Phen v. Progressive Northern Ins. Co.

• Decision Date: 12 November 2003
• Docket Number: No. 22648.,22648.
• Citation: 672 N.W.2d 52,2003 SD 133
• Parties: Connie PHEN, Plaintiff and Appellee, v. PROGRESSIVE NORTHERN INSURANCE COMPANY d/b/a Progressive Insurance Company, Defendant and Appellant.
• Court: South Dakota Supreme Court

672 N.W.2d 52

2003 SD 133

Connie PHEN, Plaintiff and Appellee, v. PROGRESSIVE NORTHERN INSURANCE COMPANY d/b/a Progressive Insurance Company, Defendant and Appellant.

No. 22648.

Supreme Court of South Dakota.

Argued August 26, 2003.

Decided November 12, 2003.

Matthew T. Tobin, Steven M. Johnson of Johnson, Heidepriem, Miner, Marlow and Janklow, Sioux Falls, for plaintiff and appellee.

William A. May of Costello, Porter, Hill, Heisterkamp, Bushnell and Carpenter, Rapid City, for defendant and appellant.

SABERS, Justice.

[¶ 1.] Connie Phen made a claim against an uninsured motorist provision in her contract of insurance with Progressive Northern Insurance Company (Progressive). Progressive denied the claim and Phen brought suit to force payment of the claim. Phen also alleged that Progressive acted in bad faith when it denied her claim. After hearing cross motions for summary judgment, the circuit court granted 1) Phen's motion and directed Progressive to pay the $25,000 limit under its uninsured motorist provision. The circuit court denied 2) Progressive's motion for summary judgment on the bad faith issue finding that there was sufficient evidence to put the question before a jury. In an amended order, the court directed entry of final judgment pursuant to SDCL 15-6-54(b). Progressive appeals both issues. We affirm Issue 1 and reverse Issue 2.

FACTS

[¶ 2.] The parties have stipulated to the facts. On July 4, 2001, Connie Phen was seriously injured when the motorcycle she was on was struck by a vehicle. The motorcycle was owned and driven by Guy Koppinger. Lynne Peterson was driving the other vehicle and her negligence was the proximate cause of Phen's injuries. Peterson was uninsured. Koppinger's motorcycle was insured by Financial Indemnity Company (Financial) and in October 2001, Financial paid Phen its uninsured motorist policy limit of $25,000.

[¶ 3.] Phen's injuries led to approximately $100,000 in medical bills. She sustained injuries to her leg, internal organs and her back. Phen was in the hospital for almost two months and missed over two months of work. After recovering $25,000 from Financial, Phen made a claim for the $25,000 policy limit under her uninsured motorist benefit with Progressive. Progressive denied the claim based on an exclusion under the policy's "Part III Uninsured/Underinsured Motorist Coverage," Exclusion i.e. Under the exclusion, coverage is not provided for injury sustained by any person while using or occupying:

a vehicle, other than a covered vehicle, if uninsured motorist coverage or underinsured motorist coverage applicable to such vehicle is available.

A "covered vehicle" is defined as a vehicle owned by Phen. This type of "other insurance" clause was deemed void as against public policy in Westphal v. Amco Ins. Co., 87 S.D. 404, 209 N.W.2d 555 (1973). The policy also included an "anti-stacking" clause which provided:

The Limits of Liability under this Part III shall not be added to or stacked upon any uninsured motorist coverage or underinsured motorist coverage applying to other motor vehicles to determine the amount of coverage available to an insured person who sustains bodily injury in any one accident.

[¶ 4.] Phen brought suit to determine whether the policy exclusions violate public policy and are therefore void. Phen also argued that Progressive acted in bad faith when it denied her claim. The court granted Phen's motion for summary judgment on the policy exclusion and directed Progressive to pay $25,000. The court denied Progressive's summary judgment motion on Phen's claim of bad faith. Progressive appeals raising two issues:

1. Whether Progressive's "other insurance" clause violates public policy.

2. Whether the circuit court properly denied Progressive's motion for summary judgment on Phen's claim of bad faith.

We affirm the circuit court on Issue 1 and reverse on Issue 2.

STANDARD OF REVIEW

[¶ 5.] The standard of review for summary judgment is well established. We determine whether a genuine issue of material fact exists and whether the circuit court correctly applied the law. Nickerson v. American States Insurance, 2000 SD 121, ¶ 7, 616 N.W.2d 468, 470 (quoting Manuel v. Wilka, 2000 SD 61, ¶ 17, 610 N.W.2d 458, 462 (additional citations omitted)).

