Kobbeman v. Oleson

Decision Date11 September 1997
Docket NumberNo. 19915,19915
Citation574 N.W.2d 633,1998 SD 20
PartiesDominic J. KOBBEMAN, Plaintiff and Appellant, v. David C. OLESON, Sr. and Kahler, Inc., a South Dakota Corporation, d/b/a Kahler Insurance Agency, Defendants and Appellees. . Considered on Briefs
CourtSouth Dakota Supreme Court

Paul S. Swedlund, G. Verne Goodsell of Gunderson, Palmer, Goodsell & Nelson, Rapid City, for plaintiff and appellant.

Rexford A. Hagg, Kevin W. Klapprodt of Whiting, Hagg & Haag, Rapid City, for defendants and appellees.


¶1 After his injury in an automobile accident, Dominic Kobbeman collected the policy limits from the tortfeasor's insurance company, but Kobbeman believed his damages exceeded that amount. He took an assignment of the tortfeasor's cause of action against his insurance agents in exchange for a covenant not to execute on any judgment Kobbeman might obtain against him. Kobbeman then sued the agents for failure to procure additional insurance. The trial court granted summary judgment for the agents holding the tortfeasor had sustained no loss for lack of added insurance, nor could he ever incur damages by virtue of the covenant, thus no valid cause of action had accrued. Is an assignment in which a plaintiff agrees not to execute on any judgment obtained in the underlying tort action ineffective because the covenant relieves the tortfeasor of any obligation to pay damages? As the covenant was not a full release and left the tortfeasor open to litigation, we uphold the assignment, but because the statute of limitations expired on Kobbeman's claim against the tortfeasor, we affirm summary judgment.


¶2 On September 5, 1990, Raul Daniel met with David Oleson of the Kahler Insurance Agency to purportedly ask Oleson to secure a personal umbrella liability policy with limits of $1 million to cover Raul and his family, including his son, Christopher. Whether the conversation related to increasing limits on an existing homeowner policy, rather then securing a new umbrella policy, remains in dispute. Raul wrote a check to Kahler for what he believed to be the pro-rated premium on an umbrella policy, but the agency applied the payment to increase Raul's existing homeowner policy limits.

¶3 On July 7, 1993, Christopher Daniel injured Dominic Kobbeman in a motor vehicle accident. State Farm, the Daniels' motor vehicle liability carrier, concluded Christopher was at fault and paid Kobbeman its policy limits of $100,000. Having been advised Kobbeman's claimed damages might exceed that amount, Raul contacted Kahler about the umbrella policy and learned Oleson had not obtained one. In exchange for a covenant not to execute on any judgment obtained against them, on December 23, 1993, the Daniels gave an assignment to Kobbeman of their cause of action against Oleson and Kahler. 1 On December 2, 1994, Kobbeman brought suit against Oleson and Kahler for failure to obtain the umbrella policy. He had not first secured a judgment against Christopher; in fact, Kobbeman did not commence suit against Christopher until after the statute of limitations had expired in July, 1996. Defendants moved for summary judgment contending that by virtue of the covenant not to execute and the expiration of the statute of limitations applicable to the motor vehicle accident, Christopher could suffer no damages and thus an essential element of the cause of action was missing. The circuit court granted the motion. Kobbeman appeals, asking whether a person protected by an agreement not to execute has an assignable cause of action against insurance agents who allegedly failed to procure requested insurance and whether the assignment effectively waived the limitations period.

Standard of Review

¶4 Under our familiar standard for reviewing summary judgments, we decide only whether genuine issues of material fact existed and whether the law was correctly applied. If any legal basis emerges to support the trial court's ruling, we will affirm. De Smet Ins. Co. of South Dakota v. Gibson, 1996 SD 102, p 5, 552 N.W.2d 98, 99; Garrett v. BankWest, Inc., 459 N.W.2d 833, 837 (S.D.1990); Pickering v. Pickering, 434 N.W.2d 758, 760 (S.D.1989); SDCL 15-6-56(c). With the material facts undisputed, our review is limited to determining whether the trial court correctly applied the law. Contract interpretation is a question of law. State Farm Mut. Auto. Ins. Co. v. Vostad, 520 N.W.2d 273, 275 (S.D.1994). Summary judgment is a preferred process to dispose of legally unmeritorious claims. Horne v. Crozier, 1997 SD 65, p 5, 565 N.W.2d 50, 52; Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2555, 91 L.Ed.2d 265, 276 (1986) (citations omitted).

