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Insurance Law
University of South Carolina School of Law
Jedziniak, Lee P.

Insurance
Prof. Jedziniak
Fall 2012
 
Suits in Tort
•   Tort, an accident to trigger damages owed to an injured third-party
•   Indemnity, for those damages owed to the injured third-party by the insured, under an automobile liability insurance policy [which includes the Policy booklet, the Declarations Page, and any Endorsements] •   Liability for negligence arises for:
•    1. a duty, and the judge determines, as a matter of law, whether or not the law recognizes a particular duty, e.g., reasonable person, negligence per se, strict liability, landowners’, and products’;
•   2. a breach of that duty by negligent act or negligent omission;
•   3. proximate cause
•   i. cause-in-fact: but for, and
•   ii. legal cause: an injury is foreseeable; and
•   4. damages
•   Affirmative defense of modified comparative negligence under the 50/50 or not-greater-than or equal-to-or-less-than or 51% bar rule, directing that the plaintiff’s negligence must not be more than 50% in order for the plaintiff to recover.
 
Damages
•   Damages, consider that actuals and punitives are covered by automobile liability insurance policies under 38-77-30(4):
•   1. actual damages, must be liquidated, by a preponderance of the evidence:
•   special or economic actual damages must be specifically alleged, quantifiable out-of-pocket losses, including (i) incidental and (ii) consequential damages
•   general or noneconomic damages can be made by a general averment of damages, such as for physical or emotional pain and suffering, with a manifestation of physical harm capable of objective diagnosis; loss of consortium; loss of companionship; disfigurement; loss of reputation; loss or impairment or mental of mental or physical capacity; (hedonistic) loss of enjoyment of life; fear and anxiety based upon a doctor’s information of a substantial probability of worsening physical conditions and disability and possible future medical treatments that the plaintiff was made aware-of, etc., and, or
•   nominal damages are small amounts of money, for example, an award of one dollar, awarded: (1) to find that the plaintiff’s cause was right, but that the plaintiff has suffered no tangible loss or injury; or (2) the plaintiff has suffered a loss or injury, but has failed to prove the amount of damages. Nominal damages are used:
•   (i) as a basis for collecting punitive damages
•   (ii) as a basis for collecting attorney’s fees;
•   (iii) in “fighting for a cause” cases, such as alleged violations of constitutional rights, including freedom of speech; or
•   (iv) if the judge concludes that some amount has to be awarded to ensure finality
•   2. punitive or exemplary damages are awarded only
•   with the award of actual or nominal damages
•   upon a finding of clear and convincing evidence (15-33-135)
•   of reckless, wanton and willful conduct (The act is in disregard of a high and excessive degree of danger, known or apparent to a reasonable person; not just an innocent mistake or an error of judgment, but a present consciousness of wrongdoing; with no reasonable grounds for conduct.) as
•   (i) punishment of the defendant’s recklessness, wantonness, or willfulness,
•   (ii) deterrence of similar future conduct by the defendant and others, and
•   (iii) vindication, compensation for the reckless, wanton, and willful invasion of the plaintiff’s private right.
 
