Insurance Bad Faith Demand Letter - South Carolina

INSURANCE BAD FAITH 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)
Claims Department
[________________________________]
[________________________________], [____] [__________]

Attention: [________________________________], Claims Adjuster / Supervisor / General Counsel

Re: FORMAL BAD FAITH DEMAND — SOUTH CAROLINA
Insured / Claimant: [________________________________]
Policy Number: [________________________________]
Claim Number: [________________________________]
Date of Loss: [__/__/____]
Policy Limits: $[____________]
Time-Limited Response Deadline: [__/__/____] at 5:00 p.m. Eastern Time

Dear [________________________________]:

This firm represents [________________________________] ("the Insured") in connection with the above-referenced insurance claim governed by South Carolina law. This letter serves two purposes:

1. It constitutes a formal time-limited demand for tender of all benefits due under the policy — and, where the Insurer is handling a liability claim against its insured, for settlement within the policy limits under Tyger River Pine Co. v. Maryland Cas. Co., 170 S.C. 286, 170 S.E. 346 (1933); and

2. It constitutes the 90-day written demand contemplated by S.C. Code Ann. § 38-59-40, preserving the Insured's right to statutory attorney's fees of up to one-third of the loss upon the Insurer's unreasonable refusal to pay.

Failure to resolve this matter within the time frame below will result in immediate suit for breach of contract and first-party bad faith, plus pursuit of all available damages — compensatory, consequential, emotional distress, punitive, and statutory — under South Carolina law.

I. SOUTH CAROLINA BAD FAITH LAW — LEGAL FRAMEWORK

A. First-Party Bad Faith: Nichols

Nichols v. State Farm Mut. Auto. Ins. Co., 279 S.C. 336, 306 S.E.2d 616 (1983), is the foundational first-party bad faith decision. To prevail, the Insured must prove:

1. the existence of a mutually binding contract of insurance;
2. the Insurer's refusal to pay benefits due under that contract;
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 to the Insured.

Crossley v. State Farm Mut. Auto. Ins. Co., 307 S.C. 354, 415 S.E.2d 393 (1992), establishes the defense test: an insurer is shielded only if it has an objectively reasonable basis for denial, evaluated at the time of the denial. Subjective good faith is not enough. An insurer that ignores favorable evidence, performs a one-sided investigation, or applies an unreasonable interpretation of policy language cannot claim an objectively reasonable basis.

Tadlock Painting Co. v. Maryland Cas. Co., 322 S.C. 498, 473 S.E.2d 52 (1996), confirms that consequential damages, emotional distress damages, and punitive damages are recoverable for first-party bad faith — the insured is not limited to contract damages.

B. The Tyger River Doctrine

Tyger River Pine Co. v. Maryland Cas. Co., 170 S.C. 286, 170 S.E. 346 (1933), is South Carolina's foundational excess-judgment case. The Supreme Court held that a liability insurer which refuses a reasonable within-limits settlement and thereby exposes its insured to an excess judgment is liable for the full amount of the judgment, including the portion exceeding policy limits, together with interest and costs. The insurer must "sacrifice its interests in favor of those of the insured" when considering settlement. The same duty of good faith applies whenever the insurer controls resolution of a claim in which the insured has a legitimate interest.

C. The Statutory Framework — S.C. Code Ann. § 38-59-20

S.C. Code Ann. § 38-59-20 ("Improper claim practices") declares the following acts to constitute improper claim practices when done without just cause and with such frequency as to indicate a general business practice:

1. Knowingly misrepresenting to insureds or third-party claimants pertinent facts or policy provisions relating to coverages at issue;
2. Failing to acknowledge with reasonable promptness pertinent communications with respect to claims;
3. Failing to adopt and implement reasonable standards for prompt investigation of claims;
4. Not attempting in good faith to effect prompt, fair, and equitable settlement of claims in which liability has become reasonably clear;
5. Compelling policyholders or claimants to institute suit by offering substantially less than reasonably due;
6. Invoking or threatening to invoke policy defenses or to rescind the policy without a reasonable expectation of prevailing; and
7. Refusing to pay claims without conducting a reasonable investigation.

