Kern v. Progressive Northern Insurance Co. ( 2016 )

#27521-a-DG
2016 S.D. 52
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
TROY KERN, Plaintiff and Appellant,
v.
PROGRESSIVE NORTHERN
INSURANCE COMPANY, Defendant and Appellee.
****
APPEAL FROM THE CIRCUIT COURT OF
THE SEVENTH JUDICIAL CIRCUIT
PENNINGTON COUNTY, SOUTH DAKOTA
****
THE HONORABLE ROBERT A. MANDEL
Judge
****
CHARLES ABOUREZK
JON J. LAFLEUR of
Abourezk, Zephier & LaFleur, P.C.
Rapid City, South Dakota Attorneys for plaintiff and
appellant.
MARK J. ARNDT of
May & Johnson, P.C.
Sioux Falls, South Dakota Attorneys for defendant and
appellee.
****
CONSIDERED ON BRIEFS
ON MAY 23, 2016
OPINION FILED 07/20/16
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GILBERTSON, Chief Justice
[¶1.] Troy Kern was involved in a rear-end collision in 2005. The other
driver was at fault but did not have sufficient insurance to cover Kern’s injuries.
Kern thus filed an underinsured motorist claim with his insurance provider,
Progressive. After months of unsuccessful negotiations, Kern sued Progressive for
bad faith alleging that its settlement offers had been intentionally inadequate. He
also sued for unpaid underinsured motorist (UIM) benefits. A jury subsequently
awarded Kern $18,650 in UIM benefits but did not find that Progressive acted in
bad faith. Kern appeals both the award and the bad faith finding. We affirm.
Background
[¶2.] In August 2005, Kern was involved in an accident in Rapid City. The
vehicle in front of him stopped abruptly, and while Kern was able to stop before a
collision, he was rear-ended by the vehicle behind him. According to the accident
report, Kern told the police he was traveling approximately 10 mph and the vehicle
collided into him at about 15 mph. A photograph taken at the time of the accident
did not depict any significant damage to Kern’s vehicle, but there was noticeable
damage to the tortfeasor’s vehicle. Kern did not complain of any injuries at the
scene.
[¶3.] Progressive received notice of the accident shortly after it occurred,
and informed Kern that his policy provided for $5,000 in medical payments
coverage. Kern’s policy with Progressive also provided $100,000 in UIM coverage.
The tortfeasor who collided with Kern maintained a Geico auto policy providing
$25,000 in liability coverage. Kern accepted the medical payments coverage
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amount, but exhausted it approximately five months after the accident. There was
little contact between the parties for over a year, until Kern filed a UIM claim in
February of 2007, alleging the accident caused an injury to his left shoulder and
that treatment cost surpassed Progressive’s medical payments disbursement.
[¶4.] After Kern filed the UIM claim, Progressive assigned Loren Sedevie as
claims handler. Sedevie’s supervisor was Delores Hoime. After his assignment,
Sedevie began collecting Kern’s medical records. In February 2008, Progressive
retained Dr. Nolan Segal to conduct an independent review of Kern’s medical
records and to render opinions regarding the nature and extent of the injuries. No
photographs of the tortfeasor’s vehicle were provided to Segal. He opined that the
accident appeared to be low velocity, that Kern had extensive neck and back
complaints prior to the accident, his post-accident complaints did not differ
significantly from his pre-accident complaints, and that there was no evidence that
Kern sustained a left shoulder injury due to the accident.
[¶5.] In March 2008, Kern informed Progressive that he had settled his
claim with Geico. Geico agreed to pay $20,000 directly to Kern, and offered to pay
$5,000 to Progressive in subrogation for the medical payments coverage Progressive
previously paid to Kern. At this point, Kern had received a total of $25,000 for his
injuries—$20,000 from Geico as a part of the tortfeasor’s liability policy, and $5,000
from Progressive as a part of Kern’s medical payments coverage.
