Drier v. Great American Ins. Co.

• Decision Date: 01 July 1987
• Docket Number: 15309,Nos. 15304,s. 15304
• Citation: 409 N.W.2d 357
• Parties: Calvin DRIER d/b/a Rural Press, Plaintiff-Appellant and Cross-Appellee, v. GREAT AMERICAN INSURANCE COMPANY and GAB Business Services, Inc., Defendants- Appellees and Cross-Appellants.
• Court: South Dakota Supreme Court

Page 357

409 N.W.2d 357

Calvin DRIER d/b/a Rural Press, Plaintiff-Appellant and Cross-Appellee, v. GREAT AMERICAN INSURANCE COMPANY and GAB Business Services, Inc., Defendants- Appellees and Cross-Appellants.

Nos. 15304, 15309.

Supreme Court of South Dakota.

Argued Nov. 17, 1986.

Decided July 1, 1987.

Gale Fisher of Fisher & Hughes, Sioux Falls, for plaintiff-appellant and cross-appellee.

Michael L. Luce of Davenport, Evans, Hurwitz & Smith, Sioux Falls, for defendant-appellee and cross-appellant Great American Ins. Co.

Derald W. Wiehl of May, Johnson, Doyle & Becker, Sioux Falls, for defendant-appellee and cross-appellant GAB Business Services, Inc.

HENDERSON, Justice.

PROCEDURAL HISTORY

Plaintiff-appellant and cross-appellee, Calvin Drier (Drier), owner of Rural Press, sued Great American Insurance Company and General Adjustment Bureau Services (GAB), Defendants-appellees and cross-appellees (Defendants), contending (1) bad faith in the processing of an insurance claim and (2) a breach of a duty of care regarding disposal of certain finished business forms. The circuit court granted Defendants' motion for summary judgment as to Drier's first contention, but denied summary judgment regarding the duty of care issue. Two separate issues are before this Court.

(1) Drier contends Defendants were not entitled to Summary Judgment on his bad faith cause of action.

(2) Defendants, via Notice of Review, assert the circuit court erred in refusing to grant their Motion for Summary Judgment concerning Drier's breach of a duty of care claim.

We affirm in part and reverse in part.

FACTS

Calvin Drier is the sole proprietor of Rural Press, a printing business operating near the Tea Interchange in Lincoln County, South Dakota. He has operated Rural Press since 1967 and specializes in supplying forms to the medical community, including hospitals and clinics. Drier also does general printing, usually for local businesses.

Rural Press had an insurance policy which provided for $160,000 coverage on buildings and $450,000 coverage on personal property. The insurance also included a ninety percent coinsurance provision. American Alliance Insurance Company, a subsidiary of Great American Insurance Companies, issued the policy. Drier was not insured for business interruption.

On October 23, 1981, fire caused extensive damage to the Rural Press building and to personal property within it. Shortly after the fire, Great American hired GAB (the other defendant to this action) to adjust the loss. On October 24, 1981, about twenty-four hours after the fire, Drier arranged for a Tea construction firm to clear debris and build a temporary shelter over his equipment to prevent further damage. Jim Raley, a branch claims manager for Great American, and Gary Welch, staff manager in Great American's Cincinnati office, prevented Drier from doing this. Raley and Welch told Drier they first had to adjust the loss. The construction firm was discharged from the site. Drier, now believing that his insurance company would be difficult to work with, contacted Donald Fretland, a public adjuster, to assist him in determining the loss and to negotiate with Defendants over disputes on questions of value and loss under the coverage provided by the policy.

On October 29, 1981, Drier received $50,000 as an advance on the building loss. Sometime after that, Drier states Great American (through Raley) told him he would have to accept $139,000 as total compensation for building loss or take Great American to court. Drier notes he refused this monetary offer and consulted Fretland. Fretland then arranged for Drier to get almost $10,000 more and the final settlement on the building loss became $148,207.04 (of which Drier recovered $147,207.04 due to a $1,000 deductible clause). Drier received $97,207.04 on November 18, 1981, which represented payment on the building less the $50,000 advance.

Regarding personal property damage, GAB retained Haag Engineering Company to value the loss and repair costs. On November 24, 1981, Drier was advanced $50,000 for personal property loss and repairs. Similarly, on February 12, 1982, Drier received an additional advance of $75,000. On March 2, 1982, 130 days after the fire, the personal property loss/repairs was settled for a total of $399,000. On that date, Drier accepted the amount offered by Great American and signed a sworn statement to that effect. Drier stated he believed if he refused the settlement offer, GAB would recompute the loss, which would take substantial time.

