Bertelsen v. Allstate Insurance

#24987-rev & rem-SLZ

2009 SD 21

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

* * * *

BONNIE J. BERTELSEN and
PAUL D. BERTELSEN, husband
and wife, Plaintiffs and Appellants,

v.

ALLSTATE INSURANCE COMPANY,
an Insurance Corporation, Defendant and Appellee.

* * * *

APPEAL FROM THE CIRCUIT COURT
OF THE SECOND JUDICIAL CIRCUIT
MINNEHAHA COUNTY, SOUTH DAKOTA

* * * *

HONORABLE WILLIAM J. SRSTKA, JR.
Judge

* * * *

PAUL T. BARNETT
JAMES L. HOY of
Hoy Trial Lawyers, Prof., LLC Attorneys for plaintiffs
Sioux Falls, South Dakota and appellants.

MARK F. MARSHALL
ERIC C. SCHULTE of
Davenport, Evans, Hurwitz & Smith, LLC Attorneys for defendant
Sioux Falls, South Dakota and appellee.

* * * *

CONSIDERED ON BRIEFS
ON FEBRUARY 17, 2009

OPINION FILED 04/01/09
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ZINTER, Justice

[¶1.] Paul D. Bertelsen and Bonnie J. Bertelsen sued Allstate Insurance Co.

for breach of contract and bad faith arising out of Allstate’s failure to pay medical

benefits under Bertelsens’ personal automobile insurance policy. On cross-motions

for summary judgment, the circuit court dismissed the complaint. Bertelsens

appeal. We reverse.

Facts and Procedural History

[¶2.] Bonnie Bertelsen worked as an in-home registered nurse for Universal

Pediatric Services (UPS). On December 26, 2005, Bonnie was injured in an auto

accident while driving a UPS company vehicle to perform her nursing duties in a

patient’s home. As a result of the accident, Bonnie spent six weeks in the hospital,

underwent numerous surgeries, lost eight months of work, and incurred

$382,849.92 in medical expenses.

[¶3.] Bonnie filed a claim for workers’ compensation benefits with AIG,

UPS’s workers’ compensation carrier. AIG denied the claim on January 10, 2006

and February 7, 2006. AIG asserted that Bonnie’s injury did not arise out of and in

the course of her employment.

[¶4.] Bertelsens then sought medical payment benefits from Hartford

Insurance Company, UPS’s automobile insurer. Hartford paid its $30,000 limits by

April 2006. Bertelsens also sought to recover their medical expenses from Avera

Health, Bonnie’s health insurer. Avera Health paid $157,433.87. Bertelsens’

subsequent health insurers, Sanford Health Plan and Blue Cross of California, paid

additional health benefits.

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[¶5.] Bertelsens also had a personal automobile insurance policy with

Allstate that provided $100,000 of medical payments coverage. In February 2006,

Bertelsens filed a claim with Allstate for those benefits. Although Allstate was

aware that AIG had denied workers’ compensation coverage, Allstate denied the

claim on the ground that workers’ compensation should provide coverage. Allstate

relied on its policy’s workers’ compensation exclusion, which provided: “[t]his

coverage does not apply to any person to the extent that the treatment is covered

under any worker’s compensation law.” 1 Apparently acknowledging that workers’

compensation coverage had been denied at that point, in a letter dated June 13,

2006, Allstate wrote to Bonnie’s attorney asking how to contact AIG and promising

to investigate AIG’s denial of her workers’ compensation claim. The letter further

indicated: “Rest assured, once the investigation is complete and all available

coverage is exhausted, Allstate will move quickly to resolve [Bonnie’s] claim.”

[¶6.] By the spring of 2007, neither AIG’s workers’ compensation benefits

nor Allstate’s medical payment benefits were forthcoming, and Bertelsens alleged

that they began experiencing financial hardship. They alleged that they had to pay

a medical bill to avoid a collection lawsuit, and two other bills were ready to go to

collection.

[¶7.] On December 19, 2007, Bonnie filed a petition with the South Dakota

Department of Labor formally seeking workers’ compensation coverage. AIG

answered Bonnie’s petition on January 22, 2008, and for the first time admitted

1. Both Hartford and Avera Health paid their benefits despite having similar
exclusions.

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coverage for “all past, present, and future medical, hospital and health care

expenses for her work related injury.” Although Bertelsens’ workers’ compensation

and health insurers ultimately paid most of Bonnie’s medical expenses, Bertelsens

alleged that they still had not been reimbursed for $4,144.78 in out-of-pocket costs

for prescriptions, doctors’ visits, co-insurance, and deductibles.

[¶8.] Bertelsens subsequently sued Allstate for breach of contract and bad

faith. Bertelsens contended that Allstate breached its insurance contract in

February 2006, by failing to pay the medical benefits knowing that AIG had denied

Bonnie’s workers’ compensation benefits. Bertlesens further contended that

Allstate’s denial of benefits was “frivolous,” “unfounded,” and constituted bad faith.