[¶6.] After the Geico claim was settled, Kern and the claims adjuster
Sedevie engaged in settlement negotiations. In October 2008, Progressive made an
offer to Kern with Dr. Segal’s report attached. Kern’s attorney wrote a letter in
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response giving the attorney’s negative opinion of Segal’s findings, and asked
Progressive to re-evaluate the claim. Kern later sought to admit this letter into
evidence at trial.
[¶7.] Progressive’s last settlement offer prior to the lawsuit was for $12,500
over and above the $25,000 Kern had already received. Kern rejected this amount
and filed this suit in July 2009. Negotiations continued during the litigation
process, but no amount was ever agreed upon. A few weeks prior to trial,
Progressive offered $45,000 in UIM benefits, but Kern rejected this amount and the
parties proceeded to trial.
[¶8.] Before the jury trial, Kern attempted to subpoena John Charles Jones,
the top manager of Progressive’s gainsharing program. Kern also attempted to
subpoena Scott Krank, the claims manager for both Sedevie and Hoime, whose
office was located in North Dakota. Progressive filed a motion to quash the
subpoenas, arguing that the trial court had no personal jurisdiction over the two
employees. The trial court agreed and quashed the subpoenas.
[¶9.] Prior to trial, Kern also filed a notice of intent to use other acts
evidence. Kern argued that Sedevie and Hoime were involved in another
Progressive case involving bad faith, Bjornestad v. Progressive N. Ins. Co., No. CIV
08-4105, 2010 WL 4687640, at *3 (D.S.D. Nov. 10, 2010), aff’d, 664 F.3d 1195 (8th
Cir. 2011). In that case, the jury did not find bad faith, but the trial judge awarded
attorney’s fees because Progressive’s behavior was vexatious and without
reasonable cause under SDCL 58-12-3. The trial court denied the motion to include
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this other acts evidence, and denied Kern’s renewed motion when the issue came up
during trial.
[¶10.] The jury trial took place in March 2015. Kern’s trial theory was that
Progressive acted in bad faith by deliberately “low-balling” Kern’s claim. Kern
argued that there were inconsistencies in Progressive’s claim management process,
alleging that some of Progressive’s settlement offers were less than their internal
valuation of the claim. When Kern confronted Progressive about these alleged
inconsistences, Sedevie answered that mistakes had been made in the claims
process. Sedevie’s supervisor Hoime also admitted that mistakes were made during
the process. Despite this testimony, the trial court found post-trial that no credible
evidence had been presented indicating that Progressive ever attempted to
negotiate a settlement for any amount less than its own internal evaluation range
for Kern’s claim.
[¶11.] After Kern presented his case, he moved for judgment as a matter of
law regarding his bad faith claim, which the court denied. The case was submitted
to the jury. The jury found that Progressive had not acted in bad faith, but did
award Kern gross damages of $43,649.97. The jury’s verdict was in the form of a
special verdict form, which instructed them to subtract $25,000 from their
calculated total of damages, if they found any. Thus, Kern’s final award was
$18,649.97 in unpaid UIM damages.
[¶12.] After the verdict was handed down, Kern renewed his motion for
judgment as a matter of law and moved for attorney’s fees under SDCL 58-12-3. A
hearing was held in June 2015. After issuing findings of fact and conclusions of
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law, the court denied both motions. The court found that Kern failed to meet his
burden proving that Progressive’s negotiations were vexatious or without
reasonable cause as required under the statute.
[¶13.] Kern now appeals, arguing six issues:
1. Whether the trial court abused its discretion when it issued
the verdict form instructing the jury to subtract $25,000 from
Kern’s total damages.
2. Whether the trial court abused its discretion by excluding the
letter from Kern’s counsel in response to Dr. Segal’s report.
3. Whether the trial court abused its discretion by excluding
Kern’s proposed other acts evidence.
4. Whether the trial court abused its discretion by quashing the
trial subpoenas of John Charles Jones and Scott Krank.