Among the personal property damaged by fire was Drier's stock of "raw" paper and "finished" forms. Finished forms constituted completed customer orders in storage in Drier's facility. Finished forms were to be carted away and destroyed as they were severely damaged. Raw stock was to be sorted and sold as salvage. As it turned out, some finished forms were inadvertently hauled away with the raw stock. LeRoy Schmidt, who was contacted by GAB and who removed the stock under the supervision of GAB employees, then bartered some of the stock to Roland Marquardt. Upon examination of his purchase, Marquardt discovered he had acquired some printed customer forms. Marquardt states he contacted Drier and offered to sell him the finished forms. According to Marquardt, Drier refused to purchase any finished forms, but did agree to buy back some raw stock. Subsequently, Marquardt attempted to sell finished forms directly to Drier's customers. Drier contends Marquardt's sale attempt to Drier's customers occurred prior to Marquardt's contacting him. Some of Drier's customers, contacted by Marquardt, called Drier to complain. Apparently, some finished forms consisted of business checks and medical claim forms which could be falsified. Eventually, Schmidt and Marquardt returned all finished forms to Drier.

On August 23, 1982, Drier commenced suit against GAB and Great American. Two causes of action were advanced.

(1) First Cause of Action--Drier claimed Defendants acted in bad faith in failing to pay the personal property policy limit of $450,000. Bad faith was alleged due to Defendants' delay in processing the claim coupled with their knowledge that Drier had no business interruption insurance and that he would be forced to accept the $399,000 settlement. Drier sought $52,000 to achieve the policy limit of $450,000 and $1,000,000 in punitive damages.

(2) Second Cause of Action--Drier claimed Defendants breached their duty of care to him when they allowed finished forms to wind up in the hands of unauthorized persons thereby causing damage to Drier's business reputation, character, and integrity. Drier sought $300,000 in damages.

Defendants, on May 15, 1985, filed a Joint Motion to Dismiss, and in the Alternative for Summary Judgment. On January 24, 1986, the circuit court granted Defendants' Motion for Summary Judgment as to the first part of Drier's complaint. The court noted "the settlement agreement of March 2, 1982, operated as a complete defense to Drier's first cause of action in that there was no genuine issue of material fact as to whether fraud or duress induced the settlement." Regarding the second part, the circuit court held that Defendants owed a duty to Drier to use reasonable care in ensuring that the finished forms were properly disposed of. Determining a genuine issue of material fact existed as to whether that duty was breached, Defendants' Motion for Summary Judgment on the second cause of action was denied.

Drier appeals from the Order dismissing his first cause of action. Defendants filed Notice of Review concerning the circuit court's refusal to dismiss Drier's second cause of action.

DECISION

I.

In its memorandum opinion, the circuit court placed great emphasis on the settlement agreement signed by Drier on March 2, 1982. The court held, absent fraud or duress by Defendants, Drier was bound by the March 1982 settlement agreement. The court failed to find a genuine issue of material fact, namely duress, granted Defendants' Motion for Summary Judgment, and dismissed Drier's first cause of action. We hold that summary judgment was proper under these circumstances.

Undoubtedly, a party may waive his right to sue if he accepts a settlement check for a disputed amount with full knowledge that the check is to act as complete payment for the debt. SDCL 20-7-4. See Hubbard Milling Co. v. Frame, 310 N.W.2d 155, 156-57 (S.D.1981); Hamburger v. Economy Dep't Store, 54 S.D. 65, 67, 222 N.W. 603, 604 (1928). The same general rule applies in the insurance area; an insured's acceptance of a check from his insurance company in settlement of a disputed sum may constitute an accord and satisfaction. Thomson v. Meridian Life Ins. Co., 38 S.D. 570, 584, 162 N.W. 373, 378 (1917). See 15A Couch on Insurance 2d Sec. 59:66 (rev. ed. 1983); 7C J. Appleman, Insurance Law and Practice Sec. 4715, at 566 (Berdal ed. 1979). However, accords and satisfactions are contractual in nature and are voidable if obtained through duress. SDCL 53-4-2. See Erck v. Bachand, 69 S.D. 330, 335, 10 N.W.2d 518, 520 (1943). See also 17 C.J.S. Contracts Sec. 173 (1963).

Drier seeks to avoid the settlement based on Defendants' alleged delay tactics and unfair techniques which Drier claims amounted to duress. Drier pins his hopes for success in this matter on the doctrine of business compulsion/economic duress. This is an issue of first impression in South Dakota.

Business compulsion/economic duress is a relatively recent outgrowth, encouraged by courts of equity, of the old common law doctrine of duress. 17 C.J.S. Contracts Sec. 177 (1963). See 13 S. Williston, Williston on Contracts Sec. 1617 (3d ed. 1970); Restatement (Second) of Contracts Sec. 176, comment a (1981). Originally, common law duress was concerned exclusively with either physical imprisonment or threats of serious bodily harm. Dawson, Economic Duress--An Essay in Perspective, 45 Mich.L.Rev. 253, 254 (1947...