The U.S. Fourth Circuit Court of Appeals recently reversed a district court’s set-aside of a jury verdict that an insurer acted in bad faith when settling underlying lawsuits against its insured, finding that the insurer did not need to have caused actual damages to be liable for punitive damages under South Carolina law. Liberty Mutual Fire Ins. Co. v. JT Walker Industries, Inc.,2014 WL 504086 (4th Cir. Feb. 10, 2014).

The insured window manufacturer was sued in five lawsuits alleging defective manufacturing and installation of windows and doors that led to progressive water damage in condominium developments. The insured tendered the lawsuits to its insurer, which eventually settled each of the suits for less than the policy’s deductible. After the insured refused to pay the costs of the settlements out of its deductible on the basis that it did not desire the settlements, the insurer brought suit for breach of contract. The insured counterclaimed, alleging breach of contract and breach of implied covenant of good faith and fair dealing. A jury found both parties liable for contractual damages, and found the insurer liable for actual and punitive damages on the bad faith claim, finding that the insured failed to prove actual damages and, as a result, was not entitled to punitive damages. Both parties appealed. 

After affirming the district court’s ruling that the insured failed to prove actual damages on its bad faith claim, the Fourth Circuit reversed the lower court’s decision setting aside the punitive damages verdict, finding that the absence of ascertainable damages does not necessarily preclude punitive damages under South Carolina law where the jury finds a party liable for punitive damages. Remanding the case to the district court, the Fourth Circuit ordered the judge to consider whether the evidence supported the jury’s finding that the insurer engaged in willful, wanton or reckless conduct.