Although § 38-59-20 does not create a private right of action, South Carolina courts have permitted use of the statute as evidence of the standard of care in first-party bad faith actions. See Howard v. State Farm Mut. Auto. Ins. Co., 316 S.C. 445, 450 S.E.2d 582 (1994).

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

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

E. Punitive Damages — §§ 15-32-520 and 15-32-530

Under S.C. Code Ann. § 15-32-520, punitive damages require proof by clear and convincing evidence of willful, wanton, or reckless conduct, with a bifurcated trial available. Under § 15-32-530, punitive damages are generally capped at the greater of three times compensatory damages or $500,000. The cap rises to the greater of four times compensatory or $2,000,000 when the conduct was motivated by unreasonable financial gain known or approved by managing agents/officers, or when the conduct constitutes a felony. The cap does not apply when the defendant acted with specific intent to harm.

F. Statute of Limitations

First-party bad faith actions are subject to the three-year limitations period under S.C. Code Ann. § 15-3-530, running from the date of denial.

II. THE POLICY AND COVERAGE

The Insurer has acknowledged coverage [☐ in writing on [__/__/____] / ☐ by its prior partial payment / ☐ by its conduct]. Having acknowledged coverage, the Insurer is obligated — under South Carolina common law and § 38-59-20 — to conduct a thorough and fair investigation, evaluate the claim in good faith, promptly pay amounts reasonably clear, and refrain from compelling litigation.

III. FACTUAL BACKGROUND

A. The Underlying Loss

On [__/__/____], [________________________________].

[________________________________]

B. Documented Chronology of the Insurer's Conduct

IV. SPECIFIC BAD FAITH CONDUCT UNDER NICHOLS / § 38-59-20

A. Refusal to Pay Without an Objectively Reasonable Basis

The Insurer has refused, delayed, or underpaid benefits that are reasonably clear. Specifically:

• [________________________________]
• [________________________________]
• [________________________________]

Under Crossley, the Insurer must have an objectively reasonable basis — not merely a "debatable" position — to escape bad faith liability. No such basis exists here. The Insurer's position ignores [________________________________].

B. Inadequate and One-Sided Investigation

The Insurer failed to conduct the thorough, fair, and objective investigation required by South Carolina law:

• Failed to interview witnesses [________________________________];
• Failed to obtain and consider [________________________________];
• Retained [________________________________] who performed [an inadequate / biased / result-oriented] investigation;
• Disregarded evidence and documentation submitted by the Insured;
• Failed to re-evaluate after receiving new information.

C. Unreasonable Settlement Offers — § 38-59-20(5)

Offers of this magnitude below documented damages constitute the classic § 38-59-20(5) violation: "compelling policyholders or claimants to institute suits by offering substantially less than reasonably due."

D. Misrepresentation of Policy Provisions — § 38-59-20(1)

The Insurer has represented that [________________________________]. This representation is contrary to the policy language as construed under South Carolina's contra proferentem rule. M & M Corp. of S.C. v. Auto-Owners Ins. Co., 390 S.C. 255, 701 S.E.2d 33 (2010).

E. Failure to Communicate Promptly — § 38-59-20(2)

[________________________________]

F. Unreasonable Delay

The Insurer's delays in investigation, evaluation, and payment — in total, [____] days to date — are, by themselves, grounds for a bad faith finding. Doe v. S.C. Med. Malpractice Liab. Joint Underwriting Ass'n, 347 S.C. 642, 557 S.E.2d 670 (2001).

V. DAMAGES

A. Contractual (Policy Benefits)

B. Consequential Damages (Tadlock)

C. Emotional Distress Damages

Available under Tadlock without the typical "severe" emotional distress threshold when caused by bad-faith denial of insurance benefits. [________________________________]

D. Punitive Damages — § 15-32-520 / 15-32-530

The Insurer's conduct satisfies the clear-and-convincing standard of willful, wanton, or reckless conduct because:

• [________________________________]
• [________________________________]

Punitive damages will be sought up to the greater of three times compensatory damages or $500,000 — or, if the evidence warrants, the enhanced $2,000,000 / 4x cap under § 15-32-530(E) based on financial-gain motivation known to managing agents.

