When a person is injured in a motor vehicle accident and the responsible party lacks sufficient liability coverage to compensate the injured party for his or her damages, the injured person may resort to a claim against their own auto coverage for underinsured motorist (UIM) benefits. UIM claims present unique challenges to insurers and their adjusters because the specter of a bad faith claim is lurking in the background. In South Dakota, when settlement negotiations in a UIM claim break off, plaintiff attorneys generally file suit for the benefits due under the coverage agreement, but also include the one-two punch of an allegation of bad faith, and vexatious or unreasonable refusal to pay benefits under SDCL 58-12-3. If an insurer is found to have violated SDCL 58-12-3, a claimant may recover attorney fees.
In Kern v Progressive Northern Insurance Co., 2016 S.D. 52, the claimant was involved in a low-velocity motor vehicle accident. Kern was insured by under a Progressive policy with $5000 in med pay and $100,000 UIM limits. He exhausted his med pay benefits and settled with the at-fault driver who was insured by a $25,000 Geico policy. Kern then made claim against Progressive for UIM benefits. Progressive gathered medical records and had Kern submit to an IME before offering $12,500 above and beyond the amounts collected from Geico to settle the claim. Kern rejected the offer and filed suit alleging bad faith and vexatious refusal to pay the benefits. The opinion does not reveal Kern’s settlement demands, but negotiations apparently continued post-suit, because within weeks of trial Progressive increased its offer to $45,000 in UIM benefits.
At trial, Kern’s theory was that Progressive was “low balling” its offers for less than it evaluated the claim to be worth. Progressive claim managers testified and admitted that mistakes were made in the claim process. The opinion doesn’t specify what the “mistakes” were. Kern’s trial attorneys also sought to present evidence that the Progressive claim handlers were involved in another bad faith claim, where, despite a jury verdict finding no bad faith, the U.S. District Court in South Dakota found vexatious or unreasonable refusal to pay benefits and awarded attorney fees. The trial court in Kern, excluded that evidence. Ultimately, the jury valued Kern’s gross damages at $43,649.97, from which the jury had to deduct the $25,000 paid by Geico, resulting in a final award of $18,649.97. Notably, the jury found no bad faith on the part of Progressive. In subsequent proceedings, the trial court found no vexatious or unreasonable refusal to pay benefits and denied Kern’s motion for attorney fees.
On appeal, Kern’s attorneys raised six different issues. However, the South Dakota Supreme Court affirmed, rejecting all six alleged errors. On the vexatious refusal to pay benefits claim, the Supreme Court noted Progressive’s settlement offers, including the final pre-trial offer.
A copy of the Supreme Court’s opinion can be found here.