Isaac v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 14 September 1994
• Docket Number: Nos. 18389,18396,s. 18389
• Citation: 522 N.W.2d 752
• Parties: Edel ISAAC, Plaintiff and Appellee, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant and Appellant.
• Court: South Dakota Supreme Court

Page 752

522 N.W.2d 752

Edel ISAAC, Plaintiff and Appellee, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant and Appellant.

Nos. 18389, 18396.

Supreme Court of South Dakota.

Argued May 25, 1994.

Decided Sept. 14, 1994.

Edward C. Carpenter and William A. May of Costello, Porter, Hill, Heisterkamp and Bushnell, Rapid City, for plaintiff and appellee.

Curt Ireland, Suzanne M. Feist, Rapid City, Henry A. Harmon of Grefe and Sidney, Des Moines, IA, for defendant and appellant.

SABERS, Justice.

Following a jury trial in which the trial court instructed the jury as a matter of law that the worker's compensation set-off provision was void as against public policy, jury awarded Insured damages in the amount of $445,000--$100,000 under the policy, $325,000 for bad faith, and $20,000 punitive. Insurer appeals. Insured cross-appeals. We affirm in part and reverse in part.

FACTS

On December 11, 1986, Edel Isaac (Isaac) purchased insurance from State Farm Mutual Automobile Insurance Company (State Farm) on a 1981 Dodge Omni. The policy provided for bodily injury liability coverage in the amounts of $100,000 per person- /$300,000 per accident. It also provided uninsured motor vehicle (UIM) coverage in identical amounts as required under SDCL 58-11-9.

On March 12, 1987, Isaac was rear-ended by a vehicle being driven by Lisa Bordeaux (Bordeaux). Isaac was employed by the State of South Dakota as a social worker. She was operating her vehicle in the course of her employment at the time of the accident. She called State Farm the following day to report the accident and on March 17, 1987, she signed an Automobile Claim Report indicating that she suffered a neck sprain. Although Isaac repeatedly informed State Farm that she did not think Bordeaux had insurance coverage, State Farm advised Isaac that the accident was Bordeaux's responsibility and that Isaac was not covered for this accident. State Farm failed to inform Isaac that she had uninsured motorist coverage.

Isaac filed a claim for worker's compensation which included reimbursement for her medical expenses. She began medical treatment for her neck injuries on May 19, 1987. On May 1, 1990, she was evaluated as having a 20% permanent disability of the whole person as a result of the accident.

In June, 1988, Isaac mentioned the accident to an attorney, Jackie Rasmussen, whom Isaac was consulting on a separate matter. Rasmussen contacted the State Farm claim office but does not recall what information she received. In approximately December, 1989, Isaac discussed the accident with another attorney, Mike Williams (Williams). Williams contacted the State Farm claims office on March 9, 1990 and spoke with Karla Ryno (Ryno), a claims specialist for State Farm. According to Williams, Ryno advised him that State Farm Claims Superintendent Ronald Seim (Seim) could accept service of process.

On March 12, 1990, a Summons was served by Isaac on Bordeaux and State Farm, through Seim. Seim assigned the claim to Ryno. Williams and Ryno met on April 26, 1990. Williams provided Ryno with a copy of the Automobile Claim Report signed by Isaac and a packet of medical reports. Ryno advised Williams that Isaac had no uninsured motorist coverage because she had received worker's compensation benefits.

On September 18, 1990, Attorney Ray DeGeest (DeGeest) advised State Farm that he was appearing for Isaac in place of Williams, who had moved. DeGeest provided State Farm with all medical information relating to the accident and a breakdown of the $37,533.94 in worker's compensation benefits received by Isaac as of that time. On October 19, 1990, Ryno advised DeGeest that there was absolutely no uninsured motorist coverage available to Isaac because she had received worker's compensation benefits. DeGeest sent a letter to State Farm demanding payment of the policy limits on October 25, 1990.

Isaac filed a Complaint on October 29, 1990 for damages in excess of $100,000. Bordeaux and State Farm filed Motions to Dismiss Isaac's claim for uninsured benefits, arguing that the action was barred by the three-year statute of limitations. Their motions were granted. Isaac appealed on the basis that the uninsured motor vehicle policy was a contract as opposed to a tort action and therefore governed by a six-year statute of limitations. State Farm conceded and stipulated to a dismissal of the appeal and a remand of the action to circuit court.

DeGeest again demanded payment of the policy limits on March 28, 1991 and May 29, 1991. As of this time, State Farm had made no offer of settlement on Isaac's claim despite three demands for payment of the policy limit. Issac filed an Amended Complaint June 17, 1991 alleging bad faith.

