You paid the premiums for years. Now you have made a claim on your own policy and the file has gone quiet, or the offer is a fraction of what the loss is worth, or the denial letter explains nothing. A bad faith insurance claim in South Carolina exists for exactly that situation, and it can reach further than the policy limits.
Short answer: South Carolina recognises a tort action against an insurer for bad faith refusal to pay first-party benefits. It arises from the implied covenant of good faith in the policy, and the damages are not limited to what the policy would have paid — though punitive damages carry their own statutory ceiling.
Where the claim comes from
The controlling decision is Nichols v. State Farm Mutual Automobile Insurance Co., 279 S.C. 336, 306 S.E.2d 616 (1983), decided by the South Carolina Supreme Court. The Court took up “whether this State should recognize an action for bad faith in an insurer's handling of a claim for first party benefits,” noting the action had originated in California and by then been adopted in over twenty-five states.
The reasoning rests on a term the Court read into every policy:
an implied covenant of good faith and fair dealing that neither party will do anything to impair the other's rights to receive benefits under the contract. Breach of this duty by an insurer's bad faith refusal to settle the claims of its insured renders the insurer liable in tort for all consequential damages; actual damages are not limited by the contract.
Two consequences follow. The claim sounds in tort, not merely in contract — so it is not confined to the four corners of the policy. And the phrase “all consequential damages” is the reason these cases matter: the recovery can exceed what the policy would ever have paid.
First-party means your own insurer
The distinction is worth being precise about. A first-party claim is one you make on your own policy — uninsured or underinsured motorist coverage, medical payments, property damage to your own vehicle, a homeowner's loss.
One large exception sits on top of that, and it catches people whose cover comes through work. If your policy is part of an employee benefit plan, federal law may displace the South Carolina action altogether. In Duncan v. Provident Mutual Life Insurance Co. of Philadelphia, 310 S.C. 465, 427 S.E.2d 657 (1993) — a group health policy issued to the claimant's employer — the Supreme Court held it was “reluctantly bound by ERISA and federal law to hold that the tort created by Nichols is expressly preempted when the bad faith claim arises under an employee benefit plan.” That does not leave you without a remedy; it means the remedy is federal and the rules are different. Where the policy came from is one of the first things worth checking.
That is a different relationship from the one you have with the at-fault driver's carrier, which owes you nothing but the ordinary duties of an adversary. Bad faith law exists because your own insurer is not supposed to be an adversary; you bought the contract precisely to be protected.
Our post on the role insurance companies play in auto accidents sets out how the two relationships differ in practice.
The Court had already gone part of the way
Nichols did not appear from nowhere. South Carolina had allowed an insured to sue a mishandling insurer for more than half a century. In Tyger River Pine Co. v. Maryland Casualty Co., 170 S.C. 286, 170 S.E. 346 (1933), an insurer took over the defence of a claim against its insured, handled the defence and settlement negotiations negligently, and left the insured with the loss. The question the Supreme Court framed was whether the complaint stated a cause of action “either in contract or in tort for breach of contract, or of bad faith or negligence in the performance of contract” — and it held the insured could sue either way, on the insurer’s implied undertaking to use reasonable care.
Two things are worth being precise about, because they are often blurred. Tyger River is a THIRD-PARTY case: it is about an insurer defending a claim brought against you, not about your own insurer refusing to pay your own claim. And it did not create the modern bad faith tort; it allowed a negligence or contract action. The distinct first-party tort is Nichols, in 1983.
That older line is third-party bad faith — the insurer exposing its own insured by refusing a reasonable settlement of someone else's claim. Nichols carried the same principle into first-party claims.
The four elements you must prove
The elements were not spelled out in Nichols itself. They come from Howard v. State Farm Mutual Automobile Insurance Co., 316 S.C. 445, 450 S.E.2d 582 (1994), and the Supreme Court restated them as recently as 2025:
(1) the existence of a mutually binding contract of insurance between the plaintiff and the defendant; (2) refusal by the insurer to pay benefits due under the contract; (3) resulting from the insurer’s bad faith or unreasonable action in breach of an implied covenant of good faith and fair dealing arising on the contract; (4) causing damage to the insured.
Element three is the whole case. A refusal to pay is not enough — the refusal has to be unreasonable or in bad faith. An insurer that investigates properly and reaches a defensible conclusion has not breached the covenant, even if a jury would later have valued the claim differently.
The damages standard splits in two. Nichols requires actual damages on a showing of “bad faith or unreasonable action by the insurer in processing a claim,” and punitive damages only where “the insurer’s actions were willful or in reckless disregard of the insured’s rights.”
Punitive damages have moved on since 1983, and the modern limits matter more to what a case is worth than the standard does. Under S.C. Code § 15-32-520(D) they may be awarded only if the plaintiff proves by clear and convincing evidence that the harm resulted from wilful, wanton or reckless conduct — a higher burden than the preponderance standard that governs the rest of the case. And under § 15-32-530(A) an award may not exceed the greater of three times the compensatory damages or five hundred thousand dollars. That ceiling rises to four times compensatory damages or two million dollars in defined circumstances, and a small number of situations carry no cap at all.
