Bertelsen v. Allstate Ins. Co.

• Decision Date: 12 June 2013
• Docket Number: No. 26442.,26442.
• Citation: 833 N.W.2d 545,2013 S.D. 44
• Parties: Bonnie J. BERTELSEN, Plaintiff and Appellee, v. ALLSTATE INSURANCE COMPANY, An Insurance Corporation, Defendant and Appellant.
• Court: South Dakota Supreme Court

833 N.W.2d 545

2013 S.D. 44

Bonnie J. BERTELSEN, Plaintiff and Appellee,

v.ALLSTATE INSURANCE COMPANY, An Insurance Corporation, Defendant and Appellant.

No. 26442.

Supreme Court of South Dakota.

Argued Feb. 12, 2013.

Decided June 12, 2013.

Michael W. Strain of Morman Law Firm, Sturgis, South Dakota and Paul T. Barnett, Scott G. Hoy, James L. Hoy of Hoy Trial Lawyers, Prof., LLC, Sioux Falls, South Dakota, Attorneys for plaintiff and appellee.

Catherine M. Sabers, Thomas G. Fritz of Lynn, Jackson, Shultz & Lebrun, PC, Rapid City, South Dakota, Attorneys for defendant and appellant.

ZINTER, Justice.

[¶ 1.] Bonnie Bertelsen sued Allstate Insurance Company for breach of contract and bad faith arising out of Allstate's failure to timely pay medical benefits under Bertelsen's personal automobile insurance policy. On the breach of contract claim, the circuit court granted a judgment as a matter of law for $33,000. On the bad faith claim, the jury awarded $150,000 in compensatory damages and $1,500,000 in punitive damages. Allstate appeals. We affirm in part, reverse in part, and remand for a new trial.

Facts and Procedural History

[¶ 2.] This case has been before us on two prior occasions: Bertelsen v. Allstate Insurance Co. (Bertelsen I), 2009 S.D. 21, 764 N.W.2d 495, and Bertelsen v. Allstate Insurance Co. (Bertelsen II), 2011 S.D. 13, 796 N.W.2d 685. As we noted in those opinions, Bertelsen was employed by Universal Pediatric Services (UPS) as an in-home registered nurse. On December 26, 2005, she was injured in an automobile accident while driving her employer's vehicle to a patient's home to perform her nursing duties. Bertelsen spent six weeks in the hospital recovering from life-threatening injuries. She underwent numerous surgeries, lost eight months of work, and incurred $382,849.92 in medical expenses as a result of the accident.

[¶ 3.] Bertelsen filed a claim for worker's compensation benefits (including medical expenses) with American International Group (AIG), her employer's worker's compensation carrier. AIG denied the claim on January 10 and February 7, 2006. AIG contended that Bertelsen's injuries had not arisen out of and in the course of her employment with UPS.

[¶ 4.] Bertelsen had a personal automobile insurance policy with Allstate that provided $100,000 in medical payments coverage. In February 2006, Bertelsen advised Allstate that AIG had denied her worker's compensation claim, and she filed a medical payments claim with Allstate. Bertelsen provided Allstate with her AIG claim number as well as the AIG claims adjuster's name and contact information. Allstate subsequently spoke with AIG's claims adjuster, confirmed the denial, and noted the basis for AIG's denial in Allstate's claim file. Allstate then requested written proof of loss. Bertelsen provided Allstate with her medical records and bills, which by that time exceeded Allstate's policy limits. Bertelsen demanded the $100,000 policy limits for medical payments, but Allstate continued to investigate Bertelsen's claim into the spring of 2006.

[¶ 5.] Contrary to its claims manual, Allstate raised a worker's compensation exclusion in its policy for the first time in a June 2006 letter to Bertelsen. ¹ By that time, Bertelsen's medical expenses were approaching $300,000. The letter also contained another request for the AIG claims adjuster's name and contact information. Allstate indicated that it was going to investigate AIG's denial of Bertelsen's worker's compensation claim. The letter stated: “Rest assured, once investigation is complete and all available coverage is exhausted, Allstate will move quickly to resolve [Bertelsen's] claim.”

[¶ 6.] Bertelsen's attorney at that time, Thomas Blake, promptly sent Allstate the AIG claims adjuster's name and contact information.² At trial, the parties disputed whether Allstate contacted Bertelsen following receipt of this information. Bertelsen alleged that Allstate failed to further investigate AIG's denial and did not contact her until approximately one year later. Allstate denied these allegations. Norm Tierney, an Allstate claims adjuster, testified that he contacted Blake on June 26, 2006. He contended that Blake agreed to suspend Bertelsen's claim with Allstate to pursue the worker's compensation claim. Although Allstate conceded that the phone call was not documented in its claim file, Allstate introduced a call log indicating that a call was placed from Randall Blake's ³ office to Allstate's 800 telephone number on July 13, 2006. Thomas Blake, however, denied that any phone conversation occurred with Tierney.

