Denial of Claim Based on Two Exclusions is Deemed to Not Necessarily be Bad Faith

 

Nov 12, 2018

A South Carolina appellate court has upheld a trial court's decision granting summary judgment to a bar against its insurer on a breach of contract claim, and determined that the case would go to a jury to determine whether the insurer had acted unreasonably in denying coverage for a lawsuit against the bar. The case is Three Blind Mice, LLC v. Colony Ins. Co., No. 2018-UP-402, 2018 S.C. App. Unpub. (Ct. App. Oct 31, 2018).

A guest of the Three Blind Mice, LLC doing business as the Blind Horse Saloon sued the business alleging that a person whose identity is unknown, was playing a boxing arcade game inside the bar and had inadvertently struck her and knocked her unconscious.

 

The Blind Horse Saloon took the complaint to Colony Insurance Company, who provided Blind Horse Saloon with their Commercial General Liability policy. Colony denied coverage based on two exclusions, “assault, battery or assault and battery” and “athletic or sports participants” exclusions. The Blind Horse sued for breach of contract and bad faith. The trial court granted summary judgment on both claims for The Blind Horse and Colony appealed.

 

The appellate court affirmed the summary judgment on the breach of contract claim but reversed the decision for summary judgment on the bad faith claim. The appellate court found that because the harmful result had not been intended by the punching bar patron, the assault and battery exclusion did not apply and the CGL policy initially provided coverage for the claim. The court also found that both of the exclusions in the policy were ambiguous and did not exclude the breach of contract claim. The appellate court found, though, that the trail court should not have granted summary judgment on the bad faith claim. The way the court saw it, although there was a breach of contract, nothing indicated that Colony had acted unreasonably in its actions.

 

Editor's Note:

Summary judgment is a court ruling that no other factual issues are left to be tried, and a cause of action can be decided upon the facts alone and not be taken to trial. In this case, the appellate court found that there were enough facts that both parties agreed upon to determine that there had been a breach of contract by Colony when they denied The Blind Horse's claim. The court did not, however, find that there were enough facts to indicate that Colony had acted unreasonably in denying the claim.

The appellate court stated that “the elements of a bad faith claim under a contract for insurance are 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; [and] 4) causing damage to the insured.” The important language in this section is the “unreasonable action” bit. The court found that the initial denial of the claim was not necessarily an “unreasonable action” so it would have to be up to a jury to determine whether or not Colony acted in bad faith in their denial of the claim.