What to do if you believe your insurer is acting unreasonably
Your insurance company is supposed to provide you with financial protection and peace of mind. Unfortunately, dealing with an insurance company can sometimes be more stressful than the accident that gives rise to the claim.
If your insurance company is acting unreasonably or treating you unfairly, it may seem like you don’t have any bargaining power. Fortunately, South Carolina recognizes bad faith claims, which allow you to sue your insurance company for acting unreasonably in certain situations.
Let’s take a closer look at bad faith claims in the Palmetto State.
What is a bad faith claim?
In South Carolina, your insurance company is required to process your claim honestly and fairly so that you can receive the full benefits of your insurance policy.
If your insurance company fails to process your claim honestly and fairly, you can file a bad faith claim against your insurance company.
Examples of actions (or inactions) that may give rise to a bad-faith lawsuit include:
- Your insurance company knowingly misrepresenting pertinent facts or policy provisions related to your insurance coverage
- Your insurance company failing to promptly settle a claim for which liability is reasonably clear
- Your insurance company failing to promptly pay amounts owed to you
- Your insurance company offering to settle your claim for an amount less than the amount reasonably due
- Your insurance company threatening to contest your claim simply to discourage you from filing the claim
For example, an insured (you) may recover damages if they can prove that their insurer had no reasonable basis to support its decision to deny benefits.
However, if the insurance company can show that it had an objectively reasonable basis for denying coverage, the insured won’t prevail in a bad-faith lawsuit even if it's later proven that the insurer was wrong to deny coverage.
Whether or not an insurer acted reasonably is a question of fact to be decided by the jury based on the information the insurer had at the time it made the decision.
The owner argued that the insurer attempted to evade payment by misrepresenting and ignoring relevant policy provisions. Specifically, the insurer tried to avoid payment by limiting the policy coverage to the short-hand descriptions of "building and contents" used in the declarations, while ignoring the detailed language of the policy set forth in the scope of coverage section.
After a trial, the jury awarded the restaurant owner $52,000 in actual damages and $1.5 million in punitive damages.
What damages can I recover in a South Carolina bad-faith lawsuit?
You can recover the following damages in a South Carolina bad-faith lawsuit:
- Actual damages (i.e., policy proceeds). You can recover the amount due under your insurance policy up to the policy limits. For example, if your insurance company improperly denied your $40,000 claim following a car accident, you can recover the full $40,000 (assuming the amount is under the policy limits).
- Consequential damages. You can recover reasonable and foreseeable damages that occurred as a consequence of your insurance company’s bad faith. For example, if your insurance company unreasonably delayed responding to your insurance claim following a car accident, you can recover the costs associated with renting a replacement car while you waited for a response.
- Punitive damages. Punitive damages are intended to punish the insurance company and are only available if the insurance company’s actions were reckless or willful.
- Attorneys fees. In a South Carolina bad-faith lawsuit, the judge has the discretion to award compensation for the insured’s attorney fees. In other words, if you prove bad faith, the judge may force the insurance company to reimburse you for the money you spent on your attorney.
The Corvette was insured against theft loss through State Farm.
Larry filed a claim for reimbursement of repair costs, but State Farm unreasonably refused to pay the claim. What’s more, delays in responding to the claim caused delays in having the car repaired for over 7 months.
Nichols filed a bad-faith lawsuit against State Farm.
The jury awarded Nichols $10,000 in actual damages (the cost of the damage to the car) and $10,000 in punitive damages.
How long do I have to file a bad faith claim?
All states limit the amount of time you have to file a lawsuit before the lawsuit is forever barred.
Insured individuals often mistakenly believe that the statute of limitations clock starts to tick when the insurance claim file is closed or when the insured suffers a loss. However, as the United States District Court for the District of South Carolina in Lowcountry Block LLC v. Cincinnati Insurance made clear, the clock starts ticking on the date of the wrongful act (or when the insured discovers the wrongful act).
What steps should I take if my insurance company is acting in bad faith?
Here are the steps you should take if you want to pursue an insurance bad faith claim:
- Review your insurance contract. Before you go any further, request a copy of your full insurance policy and review it to make sure the issue you’re having isn’t addressed in the policy.
- Maintain a record of every correspondence. Keep all correspondence between you and your insurance company in a safe place. Additionally, keep a log of each telephone call (date and time, nature of the conversation, and the name of the person you talked to).
- Appeal a claim. If you believe you received a wrongful denial, you can request a review. Although the chances that the outcome will change are relatively small, it's possible you'll be able to avoid costly litigation by making this simple request.
- Make a demand. If your insurance company is still acting in bad faith, send your insurance company a letter (certified with return receipt requested) explaining that you plan to take legal action if the issue isn't resolved immediately.
- Hire an attorney. Locate an experienced South Carolina attorney and schedule an initial consultation. An attorney can help you settle the matter or file a lawsuit if necessary.
Sample demand letter to your insurance company providing notice of future legal action
123 Accident Avenue
Charleston, SC 29401
May 24, 2022
Missouri Insurance Company
St. Louis, MO 63105
Re: Claim No.: 123-ABCD1234
Dear Ms. Insurer:
On January 10, 2022, I filed a claim for $30,000 regarding the fire that occurred at my Flaming Hot Wings Restaurant on January 1, 2022. In support of the claim, I provided photographs of the fire damage, an inventory of the items lost (along with receipts), and a report from the local fire department.
To date, you have only made one offer to settle the claim in the amount of $500. This offer is unreasonable given the well-documented damages to the restaurant. Nevertheless, you have refused to provide me with an explanation for your offer.
At this point, it appears that Missouri Insurance Company is refusing to negotiate in good faith. Accordingly, if I do not receive a reasonable settlement offer or an explanation for the lack of such an offer by June 15, 2020, I will be forced to take legal action.
Did you know that bad faith insurance law varies by state?
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