F. INSURANCE BAD FAITH
South Carolina recognizes a common law tort action for an insurer's bad faith in exercising duties owed to policyholders.291 Bad faith claims subject insurers to tort liability where the insurer unreasonably refuses to settle with a third party within policy limits under the Tyger River Doctrine292 and where an insured demonstrates "bad faith or unreasonable action by the insurer in processing a claim" for first-party benefits.293
Where an insurer refuses to provide benefits under a mutually binding insurance contract, the insured may prevail on a bad faith action by proving "the insurer's bad faith or unreasonable action in breach of an implied covenant of good faith and fair dealing arising on the contract," and damages stemming from that breach.294 "An insurer acts in bad faith where there is no reasonable basis to support the insurer's decision."295
The bad faith tort rests upon the special characteristics of the insurance relationship and the concern that, in the absence of potential tort liability, an insurer could "delay and deny a claim with virtual impunity" and pay only the contractual limits.296 Hence, bad faith processing liability has typically involved a delay in providing or refusal to provide benefits.297
A Tort Rooted in Contract Principles. Somewhat confusingly, this tort is rooted in the implied covenant of good faith and fair dealing in every insurance contract, which is a contract-based duty.298 Nonetheless, under South Carolina law, a cause of action for bad faith refusal to pay insurance benefits sounds in tort.299 Indeed, in Tadlock Painting Co. v. Maryland Casualty Co.,300 the South Carolina Supreme Court noted that it had overruled prior case law "to the extent that [it] suggested a bad faith action is one in contract rather than tort."301
No Need to Show Breach of Insurance Agreement. In Tadlock Painting Co., the South Carolina Supreme Court held that South Carolina "recognize[s] the existence of a cause of action for breach of the implied covenant of good faith and fair dealing by an insured against his or her insurer for consequential damages allegedly suffered because of the insurer's bad faith handling of third[-] party claims."302 The Tadlock court also held that breach of an express contractual provision by the insurer is not a prerequisite to an insured bringing such an action, thereby rejecting the defendant's argument.303
Focusing on the fact that South Carolina courts had grounded the bad faith cause of action in the insurer's obligations, the Tadlock court turned to the specific issue of whether breach of an express contractual provision is a prerequisite to bringing an action for breach of the implied covenant of good faith and fair dealing to recover consequential damages caused by the insurer's bad faith performance of those obligations. In answering this question in the negative, the court noted that many other jurisdictions had considered the issue and come to the same conclusion.304 As further support for its conclusion, the Tadlock court noted that South Carolina courts have "consistently emphasized that a bad faith action exists separately from an action in contract."305
The principle from Tadlock that a bad faith claim may exist even in the absence of any violation of a contractual provision has been cited with approval by subsequent South Carolina courts.306
--------
Notes:
[291] Under South Carolina law, a cause of action for bad faith refusal to pay insurance benefits sounds in tort. Charleston Cty. Sch. Dist. v. State Budget & Ctrl. Bd., 313 S.C. 1, 7-8, 437 S.E.2d 6, 9 (1993) (citing Nichols v. State Farm Mut. Auto. Ins. Co., 279 S.C. 336, 306 S.E.2d 616 (1983)); BP Oil Co. v. Federated Mut. Ins. Co., 329 S.C. 631, 642, 496 S.E.2d 35, 41...
