Shepard v. Milbank Mut. Ins. Co., 77-1926
| Decision Date | 20 July 1978 |
| Docket Number | No. 77-1926,77-1926 |
| Citation | 579 F.2d 477 |
| Parties | Doreen SHEPARD, Special Administratrix of the Estate of Michelle Schmitz, Deceased, Appellee, v. MILBANK MUTUAL INSURANCE COMPANY, a corporation, Appellant. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Gene R. Bushnell, made rebuttal, Costello, Porter, Hill, Nelson, Hesiterkamp & Bushnell, Rapid City, S. D., for appellant.
Marvin D. Truhe, Lynn, Jackson, Shultz, Ireland & Lebrun, P. C., Rapid City, S. D., for appellee.
Before GIBSON, Chief Judge, and LAY and HEANEY, Circuit Judges.
On March 3, 1974, Doreen Shepard's three year old daughter died as a result of injuries she had sustained while playing on premises owned by Harry H. Grass in Custer, South Dakota. At the time of the injury Grass was insured under a comprehensive personal liability policy issued by the Milbank Mutual Insurance Company. Mrs. Shepard instituted a wrongful death action against Grass in state court. Milbank Mutual denied coverage under its policy with Grass and refused to defend the wrongful death action. A consent judgment against Grass in the amount of $15,000 was entered in the state court and Grass assigned his rights under the insurance policy to Mrs. Shepard. She then brought suit in federal court to recover the amount of the judgment from the insurance company.
Finding the loss to be within the coverage of the comprehensive liability policy issued to Grass by the company, the district court, the Honorable Andrew Bogue presiding, rendered judgment in favor of plaintiff. Shepard v. Milbank Mutual Insurance Co., 437 F.Supp. 744 (D.S.D.1977). On appeal the company contends, as it did in the district court, that the risk was excluded under the policy and that misrepresentations with regard to alleged business activities conducted on the insured premises precluded recovery on the policy. We fully agree with the well-reasoned analysis set forth in the district court's memorandum opinion rejecting these defenses, and we therefore affirm the $15,000 award on the basis of that opinion.
The district court ordered that plaintiff recover, pursuant to the assignment from Harry H. Grass, attorney fees in the amount of $1,346.11 for funds expended by Grass in defense of the state wrongful death action. In addition, the court awarded $6,659.89 for services rendered by plaintiff's attorney in the present indemnity suit in federal court. The court based its decision on a finding that fees in both the state and federal actions were foreseeable consequences of the company's breach of contract, and were therefore recoverable under the rationale set forth in Luke v. American Family Mutual Insurance Co., 476 F.2d 1015 (8th Cir.), Cert. denied, 414 U.S. 856, 94 S.Ct. 158, 38 L.Ed.2d 105 (1973). 1
In Luke this court held that an insurer which breached its contract with the insured by wrongfully refusing to defend and to accept a settlement offer within policy limits could subsequently be held liable in an indemnity action for damages in excess of policy limits because such damages resulted from the insurer's breach of contract. We declined, however, to award attorney fees to plaintiffs in the indemnity action because they had failed to establish that the insurer's actions had been vexatious or without reasonable cause, as required by S.D. Compiled Laws Ann. § 58-12-3. 2
In Scherf v. Myers, S.D., 258 N.W.2d 831 (1977), the Supreme Court of South Dakota held that, absent a specific statutory provision, the allowance of attorney fees in indemnity cases "is limited to the defense of the claim indemnified against and does not extend to services rendered in establishing the right of indemnity." 258 N.W.2d at 836. We are, of course, bound by South Dakota law in this diversity case. We therefore conclude that it was error for the district court to award attorney fees in the indemnity action as part of the overall damages arising from the breach of contract by the insurer.
The attorney fees incurred by Harry H. Grass in defense of plaintiff's wrongful death action are recoverable from the company due to its breach of contract under the policy of insurance issued to Grass. See Scherf v. Myers, supra ; Wilson v. Allstate Insurance Co., 85 S.D. 553, 186 N.W.2d 879, 882 (1971). Defendant concedes that such fees would be recoverable upon a finding of breach of contract, but asserts that there...
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...38 L.Ed.2d 105 (1973); Shepard v. Milbank Mut. Ins. Co., 437 F.Supp. 744, 749-50 (D.S.D.1977), aff'd in part and rev'd in part, 579 F.2d 477, 479 (8th Cir.1979). See Scherf v. Myers, 258 N.W.2d 831 (S.D.1977); Wilson v. Allstate Ins. Co., 85 S.D. 553, 186 N.W.2d 879, 882 (1971); Annot., 41 ......
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Triple U Enterprises, Inc. v. New Hampshire Ins. Co.
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