Biegler v. American Family Mut. Ins. Co., 21286.

Citation621 N.W.2d 592,2001 SD 13
Decision Date24 January 2001
Docket NumberNo. 21286.,21286.
PartiesRick BIEGLER, Plaintiff and Appellee, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant and Appellant.
CourtSupreme Court of South Dakota

Lee Schoenbeck and John W. Burke of Schoenbeck Law Office, Watertown, SD, Attorneys for plaintiff and appellee.

Chester A. Groseclose, Jr. of Richardson, Groseclose, Wyly, Wise & Sauck, Aberdeen, SD, Attorneys for defendant and appellant.

JOHNS, Circuit Judge.

[¶ 1.] American Family Insurance Company (American Family) appeals from a money judgment awarding Rick Biegler (Biegler) damages for breach of an insurance contract, compensatory and punitive damages for deceit/bad faith breach of the insurance contract, and attorney fees per SDCL 58-12-3. We affirm but remand with instructions.

FACTS AND PROCEDURAL HISTORY

[¶ 2.] In February 1996, S & R Food Mart (S & R), a convenience store, casino, and off-sale liquor store, located in Aberdeen, South Dakota, was owned by Sue and Rick Biegler and insured by American Family. On February 3, 1996, Mike Schwan (Schwan), a disabled individual, entered S & R where he was harassed by employees of the store. Among other things, Schwan was served coffee and soft drinks spiked with alcohol, had a flammable liquid squirted on the back of his pants, and then had his pants set on fire.

[¶ 3.] After Schwan left S & R he lost control of his vehicle and drove into a snowbank. The police were called and Schwan was arrested and incarcerated for driving under the influence. This charge was later dropped when it was discovered that Schwan became involuntarily intoxicated. Two of S & R's employees later plead guilty to various charges in connection with Schwan's harassment.

[¶ 4.] After the incident at S & R there was an outpouring of negative publicity surrounding Biegler and his store. On February 7, one of American Family's agents saw an article discussing the incident in an Aberdeen newspaper. The article was mailed to American Family's claims office and two days later American Family's adjuster, Mike Jares (Jares) met with Biegler. Jares interviewed Biegler for a brief period and then presented him with a non-waiver agreement. The agreement put forth the policy provisions that American Family felt would negate coverage for Biegler. Both parties signed the agreement.

[¶ 5.] Biegler felt that he needed the assistance of a lawyer and contacted H.I. King (King) of Aberdeen for advice. King then contacted one of Schwan's lawyers and made a settlement offer of $5,000. This offer was rejected and on February 23 King wrote to American Family and asked them to defend Biegler under the policy. American Family did not respond to King's letter; although it appears that Jares and King communicated by telephone or in person until early June.

[¶ 6.] On April 10, Schwan's attorney, Rick Sommers (Sommers) wrote King detailing his representation of Schwan and the fact that there may be a claim for negligent supervision and management. King forwarded a copy of the letter to American Family. On April 26, American Family's legal department was asked to review the letter. The legal department determined that there was no coverage for Biegler and a letter stating American Family's position was sent to King. The letter dated May 10, stated: "it continues to be American Family's position that coverage is excluded. We will be unable to provide any assistance for Mr. Biegler on this claim."

[¶ 7.] On May 31 King wrote to American Family asking it to "clearly state reasons for [its] refusal to assume the contractual obligations under the insurance policy...." On June 3 King wrote American Family, correcting an error in his May 31 letter, and asking American Family "to be more clear and state specifically on what paragraphs of the insurance contract American Family Insurance relies upon to avoid their contractual obligations." King also informed American Family to respond "as soon as possible, as the lawsuit is proceeding."

[¶ 8.] On June 5 Sommers sent King an offer to settle Schwan's case for $50,000. King forwarded this demand to American Family on June 11 and also advised Jares to put everything in writing from that date forward. By June 19 Vince Purtell (Purtell), an in-house attorney for American Family, concluded that American Family would have a duty to defend Biegler on the claim of negligent supervision, however he did not notify King of this. By June 19 Purtell had also concluded that the occurrence, liquor liability, and intentional tort exclusions did not defeat American Family's duty to defend Biegler. Around this same time Biegler, increasingly worried about a lawsuit, incorporated S & R to protect his assets.

