The United States District Court for the District of South Carolina recently ordered an auto insurer to pay a $1.1 million dollar excess judgment because the settlement checks sent by the adjuster did not arrive in the plaintiff’s counsel’s hands within the 24-hour limit set by the plaintiff’s counsel. With a claim-to-settlement span of a mere 25 days, this case may set a new, far lower standard for “negligent” claims handling, and allowed the plaintiff’s counsel to place requirements on how a carrier must handle a claim.
The case involved a January 22, 2012 motor vehicle accident in which the insured driver, at excessive speed and under the influence, struck the claimant’s car and severely injured him. The injured claimant, through counsel, first submitted his claim on January 27, 2012.
On February 7, 2012, the bodily injury claims adjuster assigned to the claim made an initial note that liability of the insured appeared clear and that the claim would likely exhaust the policy’s limits. On the same day, the adjuster’s supervisor agreed that the claim could be settled for the full limits “once the package is in.”
The following week, on February 15, 2012, the adjuster noted that she was awaiting photographs of injuries for evaluation and resolution. Later that day, the plaintiff’s counsel emailed the adjuster the photographs of the claimant in the hospital and of both vehicles involved in the accident.
The following day, February 16, 2012, the adjuster evaluated the claim at $109,000 with medical expenses of at least $59,000. On this same day, the plaintiff’s counsel sent a facsimile to the property adjuster—and allegedly, also to the bodily injury adjuster (although the court noted that the facsimile number listed on the transmission was not hers)—containing the following demand:
[I]f we have not received the settlement checks by the close of business tomorrow, or the funds are not wired directly to my trust account, I will advise my client to reject any forthcoming receipt of the policy limits as being untimely.
Although the bodily injury adjuster did not directly receive the transmission, the property adjuster who did receive it alerted her to it by 3 p.m. that same day. The two discussed the demand, but not the time limit. At trial, the bodily injury adjuster admitted to not seeing that portion of the facsimile.
On February 17, 2012 — a Friday — the adjuster received authorization to issue the settlement checks and placed them in the mail that same day. Because the following Monday was a federal holiday, plaintiff’s counsel did not receive the checks until Tuesday, February 21. The plaintiff’s counsel rejected the settlement checks, and filed suit against the insured. In the underlying personal injury action, a jury returned a verdict for the plaintiff for $1.15 million. The insured assigned his claim against the insurer to the plaintiff, who then filed this action directly against the insurer.
Interestingly, the parties stipulated to a bench trial. The key fact that seemed to hook the trial judge was that, in addition to admitting that she had not read the time limit, the adjuster also admitted that had she read it, she would have been able and would have attempted to make certain that the funds arrived in the plaintiff’s counsel’s account within the time limit he set. In his findings of fact and conclusion of law, the judge determined that this conduct constituted negligent claims handling, thereby justifying liability for the excess judgment. He made no findings of bad faith and found there was no justification for punitive damages.
The rub in this case was that the adjuster did not see the plaintiff’s deadline stated at the bottom of the facsimile containing the demand. The judge found that despite the carrier’s full intention to settle and mailing out the settlement checks within 24 hours of the demand—and in the absence of any findings of bad faith—the adjuster’s inattention to the demand detail that the checks “be received” within 24 hours warranted liability for the excess judgment.
Unlike other jurisdictions, South Carolina does not have a statute that prescribes the time within which an insurer must respond to a settlement demand. This might seem advantageous to carriers, but without a legislative time period, the door is open for claimants to set one of their own choosing—even impracticable or unrealistic ones.
It is important to note that South Carolina is one of few jurisdictions in which courts may consider negligent claims handling a justification for extra-contractual liability. In many other states, courts require more egregious conduct equating to bad faith before imposing such liability. Another factor that makes this decision untenable is that the case primarily relied upon by the District Court, Tyger River Pine Co. v. Maryland Casualty Co., 170 S.C. 286, 170 S.E. 346 (1933), rested upon findings of clear bad faith on the part of the insurer, conduct that admittedly was not present in the Urena case.
As expected, on August 14, 2015, the insurer filed a motion to stay execution of the judgment pending appeal. Check back for updates on the status of that appeal.