Stoner v. State Farm Mut. Auto. Ins. Co., 85-5054

• Decision Date: 06 January 1986
• Docket Number: No. 85-5054,85-5054
• Citation: 780 F.2d 1414
• Parties: Monica STONER, Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1414

780 F.2d 1414

Monica STONER, Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellee.

No. 85-5054.

United States Court of Appeals,

Eighth Circuit.

Submitted Sept. 9, 1985.

Decided Jan. 6, 1986.

Bradley C. Bonynge, Sioux Falls, S.D., for appellant.

Richard O. Gregerson, Sioux Falls, S.D., for appellee.

Before ROSS, Circuit Judge, FLOYD R. GIBSON, Senior Circuit Judge and ARNOLD, Circuit Judge.

FLOYD R. GIBSON, Senior Circuit Judge.

Plaintiff Monica Stoner appeals from the district court's ¹ grant of summary judgment to the defendant State Farm Mutual Automobile Insurance Company [State Farm] in this diversity action. Stoner brought this action seeking the underinsured motorist benefits under two policies issued by State Farm to her father, and alleging bad faith on State Farm's part in refusing to pay the underinsured motorist benefits under her own policy. On July 1, 1983 the district court granted State Farm's motion for summary judgment on Stoner's claim for punitive damages in connection with her bad faith claim. Later, on February 1, 1985, the court granted State Farm's motion for summary judgment on Stoner's claims under her father's policies, finding that she was not an insured under those policies, and on her bad faith claim. On appeal Stoner asserts that the district court erred in granting State Farm's summary judgment motions, and in denying her own motion for summary judgment and her motion to amend her complaint. We affirm the judgment of the district court in granting State Farm's motions for summary judgment on the contract punitive damages issue and on Stoner's claims under her father's policies, but reverse the court's grant of summary judgment on the bad faith claim insofar as that claim is based on tort. The parties agree that South Dakota law controls.

I. FACTS

On November 29, 1982 Stoner was a passenger in a car driven by a friend, Deanna Clements, near Sioux Falls, South Dakota, when Clements lost control and the car slid sideways into the path of an eighteen-wheel truck heading in the same direction. Clements was killed, and Stoner was left a quadriplegic. Stoner had enlisted in the Navy in August 1980 for a four-year term. At the time of the accident, Stoner was twenty-one years old and stationed at the Naval Air Station in Dallas, Texas, but was in South Dakota on Thanksgiving leave. In Dallas Stoner lived a few miles off base in a trailer owned by another sailor. The certificate of legal residence that Stoner signed upon entering the Navy, which was still in effect at the time of the accident, listed Sioux Falls as her legal residence.

At the time of the accident Stoner had a policy in effect with State Farm, covering an automobile that she co-owned with her mother, that provided underinsured motorist coverage up to $100,000 and medical payment benefits of $5,000. Her father, Dean Stoner, also had two policies with State Farm covering his own automobiles, each of which had underinsured motorist coverage of $100,000 as well as medical payment benefits of $5,000. In obtaining these policies, Dean Stoner was advised by the State Farm agent that if he took out policies on his own automobiles as well as on automobiles belonging to his daughters Monica and Marsha (who was also in the military service), his daughters would be treated as residents of the family home in Sioux Falls. Mr. Stoner agreed to do so, thereby taking advantage of the lower insurance rates in South Dakota for his daughters' policies. Mr. Stoner's policies list as those insured under the policies "a. The first person named in the declarations; b. his or her spouse; and c. their relatives." The policies then define "relative" as "a person related to you or your spouse by blood, marriage or adoption who lives with you. It includes your unmarried and unemancipated child away at school" (emphasis in policy).

