The South Carolina Property and Casualty Insurance Guaranty Association Act and Further Guidance on Statutory Interpretation

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The South Carolina Property and Casualty Insurance Guaranty Association (the Guaranty) is an unincorporated nonprofit entity created pursuant to the South Carolina Property and Casualty Insurance Guaranty Association Act (the Act). The purpose of the Guaranty is to provide a degree of protection to insureds whose carriers become insolvent. Upon an insurer’s insolvency, the Guaranty assumes the position of the insurer to the extent of the insurer’s obligation relative to covered claim; its liability is derived from that of the insolvent carrier’s liability to the insured. The Guaranty’s origin is purely statutory; therefore, its liabilities and duties are controlled by the Act. The Act provides, among other things, the Guaranty’s obligation to pay is limited to $300,000 per claim. The South Carolina Supreme Court recently reviewed the Act and the resulting obligation of the Guaranty, on Writ of Certiorari, providing guidance on the basic tenants of statutory construction. Buchanan, et al v. The South Carolina Property and Casualty Insurance Guaranty Association. 2018 WL 4212101 (September 5, 2018).

Buchanan arises from a fatal accident. The decedent’s co-personal representatives originally filed a wrongful death claim against several defendants, one of which was insured by a carrier that became insolvent during the action. The parties reached an agreement as to settlement of the claim, stipulating as to the damages at $800,000. The sum of $376,622 was paid to the claimants. The parties agreed that sum was the proper setoff amount. Thus, the remaining question was whether the settlement amount was offset from the $800,000 total settlement or from the $300,000 statutory obligation of the Association. The co-personal representatives filed a declaratory judgment action seeking an order requiring the Guaranty to pay the full $300,000, asserting the Act provides the set-off is made from the amount of settlement. The Guaranty responded, arguing the set-off is first applied to the overall claim. In this instance, that would reduce it from $800,000 to $300,000, leaving no obligation for the Guaranty after set-off. The trial court ruled in favor of the co-personal representatives, which ruling was affirmed by the Court of Appeals and now upheld by the Supreme Court. Admittedly a topic of interest to a finite group of readers, the court’s application of statutory interpretation, previously addressed by this writer, is noteworthy.

The Act defines a covered claim as one that is unpaid, which arises from and is within and subject to the applicable limits of a policy subject to the Act. The Act also provides any “amount payable” on a covered claim under the Act shall be reduced by the full limits of other coverages and the association shall receive credit for such limits, or if no applicable limits, the claim must be reduced by the total recovery. The phrase any “amount payable” is not defined in the Act. Consequently, legislative intent is crucial. In its analysis, the court acknowledged it cannot eradicate the meaning of the whole context in order to give effect to particular words. Thus, reading the Act in its entirety, and cognizant of its purpose, the court concluded the reasoned interpretation is the “amount payable” refers to the claimant’s overall damages and not the Guaranty’s obligation on a covered claim. Recognizing the purpose of the Act is to provide some relief to an insured claimant and not necessarily to make it whole in every instance, the court referenced the inherent limitation in the Act. Additionally, the court could not reconcile the purpose of the Act with the result of the Guaranty’s argument; that the General Assembly would allow complete elimination of a seriously insured claimant’s ability to recover from the Guaranty because his injuries and consequently his partial recovery from others, was great than $300,000.

Clarifying the court’s power, the concurring opinion pointed out a critical principle of statutory interpretation. In choosing between its own conflicting decisions, deciding novel questions of law or deciding questions certified from other courts, the court may turn to its sense of justice. However, in the instance of statutory interpretation the application of that principle is inappropriate. Rather, the court must engage recognized principles of statutory interpretation with the clear purpose of determining legislative intent; the court does not have the liberty to engage in construction that results in what it deems to be just and right.  

While this opinion may have limited applicability to the average practitioner, the court’s additional guidance on statutory interpretation provides practical knowledge.