Bertelsen v. Allstate Ins. Co.

• Decision Date: 06 April 2011
• Docket Number: No. 25647.,25647.
• Citation: 2011 S.D. 13,796 N.W.2d 685
• Parties: Bonnie J. BERTELSEN and Paul D. Bertelsen, husband and wife, Plaintiffs and Appellants,v.ALLSTATE INSURANCE COMPANY, an Insurance Corporation, Defendant and Appellee.
• Court: South Dakota Supreme Court

796 N.W.2d 685

2011 S.D. 13

Bonnie J. BERTELSEN and Paul D. Bertelsen, husband and wife, Plaintiffs and Appellants,

v.ALLSTATE INSURANCE COMPANY, an Insurance Corporation, Defendant and Appellee.

No. 25647.

Supreme Court of South Dakota.

Argued Jan. 10, 2011.Decided April 6, 2011.

Paul T. Barnett, Scott G. Hoy of Hoy Trial Lawyers, Prof., LLC, Sioux Falls, South Dakota, Attorneys for plaintiffs and appellants.Catherine M. Sabers, Thomas G. Fritz of Lynn, Jackson, Shultz & Lebrun, PC, Rapid City, South Dakota, Attorneys for defendant and appellee.SEVERSON, Justice.

[¶ 1.] Paul and Bonnie Bertelsen brought this action against Allstate Insurance Company for breach of contract and bad faith arising out of Allstate's failure to pay medical benefits under the Bertelsens' personal automobile insurance policy. On cross-motions for summary judgment, the trial court dismissed their complaint. The Bertelsens appealed, and this Court reversed and remanded for trial. After a five-day jury trial, the trial court did not submit the Bertelsens' punitive damages claim to the jury. The jury ultimately returned a verdict awarding the Bertelsens $33,000 for breach of contract but rejecting their bad faith claim. We affirm in part, reverse in part, and remand with directions for proceedings consistent with this opinion.

Background

[¶ 2.] The underlying facts of this case are set forth in Bertelsen v. Allstate Ins. Co., 2009 S.D. 21, 764 N.W.2d 495. Bonnie worked as an in-home registered nurse for Universal Pediatric Services (UPS). On December 26, 2005, Bonnie was severely injured in an automobile accident while driving a UPS vehicle to a patient's home to perform her nursing duties. As a result of the accident, Bonnie spent six weeks in the hospital recovering from her life-threatening injuries, underwent numerous surgeries, lost eight months of work, and incurred $382,849.92 in medical expenses.

[¶ 3.] Bonnie subsequently filed a claim for workers' compensation benefits with AIG, UPS's workers' compensation carrier. AIG denied the claim on January 10, 2006, and again on February 7, 2006. AIG asserted that Bonnie's injury did not arise out of and in the course of her employment with UPS. AIG sent a copy of its denial letter to the South Dakota Department of Labor.

[¶ 4.] The Bertelsens' personal automobile insurance policy with Allstate provided $100,000 in medical payments coverage:

Allstate will pay to or on behalf of an insured person all reasonable expenses actually incurred by the insured person for necessary medical treatment, medical services, or medical products actually provided to the insured person by a state licensed health care provider.

The policy contained a workers' compensation exclusion: “This coverage does not apply to any person to the extent that the treatment is covered under any workers' compensation law.” And the policy contained a conformity-to-state-statutes provision: “When any policy provision is in conflict with the law of the state in which the insured auto is principally garaged, the minimum requirements of the law of the state apply.”

[¶ 5.] In February 2006, the Bertelsens advised Allstate that AIG denied Bonnie's workers' compensation claim and gave Allstate notice of a potential medical payments claim. The Bertelsens provided Allstate with their AIG claim number and the AIG claims adjuster's name and contact information. Allstate spoke with AIG's claims adjuster and confirmed the denial. Allstate noted the basis for AIG's denial in its claims file:

[T]he employees are not on the payroll while en route to an assignment. They don't start getting paid until they arrive at the job. Linda therefore denied coverage under work comp. Coverage was denied a week ago. She will fax a copy of the denial.

Allstate requested written proof of loss for Bonnie's medical payments claim. The Bertelsens provided Allstate with Bonnie's medical records and bills far exceeding the policy limits and demanded payment of the $100,000 under the medical payments provision of the policy. Allstate continued to investigate Bonnie's claim through spring 2006. By May 2006, Bonnie's medical expenses were approaching $300,000.

[¶ 6.] Although Allstate's claims manual requires immediate notice to policyholders of any coverage issue, Allstate wrote to the Bertelsens in June 2006, raising the workers' compensation exclusion in the policy for the first time:

A review of Bonnie Bertelsen's auto policy shows in circumstances where an insured is driving a non-owned vehicle or in this case a vehicle owned by the company she works for, all available medical payment[s] coverage and worker[s'] compensation coverage must be exhausted before Allstate Medical Coverage applies.