5. Whether the trial court erred in refusing to award attorney
fees under SDCL 58-12-3.
6. Whether the trial court erred by refusing to grant Kern’s
motion for judgment as a matter of law or a new trial.
Analysis
[¶14.] 1. Whether the trial court abused its discretion when it issued the
verdict form instructing the jury to subtract $25,000 from Kern’s
total damages.
[¶15.] The trial court used a special verdict form to assist the jury in
rendering its verdict. Special verdict forms are useful when dealing with complex
causes of action. Zahn v. Musick, 2000 S.D. 26, ¶ 41, 605 N.W.2d 823, 831. Use of
such a form is within the trial court’s discretion, and we will not disturb its decision
absent an abuse of that discretion. Id. at ¶ 40, 605 N.W.2d at 831.
[¶16.] Kern argues that because he only received $20,000 from Geico, only
that amount should have been deducted from the total award. Because the
tortfeasor’s policy limit was $25,000, Kern argues that he was entitled to that entire
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amount from Geico. Kern alleges Geico wrongfully paid $5,000 in subrogation to
Progressive to compensate for the medical payments coverage Progressive had
already disbursed.
[¶17.] Kern’s argument is unpersuasive. Whether he was entitled to $25,000
from Geico is irrelevant, because the jury’s purpose in the verdict form was to
determine what damages were owed to Kern by Progressive over and above what he
had already received. The jury calculated his total damages, and then subtracted
previously received compensation. It is undisputed that Kern received $5,000 in
medical payments coverage from Progressive, and that amount was properly
subtracted from his final damages total. See Diggs v. Tillman, 985 So. 2d 767, 770
(La. Ct. App. 2008) (“[I]t is a well-settled rule that the UM carrier is entitled to a
credit for any amount which it has paid to the plaintiff under the medical payments
coverage.”); 12 Couch on Insurance 3d § 171:44 (2016) (“[T]he insurer can generally
setoff from the UM/UIM coverage the amounts paid to the insured under the
medical expenses provision on the basis that it prevents a ‘double recovery’ by the
insured.”). The trial court did not abuse its discretion by submitting to the jury the
verdict form that subtracted $25,000 from Kern’s total damages.
[¶18.] 2. Whether the trial court abused its discretion by excluding the
letter from Kern’s counsel in response to Dr. Segal’s report.
[¶19.] After Dr. Segal completed his report of Kern’s injuries and the report
was shared with Kern’s trial counsel, Kern’s trial counsel drafted a letter to
Progressive contesting some of Dr. Segal’s medical conclusions. Kern argues that
Progressive did not address his trial counsel’s objections in the letter, and the
refusal to acknowledge these objections was evidence of bad faith. Kern argues that
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the letter was not intended to be introduced as substantive evidence and thus his
trial counsel would not have been testifying.
[¶20.] Regardless of whether Kern intended the letter to show Progressive’s
bad faith or as substantive evidence contesting Dr. Segal’s report, it was still a
letter written by Kern’s trial counsel containing trial counsel’s opinions. Attorneys
cannot participate in a trial after they have testified as witnesses in that trial.
SDCL 19-1-3. Additionally, the South Dakota Rules of Professional Conduct
prohibit an attorney from acting as both an advocate and a witness in a case with
exceptions that would not have applied here. South Dakota Rule of Professional
Conduct 3.7. It would have been exceedingly difficult for the jury to view the letter
only as evidence of Progressive’s bad faith in not responding and not as substantive
evidence of any deficiencies in Dr. Segal’s opinion.
[¶21.] It is also unlikely that Kern was prejudiced by the exclusion of the
letter. Kern’s putative goal in introducing the letter was to highlight to the jury
that Progressive did not respond to his objections to Dr. Segal’s report and this
showed bad faith on Progressive’s part. Kern elicited this information explicitly
during the direct examination of Sedevie. Admitting the letter would not have
added any substantial relevant information, and its inclusion would have amounted
to Kern’s trial counsel giving testimony. The trial court did not abuse its discretion
by excluding the letter.
