Bierle v. Liberty Mut. Ins. Co.

• Decision Date: 30 April 1992
• Docket Number: Civ. No. 91-5005.
• Citation: 792 F. Supp. 687
• Parties: Daniel P. BIERLE and Karen J. Bierle, Plaintiffs, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of South Dakota

792 F. Supp. 687

Daniel P. BIERLE and Karen J. Bierle, Plaintiffs, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant.

Civ. No. 91-5005.

United States District Court, D. South Dakota, W.D.

April 30, 1992.

William G. Porter, Lonnie Braun, Costello, Porter, Hill, Heisterkamp & Bushnell, Rapid City, S.D., for plaintiffs.

Arlo Sommervold, Woods, Fuller, Shultz & Smith, P.C., Sioux Falls, S.D., for defendant.

MEMORANDUM OPINION GRANTING JUDGMENT AS A MATTER OF LAW¹

BATTEY, District Judge.

NATURE AND PROCEDURAL HISTORY

Plaintiffs Daniel P. Bierle and Karen J. Bierle brought an action against defendant Liberty Mutual Insurance Company alleging a claim of "bad faith" arising out of Liberty Mutual's handling of a personal injury claim of plaintiffs. Liberty Mutual was the underinsurance motorist carrier under its policy of insurance issued on an Avis Rent-A-Car leased and driven by Daniel P. Bierle.

This is a diversity action. Jurisdiction is based upon 28 U.S.C. § 1332.

The Court empaneled a jury on March 3, 1992. On March 9, 1992, the jury returned a verdict in the amount of $2,500 actual damage and $12,500 punitive damages for each plaintiff, for a total verdict of $30,000.

The jury considered evidence of the defendant's net worth of $2.6 billion in the assessment of its punitive damage awards. (Trial Exhibit 15). The question raised by defendant's motion goes to the issue of legal basis for damages and not the amount.

At the close of plaintiffs' evidence, defendant moved the Court for a judgment as a matter of law. The Court stated on the record it was considering granting defendant's motion, but decided to delay the motion to let the jury return its verdict. The Court reasoned it would then be in a position to consider the motion anew. The rationale behind utilizing such procedure was to promote judicial efficiency. Should the appellate court find a grant of such motion not supported by the evidence, it can simply reinstate the jury's verdict without the necessity of remanding for a new trial. This practice of reserving a decision on a motion for judgment as a matter of law is sanctioned by the Eighth Circuit Court of Appeals. See Morfeld v. Kehm, 803 F.2d 1452, 1454 n. 2 (8th Cir.1986) and cases cited therein.

Upon reconsideration, defendant's motion for judgment as a matter of law as to punitive damages is granted.

SUMMARY OF FACTS

A. Background facts

On March 18, 1987, a motor vehicle collision occurred on Highway 385 in Lawrence County, South Dakota. Daniel P. Bierle, the driver of the northbound vehicle, observed a southbound vehicle driven by Gary Hamilton approaching in the Bierle lane of travel. Daniel P. Bierle attempted to avoid the oncoming Hamilton vehicle by moving to the left in what would normally be the Hamilton lane of travel. Gary Hamilton was apparently asleep or at the very least inattentive. A few seconds before the collision he became attentive and drove his vehicle back into his lane of travel. The vehicles collided in the Hamilton lane of travel. Daniel P. Bierle and his passengers, wife Karen J. Bierle and Linda Newton, suffered personal injuries. The evidence indicated that the injuries were not serious. Medical expenses were less than $5,000 for all three persons.

B. Operative Facts as to the Claim of Bad Faith

The vehicle driven by Gary Hamilton was insured by an automobile liability policy issued by Dairyland Insurance Company with liability limits of $25,000 per person and $50,000 per accident. Dairyland Insurance Company was the primary insurance carrier on the Hamilton vehicle. As the underinsured carrier, Liberty Mutual would be liable to the extent of any damages in excess of the primary coverage. Thus the coverage of Liberty Mutual became secondary to that of the primary carrier, Dairyland. The underinsured coverage liability of the Liberty Mutual policy was $500,000. Initially the coverage was thought to be $300,000. The uncertainty over the issue of coverage and the amount of coverage gave rise to much correspondence between plaintiffs' counsel and the company, company and its counsel, and company interoffice memos.

The Bierles and Linda Newton engaged attorneys William Porter and Lonnie Braun of Rapid City to represent them in this bad faith action. They also represented plaintiffs in the underlying action against Hamilton.

