Dziadek v. Charter Oak Fire Ins. Co.

• Decision Date: 30 September 2016
• Docket Number: 4:11–CV–04134–RAL
• Citation: 213 F.Supp.3d 1150
• Parties: Laura DZIADEK, Plaintiff, v. The CHARTER OAK FIRE INSURANCE COMPANY, d/b/a Travelers, Defendant.
• Court: U.S. District Court — District of South Dakota

213 F.Supp.3d 1150

Laura DZIADEK, Plaintiff,

v.The CHARTER OAK FIRE INSURANCE COMPANY, d/b/a Travelers, Defendant.

4:11–CV–04134–RAL

United States District Court, D. South Dakota, Southern Division.

Signed September 30, 2016

Michael C. Abourezk, Daniel E. Holloway, Abourezk Law Firm, Rapid City, SD, for Plaintiff.

Christopher W. Martin, Martin, Disiere, Jefferson & Wisdom, LLP, Houston, TX, Jonathan David Jay, Michael R. Cashman, Hellmuth & Johnson, PLLC, Edina, MN, Timothy A. Clausen, Klass Law Firm, LLP, Sioux City, IA, for Defendant.

OPINION AND ORDER ON POST TRIAL MOTIONS

ROBERTO A. LANGE, UNITED STATES DISTRICT JUDGE

Plaintiff, Laura Dziadek (Dziadek), sued Defendant, Charter Oak Fire Insurance Company, doing business as Travelers (Charter Oak), making claims sounding in contract and tort relating to a commercial insurance policy issued by Charter Oak (the Policy). Doc. 15. Dziadek's Amended Complaint asserted that she was entitled to declaratory judgments that she is an insured under the Policy's underinsured motorist (UIM) endorsement with Charter Oak owing her a duty of good faith and fair dealing, that $1,000,000 of UIM coverage for her exists under the Policy, and that she is an insured under the Policy's medical payments endorsement. Doc. 15 at ¶¶ 15–51. Dziadek further alleged that Charter Oak breached the insurance contract and engaged in unfair trade practices, fraud and deceit, and bad faith in its dealings with Dziadek. Doc. 15 at ¶¶ 52–95. She sought compensatory damages, punitive damages, and attorney's fees. Doc. 15 at ¶¶ 96–102; Doc. 15 at 13–14. Charter Oak acknowledged coverage after the lawsuit was filed and, on February 21, 2012, paid Dziadek $900,000 under the Policy's UIM coverage¹ and $5,000 under the Policy's medical payments coverage. After discovery, Charter Oak moved for summary judgment on all claims. Doc. 118. This Court granted summary judgment on the unfair trade practices claim but otherwise denied Charter Oak's motion. Doc. 153 at 28. The case proceeded to a jury trial in May 2016.

On May 27, 2016, the jury returned a verdict for Dziadek on the claims of deceit and breach of contract for UIM coverage. Doc. 300. The jury found for Charter Oak, however, on Dziadek's claims of breach of contract for medical payments coverage, insurance bad faith, and fraud. Doc. 300. The jury awarded prejudgment interest on the $900,000 of UIM coverage from December 15, 2009, on both the deceit claim and the breach of contract for UIM benefits claim, $250,000 for out-of-pocket expenses on the deceit claim, plus an additional $500,000 for "[a]ny other harm ... including mental and emotional harm."²

Doc. 300. The jury then, in phase two of the trial, returned a verdict for Dziadek on her punitive damages claim for $2.75 million. Doc. 305.

On May 31, 2016, this Court entered a preliminary judgment on the jury verdict, but identified three issues that required resolution: (1) whether Dziadek's declaratory judgment claims are now moot; (2) whether a 10% prejudgment interest rate or some different rate applies to calculate prejudgment interest; and (3) whether a deceit claim can support an award for "mental and emotional harm." Doc. 311. Both parties have filed briefs on the three issues discussed in the preliminary judgment. Charter also moved for judgment as a matter of law on the claims of deceit and breach of contract for UIM coverage, as well as the punitive damages award. Doc. 317. Charter Oak alternatively moved for a new trial on these claims. Doc. 318.

I. Summary of Facts

Charter Oak issued the commercial insurance policy at issue to Billion Empire Motors, Inc. (Billion), an auto dealership in Sioux Falls, South Dakota, for the period of July 1, 2008 to July 1, 2009. Pl.'s Ex. 25. The Policy included UIM and medical payments coverage. Pl.'s Ex. 25. Billion loaned one of its vehicles to a customer, Lori Peterson (Peterson), while her vehicle was in for repairs. Peterson and Dziadek took a trip together to the Black Hills, during which Dziadek stopped at a hospital to do some nursing work. On September 22, 2008, while returning from the Black Hills, Peterson lost control of the Billion vehicle in or near a construction zone on Interstate 90 in South Dakota, causing the vehicle to crash in a ravine. Doc. 313–6 at 22–28. Dziadek was a passenger in the Billion vehicle driven by Peterson and was very badly injured. Dziadek hired Jeffrey A. Cole (Cole) of Zimmer, Duncan, and Cole in December 2008 to represent her in matters stemming from that motor vehicle accident.