[¶ 6.] Because an insurance policy is a contract, the parties are bound to its terms and insurance companies are allowed, subject to statutory constraints, to limit their liability and impose conditions upon their obligation to pay. Miller v. Queen City Fire Ins. Co., 47 S.D. 379, 383-84, 199 N.W. 455, 456 (1924) (quoting Powers v. Travelers' Ins. Co., 186 N.C. 336, 119 S.E. 481 (1923)). However, the conditions and limitations imposed by the insurance company must be consistent with public policy and the insurance company is liable if it acts in bad faith in denying claims.

[¶ 7.] 1. WHETHER PROGRESSIVE'S "OTHER INSURANCE" CLAUSE VIOLATES PUBLIC POLICY.

[¶ 8.] Progressive contends that the Court should prohibit Phen from "stacking" her uninsured motorist benefits atop those she has already collected from Financial. Phen counters that 1) in proceeding under both policies she is not stacking the policies and 2) the "other insurance" clause in her policy with Progressive is void because it violates public policy. [¶ 9.] The term "stacking," in insurance law has varying definitions, but for the purpose of this case, stacking,

arises where the same claimant and the same loss are covered under multiple policies, or under multiple coverages contained in a single policy, and the amount available under one policy is inadequate to satisfy the damages alleged or awarded. In essence, stacking describes the phenomenon of insureds or claimants against them adding all available policies together to create a greater pool in order to satisfy their actual loss.

12 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 169:4 (3d Ed. 1999).¹ Phen is attempting to collect coverage for the same claimant and the same loss from two different policies and therefore, contrary to her contention, this case involves the stacking of insurance claims or policies.

[¶ 10.] The trial court relied on this Court's decision in Westphal in granting summary judgment to Phen on the ground that the other insurance clause is void because it violates public policy. In Westphal, this Court adopted the holding of Safeco Insurance Company of America v. Jones, which provided:

We hold that our statute sets a minimum amount for recovery, but it does not place a limit on the total amount of recovery so long as that amount does not exceed the amount of actual loss; that where the loss exceeds the limits of one policy, the insured may proceed under other available policies; and that where the premiums have been paid for uninsured motorist coverage, we cannot permit an insurer to avoid its statutorily imposed liability by its insertion into the policy of a liability limiting clause which restricts the insured from receiving that coverage for which the premium has been paid.

Westphal, 87 S.D. at 410-411, 209 N.W.2d at 559 (quoting Blakeslee v. Farm Bureau Mutual Ins. Co. of Mich., 388 Mich. 464, 475, 201 N.W.2d 786, 792 (1972) (quoting Safeco Insurance Company of America v. Jones, 286 Ala. 606, 614, 243 So.2d 736, 742 (1971))).

[¶ 11.] Progressive argues that Westphal no longer represents the public policy of this state because the Legislature has never codified the holding and because the Legislature subsequently enacted anti-stacking laws. Progressive failed to show that Westphal no longer represents public policy. We affirm the trial court on this issue and hold that the "other insurance" clause of the policy is void in this circumstance.

[¶ 12.] This Court has consistently noted that the Westphal holding remains sound. See Nickerson, 2000 SD 121, ¶ 18, 616 N.W.2d at 473, n. 5; Union Insurance Co. v. Stanage, 454 N.W.2d 736, 739 (S.D. 1990); Cunningham v. Western Cas. Sur. Co., 90 S.D. 530, 532, 243 N.W.2d 172, 173 (1976). However, since Westphal, the uninsured motorist statute has been amended. The version of SDCL 58-11-9 at issue in Westphal provided:

No policy insuring against loss resulting from liability imposed by law for bodily injury or death suffered by any person arising out of the ownership, maintenance or use of a motor vehicle shall be delivered or issued for delivery in this state with respect to any motor vehicle registered or principally garaged in this state unless coverage is provided therein or supplemental thereto in limits for bodily injury or death set forth in 32-35-17, for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured motor vehicles... because of bodily injury, sickness or disease, including death, resulting therefrom; provided, that the named insured shall have the right to reject such coverage[.]

(Emphasis supplied.) SDCL 58-11-9 now provides in pertinent part:

No policy insuring against loss resulting from liability imposed by law for bodily injury or death suffered by any person arising out of the ownership, maintenance, or use of a motor vehicle may be delivered or issued for delivery in this state with respect to any motor vehicle registered or principally garaged in this state, except for snowmobiles, unless coverage is provided therein or supplemental thereto in limits for bodily injury or death equal to the coverage provided by such policy for bodily injury and death, for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured motor vehicles and hit-and-run motor vehicles because of bodily injury, sickness, or disease, including death, resulting therefrom. However, the coverage required by this section may not exceed the limits of one hundred thousand dollars because of bodily injury to or death of one person in any one accident and, subject to the limit

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