[¶22.] 3. Whether the trial court abused its discretion by excluding Kern’s
proposed other acts evidence.
[¶23.] Prior to trial, Kern sought to introduce the facts from Bjornestad v.
Progressive N. Ins. Co., a bad faith case involving both Sedevie and his supervisor
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Hoime. 2010 WL 4687640, at *3 (D.S.D. Nov. 10, 2010). In that case, after the jury
found that Progressive did not act in bad faith, the plaintiff moved for attorney’s
fees. Id. The trial judge found that Progressive had intentionally made settlement
offers below its internal valuation of the claim and that Progressive was dishonest
with the plaintiff’s doctor. Id. The trial judge found that Progressive’s behavior
was vexatious and without reasonable cause and awarded attorney’s fees under
SDCL 58-12-3. Id.
[¶24.] The trial court in this case denied Kern’s pre-trial motion to include
the facts from Bjornestad, stating the issue could be brought up again at trial if
necessary. During trial, Kern sought to introduce these prior acts to show absence
of mistake after Sedevie admitted mistakes occurred in their investigation. The
trial court denied his motion.
[¶25.] SDCL 19-19-404(b) prohibits the use of evidence of a past act to prove
a person’s character. This evidence can be admitted to show absence of mistake or
lack of accident. SDCL 19-19-404(b)(2); see State v. Jolley, 2003 S.D. 5, ¶ 22, 656
N.W.2d 305, 310. However, the evidence should still be excluded if another rule of
evidence requires it. If the evidence’s probative value is substantially outweighed
by the potential waste of time, the trial court is correct to exclude it. SDCL 19-19-
403.
[¶26.] In this case, the trial court was correct to exclude the evidence because
the potential for confusion and waste of time substantially outweighed the
evidence’s limited probative value. Kern sought to introduce the evidence to show
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that Progressive’s actions were not mistakes and that its conduct was in bad faith.
However, the jury explicitly did not find bad faith in Bjornestad, thus limiting that
case’s applicability to Kern’s situation. See Tripp v. W. Nat. Mut. Ins. Co., 664 F.3d
1200, 1205 (8th Cir. 2011) (holding that "where a jury finds in favor of an isured on
a tort claim of bad faith, South Dakota law requires a seperate analysis to
determine whether an insurer's refusal o pay is vexatious or without reasonable
cause under § 58-12-3."see also Isaac v. State Farm Mut. Auto. Ins. Co., 522 N.W.2d
752, 763 (S.D. 1994) (“[A] finding of bad faith on the part of an insurance company
does not mean ‘ipso facto’ that its conduct was vexatious or without reasonable
cause [under SDCL 58-12-3].”); Crabb v. Nat’l Indem. Co., 87 S.D. 222, 205 N.W.2d
633, 639 (1973) (indicating a finding “that an insurer lacked good faith does not
signify [the insurer’s] conduct was ‘vexatious or without reasonable cause’, as a
matter of law”).
[¶27.] In addition to the limited probative value, the Bjornestad facts would
have inevitably led Progressive to counter with facts from other cases where its
behavior was not found to be improper, leading to each case being effectively
retried. This would have greatly lengthened and muddled an already long and
confusing case, and would not have aided the jury in its decision. Royal Bahamian
Ass’n, Inc. v. QBE Ins. Corp., 745 F. Supp. 2d 1380, 1385 (S.D. Fla. 2010) (holding
that any probative value from an insurer’s conduct in prior claims would be
substantially outweighed by the prejudice of having to re-try many other cases in
one trial). The trial court did not abuse its discretion by excluding the facts from
the Bjornestad case.
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[¶28.] 4. Whether the trial court abused its discretion by quashing the
trial subpoenas of John Charles Jones and Scott Krank.
