Bad Faith Litigation in Therese Hood v. United Services Automobile Association
On January 8, 2025, the South Carolina Supreme Court announced its decision in the case Therese Hood v. United Services Automobile Association (USAA), App. Case No. 2023-000423, a case that clarified key aspects of bad faith litigation while warning against the risks of overreaching claims in bad faith cases. The decision arose from a multi-car accident in which Hood, a USAA policyholder, pursued claims against her underinsured motorist (UIM) insurer. Hood alleged that USAA acted negligently and in bad faith during the handling of her UIM claim. Specifically, she argued that USAA failed to offer its full settlement authority during mediation, took inconsistent positions across two related lawsuits, and caused her emotional distress through aggressive litigation conduct.
Although a jury awarded Hood damages for negligence, including $49,042.20 in compensatory damages and $250,000 in punitive damages, the trial court granted judgment notwithstanding the verdict (JNOV). The court held that negligence could not serve as an independent cause of action for a first-party insured, a ruling subsequently affirmed by the South Carolina Court of Appeals and, ultimately, the South Carolina Supreme Court. The Supreme Court’s decision establishes that negligence claims are not available in first-party insurance disputes, narrowing the legal remedies available to policyholders.
First-Party Insurers and Negligence Claims
A central issue in the case was whether a first-party insured could pursue negligence claims alongside bad faith claims. The court unequivocally held that South Carolina law does not recognize negligence as a standalone cause of action in this context. Instead, disputes between policyholders and insurers must be brought under contract law or bad faith. While evidence of negligence may be relevant to proving bad faith, it cannot form the basis of an independent claim. The Court emphasized that by eliminating negligence claims in the bad faith arena, it eliminates duplicative claims and maintain the distinction between contract and tort remedies in insurance disputes.
Hood also argued that USAA acted in bad faith by failing to disclose its full settlement authority during mediation. She claimed that had USAA disclosed its full authority of $250,000, the matter would have been resolved without litigation. The court rejected this argument, finding that insurers are not legally obligated to disclose reserves or settlement authority during mediation. The court emphasized that mediation is an adversarial process in which insurers are entitled to protect their negotiation strategies, provided they act reasonably and in good faith.
Bad Faith Positions in Separate Cases
Another key issue involved USAA’s alleged inconsistency in taking different positions in two related lawsuits. In one case, where USAA defended Hood under her liability policy in a suit brought by a third party, USAA argued that Hood’s headlights were on at the time of the accident. In a subsequent UIM action brought by Hood, USAA contended that her headlights were off, a position that benefited USAA’s defense. The court rejected Hood’s claim that this amounted to bad faith, noting that USAA, as a litigant, had the right to assert reasonable positions in separate cases. The court further observed that Hood herself conceded in the UIM trial that her headlights were off, effectively undermining her own claim against USAA. This means that counsel assigned by insurers in different lawsuits may take different positions because the interests of the represented parties may differ. Insurers can do so without fear of subjecting the insurance carrier to bad faith.
The Hood decision is a win for insurers. By ruling out negligence as a viable claim for first-party insureds, the court narrowed the scope of potential causes of action, ensuring that bad faith remains the exclusive tort remedy in such disputes along with other contract claims. This clarification benefits insurers by reducing exposure to overlapping claims. Also, the court’s refusal to impose a duty on insurers to disclose settlement authority during mediation allows insurers to continue taking strategic measures to protect their interest without fear of being penalized for failing to reveal internal evaluations or internal limits, so long as they act reasonably and in good faith. This ruling also recognizes insurers’ rights in litigation. By affirming USAA’s ability to take differing positions in separate lawsuits, the Court recognizes that insurers are entitled to defend their interests, even when those interests may conflict across cases.
Legal Framework Between Policyholders and Insurers
Ultimately, the Supreme Court’s decision in Hood v. USAA clarifies the legal framework governing disputes between policyholders and insurers, reaffirming the distinction between contract and tort claims. For policyholders, this decision solidifies that there is no negligence claim against its own insurer, there is only bad faith and contract claims.
