Meier v. McCord
| Decision Date | 08 August 2001 |
| Docket Number | No. 21576.,21576. |
| Citation | 632 N.W.2d 477,2001 SD 103 |
| Parties | Chad MEIER, Plaintiff and Appellee, v. Anthony McCORD, Defendant. and Western National Mutual Insurance Company, Intervenor and Appellant. |
| Court | South Dakota Supreme Court |
Scott G. Hoy, Scott G. Hoy Law Office, Sioux Falls, SD, Attorneys for plaintiff and appellee Chad Meier.
Douglas M. Diebert of Cadwell, Sanford, Deibert & Garry, Sioux Falls, SD, Attorneys for intervenor and appellant Western National Mutual Insurance.
[¶ 1.] In this appeal we hold that the release of a tortfeasor does not preclude an injured party from pursuing underinsured benefits from its insurance carrier. We also hold that the trial court abused its discretion in refusing to set aside a default judgment.
[¶ 2.] On November 21, 1998, Anthony McCord failed to stop at a flashing red light and collided with another vehicle. Chad Meier, his passenger, was injured. It is undisputed that McCord's negligence was the sole cause of the accident. Therefore, liability was not disputed. The parties do dispute the amount of monetary damages Meier should receive. [¶ 3.] During the summer of 1999, Meier served a summons and complaint on McCord seeking personal injury damages. However, he did not file his lawsuit with the clerk of courts at that time. McCord, through his attorney, engaged in settlement negotiations with Scott Hoy, Meier's attorney. As a result of these negotiations, McCord settled with Meier for $25,000, which equaled the policy limits of his liability policy. During this time, Hoy also notified Meier's insurance carrier, Western National Mutual Insurance Company, of Meier's lawsuit against McCord and of the $25,000 offer. Western National consented to the settlement and the release of McCord.
[¶ 4.] Hoy informed Western National that Meier would seek benefits under his underinsured motorist coverage because the $25,000 settlement with McCord did not fully compensate Meier for his damages. On August 31, 1999, Mel Schwartz, who was Western National's adjuster for this file, sent Hoy a letter stating that the company believed the settlement with McCord adequately compensated Meier for his injuries and that it would not offer additional monies from Meier's underinsured motorist benefits.
[¶ 5.] On September 7, 1999, Meier released McCord from all liability arising out of the accident. By mistake, Hoy sent the original release to Schwartz who received it on September 10, 1999 and returned it to Hoy on September 13, 1999. Hoy claims the release allowed Meier to settle with McCord while permitting Meier to pursue the underinsured motorist claim against Western National.
[¶ 6.] In addition to correspondence, Hoy's office spoke with Schwartz several times between August 31, 1999 and September 15, 1999 discussing Meier's claim for underinsured motorist benefits under his Western National policy. The parties dispute the exact content of these conversations. Hoy contends Schwartz ultimately decided, on behalf of Western National, that the company would make no offer to Meier for underinsured motorist coverage and that it would not defend the suit. Western National argues that the only communication Schwartz made to Hoy's office was that Western National denied Meier's claim for underinsured motorist benefits.
[¶ 7.] Two days after the last conversation, Meier filed the original summons and complaint against McCord with the clerk of courts. On December 3, 1999, Hoy filed Meier's motion for default judgment against McCord and mailed it to Western National. The very same day, the trial judge, without a hearing, granted default judgment in favor of Meier for $125,000. Although aware that the pleadings had been served on McCord, Western National did not receive notice of the filing of the lawsuit or the motion for default judgment until after the circuit court signed the default judgment. Western National contends it was entitled to notice of Meier's intent to take default judgment against McCord and that Meier's post default judgment notice did not provide adequate notice.
[¶ 8.] Upon being served with the judgment, Western National moved the trial court to set it aside. The trial court initially conducted a hearing, where he received affidavits and heard counsels' respective arguments, which led him to direct a subsequent hearing for the purpose of resolving material conflicts between the affidavits provided by each party. After the second hearing, he concluded Schwartz purposefully misrepresented the facts in his initial affidavit and decided to disregard his testimony. The trial court denied Company's motion to set aside the default judgment. Company appeals claiming: (1) the trial court erred when it entered default judgment against McCord, a party previously released from liability; (2) it was entitled to notice of Meier's intent to take default judgment; and (3) its failure to answer the complaint constitutes excusable neglect.