E. Statutory Attorney's Fees — § 38-59-40

Fees of up to one-third of the amount of loss, which this letter preserves as the required written demand.

VI. THE DEMAND

We demand payment of $[____________] comprised as follows:

Upon payment, the Insured will execute a mutual release of claims arising from the handling of this specific claim. Confidentiality terms may be negotiated separately.

This number excludes punitive damages, emotional distress damages, and attorney's fees that may be sought in litigation.

VII. TIME-LIMITED NATURE OF THIS DEMAND

THIS DEMAND EXPIRES AT 5:00 P.M. EASTERN TIME ON [__/__/____].

If the Insurer fails to accept this demand by that time:

1. Suit will be filed in the Court of Common Pleas for [________________________________] County, South Carolina, for breach of contract, bad faith under Nichols, and statutory attorney's fees under § 38-59-40;

2. All available damages will be sought, including consequential, emotional distress, and punitive damages under § 15-32-520;

3. A complaint will be filed with the South Carolina Department of Insurance, 1201 Main Street, Suite 1000, Columbia, SC 29201 (consumer line (803) 737-6180);

4. The Tyger River doctrine will be invoked to seek any excess exposure arising from the Insurer's refusal to settle reasonably within limits; and

5. This letter, the Insurer's response, and the claim file will be exhibits documenting the Insurer's conscious disregard of its good-faith duties under South Carolina law.

The 90-day clock under § 38-59-40 began to run upon the Insurer's receipt of this letter.

VIII. DOCUMENT PRESERVATION AND LITIGATION HOLD

The Insurer is on notice to preserve all documents and electronically stored information relating to this claim, including:

• The complete claim file, in all iterations and drafts
• Adjuster notes, diary entries, and activity logs
• Reserves history (initial, subsequent, and current)
• All internal and external communications, including emails and instant messages
• Recorded statements and transcripts
• Expert, engineer, contractor, and SIU reports
• Claim-handling manuals, bulletins, and training materials
• Quality-assurance audits, round-table notes, and supervisor reviews
• Photographs, video, and inspection records
• Prior similar claim files and consent decrees (for pattern-and-practice discovery)

Spoliation will be met with motion practice under Cole v. Boy Scouts of Am., 397 S.C. 247, 725 S.E.2d 476 (2011), and sanctions under Rule 37, SCRCP.

IX. CONCLUSION

The Insurer's handling of this claim exemplifies the conduct South Carolina's bad faith jurisprudence — from Tyger River Pine through Nichols, Tadlock, and Cock-N-Bull — was designed to deter and punish. We urge the Insurer to use this narrow window to resolve the matter fairly and avoid the exposure that comes with litigation in South Carolina courts, which consistently enforce the duty of good faith and fair dealing against insurers that forget it.

Please direct all further communications to the undersigned.

Respectfully,

[LAW_FIRM_NAME]

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

Counsel for [________________________________]

ENCLOSURES:

• ☐ Policy declarations and form
• ☐ Claim correspondence chronology
• ☐ Damage documentation and estimates
• ☐ Expert / engineer / contractor reports
• ☐ Medical records (if personal injury)
• ☐ Proof of consequential losses

cc:

• ☐ [________________________________] (client)
• ☐ 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 — unreasonable refusal)
• S.C. Code Ann. § 15-32-520 / 15-32-530 (Punitive damages cap)
• S.C. Code Ann. § 15-3-530 (Three-year limitations)
• Nichols v. State Farm Mut. Auto. Ins. Co., 279 S.C. 336 (1983)
• Tyger River Pine Co. v. Maryland Cas. Co., 170 S.C. 286 (1933)
• Tadlock Painting Co. v. Maryland Cas. Co., 322 S.C. 498 (1996)
• Crossley v. State Farm Mut. Auto. Ins. Co., 307 S.C. 354 (1992)
• South Carolina Department of Insurance