Who enforces South Carolina insurance claims-practice rules, and do they cover a school board insurance trust?

Plain-English summary

In April 2022, the South Carolina Attorney General concluded that the state Department of Insurance enforced the insurance-code penalty provision and the Claims Practices Act provisions identified in a legislator's request. The opinion explained that the director or designee could order an insurer to stop improper claims practices and impose the administrative penalties described in the insurance code.

The request also asked whether the South Carolina School Board Insurance Trust was subject to that administrative review. The Attorney General did not answer that application question: deciding it required findings of fact that the office could not make in an opinion.

What this means for you

Insurance claimants and insurers

The opinion located enforcement of the cited claims-practice provisions with the Department of Insurance. It repeated a state Supreme Court explanation that a third party had administrative review for an improper claims practice and no private action under the cited provision.

School boards and insurance trusts

The office did not classify the South Carolina School Board Insurance Trust under those provisions. Its stated reason was that the answer depended on facts outside the opinion process. The opinion did say insurers were subject to state insurance laws.

Insurance regulators

The opinion described the director's authority, after finding an improper claims practice, to issue a cease-and-desist order and impose the penalties specified by the insurance code.

Common questions

Q: Which agency enforced the insurance provisions in the request? A: The Attorney General identified the South Carolina Department of Insurance.

Q: Could a third party sue directly under the cited improper-claims provision? A: The opinion quoted state precedent saying third parties did not have a private right of action under that provision; it described administrative review instead.

Q: Was the School Board Insurance Trust subject to this review? A: The AG did not decide. It said the trust's status required factual findings the office could not make.

Background and statutory framework

A House member forwarded a constituent's questions about insurance-code enforcement and the School Board Insurance Trust. The opinion cited the general penalty provision, the Claims Practices Act, and South Carolina Supreme Court precedent assigning insurer-violation determinations to the Department of Insurance. It separated that legal enforcement answer from the fact-dependent question about the trust.

Citations and references

• S.C. Code § 38-2-10: administrative penalties discussed in the opinion.
• S.C. Code §§ 38-59-10 to -30: Claims Practices Act provisions in the request.
• Masterclean, Inc, v. Star Ins. Co., 347 S.C. 405, 415, 556 S.E.2d 371, 377 (2001): state Supreme Court authority quoted on department oversight.

Source

• Landing page: https://www.scag.gov/opinions/opinions-archive/opinion-addressing-who-is-responsible-for-enforcing-specific-statutes-in-the-claims-practice-act/
• Original PDF: https://www.scag.gov/media/xupjz3ob/02970801.pdf

Original opinion text

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•SOUTH
Alan Wilson
ATTORNEY GENERAL

April 29, 2022

The Honorable Donald R. "Ryan" McCabe, Jr.
Member
South Carolina House of Representatives, District No. 96
320A Blatt Bldg.

Columbia, SC 29201

Dear Representative McCabe:
Attorney General Alan Wilson has referred your letter to the Opinions section. The letter

forwards a constituent’s questions concerning several statutes in Title 38 of the South Carolina Code of Laws which contains the insurance code.

Broadly, they ask who is responsible for

enforcing the following statutes, S.C. Code § 38-2-10 and S.C. Code §§ 38-59-10 to -30, and whether the South Carolina School Board Insurance Trust is subject to regulation thereunder. Law/Analysis It is this Office’s opinion that S.C. Code § 38-2-10 and S.C. Code §§ 38-59-10 to -30 are

enforceable by the S.C. Department of Insurance. See Masterclean, Inc, v. Star Ins. Co., 347 S.C. 405, 415, 556 S.E.2d 371, 377 (2001) (“The Department of Insurance is vested with determining whether an insurer has violated the insurance code.”).

Section 38-2-10 provides administrative

penalties for “each violation of the insurance laws of this State or federal insurance laws subject to enforcement by the Department of Insurance.” (emphasis added).

The administrative penalties

specified in subsection (A)(1) are applicable to “an insurer, pharmacy benefits manager, or a health

maintenance organization licensed in this State” while those in subsection (A)(2) apply to violators who do not fall within those categories in (A)(1). The remaining statutes identified in the letter are codified within the Claims Practices Act. S.C. Code Ann. §§ 38-59-10, et seq. (Supp.2021). In Masterclean, Inc., supra, the South Carolina

Supreme Court explained that this act affords third parties the opportunity for administrative review of improper claims practices.

The Claims Practice Act provides relief for a third party victim of an improper claims practice. S.C. Code Ann. §§ 38-59-10, et seq. (Supp.2000). This relief is important because South Carolina does not recognize a third party action for bad

Rembert C. Dennis Building

o Post Office Box 11549

. Columbia, SC 292 11-1549

• Telephone 803-734-3970

. Facsimile 803-253-6283

The Honorable Donald R. "Ryan" McCabe, Jr.
Page 2
April 29, 2022

faith refusal to pay insurance benefits. Klecklcy v. Northwestern Nat'l Cas. Co., 330 S.C. 277, 498 S.E. 2d 669 (1998). Third parties do not have a private right of action under S.C. Code Ann. § 38—59—

20. Gaskins v. Southern Farm Bureau Cas, Ins. Co., 343 S.C. 666, 541 S.E.2d 269
    (Ct.App.2000).
    the

Instead, third parties are entitled to administrative review before

Chief Insurance

Commissioner.

See Kleckley v.

Northwestern National

Casualty Company, supra; S.C. Code Ann. § 38-59-30 (Supp.1999).

Id.

Specifically, section 38-59-30 states that if the Director or his designee determines that an

insurer has engaged in the improper claims practices described in section 38-59-20, he is to order the insurer to cease and desist. Moreover, he is authorized to impose the administrative penalties described above in section 38-2-10.

Finally, this Office cannot offer an opinion on whether the South Carolina School Board Insurance Trust is subject to this form of administrative review as that would require findings of fact. See Op. S.C. Att’y Gen., 2006 WL 1207271 (April 4, 2006) (“Because this Office does not have the authority of a court or other fact-finding body, we are not able to adjudicate or investigate factual questions”).

We note, however, that insurers are clearly subject to the insurance laws of

this State.
Conclusion

As discussed above, it is this Office’s opinion that S.C. Code § 38-2-10 and S.C. Code §§ 38-59-10 to -30 are enforceable by the S.C. Department of Insurance and that insurers are subject to enforcement measures thereunder.

Sincerely,

Matthew Houck

Assistant Attorney General

REVIEW!

AND APPROVED BY:

/

Robert D. Cook
Solicitor General