Helmbolt v. LeMars Mut. Ins. Co., Inc.

• Decision Date: 15 April 1987
• Docket Number: 15292,Nos. 15290,s. 15290
• Citation: 404 N.W.2d 55
• Parties: Merlin HELMBOLT, Ardis Olson and Eben Olson, Plaintiffs and Appellees, v. LeMARS MUTUAL INSURANCE COMPANY, INC., Defendant and Appellant.
• Court: South Dakota Supreme Court

Page 55

404 N.W.2d 55

Merlin HELMBOLT, Ardis Olson and Eben Olson, Plaintiffs and Appellees, v. LeMARS MUTUAL INSURANCE COMPANY, INC., Defendant and Appellant.

Nos. 15290, 15292.

Supreme Court of South Dakota.

Argued Oct. 22, 1986.

Decided April 15, 1987.

David V. Vrooman, Sioux Falls, for plaintiffs and appellees.

Timothy J. McGreevy of Moore, Rasmussen, Kading & McGreevy, Sioux Falls, for defendant and appellant.

MILLER, Circuit Judge.

This is an appeal from a judgment entered on a jury verdict which awarded appellees Ardis and Eben Olson (Olsons) damages against appellant LeMars Insurance Company (LeMars) in an action for failure to attempt to make a good faith settlement of a claim within policy limits. We affirm in part and reverse in part.

FACTS

In February 1981, an automobile driven by Merlin Helmbolt (Helmbolt) crossed the center line and collided with a vehicle driven by Ardis Olson, causing her severe personal injuries. At the time of the accident, both Helmbolt and Olson carried automobile insurance policies with LeMars. Helmbolt's policy provided $50,000 in liability coverage per accident. The policy covering Ardis and her husband Eben included $100,000 of underinsured motorist coverage ¹ which required LeMars to pay the difference between the insurance available through the policy of the negligent party, and $100,000. That amount in this case equaled $50,000.

Olsons commenced suit against Helmbolt in Deuel County, South Dakota. Ardis sought damages for pain and suffering, personal injuries, lost income, and other losses. Eben sought damages for loss of consortium. It became clear during the discovery phase that Helmbolt had negligently caused the accident. In addition to being on the wrong side of the road, he was driving while under the influence of alcohol. Prior to trial, Olsons' counsel, Michael Pieplow, vigorously attempted to settle the case for $100,000. This represented the $50,000 limit of Helmbolt's policy and the additional $50,000 available through Olsons' underinsurance coverage. LeMars refused to offer more than $50,000 without a waiver of Olsons' rights under their underinsurance provision, claiming nothing had to be paid on Olsons' policy until a judgment in excess of $50,000 was entered against Helmbolt.

At this initial trial, Helmbolt was represented by LeMars' attorney and also by private counsel for the excess claim. Helmbolt admitted liability and the case was submitted to the jury solely on the issue of damages. The Deuel County jury awarded a $160,000 judgment ($150,000 for Ardis and $10,000 for Eben) in favor of Olsons and against Helmbolt. The court also imposed costs of $1,239.70 against Helmbolt. Soon thereafter, LeMars paid Olsons $50,000 on Helmbolt's policy, $50,000 on Olsons' policy, and the costs, for a total of $101,239.70. This left a balance due of $60,000 on the judgment. LeMars requested a $100,000 partial satisfaction of judgment be filed in favor of Helmbolt, and Olson's attorney complied.

Sometime subsequent to this initial trial, Helmbolt agreed to pay Olsons $4,500, and to assign Olsons his bad faith claim against LeMars. In return, Olsons gave Helmbolt a complete satisfaction of judgment. Olsons therefore received all but $55,500 of the judgment rendered in Deuel County prior to bringing the present suit against LeMars.

In February, 1985, Olsons began this current action against LeMars on behalf of themselves and as assignee of Helmbolt. They alleged that throughout the suit against Helmbolt, LeMars failed to negotiate in good faith within the policy limits. They sought $60,000 actual damages, $100,000 punitive damages, attorney's fees, interest, and costs. LeMars denied the claim and counterclaimed against Helmbolt, claiming the right to collect $50,000 of the judgment entered in favor of Olsons and against Helmbolt. LeMars asserted this right through subrogation to Olsons' rights, by virtue of the $50,000 payment LeMars made to Olsons under the underinsurance provision of the LeMars/Olson policy. See SDCL 58-11-9.6. LeMars further asserted that since Helmbolt had assigned his claim to Olsons, Olsons were now subject to the $50,000 counterclaim, and any recovery by Olsons must be offset by that amount.

Prior to the bad faith trial, Olsons filed a motion for summary judgment on LeMars' counterclaim, alleging that the partial satisfaction of judgment filed in favor of Helmbolt included the $50,000 in which LeMars now claimed a subrogation right. The trial court denied the motion and ruled that the $50,000 claim was viable against Helmbolt. LeMars was therefore allowed to modify the partial satisfaction to reflect that the portion of the judgment claimed by subrogation was unsatisfied. Olsons then filed an amended complaint, which separated their claims from those assigned by Helmbolt. No amended answer or counterclaim was filed by LeMars.

