Charleston County School Dist. v. State Budget and Control Bd.

Decision Date17 February 1993
Docket NumberNo. 23850,23850
Citation313 S.C. 1,437 S.E.2d 6
CourtSouth Carolina Supreme Court
Parties, 87 Ed. Law Rep. 297 CHARLESTON COUNTY SCHOOL DISTRICT, Appellant, v. STATE BUDGET AND CONTROL BOARD, Respondent. . Heard

Robert N. Rosen and Alice F. Paylor, of Rosen, Rosen & Hagood, P.A., Charleston, for appellant.

Brad J. Waring, John Hamilton Smith, and Stephen P. Groves, of Young, Clement, Rivers & Tisdale, Charleston; and Charles R. Tuffley, Dennenberg, Tuffley & Jamison, Southfield, MI, for respondent.

TOAL, Justice:

The issues presented in this appeal are as follows: (1) is S.C.Code Ann. § 10-7-180 (1986), which sets forth an appraisal procedure for settling coverage disputes, applicable to insurance provided by the State Budget and Control Board; (2) if the appraisal procedure is applicable, did the State Budget and Control Board waive its right to the appraisal procedure; and (3) is the State Budget and Control Board subject to bad faith claims under Nichols v. State Farm Mutual Automobile Insurance Co., 279 S.C. 336, 306 S.E.2d 616 (1983).


On September 21, 1989, Hurricane Hugo struck Charleston County, damaging the buildings owned by Charleston County School District (hereinafter "District") and its contents. The District's property was covered under four policies of insurance provided by the State Budget and Control Board (hereinafter "Board"). The District notified the Board of the loss and then began repairing the damage. The Board advanced some funds to the District for the repairs. When the District submitted a proof of loss claim, the Board asserted that the amounts claimed were, in part, based on costs to repair pre-existing damage due to the District's improper maintenance of the buildings, as well as other costs not covered by the policies, including architectural design fees, inspection fees, asbestos removal, and costs in excess of reasonable repairs or replacements. When the parties were unable to resolve their dispute, the District brought this breach of contract action and an action for bad faith refusal to pay benefits under the insurance contract. The Board answered the complaint denying the allegations and asserting several affirmative defenses. Some limited discovery took place, including the exchange of unspecified documents and the deposition of the Assistant Division Director of the Division of Insurance for the Board.

The Board subsequently filed a motion to invoke its right to the appraisal procedure prescribed in S.C.Code Ann. § 10-7-180 (1986) along with a motion to dismiss the bad faith claim. The trial court granted both motions. The District appeals.


(1) Is the statutory appraisal provision of section 10-7-180, of the South Carolina

Code, inapplicable to insurance provided by the Board pursuant to section 1-11-140?

(2) Did the Board waive its right to invoke the statutory appraisal procedure by entering into an insurance contract with a different appraisal procedure or by failing to timely raise the appraisal provision?

(3) Did the trial court err in dismissing the bad faith claim?


Applicability of the Statutory Appraisal Provision to Contracts of Insurance Provided by the Board.

S.C.Code Ann. § 1-11-140 (1986 & 1992 Supp.) authorizes the Board to provide insurance for the listed public entities and hospitals within the statute. In 1989, the statute was amended to add authorization for the Board to provide insurance on state public buildings, state-supported institutions, highway department buildings, public buildings of incorporated municipalities, public buildings of counties, school buildings, and school buses "as prescribed in §§ 10-7-10 through 10[313 S.C. 5] -7-40, 59-67-710 and 59-67-790." S.C.Acts No. 389, Part II (1988). The District maintains that by expressly incorporating the above-cited sections, the legislature intended to exclude the applicability of §§ 10-7-50 through 10-7-230, which govern the methods for attaining insurance including the appraisal procedure of § 10-7-180, from insurance provided by the Board.

The cardinal rule of statutory construction is to ascertain and effectuate the intent of the legislature. Bankers Trust of South Carolina v. Bruce, 275 S.C. 35, 267 S.E.2d 424 (1980). It is clear the legislature's inclusion of §§ 10-7-10 through 10-7-40, 59-67-710, and 59-67-790 within the general provisions of § 1-11-140 was not intended to render all other provisions relating to insurance on public entities inapplicable, but merely delineated specific additional insurance coverage which the Board was authorized to provide. Additionally, finding the subsequent provisions inapplicable would lead to absurd results which would not be in the best interest of the Board. For example, the Board would lack the ability to reinsure the policies it issued as provided for by section 10-7-120, the premiums collected would not be required to be reserved by the Board as provided for by section 10-7-130, nor would the Board be required to reduce the premiums when the insurance reserve fund reached the sum of five per cent of the total insurance in force as provided for in section 10-7-140. Accordingly, we find the District's argument to be without merit.

Waiver of the Appraisal Provision.

Having found that the appraisal statute does apply to insurance provided by the Board, we turn to the question of whether the Board waived its right to invoke the appraisal statute. S.C.Code Ann. § 10-7-180 provides in part:

[I]n the event of loss or damage, when an agreement as to the extent of such loss or damage cannot be arrived at between the Board and the officials having charge of the property, the amount of such loss or damage to be paid by the Board shall be determined by three appraisers, one to be named by the Board, one by the officer, official or trustee having the damaged or destroyed building in charge, and the third by the two so appointed.

The District maintains that the Board waived § 10-7-180 when it entered into a contract with an alternative appraisal provision. We disagree. Mandatory statutory provisions relating to insurance contracts have long been held by this Court to be part of the contract, and any policy provision which controverts an applicable statute is, to that extent, invalid. Jordan v. Aetna Casualty & Surety Company, 264 S.C. 294, 214 S.E.2d 818 (1975).

The District further maintains the Board waived § 10-7-180 by failing to invoke it in a timely manner. We disagree. This statutorily-mandated appraisal provision evidences the State's policy favoring the economical appraisal method of resolving disputes between two public entities. Its waiver, therefore, will not be lightly inferred. We agree with the trial court's determination that some showing of prejudice resulting from the delay is required. Accord Carcich v. Rederi: A/B Nordie, 389 F.2d 692 (2d Cir.1968). The District argues it was prejudiced by the delay in that it participated in discovery which would not have been available under the appraisal provision. Any discovery conducted, however, presumably was related to the bad faith claim as well; therefore, we find no prejudice arising from the Board's delay in invoking its statutory right to an appraisal.

Bad Faith Claim.

The District argues the trial court erred in dismissing its bad faith claim. In Nichols, supra, this Court held 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 tort.

The Board argues it is not liable under a bad faith claim, relying upon Davis v. South Carolina Budget and Control Board, 298 S.C. 135, 378 S.E.2d 604 (Ct.App.1989), cert. dismissed, 301 S.C. 373, 392 S.E.2d 183 (1990). In Davis, the Court of Appeals held the State Insurance Reserve Fund was not required to offer underinsured motorist coverage to the state agencies and political subdivisions to which it provided motor vehicle liability coverage as the Insurance Reserve Fund was not an automobile insurance carrier for the purposes of S.C.Code § 38-77-160 (1989 & Supp.1992) The Board maintains under Davis, no general law regulating insurance is applicable to it. We disagree. In Wright v. Smallwood, --- S.C. ----, 419 S.E.2d 219 (1992), we limited Davis to the statutory requirement that all automobile insurance carriers must offer optional underinsured motorist coverage...

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