Carter v. American Mutual Fire Insurance Company

Supreme Court of South Carolina, No. 21986, decided September 13, 1983 (Gregory, J., for the Court; Lewis, C.J., Ness and Harwell, JJ., and Paul M. Moore, Acting Associate Justice, concurring). The complete opinion appears below, transcribed from the official reporter through the Caselaw Access Project, Harvard Law School’s open archive of published U.S. case law at case.law. The reporter printed no syllabus or headnotes for this case; its head matter is the docket number, the caption, the parallel citation, counsel of record, and the filing date, and it appears above the opinion exactly as the reporter set it. Here is everything we touched, in full: we removed the archive’s structural marker naming the opinion’s author, we removed page headers, footers, and star-page markers, and we bolded the Justice’s name line. We found no scan misreadings to repair, and we made no other change. One oddity is the reporter’s own: the sentence introducing Nichols reads “bad faith refusal to pay party benefits,” where the sentences around it read “first party benefits.” We left it as printed rather than guess. Note on the citation: two separate appeals captioned Carter v. American Mutual Fire Insurance Company were decided the same day, this one, Richard E. Carter’s, at 279 S.C. 367, 307 S.E.2d 225, and Diane Carter’s at 279 S.C. 368, 307 S.E.2d 227 (both confirmed in CourtListener’s record of the reported decisions). Richard Carter’s claim returned to the appellate courts five years later as Carter v. American Mutual Fire Ins. Co., 297 S.C. 218, 375 S.E.2d 356 (Ct. App. 1988), which we read in the same archive and describe below.

The full opinion

21986

Richard E. CARTER, Appellant, v. AMERICAN MUTUAL FIRE INSURANCE COMPANY, Respondent.

(307 S. E. (2d) 225)

Ray L. Derrick, of Funderburk & Derrick, Columbia, for appellant.

Jeter E. Rhodes, Jr., of Whaley, McCutchen, Blanton & Rhodes, Columbia, for respondent.

Sept. 13, 1983.

Gregory, Justice:

Appellant Richard E. Carter appeals from the order of the trial judge sustaining respondent’s demurrer to causes of action alleging bad faith refusal to pay insurance benefits and intentional infliction of emotional distress. We reverse in part and affirm in part.

Appellant’s home, furniture, and personal belongings were partially destroyed and damaged by fire. He timely submitted a Proof of Loss statement to his insurer, respondent American Mutual Fire Insurance Company. Respondent refused to compensate appellant for any of his loss. Appellant then brought this action alleging bad faith refusal to pay insurance benefits, intentional infliction of emotional distress, and two other causes of action not relevant to this appeal.

Respondent demurred to the causes of action alleging bad faith refusal to pay insurance benefits and intentional infliction of emotional distress. The judge sustained the demurrer finding (1) the only duty allegedly owed appellant was a contractual one; that allegations couched in terms of negligence could not convert a breach of contract action into a tort action; and that to recover punitive damages for breach of contract, appellant must show the breach was accompanied by a fraudulent act and accomplished with fraudulent intent; and (2) the allegations of the complaint did not describe extreme or outrageous behavior. Mr. Carter appeals.

This Court recently recognized a cause of action for bad faith refusal to pay party benefits due under an insurance contract in Nichols v. State Farm Mutual Automobile Insurance Company, 306 S. E. (2d) 616 (1983). We held that if an insured can demonstrate bad faith or unreasonable refusal by an insurer to pay first party benefits due under an insurance contract, he can recover compensatory damages not limited to the face amount of the contract. We further held that if the insured can demonstrate the insurer’s actions were willful or in reckless disregard of the insured’s rights, he can recover punitive damages. We therefore find the trial judge erred in sustaining respondent’s demurrer to appellant’s cause of action alleging bad faith refusal to pay insurance benefits.

Appellant’s remaining exceptions are without merit, and a full, written opinion would have no precedential value; therefore, we affirm those issues under Rule 23 of this Court’s Rules of Practice.

Accordingly, we reverse the order sustaining the demurrer as it applies to the cause of action alleging bad faith refusal to pay insurance benefits and affirm the remainder.

Reversed in part; affirmed in part.

Lewis, C. J., Ness and Harwell, JJ., and Paul M. Moore, Acting Associate Justice, concur.

What it decided

Richard Carter’s “home, furniture, and personal belongings were partially destroyed and damaged by fire.” He timely submitted a Proof of Loss statement. American Mutual Fire “refused to compensate appellant for any of his loss.” He sued for bad faith refusal to pay insurance benefits, for intentional infliction of emotional distress, and on two other counts.

The trial judge sustained a demurrer to both of those claims, on reasoning that was orthodox South Carolina law right up until three weeks earlier: the only duty owed was contractual, allegations “couched in terms of negligence could not convert a breach of contract action into a tort action,” and punitive damages for breach of contract required “a fraudulent act … accomplished with fraudulent intent.”

