INSURANCE LAW

Bad-Faith Claims

In spite of the large number of bad-faith judgments rendered against insurers over the years, insurers continue to push across the bad-faith boundary. In Cock-N-Bull Steak House, Inc. v. General Insurance Co., ___ S.C. ___, 466 S.E.2d 727 (1996), when the insured's restaurant was destroyed by fire, the insurer paid claims amounting to $425,000 but refused to pay an additional claim for $56,000, even though the items contained under the $56,000 claim were clearly covered under the policy.

The South Carolina Supreme Court confirmed a directed verdict in favor of the insured in the amount of approximately $52,000 in actual damages under claims asserting breach of contract and bad-faith refusal to pay the insurance claim. The court also affirmed the jury's grant of punitive damages in the amount of $1.5 million. The court stated and applied the rule that an insured may recover damages for a bad-faith denial of coverage if he or she proves there was no reasonable basis to support the insurer's decision to deny benefits under the insurance contract. The court found the evidence to be clear and convincing that the insurer had no reasonable basis for denying the claim and that it acted willfully. The insurer presented no evidence at trial to justify the denial of the claim, and, in fact, its own witnesses testified to the impropriety of the denial. The court also concluded that the punitive damages award, though liberal, was not unduly excessive, or motivated by passion, caprice, or prejudice.

Andy McCaughey

Senior Attorney, Insurance

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