Kremer v. American Family Mut. Ins. Co.

• Decision Date: 08 October 1992
• Docket Number: No. 17738,17738
• Citation: 501 N.W.2d 765
• Parties: Lois KREMER and Robert Kremer, Plaintiffs and Appellees, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant and Appellant. . Considered on Briefs
• Court: South Dakota Supreme Court

Page 765

501 N.W.2d 765

Lois KREMER and Robert Kremer, Plaintiffs and Appellees, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant and Appellant.

No. 17738.

Supreme Court of South Dakota.

Considered on Briefs Oct. 8, 1992.

Decided June 9, 1993.

As Corrected June 21, 1993.

Reconsideration Denied July 14, 1993.

John J. Delaney of Johnson/Huffman, Rapid City, for appellees.

Robert L. Morris of Quinn, Eiesland, Day & Barker, Belle Fourche, for appellant.

ERICKSON, Circuit Judge.

American Family Insurance (American) appeals an amended declaratory judgment resolving the rights and duties of the parties and a money judgment to its insured Lois Kremer (Kremer) and Robert Kremer. We affirm.

FACTS

Kremer was involved in an automobile accident with Gary P. Schmit (Schmit) on February 13, 1986. She promptly notified her American insurance agent and informed him that Schmit was uninsured. That information was forwarded to American. American's investigator interviewed Kremer on March 5, 1986, and again the information that Schmit was uninsured was furnished to American. American paid certain medical bills, as well as collision loss.

On February 8, 1989, Kremer called American and spoke with a casualty claims specialist who was authorized to settle her suit and specifically requested settlement under the "uninsured motorist" provisions of her American policy. This specialist told her that the claim would be denied because American felt both she and Schmit were negligent. Kremer told him that she would see her own attorney.

On February 13, 1989, Kremer filed a lawsuit against Schmit for damages resulting from the accident. An American internal memorandum records that at least as early as June 28, 1989, American was well aware of Kremer's action against Schmit. Additionally, the memo acknowledges that American knew Schmit was uninsured; knew Kremer had been told her "uninsured motorist" claim would not provide coverage; knew Kremer's attorney had asked for and was provided a recap of monies paid by American to prove her damages in the lawsuit; and that the claims specialist had discussed the company's subrogation rights with American's in-house attorney.

In April 1989, Kremer's original attorney, Peter A. Fuller (Fuller), met with Schmit, who was not represented. Schmit was asked to confess judgment and was told that the judgment would not be executed on since Kremer would proceed to obtain "uninsured motorist" benefits from American. Schmit refused to confess judgment.

On October 16, 1989, the date set for a default judgment hearing, one of Kremer's attorneys called American's representative to update information concerning Kremer's medical bills that American had paid. At that hearing, Schmit appeared, unrepresented, and contested the default. Default judgment was granted, and, on November 23, 1989, the default judgment against Schmit was entered.

Fuller purposely waited seventy-eight days after taking the default judgment before notifying American that default judgment had been entered and requesting $100,000 under the "uninsured motorist" provisions of the policy. The claim was denied.

On March 20, 1990, Kremer brought this declaratory judgment action to declare the rights and responsibilities of the parties under the "uninsured motorist" provisions of the American policy.

Trial before an advisory jury in May 1991, determined that American had sufficient notice of the Kremer/Schmit lawsuit to allow it to protect its interests. Subsequently, the trial court entered findings of fact, conclusions of law and an order adopting the jury's findings. Pursuant to SDCL 21-24-12 the trial court entered a money judgment in the amount of $100,000 plus interest.

American appeals from that judgment, citing eight issues, three of which deal with the findings of sufficient notice. The remainder deal with the issues of collusion, hearsay testimony, amendment of the pleadings, instruction to the advisory jury, and computation of pre-judgment interest.

I. SUFFICIENCY OF NOTICE AND "CONSENT TO BE BOUND" UNDER THE POLICY PROVISIONS

American argues that the policy provisions regarding notice of lawsuits were not followed, and thus it should not be bound.

At the beginning of the American policy, a general provision entitled "Other Duties" states:

A person claiming any coverage of this policy must also:

* * * * * *

2. Send us any legal papers received relating to any claim or suit. (emphasis provided).

A more specific policy provision found in "Part III Uninsured Motorists," merely states that a person bringing suit to determine liability against an uninsured motorist must:

1. Name the owner or operator of the vehicle as the defendant.

2. Notify the company of the suit.

3. Receive the company's written consent to be bound by the resulting judgment.

A. SUFFICIENCY OF NOTICE TO AMERICAN OF THE UNDERLYING SUIT

Under South Dakota law, "notice may be either actual or constructive." SDCL 17-1-1. At issue is whether or not American had notice of circumstances sufficient to put a prudent person upon inquiry as to the existence of the Kremer/Schmit lawsuit. SDCL 17-1-4. Both the advisory jury and the trial court agreed that American had sufficient notice.