Basic Liability Insurance
I.        Introductory Information
A.    Insurance is commerce, but the Karen McFerguson Act allows insurance to be regulated by the state.
B.    In South Carolina, automobile insurance developed as a matter of public policy. A lot of accidents developed after S.C. underwent major infrastructure improvements.
1.     Is a way to mandate financial responsibility for the individuals who drive on S.C. roads
II.       Financial Responsibility and the State of South Carolina’s automobile liability insurance policy coverages:
A.     Liability to injured third-parties for Bodily Injury, or BI, and Property Damage, or PD, of minimum financial responsibility split limits of 25/50/25 [per-person BI/ two-or-more-persons BI/PD], as required by 38-77-140
1.     with the two-or-more-persons 50 limit being subject to the per-person liability 25 sub-limit
2.     consider Combined Single Limits, or CSLs, of 75
3.     the insured, at the option of the insurer, based upon its own underwriting decisions, may purchase more liability coverage
a)      However, when an insurance company sells automobile insurance in S.C., it must provide the minimum limits of 25/50/25
4.     limits discovered under SCRCP Rule Number 33(b)(4) or FRCP Rule Number 33, or following January 1, 2012, disclosure of limits may be required under 38-77-250
5.     self-insurers must provide minimum liability limits. Not, that individuals, can self-insure and [attempt to] absorb any losses, but states generally prohibit businesses from self-insuring commercial risks, unless certain requirements are met by the business as a “self-insured,” e.g., under 56-9-60, 25 or more vehicles, register with the DMV, provide proof of meeting minimum financial liability requirements for each vehicle.
III.      [first-party] Built into every insurance policy is Uninsured Motorist Coverage, or UM, required by 38-77-150, with limits of 25/50/25, triggered by damage done to the insured by an at-fault automobile that:
A.    is illegally uninsured;
B.    is legally uninsured;
1.     When the individual has chosen to pay the DMV $550
2.     Fatal flaw is that the driver is not protected
C.    upon which there is liability coverage, but which the liability insurer successfully denies [e.g., a non-permissive driver];
D.    is a hit and run vehicle
1.      These drivers referred to as a “Phantom Driver” or John Doe
E.    has coverage provided by an insolvent insurer;
F.    has less than 25/50/25 in liability limits [recover the at-fault vehicle’s limits, then UM] but, note, extensions provided by the at-fault’s out-of-state coverage policy provision
1.      An at fault driver comes from a state with minimum limits that are less than S.C.’s.
G.    A $200.00 UM deductible is allowed by 38-77-150(a) [“exclusion of the first”] H.    Self-insurers must provide basic UM of 25/50/25.
I.      The injured party must provide notice to his own insurer that he’s making a UM claim by serving the insurance director or insurance commissioner
1.     Notice is provided so that the insurer may come in and defend the uninsured driver.
IV.     [first-party][optional] Additional UM shall be offered, under 38-77-160, up to the purchased liability limits
V.      [first-party][optional and not automatically built-in] Underinsured Motorist Coverage, or UIM, triggered by damage done to the insured by an at-fault automobile, shall be offered, under 28-77-160, up to the purchased liability limits
A.    distinguish, this state’s limits-to-damages or excess approach, required by 38-77-30(15) and 38-77-160, from the limits-to-limits or reduction approach, under which recovery if offset by at-fault driver’s liability limits
1.     Limits to Damages Test (Excess Approach)
a)      if damages exceed the limits of the at-fault driver, can take from UIM insurance
b)    Notice must be served on insurer
c)     Insurer has the ability to come in and defend against insured’s claim for UIM
2.     Limits to Limits Test (Reduction Approach)
a)      Compare the liability limits of an at-fault driver to uninsured motorist limits. Insured will only get the difference [subtract at-fault driver’s limits from the UIM available to the insured] B.    in a minority of other jurisdictions, an insurer may insert an exhaustion clause requiring full payment of the at-fault’s driver’s liability limits, as a condition precedent, under which no UIM coverage is triggered by full payment of the at-fault’s driver’s liability limits. The State of South Carolina has adopted a constructive exhaustion clause by concluding that the injured-party may settle with the at-fault driver’s liability insurer and “absorb the gap” and then seek his own UIM coverage if his damages exceed the at-fault driver’s liability limits.
C.    No UM or UIM is required in umbrella or excess policies in the State of South Carolina under 38-77-161
D.    Additional UM and UIM benefits are not subject to assignment or subrogation.
E.    Service, in a suit against an at-fault party, must also be made upon the UM or UIM insurer if such coverage will be south
VI.     [optional] Physical Damage Coverage, PHD
A.    Collision and Upset
1.     When the insured runs into something and it’s the insured’s fault
2.     Actual cash value and not replacement costs
B.    Comprehensive, but note the “zero glass deductible” in four states, including the State of South Carolina
1.     Covers anything else
C.    Guaranteed Auto Protection, or upside-down cover
VII.    first-party no-fault optional personal injury protection, offered as PIP, EL or Med Pay
A.    This type of coverage was once used to finance lawsuits, but this was ended when the court held that it was unethical for attorneys to take contingent fees from PIP.
B.    Insurance companies were able to lobby so that PIP would not longer be mandatory
C.    Med Pay is available “as long as you’re sitting in the car.”
 