On June 19, 1987, approximately three months following the motor vehicle collision, attorney Porter wrote to Liberty Mutual inquiring as to whether or not there was any uninsured or underinsured coverage. On July 28, 1987, in response to the inquiry, claim supervisor Julie Ann Herzog advised Bierles' counsel that "our policy shows that there is uninsured motorist coverage for Avis Rent-A-Car in the amount of $300,000; however, there is no underinsured motorist coverage." This was wrong. Ms. Herzog was unaware that at that time the law in South Dakota² required that there be underinsured motorist coverage for any motor vehicle registered or principally garaged within the state. Consequently, since the Hamilton vehicle carried liability limits of $500,000, under South Dakota law there actually was underinsured coverage of this amount.

On December 18, 1987, plaintiffs commenced a diversity action against Hamilton in this Court, Civ. No. 87-5140. The action presumably would establish the liability issues arising out of the motor vehicle collision.

Once again seeking to explore coverage, plaintiffs' attorney, by letter addressed to defendant's attorney, Tom Fritz, requested a copy of the insurance policy on the rental car for examination. On July 29, 1988, the request was passed on to Greg Jeans, insurance claims supervisor of the defendant company.

On the same day, plaintiffs' counsel wrote to Laurie Kolquist, senior claims adjuster of defendant company, with the request, "Please send us a copy of that policy. We have requested that Mr. Fritz send us a copy of this policy, however, we have not received it as yet. It would be greatly appreciated if you could also send us a copy of the policy so we are aware of precisely how much coverage is available."

On August 17, 1988, Greg Jeans again advised that there was no underinsured motorist coverage, but $300,000 uninsured motorist coverage. Pursuant to another demand for the policy of August 28, 1988, Greg Jeans forwarded the declaration sheet on September 2, 1988, indicating, "I feel the attached declaration sheet should suffice to the coverage we have for Avis Rent-A-Car." The declaration sheet indicated that there was $500,000 liability insurance and contained a reference to uninsured motorist insurance, but no reference to underinsured motorist insurance. Upon receipt of the declaration sheet, plaintiffs' counsel on September 9, 1988, again wrote to Jeans, stating, "We want the insurance policy in effect for which our client was insured" and advised that the declaration sheet was inadequate. Greg Jeans forwarded the policy to plaintiffs' counsel on September 14, 1988. Based upon the policy submitted, plaintiffs' counsel advised Greg Jeans on October 25, 1988, that in counsel's opinion, pursuant to the policy, Liberty Mutual provided at least $300,000 in underinsured motorist coverage applicable to the claims of Mr. and Mrs. Bierle. It was now ten months since the action had been filed.

Liberty Mutual continued to question internally whether there was coverage for underinsured motorist. It consulted with South Dakota lawyer Tom Fritz regarding South Dakota law on the question. On November 8, 1988, attorney Fritz advised that South Dakota law required both uninsured and underinsured coverage. A copy of the statute was forwarded to the company for verification. On November 8, 1988, defendant's attorney Fritz forwarded a copy of SDCL 58-11-9.4.

The company then raised the further question as to whether or not the Avis Rent-A-Car in question was considered as "registered or principally garaged" in South Dakota so as to come within applicable provisions of SDCL 58-11-9.4.

On November 28, 1988, the company finally concluded that the company was required to provide underinsured motorist coverage for the Avis business auto policy.

The court set the trial for April 10, 1989. An interoffice memo of Liberty Mutual on February 27, 1989, indicated "that liability was clear." A $50,000 reserve had been established and $25,000 offered for settlement.

Negotiations continued toward settlement. Plaintiffs' and Linda Newton's demand was for $438,500 for all three claims: $50,200 for Karen Bierle; $65,800 for Linda Newton; and $322,500 for Daniel P. Bierle. The company requested $50,000 authority to settle prior to trial. Defendant offered $59,500 on February 24, 1989, to settle plaintiffs' claims. On April 20, 1989, a structured settlement³ was offered to plaintiffs by Dairyland and Liberty Mutual (present value $75,000) which would provide substantial payments at various times over a period of up to twenty-five years. Plaintiffs rejected this offer. The April 10, 1989, trial date had been continued indefinitely by mutual consent. It was continued because it was thought that additional medical examination and possible disc surgery might be needed for a cervical disc problem of Daniel P. Bierle. Plaintiffs conceded at trial that Liberty Mutual committed no bad faith during the period of this delay. The extent of the delay was approximately one year. In December of 1989 it finally was concluded that Daniel P. Bierle would not need further surgery. On January 15, 1990, Liberty Mutual requested an updated medical report. The updated medical report was forwarded to Liberty Mutual in April 1990. Discovery was reopened and a discovery deadline of September 1, 1990, was set. On September 26, 1990, the case was set for trial before the Honorable Andrew W. Bogue to commence January 7, 1991.

Settlement negotiations had resumed. On July 24, 1990, plaintiffs' demand was for $230,000. Settlement negotiations...