By letter dated November 1, 1991, State Farm offered to settle all claims for the sum of $100,000. State Farm's offer, however, was conditioned upon dismissal of Isaac's bad faith claim. Isaac offered to settle only the UIM claim for $100,000, leaving open the bad faith claim. State Farm continued to demand that all of Isaac's claims be dismissed in exchange for the payment of $100,000.

A jury trial commenced on March 29, 1993. On April 8, 1993, the jury rendered a verdict awarding Isaac damages of $445,000, $100,000 under the policy, $325,000 for bad faith and $20,000 punitive. Following a separate hearing, Isaac was awarded $94,789.60 attorney's fees, $30,000 prejudgment interest, and $16,542.70 costs. State Farm appealed. Isaac filed a Notice of Review.

ISSUES

1. Whether the trial court erred in ruling that the worker's compensation set-off provision in the Uninsured Motor Vehicle section of State Farm's policy was void as a matter of law.

Construction of a written contract is a question of law. Dirks v. Sioux Valley Empire Elec. Ass'n, 450 N.W.2d 426, 427-28 (S.D.1990). The provisions of the uninsured motorist statutes are construed liberally in favor of coverage. Clark v. Regent Ins. Co, 270 N.W.2d 26, 29 (S.D.1978).

Prior to trial, State Farm requested that the trial court rule on the validity of the worker's compensation set-off provision in the Uninsured Motor Vehicle section of State Farm's policy. Following a hearing, the trial court ruled that the set-off provision was void and unenforceable as against public policy. State Farm argues that this was error. The policy provided in part:

Limits of Liability

Coverage U

2. Any amount payable under this coverage shall be reduced by any amount paid or payable to or for the insured:

c. under any worker's compensation, disability benefits, or similar law.

When Coverage U and W Do Not Apply

THERE IS NO COVERAGE:

3. TO THE EXTENT IT BENEFITS:

a. ANY WORKER'S COMPENSATION OR DISABILITY BENEFITS INSURANCE COMPANY.

This court recently addressed the legality of UIM set-off provisions for worker's compensation benefits in National Farmers Union Property & Cas. Co. v. Bang, 516 N.W.2d 313 (S.D.1994). National Farmers held that "a policy provision purporting to reduce UIM benefits paid by worker's compensation is void as a matter of public policy." Id. at 320-21. The National Farmers' policy language at issue provided:

Uninsured Motorists Coverage shall not apply to the benefit of any insurer or self-insurer under any worker's compensation or disability benefits law or any similar law.... Any amounts payable will be reduced by: (1) A payment made by the owner or operator of the uninsured motor vehicle or organization which may be legally liable. (2) A payment under the Liability Coverage of this policy. (3) A payment made or amount payable because of the bodily injury under any worker's compensation law or disability benefits law or similar law.

In support of our holding in National Farmers, we cited to the Pennsylvania Supreme Court decision of Selected Risks Ins. v. Thompson, 520 Pa. 130, 552 A.2d 1382 (1989). According to Selected Risks:

The rational[e] of these courts is varied but certain common themes emerge, first, uninsured motorist coverage is paid for by a separate premium, and to give the uninsured motorist carrier a set-off based on the fortuitous existence of a collateral source would result in a windfall to the carrier; second, uninsured motorist coverage is mandated by statute and any variations from that statutory mandate should come from the legislature; third, workmen's compensation only covers a fraction of what tort damages would cover, and a dollar-for-dollar set-off does not recognize this reality; and fourth, there is no public policy against an individual purchasing additional uninsured motorist coverage to protect himself and his family against the shortfall which could result from a dependency on workmen's compensation.

552 A.2d at 1388.

State Farm argues that if the worker's compensation exclusion violates public policy, it is void or voidable only as to the minimum coverages required by statute. According to State Farm, where the policy limits exceed the statutory minimum required by the state's financial responsibility law, State Farm's liability is limited to the coverage required by statute, $25,000. In support of its position, State Farm cites Cimarron Ins Co.v.Croyle,479N.W.2d881,884 (S.D.1992).

Cimarron held that "where the policy limits exceed the statutory minimum, the insurer's liability is limited to the coverage required by " the State's financial responsibility statute. 479 N.W.2d at 885. ¹ Unlike Cimarron, however, this case revolves around the interpretation of SDCL 58-11-9, which provides that no motor vehicle liability policy of insurance may be issued in South Dakota with respect to any motor vehicle registered or principally garaged in this state unless uninsured motorist coverage is provided therein "in limits for bodily injury or death equal to the coverage provided by such policy for bodily injury and death [.]" ² (Emphasis added) (As noted by the district court in Baker v. Continental Western Ins. Co., 748 F.Supp. 716 (D.S.D.1990):

South Dakota's...