Phantom Driver “John Doe” Actions
•   Seeking first-party UM and additional UM as a result of a Phantom Driver’s liability, for hit-and-run accidents caused by John Doe.
•   A three-part test for uninsured motorist coverage is mandated under 38-77-170, which was enacted to provide statutory safeguards to protect insurers from fraudulent claims:
•    1. reported to the police within a reasonable-time [currently, one case stating that eight months to report is too long];
•   2. physical contact or [even without contact] an affidavit of a witness, who is {disinterested} not the owner or the operator, attesting to the facts, with a statutory fraud warning statement
•   Note, the statutory intent underlying the affidavit: fraud prevention, good faith notice for making the claim, prior notice to the insurer for claim’s evaluation, and prior notice for meaningful cross examination; and
•   2. the injured driver is not negligent in determining the identity of the phantom vehicle or phantom driver.
•   Cases
•    Collins v. Doe, 352 S.C. 462 (2002)
•    “The legislature unambiguously required that a plaintiff seeking to recover

pp.2d 644 (2005).
•   Issue of whether a policy of automobile insurance issued to the decedent provides coverage with regard to insured’s strangulation – whether her death arose out of the ownership, maintenance and use of the vehicle in which she was strangled.
•   Court applies the Aytes three-part test
•   Finds that no causal connection exists. The vehicle was merely the site of the injury and not  an active accessory.
•   Even if a causal connection did exist, it was broken by an act of independent significance. Both parties exited the vehicle in the middle of the road to argue before the car was driven behind a church. Causal connection broken by Oliver’s stangulation of Ms. Lain even though Oliver may not have gotten out of the car before strangling her because the assault arose from an act of independent significance.
•   The vehicle was not being used for transportation
•   Johnson v. Hunter, 386 S.C. 452 (2010)
•   Plaintiff attempted to argue that he was involved in two accidents instead of a single accident so that the insurer would have to pay for two occurrences
•   He sued the defendant for negligence seeking to recover under his own underinsured motorist coverage, but the trial court found the events constituted one accident and limited plaintiff’s recovery to the maximum allowed for “each accident” under the policy.
•   The UIM coverage under the policy sets limits for “each accident”
•   Court evaluates situation under the “causation theory”
•    under the cause approach, the insured’s single act of negligence is considered the occurrence from which all claims flow.
•   Courts uniformly find a single accident if cause and result are so simultaneous or so closely linked in time and space as to be considered by the average person as one event.
•   The word “accident” means a single, sudden, unintentional occurrence and is used to describe the event no matter how many persons or things are involved.
•   Note that while timing is frequently a part of the analysis, the courts place the most emphasis on whether or not one source of negligence set all the subsequent events in motion.
•   The question of whether a single accident occurred under the causation theory will turn on the particular facts of each case.
•   McPherson By and Through McPherson v. Michigan Mut. Ins. Co., 310 S.C. 316 (1993)
•   CGL policy included an automobile exclusion (was an exclusion because the police cars already had coverage)
•   Note that where the words of a policy are capable of two reasonable interpretations, that construction will be adopted which is most favorable to the insured
•   For the purpose of construing an exclusionary clause in a general liability policy, “arising out of” should be narrowly construed as “caused by.”
•   The injuries caused by the use of the patrol car were not covered under the policy 
•   The plaintiff’s injuries arose out of Charleston’s ownership of an automobile and are excluded from the coverage of Charleston’s general liability policy.
 
 
Who is an Insured
•   For automobile liability insurance policies, who is an insured –
•   Note, that, being designated as the owner or the operator does not create a “named insured”
•   1. by specific designation, within the policy as the “named insured,” or
•   2. by description, under 38-77-30(7), within the policy’s omnibus  clause.
•   Omnibus Clauses in liability policies “bring many together in a single unit” and extend coverage to individuals in addition to the named insured, determining who is insured by the policy:
•    1. Class 1 insureds, including the named insured, resident spouse, and a resident relative (can be relative of either named insured or spouse), and
•   2. Class 2 insureds, including a permissive driver and a guest.
•   Purpose of the omnibus clause extensions of coverage in automobile liability insurance policies:
•    protect the public by ensuring liability coverage for at-fault automobiles;
•   protect the occasional and routine permissive drivers by providing coverage, and
•   protect the named insured from lawsuit and personal liability by providing coverage and the occasional and routine permissive drivers.