy provision will result in a forfeiture of insurance, then the provision may be reformed to require that the insurer show prejudice.¹¹⁰

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Notes:

^[95] Helena Chem. Co. v. Allianz Underwriters Ins. Co., 357 S.C. 631, 645, 594 S.E.2d 455, 462 (2004) ("Under South Carolina law, an insurer acts in bad faith when there is no reasonable basis to support the insurer's decision."); Mixson, Inc. v. Am. Loyalty Ins. Co., 349 S.C. 394, 398, 562 S.E.2d 659, 661 (Ct. App. 2002)...