[¶ 9.] Review of a grant or denial of a motion to set aside a default judgment is well settled. A party may obtain relief from a final judgment upon a showing of good cause. SDCL 15-6-55(c). We review a trial court's decision concerning a default judgment under the abuse of discretion standard remembering that the trial court should exercise its discretion "liberally in accord with legal and equitable principles in order to promote the ends of justice." In re Estate of Nelson, 1996 SD 27, ¶¶ 13, 15, 544 N.W.2d 882, 886 (citations omitted). "Ultimately, `any doubt [should be] resolved in favor of an application to set aside a judgment in order that the case may be tried upon the merits.'" Roso v. Henning, 1997 SD 82, ¶ 5, 566 N.W.2d 136, 139 (citing National Sur. Corp. v. Shoemaker, 86 S.D. 302, 309, 195 N.W.2d 134, 138 (1972)) (alteration in original).
[¶ 10.] 1. Release of the actual tortfeasor does not preclude pursuit of underinsured motorist benefits.
[¶ 11.] Initially, Western National argues that Meier could not take a default judgment against McCord because he had been previously fully released from any liability arising out of the accident. Although this argument seems logical, it is contrary to South Dakota law. Further, it is not customary practice in the insurance industry in situations involving both a liability insurer and the injured party's underinsurer. Finally, under the facts of this case, it is disingenuous for Western National to advance this argument.
[¶ 12.] SDCL 58-11-9.4 requires all liability insurance policies sold in South Dakota to provide underinsured motorist coverage. Payments of underinsured motorist benefits are governed by SDCL 58-11-9.5, which provides:
Subject to the terms and conditions of such underinsured motorist coverage, the insurance company agrees to pay its own insured for uncompensated damages as its insured may recover on account of bodily injury or death arising out of an automobile accident because the judgment recovered against the owner of the other vehicle exceeds the policy limits thereon. Coverage shall be limited to the underinsured motorist coverage limits on the vehicle of the party recovering less the amount paid by the liability insurer of the party recovered against.
(emphasis added). Furthermore, SDCL 58-11-9.6 states:
The issuer of the underinsured motorist coverage is subrogated to any amounts the insurer so pays and, upon payment, has an assignment of the judgment against the other party to the extent of the money paid. Refusal of the issuer of the underinsured motorist coverage to waive its statutory right of subrogation does not constitute bad faith. A liability insurer may pay the limits of the liability policy it issued without obtaining a complete release on behalf of its insured. Such payment does not abrogate any continuing duty to defend and does not constitute bad faith.
These statutes simply require the underinsurer to pay benefits to its insured for the amount of damages, if any, that exceeds the recovery from the liability insurer up to its policy limits. SDCL 58-11-9.6 grants the underinsurer a statutory right of subrogation against the tortfeasor in the amount the underinsurer pays. The liability insurer has a continuing duty to defend until it obtains a complete release on behalf of its insured. SDCL 58-11-9.6.
[¶ 13.] This Court has recognized that before the liability insurer obtains a release for its insured it actively represents the same interests as the underinsurer, which is to minimize the recovery against its insured. Weimer v. Ypparila, 504 N.W.2d 333, 335 (S.D.1993). After the liability insurer obtains a complete release, the underinsurer must step in and represent its own interests. Id. Thus, we recognize that a release of the liability insurer's insured (generally the defendant) does not prevent the plaintiff from proceeding against the defendant for purposes of determining the amount of underinsured motorist benefits the plaintiff may recover from its own underinsurer. Id.
[¶ 14.] Most important to the disposition of this issue is the contradiction between what Western National argues on appeal and what its adjuster, Schwartz, testified to at the second hearing. On appeal the company contends it believed the matter was resolved because it had received Meier's release of McCord. This argument stands in stark contrast to Schwartz's testimony. On cross-examination the following exchange occurred between Hoy and Schwartz:
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