[¶9.] Bertelsens moved for partial summary judgment on their breach of

contract claim, and Allstate moved for summary judgment on both claims. The

circuit court granted Allstate’s motion, denied Bertelsens’ motion, and dismissed

the complaint. In dismissing the complaint, the circuit court considered the breach

of contract and bad faith claims together noting that the plain language of Allstate’s

policy excluded coverage when the accident was covered by workers’ compensation.

According to the circuit court, because Bonnie’s claim ultimately fell under AIG’s

workers’ compensation coverage, Allstate had “an articulable and reasonable basis

for the denial of benefits.” The circuit court further ruled that “a denial of a claim

that is fairly debatable and is found to be not compensable under the policy terms . .

. should not constitute bad faith.” Finally, the court ruled, “it appears that

[Bertelsens] would not be able to show actual and consequential damages suffered

as the medical bills have allegedly all been paid[.]”

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[¶10.] On appeal, Bertlesens argue that the circuit court erred in failing to

conclude that Allstate had an immediate payment duty under SDCL 62-1-1.3, a

statute that requires insurers covering bodily injury to pay medical benefits if an

employer denies workers’ compensation coverage. Bertelsens contend that under

this statute and Allstate’s policy incorporating state coverage requirements,

Allstate had a duty to immediately pay its benefits because it knew AIG had denied

Bonnie workers’ compensation coverage. Bertelsens finally contend that in light of

this statute, Allstate’s letter promising to investigate and resolve the matter, and

Allstate’s failure to pay benefits, Allstate handled the claim in bad faith.

Decision

[¶11.] In reviewing the circuit court’s summary judgment, we must determine

whether the moving party demonstrated the absence of any genuine issue of

material fact and established entitlement to judgment on the merits as a matter of

law. See Clark County v. Sioux Equip. Corp, 2008 SD 60, ¶8, 753 NW2d 406, 409

(quoting Behrens v. Wedmore, 2005 SD 79, ¶18, 698 NW2d 555, 565). This case

involves construction of both the insurance contract and SDCL 62-1-1.3. “The

construction of a written contract is a question of law.” Discover Bank v. Stanley,

2008 SD 111, ¶17, 757 NW2d 756, 762. Similarly, the construction of statutes is a

question of law. Yellow Robe v. Bd. of Trustees of SD Retirement Sys., 2003 SD 67,

¶10, 664 NW2d 517, 519. We review questions of law under the de novo standard of

review. Id.

[¶12.] On the breach of contract claim, Bertelsens rely on Allstate’s policy

provision that required it to provide benefits in conformance with state

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requirements; 2 in this case, the requirements of SDCL 62-1-1.3, a workers’

compensation statute. The statute provides in relevant part:

If an employer denies coverage of a claim on the basis that the
injury is not compensable under this title . . . such injury is
presumed to be nonwork related for other insurance purposes,
and any other insurer covering bodily injury . . . of the injured
employee shall pay according to the policy provisions.

SDCL 62-1-1.3 (emphasis added). Although Bertelsens acknowledge that they were

eventually paid most of their medical expenses from the other insurers, they claim

Allstate breached this statutory obligation to immediately pay its medical benefits

from the time Bertelsens filed their claim (February 2006) to the date AIG reversed

its denial of workers’ compensation coverage (January 2008). 3 We agree.

[¶13.] In construing statutes such as SDCL 62-1-1.3:

[W]e adhere to two primary rules of statutory construction. The
first rule is that the language expressed in the statute is the
paramount consideration. The second rule is that if the words
and phrases in the statute have plain meaning and effect, we
should simply declare their meaning and not resort to statutory
construction.

2. Allstate’s policy incorporated South Dakota coverage requirements by
providing, “[w]hen any policy provision is in conflict with the law of the state
in which the insured auto is principally garaged, the minimum requirement
of the law of the state apply.”

3. Bertelsens also contend that summary judgment was improperly granted
because industry standards required Allstate to first pay medical payments
and then seek reimbursement from the workers’ compensation insurer.
Although Bertelsens introduced no such industry standards, they argue an
inference exists that industry standards were violated because Hartford and
Avera paid their benefits before resolving the workers’ compensation
coverage issue. Because Bertelsens offered no evidence of any industry
standard, we disagree with their summary judgment contention on this
record. Further, we need not reach that issue in light of SDCL 62-1-1.3.

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Clark County, 2008 SD 60, ¶28, 753 NW2d at 417. The language of SDCL 62-1-1.3

plainly requires that “any insurer covering bodily injury . . . shall pay” policy

benefits when workers’ compensation coverage is denied. By referring to bodily

injury insurers, it appears that this immediate obligation is imposed so the injured

employee can be treated for their physical injuries while the insurers resolve

coverage disputes.

[¶14.] In this case, Allstate was an “insurer” that provided coverage for

“bodily injury.” 4 Furthermore, Allstate’s policy required that it provide coverage in

accordance with South Dakota requirements. Thus, once Allstate learned that AIG

had denied coverage, Allstate had a contractual/statutory duty to immediately pay

its benefits and resolve workers’ compensation coverage and subrogation issues at a

later date. As previously noted, both Hartford and Avera had similar workers’

compensation exclusions, yet both complied with SDCL 62-1-1.3 by immediately

paying their policy benefits.