The Supreme Court reversed as to bad faith, in a single paragraph resting entirely on a decision it had handed down twenty days before:

This Court recently recognized a cause of action for bad faith refusal to pay party benefits due under an insurance contract in Nichols v. State Farm Mutual Automobile Insurance Company, 306 S. E. (2d) 616 (1983). We held that if an insured can demonstrate bad faith or unreasonable refusal by an insurer to pay first party benefits due under an insurance contract, he can recover compensatory damages not limited to the face amount of the contract. We further held that if the insured can demonstrate the insurer’s actions were willful or in reckless disregard of the insured’s rights, he can recover punitive damages.

Nichols itself, decided August 24, 1983, was an auto-theft claim: a stolen and damaged Corvette, an insurer that “refused to pay the full claim,” and a jury verdict of $10,000 actual and $10,000 punitive damages that the Court affirmed. Carter is what makes Nichols general. Three weeks after creating the action, the Court applied it to a homeowner whose house and belongings burned and whose insurer paid him nothing. The rest of Mr. Carter’s exceptions, including the emotional-distress claim, were disposed of under Rule 23 as lacking precedential value, so the demurrer stood as to those.

What it did NOT decide

• It did not find that American Mutual acted in bad faith. This is a demurrer ruling. The only question was whether the complaint stated a cause of action the law recognizes. The Court never weighed evidence, never examined the insurer’s investigation, and never said the refusal to pay was unreasonable.
• Mr. Carter lost. This matters more than anything else on the page, and a policyholder should not learn it from a carrier’s brief. The case went back, went to a jury, and the jury returned a verdict for the insurance company. The Court of Appeals affirmed in Carter v. American Mutual Fire Ins. Co., 297 S.C. 218, 375 S.E.2d 356 (Ct. App. 1988), which we read in the same Caselaw Access Project archive. The insurer had defended on civil arson, proved by circumstantial evidence: three defense experts testified the fire was intentionally set with a flammable liquid, the house had been listed for sale for more than a year with two mortgages on it, and there were federal and state tax liens and credit-card trouble. The 1988 court adopted the rule that “[a]n insurance company can prevail in an arson defense based solely on circumstantial evidence if it shows that the fire was of incendiary origin and that the plaintiff had both the opportunity and motive to have the fire set,” and held there was enough of each to send the case to the jury. Winning the right to sue is not the same as winning.
• It did not recognize a claim for emotional distress arising out of a claim denial. The trial judge had found “the allegations of the complaint did not describe extreme or outrageous behavior,” and the Supreme Court affirmed that part without a written opinion.
• It did not define bad faith. The elements come from Nichols: “bad faith or unreasonable action by the insurer in processing a claim under their mutually binding insurance contract.” Carter supplies no test of its own.
• It did not address any statutory remedy. South Carolina’s fee statute for an unreasonable refusal to pay, § 38-59-40, and the improper claim practices list at § 38-59-20 are separate machinery, and neither is mentioned here.
• It did not decide what Mr. Carter was owed. No amount, no valuation question, no coverage analysis appears in the opinion.

Why it matters to policyholders

South Carolina’s first-party bad-faith action is not an auto-insurance doctrine. That is the whole use of this short opinion. Nichols arose from a stolen Corvette. If Carter had come out the other way, a carrier would have an argument that the new tort belonged to the auto line. Instead, twenty days later, the same Court applied it to a burned house, a burned houseful of furniture, and an insurer that paid nothing. When a homeowner’s property claim is refused unreasonably, the tort is available in South Carolina.

The damages are the point. Compensatory damages are “not limited to the face amount of the contract,” and punitive damages are available where the insurer’s conduct was “willful or in reckless disregard of the insured’s rights.” That is why bad faith is a different animal from a straight breach-of-contract suit for the policy proceeds. This doctrine traces back to Tyger River Pine Co. v. Maryland Casualty, the 1933 decision the General Assembly later preserved by name in § 38-59-40(3).

Read the 1988 sequel before you get excited. An insurer with a real arson or fraud defense is entitled to put it to a jury, and Mr. Carter’s own case is the illustration. A financially pressed owner, a house on the market, and expert testimony about a flammable liquid were enough to submit civil arson on circumstantial evidence alone. The lesson for an honest policyholder is not to relax. It is to build a claim file that answers those questions before they are asked: origin-and-cause documentation, an inventory that survives scrutiny, and complete, consistent answers under oath.

Bad-faith litigation is lawyer work, and we say so. A public adjuster documents the loss, prepares the sworn proof of loss, builds and defends the estimate, negotiates, and handles appraisal when the fight is over the amount of a conceded loss. See Harwell v. Home Mutual for how seriously South Carolina takes an appraisal demand. Filing suit, pleading the Nichols tort, and asking a jury for punitive damages are things a lawyer does. When a claim needs that, we refer it out and keep doing the documentation work that a lawyer will need. More South Carolina authority, in full text, is on the South Carolina claim-law page.

Now you know the rule. Enforcing it against a carrier is a different job — and it's ours. A free, confidential case review by a licensed public adjuster takes three taps.

See if my case qualifies