Nichols v. State Farm Mut. Auto. Ins. Co., 21979

Decision Date24 August 1983
Docket NumberNo. 21979,21979
Citation306 S.E.2d 616,279 S.C. 336
CourtSouth Carolina Supreme Court
PartiesLarry O. NICHOLS, Respondent, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant.

Henry Summerall, Jr., Aiken, for appellant.

Ronald A. Maxwell, of Johnson, Johnson, Maxwell, Whittle & Snelgrove, Aiken, for respondent.

Michael Parham of Abrams, Bowen & Parham, Greenville, and W. Thomas Vernon, of King & Vernon, Columbia, for S.C. Trial Lawyers Ass'n, amicus curiae.

Charles E. Carpenter, Jr., of Richardson, Plowden, Grier & Howser, Columbia, Jack H. Tedards, Jr., Leatherwood, Walker, Todd & Mann, Greenville, and William L. Pope, of Robinson, McFadden, Moore & Pope, Columbia, for S.C. Defense Trial Attys., amicus curiae.

PAUL M. MOORE, Acting Associate Justice:

This is a tort action for bad faith refusal to pay first party benefits under an insurance policy. The jury awarded Nichols (Respondent) ten thousand ($10,000.00) dollars actual damages and ten thousand ($10,000.00) dollars punitive damages. We affirm.

Respondent's 1969 Chevrolet Corvette automobile was stolen from a parking lot. When the car was recovered it had sustained substantial damage to the exterior and to its high performance engine. The car was insured against theft loss through appellant State Farm (Insurer). Respondent filed claims for reimbursement of repair costs with his insurance carrier and Insurer refused to pay the full claim. Respondent then brought suit alleging two causes of action; the first for breach of contract and the second for bad faith refusal to pay first party benefits. Respondent further alleged that actions of the Insurer caused delays in having the car repaired for over seven (7) months. A jury returned verdicts in favor of Respondent on both causes of action.

Insurer moved to have the verdict reformed. Reasoning that actual damages were the same under both causes of action, and that Respondent was not entitled to double recovery of his actual damages, the trial judge struck the damages under the first cause of action and sustained the jury's verdict as to the second. Insurer appeals alleging several grounds of error.

The first issue raised is whether this State should recognize an action for bad faith in an insurer's handling of a claim for first party benefits. This cause of action was first recognized in Gruenberg v. Aetna Insurance Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032 (1973) and has since been adopted in over twenty-five states.

The Gruenberg decision is premised on an implied covenant of good faith and fair dealing that neither party will do anything to impair the other's rights to receive benefits under the contract. Breach of this duty by an insurer's bad faith refusal to settle the claims of its insured renders the insurer liable in tort for all consequential damages; actual damages are not limited by the contract. See also, Robertsen v. State Farm, 464 F.Supp. 876, 879 (D.C.S.C.1979); and Trimper v. Nationwide Ins. Co., 540 F.Supp. 1188 (D.C.S.C.1982).

While we have never ruled on this precise question, we held in Tyger River Pine Co. v. Maryland Casualty Co., 170 S.C. 286, 170 S.E. 346 (1933) that an insurer's unreasonable refusal to settle within policy limits subjects the insurer to tort liability. We have held also that unreasonable refusal on the insurer's part to accept an offer of compromise settlement will render it liable in tort to the insured for the amount of the judgment against the insured in excess of policy limits. Miles v. State Farm Mutual Ins. Co., 238 S.C. 374, 120 S.E.2d 217 (1961). The cause of action we consider today and that which is commonly known as the "Tyger River Doctrine", are merely two different aspects of the same duty.

The public policy reasons for recognizing this cause of action are plentiful. The insurance business is affected with a public interest. Hinds v. United Ins. Co. of America, 248 S.C. 285, 149 S.E.2d 771 (1966). An insured ordinarily possesses no bargaining power and no means of protecting himself from the kind of treatment of which Respondent complained. "An insured does not contract to obtain any kind of commercial advantage or leverage but only to protect himself against the spectre of accidental [or unavoidable] loss." Trimper v. Nationwide Ins. Co., 540 F.Supp. 1188, 1193 (D.C.S.C.1982).

Absent the threat of a tort action, the insurance company can, with complete impunity, deny any claim they wish, whether valid or not. During the ensuing period of litigation following such a denial, the insurance company has the benefit of profiting on the use of the insured's money. Heretofore, the only compensation a successful insured could expect through litigation was the belated payment of his claim and the possibility of recovering attorney fees up to two thousand five hundred ($2,500.00) dollars. See, S.C.Code Ann. § 38-9-320 (1976).

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.

Insurer next argues that even if a tort action exists, the only reasonable inference from the evidence is that the insurance company did not act in bad faith. We have reviewed the record and find that sufficient conflicting evidence was presented to create a jury issue. We therefore rule that the trial judge properly denied Insurer's directed verdict motion.

Next, Insurer asserts the trial judge erred in failing to require Respondent to elect between his tort and contract causes of action. This exception is without merit. In Respondent's suit for breach of contract he must only show that his claim is valid. In the tort action, Respondent must show bad faith or unreasonable conduct. Therefore, the jury could have...

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