First-Party Property Damage Demand Letter - South Carolina

FIRST-PARTY PROPERTY DAMAGE DEMAND LETTER

State of South Carolina

[LAW FIRM LETTERHEAD]

PRIVILEGED AND CONFIDENTIAL
SETTLEMENT COMMUNICATION — FOR RESOLUTION PURPOSES ONLY
PROTECTED UNDER S.C. R. EVID. 408 AND FED. R. EVID. 408

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
AND VIA EMAIL TO: [________________________________]

Date: [__/__/____]

[________________________________] (Insurance Company)
Property Claims Department
[________________________________]
[________________________________], [____] [__________]

Attention: [________________________________], Claims Adjuster

Re: FIRST-PARTY PROPERTY CLAIM — FORMAL DEMAND UNDER SOUTH CAROLINA LAW
Insured: [________________________________]
Property Address: [________________________________], [________________________________] County, SC [__________]
Policy Number: [________________________________]
Claim Number: [________________________________]
Date of Loss: [__/__/____]
Type of Loss: [________________________________]
Response Deadline: [__/__/____] at 5:00 p.m. Eastern Time

Dear [________________________________]:

This firm represents [________________________________] (the "Insured") in connection with the above-referenced first-party property damage claim arising under a policy of insurance delivered in the State of South Carolina. This letter constitutes a formal demand for payment of all benefits owed under the policy and serves notice that the Insured will pursue all remedies available under South Carolina law — including first-party bad faith under Nichols v. State Farm Mut. Auto. Ins. Co., 279 S.C. 336, 306 S.E.2d 616 (1983), statutory attorney's fees under S.C. Code Ann. § 38-59-40, and punitive damages under S.C. Code Ann. § 15-32-520 — if this claim is not resolved within the deadline below.

I. GOVERNING SOUTH CAROLINA AUTHORITY

A. First-Party Bad Faith — Nichols/Tadlock/Cock-N-Bull

South Carolina recognizes a tort action for first-party bad faith. Under Nichols, 279 S.C. at 340, an insured must show: (1) a mutually binding insurance contract; (2) refusal by the insurer to pay benefits due; (3) the refusal resulted from the insurer's bad faith or unreasonable action in breach of the implied covenant of good faith and fair dealing; and (4) resulting damage. An insurer avoids bad faith liability only if it demonstrates an objectively reasonable basis for denial or delay — and that basis is judged as of the time of the denial. Crossley v. State Farm Mut. Auto. Ins. Co., 307 S.C. 354, 415 S.E.2d 393 (1992).

See also Tadlock Painting Co. v. Maryland Cas. Co., 322 S.C. 498, 473 S.E.2d 52 (1996) (consequential and punitive damages available for bad-faith denial of first-party benefits); Cock-N-Bull Steak House, Inc. v. Generali Ins. Co., 321 S.C. 1, 466 S.E.2d 727 (1996) (bad-faith principles applied to commercial property policy).

B. Improper Claim Practices — S.C. Code Ann. § 38-59-20

The Insurer is prohibited by § 38-59-20 from, among other things:

• knowingly misrepresenting pertinent facts or policy provisions;
• failing to acknowledge pertinent communications with reasonable promptness;
• failing to adopt reasonable standards for prompt investigation of claims;
• refusing to pay without reasonable investigation;
• not attempting in good faith to effectuate prompt, fair, and equitable settlement where liability is reasonably clear;
• compelling insureds to institute suit by offering substantially less than reasonably due;
• invoking policy defenses without a reasonable expectation of prevailing.

C. Attorney's Fees — S.C. Code Ann. § 38-59-40

When an insurer has "without reasonable cause or in bad faith" refused to pay a loss, the court "must" award reasonable attorney's fees up to one-third of the amount of the loss, provided the amount recovered equals or exceeds the insured's written demand. The insured's written demand must be served at least 90 days before commencement of suit. Butler v. Unisun Ins. Co., 323 S.C. 402, 475 S.E.2d 758 (1996). This letter is intended to satisfy § 38-59-40's 90-day demand requirement.