[¶ 7.] By the spring of 2007, Bertelsen had not received medical payments benefits from Allstate, and she was experiencing increasing demands for payment from medical providers. On December 19, 2007, Bertelsen filed a petition with the South Dakota Department of Labor formally seeking worker's compensation benefits. AIG answered Bertelsen'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.” Bertelsen later settled her worker's compensation claim with AIG for $150,000.

[¶ 8.] Bertelsen also settled claims with other insurers. She received medical payments benefits in the amount of $30,000 (the policy limits) from UPS's automobile insurer, Hartford Insurance Company. She also settled an underinsured motorist claim with Hartford for $900,000. Bertelsen settled a liability claim with State Farm, the negligent tortfeasor's automobile insurance company, for $100,000. Additionally, she received $157,433.87 in medical expense coverage from Avera Health, her health insurer. Bertelsen's other health insurers, Sanford Health Plan and Blue Cross of California, paid additional health benefits. Ultimately, Bertelsen recovered approximately $1.2 million from these insurers. After subrogation and the payment of medical bills, she retained approximately $660,000. Bertelsen, however, claimed that she was also entitled to the $100,000 policy limits from Allstate under the medical payments provision of Allstate's automobile policy.

[¶ 9.] In December 2007, Bertelsen initiated this breach of contract and bad faith action. Relying on SDCL 62–1–1.3,⁴ she alleged that Allstate breached the insurance contract by failing to pay medical benefits immediately after learning that AIG initially denied her worker's compensation claim. Bertelsen contended that Allstate's failure to immediately pay medical benefits was “frivolous,” “unfounded,” and constituted bad faith. She also contended that Allstate's alleged bad faith caused her emotional distress up to the point in time when she began receiving settlements from the other insurance carriers.

[¶ 10.] In Bertelsen I, we reversed a circuit court decision granting summary judgment in favor of Allstate. 2009 S.D. 21, ¶ 22, 764 N.W.2d at 501. 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 [Bertelsen]'s workers' compensation claim was denied.” Id. On the bad faith claim, we held that Allstate's duty 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 the matter for a trial to determine contract damages and Allstate's intent in failing to pay benefits. Id. ¶ 22.

[¶ 11.] On remand, a jury awarded Bertelsen $33,000 for breach of contract, but the jury rejected her bad faith claim.⁵ Bertelsen appealed that decision, and in Bertelsen II we concluded that instructional and evidentiary errors required a new trial. 2011 S.D. 13, ¶ 62, 796 N.W.2d at 705–06. We held that the jury should have been instructed that Allstate breached its contractual and statutory duty to pay medical benefits immediately after it learned AIG had denied Bertelsen's worker's compensation claim. Id. ¶ 32. With respect to bad faith, we concluded that genuine issues of material fact remained regarding Allstate's intent in failing to timely pay benefits. Id. ¶ 62. We also held that Bertelsen should have been allowed to develop an evidentiary record on punitive damages. Id. ¶ 41. We remanded for a new trial on the issues of contract damages, bad faith, and punitive damages. Id. ¶ 62.

[¶ 12.] On remand from Bertelsen II, the matter was assigned to Judge Riepel. The contract and bad faith claims were bifurcated from the punitive damages claim. Over Allstate's objection, the circuit court refused to allow the jury to hear evidence that in 2008, AIG accepted the worker's compensation claim. The court also refused to allow the jury to hear evidence of the settlements with other insurers and Bertelsen's pre-accident bankruptcy. At the close of evidence, the court granted Bertelsen's motion for judgment as a matter of law on contract damages and awarded $33,000. Allstate's motions for judgment as a matter of law on the bad faith and punitive damages claims were denied. The jury returned a verdict of $150,000 in compensatory damages and $1,500,000 in punitive damages.

[¶ 13.] After trial, Bertelsen argued that as a matter of law she was entitled to an additional $67,000 on the breach of contract claim. She contended that the additional amount was necessary to reach a total award of the $100,000 policy limits because Allstate was estopped from asserting its subrogation rights. Bertelsen also moved for attorney's fees of $534,230. Allstate renewed its motions for judgment as a matter of law. In the alternative, Allstate moved for a new trial or remittitur. The circuit court denied Allstate's motions, granted Bertelsen's request for a judgment equivalent to the $100,000 policy limits, and awarded Bertelsen $180,561.51 in attorney's fees.

[¶ 14.] Allstate raises numerous issues on appeal. We address: (1) whether the circuit court erred in...