Dziadek v. Charter Oak Fire Ins. Co., 16-4070/16-4210

• Decision Date: 15 August 2017
• Docket Number: No. 16-4070/16-4210,16-4070/16-4210
• Citation: 867 F.3d 1003
• Parties: Laura DZIADEK, Plaintiff-Appellant, v. The CHARTER OAK FIRE INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

867 F.3d 1003

Laura DZIADEK, Plaintiff-Appellant,

v.The CHARTER OAK FIRE INSURANCE COMPANY, Defendant-Appellee.

No. 16-4070/16-4210

United States Court of Appeals, Eighth Circuit.

Submitted: April 4, 2017

Filed: August 15, 2017

Mike Abourezk, Daniel Everett Holloway, Abourezk Law Firm, Rapid City, SD for Plaintiff-Appellant.

Thomas Henry Boyd, Winthrop & Weinstine, Minneapolis, MN, Michael R. Cashman, Jonathan D. Jay, Hellmuth & Johnson, Edina, MN, Timothy A. Clausen, Klass Law Firm, Sioux City, IA for Defendant-Appellee.

Before WOLLMAN, RILEY, and BENTON, Circuit Judges.

BENTON, Circuit Judge.

A jury found The Charter Oak Fire Insurance Company liable for breach of contract and deceit for its handling of Laura Dziadek's underinsured-motorist claim. After partly granting judgment as a matter of law, the district court¹ approved some of the compensatory damages and all of the punitive damages. Dziadek v. Charter Oak Fire Ins. Co., 213 F.Supp.3d 1150, 1162 (D.S.D. 2016). Having jurisdiction under 28 U.S.C. § 1291, this court affirms.

I.

Charter Oak issued a Commercial Insurance Policy to Billion Empire Motors, Inc., an auto dealership in Sioux Falls. Billion loaned a car to Lori Peterson. On September 22, 2008, Peterson lost control of the car, crashing in a ravine. Laura Dziadek, a passenger, was severely injured. She hired Zimmer Duncan & Cole (ZDC) to represent her.

In early 2009, Billion's insurance agent notified Charter Oak about the accident. Faith Styles was Charter Oak's claims representative. She learned Peterson was insured by Progressive but only for $100,000 liability coverage. On February 6, Styles spoke with ZDC attorney Jeffery A. Cole about coverage for Dziadek. According to Cole, she said Dziadek had no coverage under the Charter Policy. Days later, she wrote Cole a letter stating "no coverage for your client [Dziadek] exists under this policy."

On February 18, Cole sent Styles a letter requesting the declaration sheet and "a true and correct copy" of the Policy. She sent back the declarations sheet and excerpts of the Policy. Styles did not send the entire Policy. In the excerpts Styles sent, Dziadek was not an "insured."

On February 24, Progressive offered Peterson's $100,000 limit in exchange for a full release from Dziadek. Cole declined because Dziadek's medical bills exceeded $100,000 and he hoped to collect more from Peterson and other alleged tortfeasors. Over the next two years, ZDC pursued claims against Peterson, the State of South Dakota, various state officials, and a signage company.

In June 2011, ZDC attorney Daniel K. Brendtro reviewed the Charter Policy to see if Dziadek was covered. He noticed the UIM coverage and told a paralegal to get a copy of the entire Policy from Styles. In response, Styles asked the paralegal to request specific parts of the Policy, asserting it could be over 2,000 pages. The paralegal narrowed the request. Styles did not respond. The following week, the paralegal repeated the request. On July 21, Styles sent a full copy of the Policy.

After reviewing the entire Policy, ZDC wrote Styles for confirmation that Dziadek was an insured with UIM coverage. After 50 days with no response, Dziadek filed this lawsuit in September 2011, alleging breach of contract, deceit, and bad faith. Charter Oak's answer admitted the existence of UIM and medical-payments coverage. Charter Oak also agreed to Dziadek's settlement with Peterson and Progressive for the $100,000 limit. On February 21, 2012, Charter Oak paid $900,000 in UIM coverage (the $1 million limit minus $100,000 from the Progressive policy), plus $5,000 in medical-payments coverage.

The jury found Charter Oak liable for deceit and breach of contract. It awarded Dziadek $250,000 for additional legal fees; $500,000 of "other harm ... including mental and emotional harm"; and prejudgment interest. In phase two of the trial, the jury awarded $2.75 million in punitive damages. Charter Oak and Dziadek both appeal.

II.

Charter Oak argues that Dziadek's deceit and breach of contract claims fail as a matter of law. This court reviews de novo the denial of a motion for judgment as a matter of law, taking all facts and reasonable inferences most favorably to Dziadek. See Hudson v. United Sys. of Ark., Inc. , 709 F.3d 700, 702 (8th Cir. 2013).

A.