The Policy contained a provision titled, "Duties In The Event Of Accident, Claim, Suit Or Loss," which required the named insured, Billion, to provide notice of accident or loss. Pl.'s Ex. 25. Charter Oak³ received notice of the accident from Billion's insurance agent on January 29, 2009, and on that same day, Faith Styles (Styles), Charter Oak's claims representative, began to investigate. Def.'s Ex. 1034. Styles learned that Peterson was the driver in a single car accident and that Peterson may have fallen asleep while driving to cause the accident. Def.'s Ex. 1034. She also learned that Dziadek was a passenger in the car at the time of the accident, that Dziadek was seriously injured as a result of the accident, and that Peterson was insured under a Progressive Insurance Company (Progressive) policy. Def.'s Ex. 1034. Styles contacted a Progressive adjuster and learned that Peterson had a $100,000 liability coverage limit under the Progressive policy, that Dziadek was a nurse, and that Dziadek's medical bills already had exceeded $100,000. Def.'s Ex. 1034. Shortly thereafter, on February 2, 2009, Styles received information about Dziadek's injuries from Dziadek's sister, Mae Schafer (Schafer). Def.'s Ex. 1034. As a result of injuries from the accident, Dziadek's vocal cords were partially paralyzed so Schafer communicated with Styles on Dziadek's behalf. Def.'s Ex. 1034. Styles began referring to Dziadek as a "claimant" in her claims notes and assigned her a claim number. Def.'s Ex. 1034.

On February 6, 2009, Styles created a "Bodily Injury Worksheet" for Dziadek which included a liability analysis; she assigned 0% liability for Dziadek and Billion and 100% liability for Peterson. Def.'s Ex. 1095; Doc. 313–12 at 66. Styles spoke with Cole that same day. Def.'s Ex. 1034. Cole testified at trial that although he could not remember the exact words of his February 6, 2009 telephone conversation with Styles, Doc. 313–6 at 112; Doc. 313–7 at 87, he knew they discussed insurance coverage for Dziadek under the Billion Policy, Doc. 313–6 at 112, 116. A note Cole made while speaking with Styles recorded:

Garage Policy

Claim no coverage

Claim no excess coverage

Pl.'s Ex. 1; Doc. 313–6 at 113. Cole testified that he believed that Styles said there was no coverage of any kind for Dziadek under the Billion Policy. Doc. 313–6 at 114–116; see also Doc. 313–6 at 120. According to Cole, he was interested in any type of coverage for Dziadek; he therefore did not have any reason to focus on liability coverage only when speaking with Styles. Doc. 313–6 at 116, 120.

Styles met with her supervisor Tim Westbrook and an in-house coverage lawyer on February 12, 2009. Def.'s Ex. 1034; Doc. 313–11 at 94. According to Styles's testimony, the three Charter Oak employees determined that the Policy did not provide liability coverage for Peterson. Doc. 313–11 at 94.

Styles then wrote a letter to Cole that same day regarding "YOUR CLIENT: Laura Dziadek." Pl.'s Ex. 3. The letter stated:

We have reviewed the facts of this loss in conjunction with the policy issued to our insured and it is our determination that no coverage for your client exists under this policy. Under the terms of the policy, Lori Peterson's liability coverage would be primary. If she did not have insurance or if the limits of her policy were less than the minimum required limits for South Dakota, then she would qualify as an insured under our insured's policy at [sic] amount is $25,000. It is my understanding that Ms. Peterson had a liability limit of $100,000 so she would not qualify as an insured under this policy.

Pl.'s Ex. 3. Cole understood the letter as meaning that there was no coverage for Dziadek under any of the provisions in the Billion Policy. Doc. 313–6 at 119—20. Nevertheless, Cole sent Styles a letter on February 18, 2009, requesting the declaration sheet for the Billion Policy and "a true and correct copy" of the Policy itself. Doc. 313–6 at 121; Pl.'s Ex. 4. Styles sent Cole the declarations page, but only excerpts of the Policy defining an "insured" for purposes of liability coverage, together with a letter telling Cole to "pay particular attention to the pages which I have marked because they address the issue of 'who is an insured.' " Pl.'s Ex. 7; Doc. 313–11 at 116–17. Styles did not send Cole the Policy provisions on UIM or medical payments coverage that Dziadek actually met.

Cole testified that in his experience, he could trust that an insurance adjustor would send the applicable policy provisions when asked to do so. Doc. 313–7 at 36. He explained that he had never dealt with a commercial garage policy like the Billion Policy. To Cole, it made sense that the definition of an insured that Styles sent him applied to the entire policy. Doc. 313–7 at 39–40. Because Dziadek was not an insured under the definition of an insured Styles sent him, Cole did not follow up with Charter Oak at that time.

Progressive offered Peterson's $100,000 liability limits to Dziadek on February 24, 2009, in exchange for a full release. Pl.'s Ex. 6; Doc. 313–6 at 122—23. Cole declined the offer because Dziadek's medical bills already had exceeded $100,000, because Dziadek was receiving workers' compensation benefits, and because Cole was hopeful to collect more from Peterson, possibly from other alleged tortfeasors, and their insurers. Doc. 313–6 at 122–24.

Cole spent the next two years pursuing other avenues of recovery...