South Carolina High Court Clarifies Uninsured Motorists, Liquor Liability Laws

The South Carolina Supreme Court on Wednesday handed down three opinions that resolve two questions about insurance law. One decision will probably disappoint auto insurers; the other will please carriers in the liquor liability line.

In two separate decisions, the high court ruled that auto insurers may not limit uninsured motorists coverage for property damage only to “covered automobiles.”

In a third ruling, the court held that the victim of an accident caused by a drunken driver has no cause of action against an insurer that did not notify state regulators, as required by law, when a policyholder failed to renew liquor liability coverage.

The question about uninsured motorist coverage was brought before the Supreme Court in separate lawsuits involving USAA Casualty Insurance Co. and Nationwide Affinity Insurance Co. of America.

In USAA v. Rafferty, the U.S. District Court for South Carolina sent a certified question to the Supreme Court asking whether a personal auto insurer may decline coverage for damage to a policyholder’s bicycle caused by a crash involving an underinsured motorist.

On Sept. 8, 2019, Megan Jenkins, a 33-year-old high school counselor, was struck and killed by a car driven by Lindsay Walters while she rode her bicycle on the shoulder of Highway 78 in Dorchester County. Walters was cited for a traffic violation and arrested for possession of a controlled substance.

Jenkins’ personal representative, Vincent J. Rafferty Jr., filed a claim against an insurance policy that USAA had issued to cover Jenkins’ 2013 Toyota Corolla, which had a $100,000 limit for property damage. Rafferty sought coverage for damage to Jenkins’ bicycle even though the policy stated it covered damages only to “covered automobiles,” meaning vehicles listed on the policy declarations page or recently purchased.

USAA filed a lawsuit in federal court seeking a declaration that no coverage was owed for the bicycle damage. US District Court Judge David C. Norton found that South Carolina laws was unsettled and asked the Supreme Court whether an insurer can limit uninsured motorist claims for property damage to “covered automobiles.”

In a unanimous decision, the Supreme Court said no. The opinion says Section 38-77-160 of South Carolina statutes requires auto insurers to offer motorists uninsured and underinsured motorist coverage and makes no mention of limiting that coverage to covered vehicles.

The Supreme Court also ruled against Nationwide in a separate decision Wednesday, this one for a claim filed by Andrew Green.

Green was struck by an automobile while walking home from school. His mother, Shameika Clark, had an automobile insurance policy with Nationwide. She filed a claim seeking coverage for her son’s bodily injury and damage to personal property he was carrying.

Nationwide paid its policy limit for Green’s bodily injury, but denied the claim for property damage because coverage was limited to “covered autos.”

Citing its holding in Rafferty, the Supreme Court ruled that Nationwide could not limit uninsured motorists property damage claims to covered automobiles.

In the third case, the Supreme Court answered another certified question from Judge Norton, this one regarding an insurer’s liability if it fails to notify authorities that a policyholder that was required to carry a minimum of $1 million in liquor liability coverage fails to renew its policy.

The estate of Garland Denson brought the question to the high court through a lawsuit filed after Denson was struck and killed in an auto accident allegedly caused by a drunken driver who was reportedly “overserved” at a bar inside the Royal Lanes Entertainment Center in Goose Creek.

Anthony Denson, personal representative for the estate, sued National Casualty Co. after learning that the carrier had not reported to the South Carolina Department of Revenue that Royal Lanes had canceled a liquor liability endorsement was once added its general liability coverage. Insurers are required to give notice of lapses in liquor liability coverage by South Carolina statute section 61-2-145(C).

Denson’s estate filed a negligence action directly against National Casualty, arguing that the insurer was liable because it had failed to report that Royal Lanes had failed to renew its liquor liability coverage. Judge Norton sent a certified question to the state Supreme Court asking whether the failure to give notice provided a direct cause of action to Denson’s estate.

Three of the high court’s five justices ruled that no direct cause of action exists. The majority said there can be no liability under common law without a contract between the insurer and the plaintiff.

“As evidenced by the language of the statute, subsection (C) is part of a larger regulatory scheme intended to ensure that certain businesses maintain liquor liability insurance,” the opinion says. “This scheme is clearly intended to primarily promote the public safety and welfare, not to benefit a private party.”

Acting Justice Kaye G. Hearn wrote a dissenting opinion, which Chief Justice Donald Beatty joined. Hearn said the South Carolina Supreme Court has previously ruled that a private causes of action exists when it is implied by a statute. For example, a South Carolina law that prohibits businesses from serving alcohol to intoxicated patrons has been interpreted by the court to create a cause of action for persons harmed by an intoxicated patron of a bar, the dissenting opinion says.

“In my view, the requirements imposed upon National Casualty to notify the Department of any lapses in liquor liability coverage were intended to protect against the exact harm that Garland Denson and his estate suffered,” Hearn wrote.