1.3 Unfair Claims Settlement Practices Act & SCDOI Enforcement

To protect insurance consumers from bad faith conduct, arbitrary denials, and unreasonable delays, South Carolina enacted the Unfair Claims Settlement Practices Act, codified under S.C. Code § 38-59-20. This statute governs the conduct of insurance companies, independent adjusting firms, staff adjusters, and public adjusters operating within the state.

Core Legislative Intent & General Business Practice Standard

The primary purpose of S.C. Code § 38-59-20 is to establish clear statutory boundaries for claims evaluation, investigation, and settlement. The statute targets deceptive, coercive, or dilatory practices. Under South Carolina law, an insurer or adjuster violates the Act if it commits prohibited acts knowingly or with such frequency as to indicate a general business practice.

Statutory Response & Investigation Timelines

South Carolina regulations establish precise statutory timelines to ensure prompt handling of first-party and third-party insurance claims:

1. 15-Day Communication Acknowledgment: An insurer or adjuster must acknowledge receipt of a notification of claim within 15 calendar days after receiving notice, unless payment is made within that timeframe.
2. 15-Day Claim Form Provision: Upon receiving notice of a claim, the insurer or adjuster must furnish the claimant with appropriate claim forms, instructions, and reasonable assistance within 15 calendar days.
3. 15-Day Investigation Commencement: Adjusters must commence an active investigation into the loss within 15 calendar days of receiving notice of claim.
4. 30-Day Decision & Payment Rule: Insurers must complete their investigation and affirm or deny coverage within 30 calendar days after receiving properly completed proofs of loss. If an insurer requires additional time to investigate a complex loss, it must provide written notice to the claimant explaining the necessity for delay within 30 days, and every 45 days thereafter until a decision is finalized.

Prohibited Unfair Settlement Practices under S.C. Code § 38-59-20

S.C. Code § 38-59-20 enumerates specific actions that constitute unlawful claims practices when committed intentionally or as a general business practice:

• Misrepresentation of Policy Coverage: Knowingly misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue to policyholders or claimants.
• Failure to Acknowledge Communications: Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies.
• Failure to Adopt Reasonable Standards: Failing to adopt and implement reasonable standards for the prompt investigation and settlement of claims arising under policies.
• Refusal to Pay Without Reasonable Investigation: Refusing to pay claims without conducting a reasonable investigation based upon all available information.
• Failure to Affirm or Deny Coverage: Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed.
• Compelling Unreasonable Litigation: Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear, thereby compelling insureds or claimants to institute litigation to recover amounts due.
• Offering Substantially Less Than Recovered Amounts: Compelling policyholders to institute suits to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in suits brought by policyholders.
• Unreasonable Document Demands: Attempting to settle a claim on the basis of an application that was altered without notice to, or knowledge or consent of, the insured.
• Failing to Provide Explanation for Denial: Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.

SCDOI Enforcement Process & Administrative Hearings

When the South Carolina Department of Insurance receives a consumer complaint or detects potential unfair claims practices during a market conduct examination, the Director initiates a formal administrative enforcement process:

1. Investigative Demand & Subpoena: The SCDOI Fraud & Enforcement Division examines claim files, adjuster log notes, and correspondence. The Director may compel production of documents and witness testimony.
2. Notice of Hearing: If evidence demonstrates a violation of § 38-59-20, the Director serves a formal Notice of Hearing upon the insurer or adjuster, detailing specific charges and scheduling an administrative hearing.
3. Administrative Hearing: Hearings are conducted in accordance with the South Carolina Administrative Procedures Act (APA). The insurance carrier or adjuster has the right to legal counsel, cross-examination of witnesses, and presentation of evidence.
4. Cease-and-Desist Orders: Upon establishing a violation, the Director issues a Cease-and-Desist Order directing the respondent to immediately halt the prohibited claims practices.

Penalty Structure & Monetary Sanctions

In addition to issuing cease-and-desist orders, the Director possesses statutory authority to levy severe administrative penalties under Title 38:

Impact on Adjuster License

If an individual adjuster engages in willful unfair claims practices or assists an insurer in deceptive settlement tactics, the SCDOI Director may revoke or suspend the individual adjuster's license independently of sanctions imposed on the insurance company.