Analysis and Decision

¶5 Insurance agents are usually obligated to obtain the type and amount of insurance applicants request. See City of Colton v. Schwebach, 1997 SD 4, p 10, 557 N.W.2d 769, 771; Rumpza v. Larsen, 1996 SD 87, p 12, 551 N.W.2d 810, 813; Trammell v. Prairie States Ins. Co., 473 N.W.2d 460, 462 (S.D.1991)(duty of insurance agent is to procure insurance of kind specified by insured). Upon a breach of this duty, the measure of damages is the amount the insurer would have paid on behalf of the insured had the desired coverage been obtained. See generally Heinert v. Home Federal Sav. & Loan Ass'n of Sioux Falls, 444 N.W.2d 718 (S.D.1989); Kenyon v. Larsen, 205 Neb. 209, 286 N.W.2d 759, 764 (1980); Virginia First Sav. & Loan Ass'n v. Wells, 224 Va. 691, 299 S.E.2d 370, 372 (1983); Pickhover v. Smith's Mgmt. Corp., 771 P.2d 664, 670 (Utah Ct.App.1989); Wheaton Nat. Bank v. Dudek, 59 Ill.App.3d 970, 17 Ill.Dec. 487, 490, 376 N.E.2d 633, 636 (1978); Greenfield v. Insurance Inc., 19 Cal.App.3d 803, 97 Cal.Rptr. 164, 169 (1971).

¶6 Civil actions founded on negligence or fraud require damages as an essential element. Lien v. McGladrey & Pullen, 509 N.W.2d 421, 423 (S.D.1993); United Fire & Cas. Co. v. P & C Ins. Services, Inc., 488 N.W.2d 661, 666 (S.D.1992)("South Dakota law requires that damages be pled with reasonable certainty."); S.W. Croes Family Trust v. Small Bus. Admin., 446 N.W.2d 55, 57 (S.D.1989). Without damages most tort claims hold no nucleus. See Evergreen Farms v. First Nat. Bank & Trust Co., 250 Neb. 860, 553 N.W.2d 728, 735 (1996)("Damages, like any other element of plaintiff's cause of action, must be pled and proved, and the burden is on plaintiff to offer evidence sufficient to prove plaintiff's alleged damages."); Sun Valley Iowa Lake Ass'n. v. Anderson, 551 N.W.2d 621, 641 (Iowa 1996); Poulsen v. Russell, 300 N.W.2d 289, 295 (Iowa 1981).

¶7 1. Assignment of Tort Action with Covenant Not to Execute

¶8 In South Dakota, "[a] thing in action arising out of the violation of a right of property or out of an obligation may be transferred by the owner." SDCL 43-42-2; see also Sherman v. Harris, 36 S.D. 50, 153 N.W. 925 (1915)(tort action assignable), overruled on other grounds by Simons v. Kidd, 73 S.D. 280, 41 N.W.2d 840 (1950). By assigning a thing in action, of course, assignors grant no greater rights than they possess. Gilbert v. United Nat'l Bank, 436 N.W.2d 23, 25 (S.D.1989); Barnes v. Hampton, 198 Neb. 151, 252 N.W.2d 138, 139 (1977); Smith v. Brown, 513 N.W.2d 732, 733-34 (Iowa 1994); 6B Appleman, Insurance Law and Practice § 4271, at 138 (1979). "[I]t is fundamental that a valid cause of action must exist in the assignor insured before an assignee can prevail against the insurer." Berrington v. Williams, 244 Cal.App.2d 130, 52 Cal.Rptr. 772, 776 (1966); Restatement (First) of Contracts § 167 (1932).

¶9 If the requested policy had been purchased, it presumably would have required the insurer to pay an amount, within policy limits, the insured would have been legally obligated to pay as damages. Freeman v. Schmidt Real Estate & Ins., 755 F.2d 135, 137 (8th Cir.1985). Some courts conclude insureds protected by a covenant not to execute have no obligation to pay anything to injured parties; consequently, insurers have no duty to pay under their liability policies. Oregon Mut. Ins. Co. v. Gibson, 88 Or.App. 574, 746 P.2d 245 (1987)(tortfeasor unconditionally insulated from liability had no valid claim to assign); Freeman, 755 F.2d at 138 (citations omitted). If we applied this reasoning to the present case, even if the requested umbrella policy had been obtained, the covenant not to execute would have discharged any covered obligation. Some decisions go a step further finding these agreements unenforceable as inherently collusive. Freeman, 755 F.2d at 139. Other cases distinguish between a release and a covenant not to execute, holding that the type of covenant in question here "is merely a contract, and not a release, such that the underlying tort liability remains and a breach of contract action lies in favor of the insured if the injured party seeks to collect his judgment." State Farm Mut. Auto. Ins. Co. v. Paynter, 122 Ariz. 198, 203, 593 P.2d 948, 953 (Ct.App.1979). The most pragmatic approach looks to the language of the covenant to find whether a tortfeasor remains legally obligated on a judgment. Lancaster v. Royal Ins. Co. of America, 302 Or. 62, 726 P.2d 371, 372 (1986).

¶10 Here, the assignment provided in part:

The Kobbemans agree and covenant not to execute on any judgment obtained against the Daniels. The Kobbemans represent that their intent is to prosecute the assigned causes of action against Kahler Insurance Agency, Dave Oleson, or any other agency or agent. However, to the extent the Kobbemans are prohibited from proving up their damages in that action, the Kobbemans must have the ability to do so in an underlying action against the Daniels, if so required by a court.

With these provisions, even if a judgment was obtained but not levied against him, Christopher might still endure the adversity of litigation. Moreover, the assignment stipulates nothing about whether a docketed judgment would create a lien on his...

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