Charter Oak believes that the "independent duty rule" bars Dziadek's deceit claim because "there is no independent tort claim for the failure to perform a contract duty that would be unenforceable separate from and independent of the contract." In South Dakota, the tort of deceit is:

(1) The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;

(2) The assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true;

(3) The suppression of a fact by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact; or

(4) A promise made without any intention of performing.

S.D. Codified Laws § 20-10-2. "[A]n omission to perform a contract obligation is never a tort, but ... that ... breach of legal duty upon which a tort is based may arise out of a relation or state of facts created by contract." Karas v. Am. Family Ins. Co., 33 F.3d 995, 998 (8th Cir. 1994), citing Smith v. Weber , 70 S.D. 232, 16 N.W.2d 537, 539 (1944) (internal quotation marks omitted).

Although Dziadek's claim may "grow out of" a contract, "[t]he fact that there existed a contract between the plaintiffs and the defendant would not immune the latter from the penalty that is ordinarily visited upon tort-feasors." See Smith , 16 N.W.2d at 539. "While the matters complained of ... [may have] had their origin in a contract, the gist of the action is for alleged wrongful and tortious acts of defendant." Karas, 33 F.3d at 998, citing Smith , 16 N.W.2d at 539. Charter Oak is not "immune ... from the penalty that is ordinarily visited upon tort-feasors" because "there existed a contract" with Dziadek. See Smith , 16 N.W.2d at 539. See also Biegler v. Am. Family Mut. Ins. Co. , 621 N.W.2d 592, 602-04 (S.D. 2001) (upholding a deceit verdict against an insurer for failure to provide coverage). The independent-duty rule does not bar Dziadek's deceit claim. Cf. Ochs v. Northwestern Nat. Life Ins. Co. , 254 N.W.2d 163, 167 (S.D. 1977) (explaining that if a case involves "multiple claims" under Rule 54(b), "the ultimate determination of multiplicity of claims must rest in every case on whether the underlying factual bases for recovery state a number of different claims which could have been separately enforced").

Charter Oak believes there was insufficient evidence of deceit. Biegler found sufficient evidence of deceit where:

American Family had sufficient information to know it had a duty to defend and it failed to impart this very important information to Biegler. Based on what a reasonable insurance company should understand, American Family's initial denial was a fact that one would realize would be relied upon by another to their detriment. Knowing this, American Family failed to advise Biegler it had a duty to defend ... and American Family also failed to advise Biegler it did not consider Biegler's tender as a proper tender. In sum, American Family tried to "sandbag" Biegler by not conveying important information to Biegler.

Biegler, 621 N.W.2d at 602. Here, ZDC asked Styles whether any coverage existed. Styles said no coverage existed. ZDC asked Styles twice for a copy of the entire Policy. Styles refused, first sending excerpts where Dziadek was not an insured, then claiming the Policy could be over 2,000 pages—it was actually about 200. As the district court found, there are sufficient facts to find "Charter Oak did not simply fail to disclose the existence of $900,000 of UIM coverage available to Dziadek, but actively deceived Dziadek and her attorney into believing that there was no such coverage." Dziadek, 213 F.Supp.3d at 1160.

Charter Oak says that "an extra-contractual remedy for ‘bad faith’ [is] the single, narrow exception to the ‘independent duty’ doctrine." South Dakota recognizes a tort claim for bad faith in insurance cases. See Champion v. United States Fid. & Guar. Co. , 399 N.W.2d 320, 322 (S.D. 1987) ("[W]e believe the correct judicial path to be that which allows a cause of action against an insurance company for bad faith failure to pay a claim."); Paulsen v. Ability Ins. Co., 906 F.Supp.2d 909, 913 (D.S.D. 2012) (explaining that the South Dakota Supreme Court "effectively creat[ed] ... out of necessity" a tort for breach of the implied covenant of good faith by an insurer). But no authority says bad faith is the only available remedy. Attempting to distinguish the deceit claim in Biegler , Charter Oak says that claim "was essentially ... an insurance ‘bad faith’ claim." But Charter Oak cannot re-label as "essentially ... bad faith" what Biegler declared to be "deceit." See Biegler , 621 N.W.2d at 604 (upholding the "finding of deceit"). In addition to bad faith, deceit is a viable claim against an insurance company "resulting from a breach of the contract of insurance." See id. at 597, 601-03.

Charter Oak claims that if it did deceive Dziadek, there is no harm. The jury awarded Dziadek $250,000 based on attorney's fees she would have saved if Charter Oak had not deceived her. Charter Oak cites no authority that payment for additional attorney's fees is not "any damage" caused by deceit. See S.D. Codified Law § 20-10-1 ("One who willfully deceives another, with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers."). At trial, Cole testified that if Charter Oak had disclosed coverage in 2009, he would not have charged Dziadek a third of the total recovery, but only $10,000 for the minimal work to formalize a UIM claim. The jury was entitled to believe Cole's testimony and find that...