[¶15.] Although Allstate argues that SDCL 62-1-1.3 is limited to health

insurance carriers, the qualifying words “health insurance” do not appear in the

statute. Rather, the statute plainly and unambiguously applies to “any other

insurer” covering bodily injury. Notwithstanding this plain language, Allstate

contends that legislative history regarding SDCL 62-1-1.3 (the title of the act)

indicates that the statute applies only to the interaction between workers’

compensation insurance and health insurance. This Court does not, however,

4. Allstate’s policy provided coverage for medical payments when “bodily injury
is caused by a motor vehicle accident[.]”

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review legislative history when the language of the statute is clear. Clark County,

2008 SD 60, ¶28, 753 NW2d at 417 (restating that when a statute’s words “have

plain meaning and effect, we should simply declare their meaning and not resort to

statutory construction”).

[¶16.] Alternatively, Allstate argues that Bertelsens have no private cause of

action under SDCL 62-1-1.3. They point out that another part of the statute

provides, “[i]f coverage is denied by an insurer without a full explanation of the

basis in the insurance policy in relation to the facts or applicable law for denial, the

director of the Division of Insurance may determine such denial to be an unfair

practice under chapter 58-33, [South Dakota’s Unfair Trade Practice Act

(SDUTPA)].” SDCL 62-1-1.3. See also SDCL 58-33-65.1 (providing that individuals

have no right to enforce these provisions through a private cause of action); SDCL

58-33-67.7 and 68 (providing that the Division of Insurance has the authority to

investigate unfair insurance trade practices, such as, “refusing to settle a claim of

an insured or claimant on the basis that the responsibility should be assumed by

others”). From these statutory provisions, Allstate argues that a failure to comply

with SDCL 62-1-1.3 is a matter to be addressed by the Division of Insurance to the

exclusion of the Bertelsens.

[¶17.] We disagree because Bertelsens’ cause of action was not brought under

the SDUTPA. Instead, Bertlesens sued for breach of their own insurance contract.

Therefore, even if Bertelsens did not have a cause of action to enforce the SDUTPA,

the lack of a SDUTPA cause of action was not a defense to Bertelsens’ independent

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cause of action for breach of their own insurance contract.5 We conclude that

Allstate breached its contractual/statutory duty of immediate payment under SDCL

62-1-1.3.

[¶18.] The circuit court also ruled that it did not appear that Bertelsens

would be able to show actual or consequential damages because their medical bills

had been paid. There is, however, a disputed issue of material fact concerning this

matter. Bertelsens indicated in their response to Allstate’s statement of undisputed

material facts that they still had $4,144.78 in unreimbursed medical expenses

arising from the accident. Because this response created a material issue of

disputed fact regarding damages, and because Allstate breached its immediate

payment duty, summary judgment was incorrectly granted on Bertelsens’ breach of

contract cause of action.

[¶19.] Bertelsens also sought punitive damages alleging the tort of bad faith.

The circuit court dismissed, concluding that the coverage issue was fairly debatable.

On appeal, Allstate relies on that ruling, arguing that it cannot be liable for bad

faith because the application of SDCL 62-1-1.3 to an automobile insurer is a case of

first impression for this Court.

[¶20.] Although we have dismissed bad faith claims because they involve

legal issues of first impression, they were dismissed because, as the circuit court

noted, the issue was fairly debatable. See Mudlin v. Hills Materials Co., 2007 SD

118, ¶15, 742 NW2d 49, 54; Phen v. Progressive N. Ins. Co., 2003 SD 133, ¶¶24-25,

5. For the same reason, the SDUTPA does not bar Bertelsens’ independent
cause of action for the tort of bad faith.

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672 NW2d 52, 59. Unlike those cases, however, the language of SDCL 62-1-1.3 is

plain, unambiguous, and not susceptible to debate. Upon denial of workers’

compensation coverage, all other insurers providing bodily injury coverage “shall

pay” their benefits. Therefore, Allstate’s obligation was clear from the statutory

language alone, and an interpretive decision from this Court was not necessary for

Allstate to have determined its duty under its policy.

[¶21.] We also observe that a disputed issue of material fact remains

concerning Allstate’s intent in failing to pay its benefits. As previously indicated,

Allstate’s letter to Bonnie’s attorney promised that it would investigate AIG’s

failure to provide workers’ compensation coverage, and that Allstate would move

quickly to resolve Bonnie’s claim. Bertelsens alleged, and Allstate did not dispute,

that Allstate did nothing for approximately two years. This assertion, coupled with

Allstate’s letter and SDCL 62-1-1.3, create an issue of fact regarding Allstate’s good

faith in handling this claim.

Conclusion

[¶22.] Allstate breached its contractual and statutory duty to immediately

pay medical benefits for bodily injury after Bonnie’s workers’ compensation claim

was denied. Further, genuine issues of material fact preclude summary judgment

on contract damages. Genuine issues of material fact also remain on Bertelsens’

bad faith claim. We reverse and remand for further proceedings consistent with

this opinion.

[¶23.] GILBERTSON, Chief Justice, and KONENKAMP and MEIERHENRY,

Justices, and SABERS, Retired Justice, concur.

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