APPEAL FROM THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT MINNEHAHA COUNTY, SOUTH DAKOTA HONORABLE WILLIAM J. SRSTKA, JR. Judge.
The opinion of the court was delivered by: Zinter, Justice
CONSIDERED ON BRIEFS ON FEBRUARY 17, 2009
[¶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.
[¶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."*fn1 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 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[.]"
[¶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 anemployer 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, ...