A trial court's finding of fact must be upheld unless it is clearly erroneous. Smith v. Sponheim, 339 N.W.2d 899, 901 (S.D.1987). The function of this court under that standard is:

[T]o determine whether the decision of the lower court lacks the support of substantial evidence, evolves from an erroneous view of the applicable law, or whether considering the entire record, we are left with a definite and firm conviction that a mistake has been made. (citation omitted). In making this determination, we review the evidence in a light most favorable to the trial court's decision.

State v. Baysinger, 470 N.W.2d 840, 843 (S.D.1991).

American's policy has two notice provisions. The first is a "general" notice provision while the second is a "specific" notice provision relating to "uninsured motorists." American insists that both provisions must be read together.

Notice provisions are to be strictly construed against the insurer. Breeden v. Etna Life Ins. Co., 23 S.D. 417, 122 N.W. 348, 349 (1909). "[W]here the provisions of an insurance policy are fairly susceptible of different interpretations, the interpretation most favorable to the insured should be adopted." Prokop v. North Star Mut. Ins. Co., 457 N.W.2d 862, 864 (S.D.1990).

American's policy set out specific conditions precedent to be used in relation to "Part III--Uninsured Motorists." This more specific provision, Part III, governs this lawsuit. If an insured brings suit to determine liability against an uninsured motorist, the owner or driver must be named as the defendant and the company must be notified. No specifics are set out as to how this notice is to be made. Reference back to the general notice provisions is not made. Written notice is not specified. Thus, oral notice would suffice. Wolff v. Royal Ins. Co. of America, 472 N.W.2d 233, 236 (S.D.1991).

American knew as early as March 5, 1986, that Schmit was uninsured. Prior to filing suit, Kremer made an oral claim for "uninsured motorist" coverage to American which was orally refused. American knew she was consulting her own attorney. As early as June 28, 1989, almost five months before default was taken, American had discussed the Kremer/Schmit lawsuit with its local agent. American provided Kremer's attorneys with a recap of medical damages paid under the policy for use in the lawsuit. It also discussed with in-house counsel its subrogation rights if Kremer was to recover.

Based upon these facts, American has not demonstrated that the trial court's findings and conclusions on this issue are clearly erroneous. ¹

B. THE "CONSENT TO BE BOUND" PROVISION

The trial court held that the "consent to be bound" provision of the insurance contract was void as against public policy.

The legislative intent of an "uninsured motorist" statute is "to protect the insurance consumer, not the policy vender." Rodman v. State Farm Mutual Automobile Ins. Co., 208 N.W.2d 903, 909 (Ia.1973).

The purpose of the uninsured motorist statute is to provide the same insurance protection to the insured party who is injured by the uninsured or unknown motorist that would have been available to him had he been injured as a result of negligence of a motorist covered by the minimum amount of liability insurance.

Clark v. Regent Ins. Co., 270 N.W.2d 26, 29 (S.D.1978).

American acknowledges that a "consent to be sued" provision would be void, but argues this provision is necessary to prevent collusion between the insured and the "uninsured motorist." Additionally, it argues a "consent to be bound" provision is different than a "consent to be sued" provision because it does not preclude coverage; rather, it merely precludes payment.

Generally, "consent to be sued" provisions have been held to be void, in the absence of an enforceable arbitration clause, because it is against public policy to preclude a court determination of fault and damage in a suit against an uninsured motorist. Allstate Insurance Company v. Pietrosh, 85 Nev. 310, 454 P.2d 106, 109-110 (1969). Additionally, an insurance company could unreasonably and arbitrarily withhold consent.

The court in reviewing a policy provision in light of statutory law treats the statute as if it were actually written into the policy. "The terms of the policy are to be construed in light of the purposes and intent of the applicable statute." Veach v. Farmer's Ins. Co., 460 N.W.2d 845, 847 (Ia.1990). Whether it is "consent to be sued," or a "consent to be bound," the operative concept is that of "consent" by the insurance company. It is not a question of whether coverage versus payment is precluded, but rather that both provisions are designed to preclude the binding effect of a judgment against the "uninsured motorist" upon the...