About two weeks after the accident, Mr. Stoner informed State Farm of the claim. State Farm claims adjustor Lawrence Rottunda investigated the claim, and made a Combined Liability Report on January 24, 1983. In this report Rottunda made the following findings: that the underinsured motorist coverage under Monica Stoner's policy was in effect at the time of the accident; that Deanna Clements, the deceased driver of the car in which Stoner was riding, was insured only in the amount of $15,000, with no other assets in her estate; that Clements' negligence was the primary cause of the accident, that Stoner's medical prognosis was permanent quadriplegia; and that the truck driver, who had a million dollar liability policy with INA Aetna, could have been negligent to some degree for maintaining an excessive speed in adverse road conditions. In a memo dated March 18, 1983, State Farm's legal counsel, Richard Gregerson, stated his opinion that the underinsured motorist coverage under Monica's policy would apply to her claim, notwithstanding the million dollar liability coverage on the truck. ² Five days later claims adjustor Rottunda, in a "file recap" to his superintendent, requested authority to settle Stoner's claim in the amount of $85,000 (the $100,000 underinsured motorist coverage under her policy less the $15,000 liability coverage on Deanna Clements' policy).

State Farm's regional settlement committee issued a report on April 13, 1983, advising that the insurer pay the $85,000 under Stoner's policy but deny coverage under Mr. Stoner's policies, as the committee voted 3-2 that she was not a resident of her parents' household. Stoner claims that State Farm conditioned payment of the $85,000 on Stoner's and her parents' execution of a release of all claims against the truck driver, the truckline, and the estate of Deanna Clements. In May 1983 Stoner filed this action seeking the underinsured motorist benefits under her own and her father's policies in Count I, and claiming punitive damages in Count II based on State Farm's alleged bad faith in refusing to pay the underinsured motorist benefits under her own policy. After service of summons and complaint, State Farm admitted liability for the $85,000 in underinsured motorist benefits under Stoner's own policy. On July 1, 1983 the district court granted State Farm's motion for partial summary judgment on Stoner's claims for punitive damages in Count II. Stoner then made several motions to the court, including a motion to amend her complaint, a motion to reverse the partial summary judgment granted to State Farm, a motion for partial summary judgment on her claim for the underinsured motorist benefits under her father's policies, and a motion to compel discovery. State Farm also moved for summary judgment on Stoner's claim. The district court rendered its opinion on February 1, 1985, denying all of Stoner's motions and granting State Farm's motion for summary judgment.

II. PROPRIETY OF GRANT OF STATE FARM'S SUMMARY JUDGMENT MOTION

A. Stoner's Claims Under Her Father's Policies

Monica Stoner argues that the district court erred in granting State Farm's motions for summary judgment, because genuine issues of material fact exist for trial. First, Stoner contends that the court should have denied State Farm's motion on her claim for benefits under her father's policies, because those policies are at least susceptible of an interpretation that she is an insured under their terms. The phrase "lives with you" in the policy definition of relative, Stoner asserts, is synonymous with the phrases "resides" and "residents of the same household," both of which have been held by many courts to be ambiguous in meaning. Because the phrase "lives with you" is equally ambiguous, according to Stoner, the court should have followed the prevailing practice among courts that an ambiguity in policy language is interpreted in favor of coverage. As further evidence of the ambiguity of the policy phrase "lives with you," Stoner cites the State Farm regional committee's 3-2 split on the interpretation of the policy.

In addition to her argument that the language "lives with you" is ambiguous, Stoner refers to several cases dealing with insurance coverage of persons in military service, all of which hold that entry into such service does not of itself change a person's domicile or legal residence. Finally, Stoner takes issue with the district court's analysis of the policy. The court determined that the phrase "lives with you" was not intended to mean legal residence, because otherwise no reason would exist to add the statement that "it includes your unmarried and unemancipated child away at school." Stoner argues that the inclusion of unmarried and unemancipated children away at school was not intended as an exception to the "lives with you" language, but rather as an example of how the language could be applied.

We agree with the district court and State Farm that no genuine issue of material fact exists as to Stoner's claims under her father's policies. Despite Stoner's contention to the contrary, we find no ambiguity in the phrase "lives with you." The cases to which Stoner cites in her brief all deal with some variation of the terms "residence" or "domicile," both of which have specific legal meanings apart from their ordinary usage. See Black's Law Dictionary 435-36, 1176-77 (5th ed. 1979). No contradiction exists, as Stoner would suggest, between the district court's statement, "there is no question that Monica Stoner remained a legal resident of her parents' household," and its ultimate conclusion that she was not living with her parents and thus was not insured under Mr. Stoner's policies. "Legal residence,"...