D. Coastal/Hurricane Provisions — Title 38, Chapter 75

Because this loss occurred in a [coastal/non-coastal] area, the following additional provisions apply as relevant:

• S.C. Code Ann. § 38-75-730: Named-storm percentage deductibles must be conspicuously disclosed; may not exceed the amount specified on the declarations page at time of loss.
• S.C. Code Ann. § 38-75-485: Anti-concurrent causation ("ACC") clauses in homeowners policies are subject to statutory and judicial scrutiny; see Boone v. Amica Mut. Ins. Co., 406 S.C. 476, 752 S.E.2d 555 (Ct. App. 2013).
• Flood damage exclusion construed narrowly against the insurer under South Carolina's contra proferentem rule.

E. Statute of Limitations

First-party breach of contract and bad faith claims arising from this policy are subject to the three-year limitations period of S.C. Code Ann. § 15-3-530. The limitations period for bad faith begins to run upon the insurer's refusal to pay.

II. POLICY AND COVERAGE

A. Declarations

B. Coverage Analysis

The loss at issue arises from a covered peril and falls squarely within the policy's insuring agreement. South Carolina construes ambiguous policy language against the insurer (M & M Corp. of S.C. v. Auto-Owners Ins. Co., 390 S.C. 255, 701 S.E.2d 33 (2010)) and construes exclusions narrowly. No exclusion applies, no condition has been breached, and the policy is in full force and effect.

III. THE LOSS

A. Description

On [__/__/____], the insured property at [________________________________] sustained damage as a result of [________________________________]:

☐ Windstorm / tornado ☐ Named storm / hurricane (Hurricane [____________])
☐ Hail ☐ Fire ☐ Lightning ☐ Water (non-flood) ☐ Plumbing
☐ Theft/Vandalism ☐ Tree/Debris impact ☐ Vehicle impact
☐ Other: [________________________________]

B. Narrative

[________________________________]

C. Mitigation (Policy Condition Compliance)

The Insured discharged her duty of prompt mitigation under the policy and S.C. common law:

IV. CLAIM HANDLING CHRONOLOGY

V. INSURER'S POSITION AND WHY IT IS WRONG UNDER SOUTH CAROLINA LAW

The Insurer has [described position]:

[________________________________]

This position is untenable under South Carolina law for the following reasons:

1. Contra proferentem. Any ambiguity in the policy must be construed in favor of coverage and against the Insurer. M & M Corp. of S.C. v. Auto-Owners Ins. Co., 390 S.C. 255, 701 S.E.2d 33 (2010).
2. Narrow construction of exclusions. The Insurer bears the burden of proving an exclusion applies and may not extend exclusionary language beyond its plain meaning. Owners Ins. Co. v. Clayton, 364 S.C. 555, 614 S.E.2d 611 (2005).
3. Efficient proximate cause. Where covered and excluded perils combine to cause a loss, South Carolina applies the efficient proximate cause doctrine unless the policy contains an enforceable anti-concurrent causation clause — and even then, only consistent with § 38-75-485.
4. Inadequate investigation. Failing to retain qualified engineers, contractors, or public adjusters — or ignoring evidence provided by the insured — is a classic Nichols indicator of bad faith.
5. Lowball / premature closure. Paying far less than the reasonable cost to repair, or closing the file before all damages are assessed, constitutes an "improper claim practice" under § 38-59-20(5).

VI. DAMAGES — SCOPE AND AMOUNTS

A. Coverage A — Dwelling

General contractor O&P is recoverable where repairs involve three or more trades, consistent with Sparks v. St. Paul Ins. Co. industry practice and the ordinary meaning of "replacement cost."

B. Coverage B — Other Structures

$[____________] ([________________________________])

C. Coverage C — Personal Property

A detailed inventory with photographs, receipts, and pricing is attached.

D. Coverage D — Additional Living Expense

E. Summary of Amounts Owed

VII. APPRAISAL DEMAND (IF APPLICABLE)

Without waiving any rights and subject to the Insurer's full performance, the Insured [☐ invokes / ☐ reserves the right to invoke] the policy's appraisal clause to resolve disputes over the amount of loss only (coverage issues remain reserved for judicial determination). Harleysville Group Ins. v. Heritage Communities, Inc., 420 S.C. 321, 803 S.E.2d 288 (2017).

The Insured appoints [________________________________] as appraiser and requests the Insurer name its competent, disinterested appraiser within [____] days. The parties shall then select an umpire as provided by the policy.

VIII. BAD FAITH, IMPROPER PRACTICES, AND TYGER RIVER DOCTRINE

The Insurer's conduct satisfies each element of a Nichols bad faith claim:

1. A mutually binding insurance contract exists.
2. The Insurer has refused to pay, or has underpaid, benefits due.
3. The refusal lacks any objectively reasonable basis given the scope and documentation of the loss.
4. The Insured has been damaged by the deprivation of contracted-for benefits, forced temporary relocation, continued property deterioration, finance charges, and emotional distress.