The trial court hearing the claim against LeMars directed out the Helmbolt derived claim at the close of Olsons' case. This left only Olsons' claim for bad faith failure to settle within the limits of the underinsurance policy. The jury returned a verdict in favor of Olsons and against LeMars in the amount of $55,500.

DECISIONS

The principal issue for us to determine is whether LeMars acted in bad faith by not attempting to settle within the combined policy limits of its two insureds.

We have in the past addressed the issue whether an insurer acted in bad faith by not settling within policy limits. Crabb v. National Indemnity Company, 87 S.D. 222, 205 N.W.2d 633; 63 A.L.R.3d 715 (1973); Kunkel v. United Security Ins. Co. of New Jersey, 84 S.D. 116, 168 N.W.2d 723 (1969). This case, however, presents unique circumstances in that both the negligent party and his victims are covered by the same insurance company.

We begin with the premise that a duty to act or deal in good faith is found in all insurance contracts. "A covenant is implied in an insurance contract that neither party will do anything to injure the rights of the other in receiving the benefits of the agreement. This covenant includes a duty to settle claims without litigation in appropriate cases." Kooyman v. Farm Bureau Mut. Ins. Co., 315 N.W.2d 30 (Iowa 1982) (citing 7C J.A. Appleman, Insurance Law and Practice, § 4712 (1976); Keeton, Liability Insurance and Responsibility for Settlement, 67 Harv.L.Rev. 1136, 1137-38 (1954); Neal v. Farmers Ins. Exchange, 21 Cal.3d 910, 148 Cal.Rptr. 389, 582 P.2d 980 (1978)). It is settled that a finding of bad faith may be warranted on the grounds that an insurance company did not pursue settlement negotiations with the same intensity, interest and good faith it would have if there were no policy limits. Crabb, Kunkel, Kooyman, supra.

As we previously indicated in Kunkel, there is an array of factors to consider in determining whether an insurer's refusal to settle is equivalent to a breach of its good faith duty. These factors include:

(1) the strength of the injured claimant's case on the issues of liability and damages; (2) attempts by the insurer to induce the insured to contribute to a settlement; (3) failure of the insurer to properly investigate the circumstances so as to ascertain the evidence against the insured; (4) the insurer's rejection of advice of its own attorney or agent; (5) failure of the insurer to inform the insured of a compromise offer; (6) the amount of financial risk to which each party is exposed in the event of a refusal to settle; (7) the fault of the insured in inducing the insurer's rejection of the compromise offer by misleading it as to the facts; and (8) any other factors tending to establish or negate bad faith on the part of the insurer.

84 S.D. at 123, 168 N.W.2d at 727.

In considering the foregoing factors, together with the overwhelming evidence contained in the record, and viewing this evidence in the light most favorable to the verdict, ² it is most easy to sustain the judgment below. Clearly Helmbolt was liable to Olsons for damages--this was really never in dispute. Furthermore, the medical testimony regarding Ardis' injuries and the evidence of medical expenses and loss of income was unrebutted. This unrebutted evidence included: (1) Ardis was severely injured by a drunk driver negligently operating a motor vehicle; (2) Ardis was without negligence; (3) Ardis' orthopedic surgeon diagnosed her as having a 27.5% permanent partial disability; (4) medical bills exceeded $18,000; (5) an expert witness projected a $115,000 loss of future income. Also, loss of consortium was not seriously disclaimed and liability was conceded. Finally, LeMars knew that Helmbolt would not have the finances to cover an excess judgment. See Crabb, 205 N.W.2d at 638.

In addition to the above evidence introduced in the suit against Helmbolt, there was other proof of LeMars' lack of good faith. Olsons' counsel testified that he evaluated the case in excess of $100,000 and so advised LeMars. Documents written for LeMars' internal use indicated the company itself evaluated the case to be worth $60,000 to $80,000. LeMars, in spite of its internal investigation and evaluation of the case, merely offered to settle for $50,000, conditioned upon a release of Olsons' underinsured claim. Olsons' counsel, Mr. Pieplow, responded by letter to LeMars' proposition, stating, among other things:

This is to acknowledge receipt of your letter ... wherein you again concede the Helmbolt limits, but refuse to pay them over on the ground that it would not be fair to 'our insured or our company[.'] It appears to me that such a decision has adverse consequences to both of your insureds: Mr. Helmbolt, because he will now be sued for excess damages and a claim for punitive damages; the Olsons, because they are now subjected to the risks and uncertainties of litigation for limits you have conceded. Thus, it appears that the only beneficiary of the refusal to pay at this time is LeMars Mutual. That benefit...