[¶ 9.] On September 24 Sommers mailed King a summons, complaint, and three admissions of service. Sommers advised King to have his "clients execute the admissions of service within ten (10) days or we will have the sheriff serve them." The admissions of service were never signed, but Sommers and King had a conversation in which King said he would accept service. A date for admission of service was never discussed as the papers would be signed and returned to Sommers if settlement discussions failed. However, both attorneys believed a lawsuit had been started. The summons and complaint were mailed on September 30 to Richard Dale (Dale), American Family's in-house counsel, with a letter stating "they are now attempting to serve ... all the parties." On October 14 King mailed another copy of his September 30 letter to Dale. Dale never contacted any of the parties with regard to either of King's letters, as Dale did not believe that a suit had been started.

[¶ 10.] Schwan's complaint sued Biegler individually and in his capacity as owner of S & R for Biegler's own acts and the acts of those employed by him. The complaint sought recovery on the theories of negligent supervision of employees, assault and battery, false imprisonment, and intentional infliction of emotional distress.

[¶ 11.] King and Sommers were able to settle the case between October 27 and October 29 and Schwan signed an agreement releasing all claims against Biegler and S & R. With the settlement complete, there was no reason to sign the admissions of service or file the complaint.

[¶ 12.] On November 7 Dale called Sommers to find out the status of the action, however, Sommers was unavailable and never returned Dale's call. Instead, Sommers called King, who communicated the next day that the case had been settled and that Dale should not do anything on the case now. King refused to inform Dale of the terms or amount of the settlement.

[¶ 13.] King wrote Dale a letter on November 15 expressing his displeasure with the way American Family had handled the claim. Dale did not respond and King re-sent the letter on December 3. On December 19 Dale wrote a letter explaining why there was no duty to defend on five of the six causes of action alleged in Schwan's complaint. Dale did admit American Family would be obligated to defend Biegler on the claim of false imprisonment. A copy was sent directly to Biegler and a courtesy copy was sent with a request for a copy of the release and other settlement documents to King. King responded by asking why American Family would now indicate they had a duty to defend after the case had been settled. There was some other brief correspondence between King and American Family in early 1997, ultimately; however, the action underlying this appeal was filed on July 7, 1997.

[¶ 14.] Biegler commenced action against American Family seeking compensatory and punitive damages resulting from a breach of the contract of insurance. American Family denied liability and filed motions for summary judgment. After several amendments of the complaint and several hearings, four causes of action were left for trial: 1) breach of contractual duty to defend; 2) breach of contractual duty to pay and thus, to indemnify; 3) bad faith; and 4) deceit. The jury, through a special interrogatory, decided that: 1) American Family breached its contractual duty to defend Biegler resulting in compensatory damages of $20,000; 2) American Family breached its contractual duty to indemnify Biegler resulting in compensatory damages of $25,000; 3) American Family made fraudulent misrepresentations to Biegler or his attorney, H.I. King, resulting in compensatory damages of $100,000; 4) American Family acted in bad faith when it breached its contractual duty to defend Biegler in the lawsuit commenced by Schwan (the jury, however, was not asked to award any compensatory damages for this); and 5) American Family should be required to pay $100,000 in exemplary damages as, and for, its bad faith breach of the insurance contract and/or fraudulent misrepresentations.

[¶ 15.] Biegler then applied for costs, prejudgment interest, and attorney's fees in the amount of $85,065 for vexatious refusal to defend. The trial court granted the applications for costs and prejudgment interest. The trial court awarded Biegler $40,000 in attorney's fees. These amounts were added to the above judgment resulting in an award of $296,034.46 for Biegler.

[¶ 16.] American Family filed a motion for a new trial challenging, in part, the sufficiency of the evidence to support the verdict. Biegler conceded that breach of contract damages should not exceed $25,000 and a remitter was granted in the amount of $20,000. This reduced the total award to $276,034.46. However, its motion for a new trial was denied and American Family filed this appeal raising the following issues:

Did the trial court err in denying American Family's motion for summary judgment and/or motion for new trial on Biegler's claim for breach of American Family's contractual duties to defend and to pay?
Did the trial court err in denying American Family's motion for summary judgment and/or motion for new trial on Biegler's claim for deceit?
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