Tyger River Pine Co. v. Maryland Cas. Co., 170 S.C. 286, 170 S.E. 346 (1933) — though originally a liability case — is now routinely cited as the foundation of South Carolina's bad faith jurisprudence. The insurer was required to "sacrifice its interests in favor of those of the insured." That same principle governs here.

Remedies available under South Carolina law include:

• All policy benefits plus pre- and post-judgment interest;
• Consequential damages (temporary housing, loss of use, finance charges, business interruption);
• Emotional-distress damages (Tadlock);
• Punitive damages under § 15-32-520 (clear and convincing evidence of willful, wanton, or reckless conduct), subject to the greater-of-$500,000-or-3x-compensatory cap under § 15-32-530 (enhanced to $2M/4x for financial-gain misconduct, uncapped for intent to harm);
• Attorney's fees up to one-third of the loss under § 38-59-40;
• Costs of suit.

IX. DEMAND

The Insured demands payment of $[____________] within the deadline below, itemized as follows:

This figure excludes bad faith, consequential, emotional distress, punitive damages, and attorney's fees that may be sought upon litigation.

X. RESPONSE DEADLINE — § 38-59-40 COMPLIANCE

This demand must be accepted by 5:00 p.m. Eastern Time on [__/__/____]. This letter is served as the written demand contemplated by S.C. Code Ann. § 38-59-40, triggering the 90-day period prior to commencement of suit.

Consequences of Non-Payment

1. Litigation will be filed in the Court of Common Pleas for [________________________________] County, SC, asserting breach of contract, bad faith, and § 38-59-40 fees;
2. Regulatory complaints will be filed with the South Carolina Department of Insurance, 1201 Main Street, Suite 1000, Columbia, SC 29201 (consumer line (803) 737-6180), and with the NAIC;
3. Appraisal will be invoked if not already; and
4. All evidence of the Insurer's claim handling will be used to establish willful, wanton, or reckless conduct for purposes of § 15-32-520 punitive damages.

XI. DOCUMENT PRESERVATION NOTICE

The Insurer is on notice to preserve the complete claim file, adjuster notes/diary/activity log, all internal and external communications, reserve history and changes, SIU/fraud referrals (if any), engineer and contractor reports and drafts, photographs, video, recorded statements, claim manuals, training materials, QA audits, and related ESI. Spoliation sanctions will be sought under Cole v. Boy Scouts of Am., 397 S.C. 247, 725 S.E.2d 476 (2011), if any such materials are destroyed.

XII. CONCLUSION

The Insured paid premiums for prompt, good-faith resolution of covered losses. That contractual promise has not been honored. The Insurer now has a narrow window to perform. We strongly encourage it to do so.

Respectfully,

[LAW_FIRM_NAME]

By: _______________________________
[________________________________], Esq.
S.C. Bar No. [__________]
[________________________________]
[________________________________], SC [__________]
Tel: [________________________________]
Email: [________________________________]

Counsel for [________________________________]

ENCLOSURES:

• ☐ Policy declarations and form
• ☐ Contractor estimate(s) with line-item scope
• ☐ Engineer / public adjuster reports
• ☐ Photographs and video
• ☐ Personal property inventory
• ☐ Mitigation invoices
• ☐ ALE receipts

cc:

• ☐ [________________________________] (client)
• ☐ [________________________________] (mortgagee, if applicable)
• ☐ South Carolina Department of Insurance (upon complaint filing)

Sources and References

• S.C. Code Ann. § 38-59-20 (Improper claim practices)
• S.C. Code Ann. § 38-59-40 (Attorney's fees on unreasonable refusal)
• S.C. Code Ann. § 38-75-485 (Anti-concurrent causation)
• S.C. Code Ann. § 38-75-730 (Named storm deductibles)
• S.C. Code Ann. § 15-3-530 (Three-year limitations)
• S.C. Code Ann. § 15-32-530 (Punitive cap)
• Nichols v. State Farm Mut. Auto. Ins. Co., 279 S.C. 336 (1983)
• Tadlock Painting Co. v. Maryland Cas. Co., 322 S.C. 498 (1996)
• South Carolina Department of Insurance