So the honest version is this: your recovery is not confined to the policy limit, but it is not open-ended either.
Where the line sits after a 2025 decision
Anyone considering a bad faith claim should read Hood v. United Services Automobile Association, 445 S.C. 1, 910 S.E.2d 767 (2025), before deciding. It is the Court’s most recent word on the subject, it came out of Charleston County, and it went against the insured.
Hood had pursued an underinsured motorist claim and then sued her own insurer, arguing among other things that it should have offered the full amount of its reserve, or its full settlement authority, to resolve the UIM action. The Supreme Court disagreed on every point. It held that the insurer “defended the UIM Action in a manner clearly contemplated by statute,” that it “was not obligated to offer Hood the full amount of its reserve, nor was it obligated to offer the full amount of its settlement authority,” that no negligence action lay against the insurer, and that the bad faith action “under these facts was wholly without merit.”
Read that as a boundary, not a discouragement. A genuine bad faith claim is still actionable in South Carolina and Nichols is untouched. What Hood settles is that hard bargaining inside the statutory scheme is not bad faith, and that an insurer’s internal reserve figure is not a number it owes you.
What bad faith is not
An insurer is allowed to disagree with you. A claim genuinely disputed, properly investigated, and then denied on a reasonable basis is not bad faith, however frustrating the outcome. After Hood, neither is declining to offer a reserve amount or exhausting settlement authority.
That cuts only so far, though, and it is worth knowing where the line is. An insurer cannot win simply by pointing at its own file. In Varnadore v. Nationwide Mutual Insurance Co., 289 S.C. 155, 345 S.E.2d 711 (1986), a Jeep was destroyed by fire, the insurer paid the lienholder but refused the owner’s share on the basis that the fire was arson, and argued at trial that its own investigation had given it a reasonable basis to deny. The Supreme Court was blunt:
This position is not tenable. First, it binds the insured to the findings and conclusions of the insurer’s own independent investigation; next, it effectually insulates the insurer from liability; and, finally, it forecloses a jury consideration of the insured’s evidence of bad faith.
The jury’s verdict for the insured — three thousand dollars in actual damages and fifty thousand in punitive damages — was affirmed. So a denial dressed up in a file of the insurer’s own making is not the end of the argument. Your evidence of how the claim was actually handled still goes to a jury.
The behaviours that support a claim are about process rather than outcome: refusing to investigate, ignoring evidence the insured supplied, misrepresenting policy terms, unexplained delay, or an offer with no relationship to the documented loss.
If your dispute is at the offer stage rather than the denial stage, see our post on next steps after rejecting an insurance settlement in South Carolina.
What to do while the claim is open
Do not sit on it either. A bad faith claim carries a filing deadline like any other, and South Carolina has never squarely settled whether the action is classified as a tort or on the contract for limitations purposes. That is not a question you want to be arguing about late. Treat the deadline as short and take advice early.
- Put requests and responses in writing, and keep the whole file. The claim file is the evidence.
- Ask in writing for the specific policy provision the insurer is relying on to deny or limit payment.
- Note the dates — a timeline of silence is often the clearest thing a jury sees.
- Keep supplying documentation even when it feels pointless. An insured who met every request is a stronger claimant.
- Do not sign a release while the bad faith question is unresolved.
Frequently asked questions
Can I sue my own insurance company in South Carolina?
Yes. Nichols v. State Farm recognised a tort action for an insurer's bad faith refusal to pay first-party benefits under the policy's implied covenant of good faith and fair dealing.
Is a low offer automatically bad faith?
No. A genuine dispute about value, reasonably investigated, is not bad faith. What moves an offer toward bad faith is an absence of investigation or a figure with no reasonable relationship to the documented loss. Hood v. United Services Automobile Association (2025) confirms an insurer is not required to offer its reserve or its full settlement authority.
What can I recover beyond the policy limits?
Nichols holds the insurer liable in tort “for all consequential damages,” and that actual damages “are not limited by the contract.” What that means in a particular case depends on the loss the insurer's conduct caused.
Does this apply to the other driver's insurer?
The first-party action in Nichols concerns your own insurer under your own policy. The older Tyger River line addresses an insurer's refusal to settle within limits on behalf of its own insured. Neither creates a general duty of good faith running from an opposing party's carrier to you.
Has anything changed recently in South Carolina?
In January 2025 the Supreme Court decided Hood v. United Services Automobile Association, which found for the insurer and clarified that a carrier is not required to offer its reserve or its full settlement authority to resolve a claim. Nichols still stands and genuine claims remain actionable — Hood sharpens the line rather than moving it.
Talk to a South Carolina insurance attorney
If your own carrier has stopped explaining itself, the claim file usually tells the story. Klok Law Firm handles insurance and injury claims in Charleston, Mount Pleasant, Berkeley, and Dorchester counties. Call Klok Law at (843) 701-1695 to discuss your options.
This article is for general information only and is not legal advice. For advice about your specific situation, contact Klok Law at (843) 701-1695.