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Peterson v. West American Insurance Co.6/1/1999
ion renders any attempted cancellation of the policy within sixty days of issuance invalid. While Peterson's assertions may be true, Peterson's argument ultimately fails because we find Walker cancelled the policy more than sixty days after its issuance.
West American issued Walker's policy on November 23, 1990. On February 15, 1991, Walker sought to cancel the policy retroactive to November 23, 1990, the date of issuance. On February 25, 1991, West American issued Walker a cancellation notice and a premium refund. We hold Walker's policy effectively terminated on February 25, 1991, the date West American issued the premium refund and cancellation notice. Although the cancellation notice lists November 28, 1990, as the termination date, West American did not actually terminate the policy until it refunded Walker's unearned premium and issued the cancellation notice on February 25, 1991. Back-dating the termination date only afforded Walker a larger premium refund and did not absolve West American of any liability until the cancellation notice was issued on February 25, 1991.
Furthermore, Walker's policy permits cancellation by returning the policy to West American. Walker returned the policy to West American on February 15, 1991, more than sixty days after West American issued the policy. Therefore, the policy and corresponding statutory provision did not preclude Walker from effectively canceling her policy prior to the date of the accident.
III. Did coverage apply because the alleged negligent entrustment occurred when the policy was in effect?
Peterson lastly argues Walker negligently entrusted her car to Galloway on November 27, 1990, which is before the purported cancellation date of November 28, 1990 used by West American. Peterson contends the date of negligent entrustment as alleged in the underlying complaint was therefore within the period the policy was in effect. Consequently, Peterson contends West American should have provided a defense to Walker and essentially asserts that West American acted in bad faith by refusing to perform its duty to defend as required by the terms of the policy.
"Where an insurer refuses to undertake the defense of an action against the insured based upon a claim within the coverage of the insurance policy, it thereby breaches the contract of insurance and is liable to the insured for all damages resulting to such insured as a direct result of such refusal and breach." Fuller v. Eastern Fire & Cas. Ins. Co., 240 S.C. 75, 89, 124 S.E.2d 602, 610 (1962) (holding automobile insurance carrier liable for damages resulting from refusal to defend an action within the coverage of the policy). Liability is predicated on the existence of a valid contract of insurance coverage. Id.
In addition, every contract carries with it a covenant of good faith and fair dealing in the processing of a claim under a mutually binding insurance contract. Tadlock Painting Co. v. Maryland Cas. Co., 322 S.C. 498, 473 S.E.2d 52 (1996) (recognizing a cause of action for an insurance company's bad faith handling of third party benefits and holding that a bad faith claim may exist even in the absence of the breach of an express contractual provision). See also Nichols v. State Farm Mut. Auto. Ins. Co., 279 S.C. 336, 340, 306 S.E.2d 616, 619 (1983) (court recognized bad faith action in processing of first party benefits, holding "if an insured can demonstrate bad faith or unreasonable action by the insurer in processing a claim under their mutually binding insurance contract, he can recover consequential damages in a tort action").
To establish a bad faith claim against an insurance company, the plaintiff must show: (1
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