The letter again requested the AIG claims adjuster's name and contact information. It further indicated, “Rest assured, once the investigation is complete and all available coverage is exhausted, Allstate will move quickly to resolve [Bonnie's] claim.”

[¶ 7.] Allstate's medical payments benefits were not forthcoming. By summer 2007, the Bertelsens experienced medical providers' increasing demands for payment. On December 19, 2007, Bonnie filed a petition with the South Dakota Department of Labor, seeking workers' compensation coverage.¹ AIG answered Bonnie's petition on January 22, 2008, and for the first time admitted coverage for “all past, present, and future medical, hospital, and health care expenses for her work-related injury.” The Bertelsens later settled their claim with AIG for $150,000.

[¶ 8.] The Bertelsens also settled claims with various other insurers. The Bertelsens sought medical payments benefits from Hartford Insurance Company, UPS's automobile insurer. Hartford paid its $30,000 limits in April 2006. The Bertelsens also settled their underinsured motorist claim with Hartford for $900,000. The Bertelsens settled their claim with State Farm, the negligent tortfeasor's automobile insurance company, for $100,000. Additionally, they sought payment of their medical expenses from Avera Health, Bonnie's health insurer. Avera paid the Bertelsens $157,433.87. The Bertelsens' other health insurers, Sanford Health Plan and Blue Cross of California, paid additional health benefits. In sum, various insurers eventually paid the Bertelsens approximately $1.2 million. After subrogation and the payment of medical bills, the Bertelsens retained approximately $660,000. Although various insurers ultimately paid most of Bonnie's medical expenses, the Bertelsens allege that they suffered approximately $33,000 in contract damages as a result of Allstate's failure to pay medical benefits.

[¶ 9.] In December 2007, the Bertelsens initiated this breach of contract and bad faith action against Allstate. The Bertelsens alleged that Allstate breached its insurance contract by failing to pay medical benefits with knowledge that AIG denied Bonnie's workers' compensation claim. The Bertelsens primarily relied on SDCL 62–1–1.3:

If an employer denies coverage of a claim on the basis that the injury is not compensable under this title ..., such injury is presumed to be nonwork related for other insurance purposes, and any other insurer covering bodily injury or disease of the injured employee shall pay according to the policy provisions.... If it is later determined that the injury is compensable under this title, the employer shall immediately reimburse the parties not liable for all payments made[.]

Because Allstate did not comply with SDCL 62–1–1.3, the Bertelsens contended that Allstate's failure to pay medical benefits was “frivolous,” “unfounded,” and constituted bad faith.

[¶ 10.] The Bertelsens moved for summary judgment on their breach of contract claim, and Allstate moved for summary judgment on both claims. Relying on the workers' compensation exclusion in the policy, the trial court granted Allstate's motion for summary judgment. The trial court held that because AIG ultimately paid Bonnie's workers' compensation claim, Allstate had an “articulable and reasonable basis for the denial of benefits.” The trial court further held that “a denial of a claim that is fairly debatable and is found to be not compensable under the policy terms should not constitute bad faith.”

[¶ 11.] The Bertelsens appealed, and we reversed and remanded for trial. On the breach of contract claim, we held that “Allstate breached its contractual and statutory duty to immediately pay medical benefits for bodily injury after Bonnie's workers' compensation claim was denied.” Bertelsen, 2009 S.D. 21, ¶ 22, 764 N.W.2d at 501. We also addressed the Bertelsens' bad faith claim, holding that Bonnie's claim was not fairly debatable because “Allstate's obligation was clear from the statutory language alone[.]” Id. ¶ 20. Because genuine issues of material fact remained, we remanded for trial to address the issues of contract damages and Allstate's intent in failing to pay medical benefits. Id. ¶ 22.

[¶ 12.] On remand, the Bertelsens again moved for summary judgment on their breach of contract claim. They argued that Bertelsen is controlling law and required the trial court to grant judgment as a matter of law on their breach of contract claim. The trial court denied the motion, and the case proceeded to trial on the Bertelsens' breach of contract and bad faith claims. Throughout trial, the trial court blocked the Bertelsens' attempts to present evidence that Allstate breached its contractual and statutory duty to pay and that Bonnie's medical payments claim was not fairly debatable. At the close of the evidence, the Bertelsens moved for directed verdict on their breach of contract claim. Their motion was denied. On Allstate's motion, the trial court did not submit the Bertelsens' punitive damages claim to the jury. The trial court also refused to instruct the jury in accordance with Bertelsen. The jury ultimately returned a verdict awarding the Bertelsens $33,000 for breach of contract but...