This blog follows up the previous post, Insurance Bad Faith in South Carolina: Part 2.
As explained in Part 2, there are several types of damages available to an insured for a first-party property insurance bad faith claim in South Carolina. Part 2 covered the availability of attorney’s fees in bad faith actions. This blog will cover other damages available, namely consequential and punitive damages.
Whereas the availability of attorneys’ fee recovery in bad faith actions is found via statute (S.C. Stat. § 38-59-40), case law helps provide the rules for recoverability of damages such as consequential and punitive damages.
The original case which outlined the availability of both consequential and punitive damages in South Carolina bad faith actions is Nichols v. State Farm Mutual Automobile Insurance Company.1
In Nichols, the insured filed a valid insurance claim, however, after the insurance company’s unreasonable refusal to pay, the jury awarded Nichols actual and punitive damages based on the insurer’s tortious conduct.
The Nichols court recognized that an insurance contract contained an “implied covenant of good faith and fair dealing” and in its holding stated:
We hold today that if an insured can demonstrate bad faith or unreasonable action by the insurer in processing a claim under their mutually binding insurance contract, he can recover consequential damages in a tort action. Actual damages are not limited by the contract. Further, if he can demonstrate the insurer’s actions were willful or in reckless disregard of the insured’s rights, he can recover punitive damages.2
It follows that, in South Carolina, if an insurer refuses in bad faith to pay an insured’s valid claim, the insurer may be liable for actual, consequential, and punitive damages.
Several South Carolina cases went on to follow and expand upon the Nichols holding. One case in particular is Carter v. American Mutual Fire Insurance Company, which involved an insured whose home and personal belongings were destroyed in a fire.3 The insurance company refused to compensate Carter for any of his loss and, after filing a claim for bad faith refusal to pay insurance benefits, the trial court sustained the defendant’s demurrer on the grounds that the only duty the insurance company owed to the insured was a contractual one.
On appeal, the appellate court reversed based on the Nichols holding, stating that “if an insured can demonstrate bad faith or unreasonable refusal by an insurer to pay first party benefits due under an insurance contract, he can recover compensatory damages not limited to the face amount of the contract.” The court also stated that if the insured could “demonstrate [that] the insurer’s actions were willful or in reckless disregard of the insured’s rights, he c[ould] recover punitive damages.”4
To summarize, South Carolina policyholders who have been wronged by an insurance company will have various damages which may be recovered, if they decide to file a bad faith lawsuit. In addition to the recovery of attorneys’ fees, policyholders who can prove that the insurer acted in bad faith may be able to recover consequential and punitive damages as well.
Unlike compensatory damages which seek to make the plaintiff whole again, punitive damages are intended to punish bad behavior, meaning that an award of punitive damages will likely be a large one. But, as mentioned, before a policyholder can recover punitive damages they must show that there the insurer’s actions were willful or in reckless disregard of their rights; which will require evidence demonstrating bad faith behavior.
1 Nichols v. State Farm Mut. Auto. Ins. Co., 279 S.C. 336, 340 S.E.2d 616 (1983).
2 Id. at 340.
3 Carter v. Am. Mut. Fire Ins. Co., 307 S.E.2d 225, 226 (S.C. 1983).