[¶29.] While this Court has never directly addressed the standard of review
of a trial court’s decision to quash a subpoena, we have previously analyzed a trial
court’s quash of a subpoena as a discovery or evidentiary issue and thus reviewed it
for an abuse of discretion. See Lien v. Lien, 2004 S.D. 8, ¶ 33, 674 N.W.2d 816, 826-
27; Phipps Bros. Inc. v. Nelson’s Oil & Gas, Inc., 508 N.W.2d 885, 890 (S.D. 1993)
(“We have held that a party seeking to modify or quash such a subpoena has the
burden of proving the necessity of doing so . . . . We generally recognize that the
trial court should be allowed considerable discretion on its evidentiary rulings.”)
(citation omitted); see also Mitzel v. Emp’rs Ins. of Wausau, 878 F.2d 233, 235 (8th
Cir. 1989) (affirming the federal district court’s quash of a subpoena under South
Dakota law “[b]ecause no abuse of discretion has been shown”).
[¶30.] Krank and Jones were not parties to this case. They are Progressive
employees, but are not its registered agents. They do not live in South Dakota, and
do not work in South Dakota. The trial court would not have been able to exert
personal jurisdiction over the individuals. Kern attempts to overcome this by
arguing that SDCL 58-6-39 compels any insurance company doing business in
South Dakota to designate the director of the Division of Insurance as its attorney
for service of legal process. SDCL 58-6-39. However, this statute applies to
“insurers” not employees of insurers, as the individuals are. As the statute is
inapplicable, the trial court would have been without power to compel the
individuals to appear in court, and properly quashed the subpoena.
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[¶31.] 5. Whether the trial court erred in refusing to award attorney fees
under SDCL 58-12-3.
[¶32.] In order to be awarded attorney’s fees under this statute, a court must
find that an insurer’s denial of coverage was vexatious or without reasonable cause.
SDCL 58-12-3; Brooks v. Milbank Ins. Co., 2000 S.D. 16, ¶ 17, 605 N.W.2d 173, 178.
The court’s decision of whether the insurer’s conduct was vexatious or without
reasonable cause is a finding of fact and thus will not be reversed unless the
decision was clearly erroneous. Sawyer v. Farm Bureau Mut. Ins. Co., 2000 S.D.
144, ¶ 29, 619 N.W.2d 644, 652.
[¶33.] The facts of this case are complicated, and the trial judge had the
benefit of observing the trial’s many subtleties. In light of this, and upon looking at
the entire record, it cannot be said that the trial judge’s finding that Progressive did
not act without reason was clearly erroneous. Progressive never denied that Kern
was entitled to UIM coverage. It never claimed that Kern was at fault in the
accident. A few weeks prior to trial, Progressive offered to settle the case for
$45,000 in UIM benefits, a higher amount than what the jury determined his actual
damages to have been. In light of these factors, the trial judge’s determination that
Progressive’s conduct was not vexatious was not clearly erroneous.
[¶34.] 6. Whether the trial court erred by refusing to grant Kern’s motion
for judgment as a matter of law or a new trial.
[¶35.] Kern supports this argument by restating the arguments in his other
issues. He does not present any new arguments or authority to support his theory
that the trial court should have granted him a new trial or judgment as a matter of
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law. As such, the argument is waived. Longwell v. Custom Benefit Programs
Midwest, Inc., 2001 S.D. 60, ¶ 30, 627 N.W.2d 396, 401.
Conclusion
[¶36.] Kern’s alleged errors do not merit reversal. The trial court did not
abuse its discretion regarding the verdict form or its evidentiary rulings, when it
quashed the subpoenas of Krank and Jones, or when it refused to order a new trial.
The trial court also did not clearly err by refusing to award attorney’s fees. We
affirm.
[¶37.] ZINTER, SEVERSON and WILBUR, Justices, and KONENKAMP,
Retired Justice, concur.
[¶38.] KONENKAMP, Retired Justice, sitting for KERN, Justice,
disqualified.
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