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Dziadek v. The Charter Oak Fire Insurance Co.

United States District Court, D. South Dakota, Southern Division

December 1, 2015





Plaintiff, Laura Dziadek ("Dziadek"), sued Defendant Charter Oak Fire Insurance Company, doing business as Travelers ("Charter Oak"), making claims sounding in contract and tort relating to a commercial insurance policy issued by Charter Oak. Doc. 15. Dziadek's Amended Complaint asserts that she is entitled to declaratory judgments that she is an insured under the underinsured ("UIM") endorsement with Charter Oak owing her a duty of good faith and fair dealing, that $1, 000, 000 of UIM coverage exists, and that she is an insured under the medical payments endorsement. Doc. 15 at ¶¶ 15-51. Dziadek further alleges Charter Oak breached the insurance contract and engaged in unfair trade practices, fraud and deceit, and bad faith in its dealings with Dziadek. Doc. 15 at ¶¶ 52-95. After the lawsuit was filed, Charter Oak acknowledged coverage, paid $900, 000 under the UIM coverage, [1] paid its $5, 000 medical payments coverage limit, and now has filed a Motion for Summary Judgment. Doc. 118. Charter Oak argues that because policy limits were paid, the declaratory relief claims should be dismissed as moot, and the breach of contract claim should be dismissed for lack of any damages. Doc. 133 at 1-2. Charter Oak also moves for summary judgment on Dziadek's unfair trade practices, bad faith, fraud and deceit, punitive damages, and attorney's fees claims, by arguing that because Dziadek cannot prove a breach of contract, she has no right to seek such extra-contractual relief. Doc. 133 at 2. Finally, Charter Oak contends that even if claims for extra-contractual relief could be maintained, those claims fail as a matter of law under the facts of this case. Doc. 133 at 2. Dziadek opposes Charter Oak's Motion for Summary Judgment. Docs. 122, 125. For the reasons explained below, Charter Oak's Motion for Summary Judgment is granted on the unfair trade practices claim only and is otherwise denied.


Charter Oak issued a Commercial Insurance Policy ("the Policy") to Billion Empire Motors, Inc. ("Billion"), an auto dealership in Sioux Falls, South Dakota, for the period of July 1, 2008 to July 1, 2009. Doc. 119-1 at 1-2. The Policy included UIM and medical payments coverage. Doc. 119-2 at 10-17. Billion lent one of its vehicles to a customer, Lori Peterson ("Peterson"), while her vehicle was in for repairs. Doc. 132 at ¶ 18; Doc. 123 at 11. On September 22, 2008, while returning from the Black Hills, Peterson lost control of the Billion vehicle in or near a construction zone on Interstate 90 in South Dakota, causing the vehicle to crash in a ravine. Doc. 120-27 at 9-10. Dziadek was a passenger in the Billion vehicle driven by Peterson and was badly injured. Doc. 132 at ¶¶ 21-22; Doc. 123 at 12. Dziadek hired Jeffrey A. Cole ("Cole") of Zimmer, Duncan, and Cole in December 2008 to represent her in matters stemming from that motor vehicle accident. Doc. 132 at ¶ 37; Doc. 123 at 17-18.

The Policy contained a provision titled, "Duties In The Event Of Accident, Claim, Suit Or Loss, " which required the named insured, Billion, to provide notice of accident or loss. Doc. 119-1 at 37. Charter Oak received notice of the accident from Billion's insurance agent on January 29, 2009, and on that same day, Faith Styles ("Styles"), Charter Oak's claims representative, began to investigate. Doc. 132 at ¶¶ 26-27; Doc. 123 at 13; Doc. 135 at ¶ 4. Styles learned that Peterson was the driver in a single car accident and that Peterson may have fallen asleep to cause the accident. Doc. 132 at ¶ 28; Doc. 123 at 14; Doc. 124-2 at 3. She also learned that Dziadek was a passenger in the car at the time of the accident, that both Peterson and Dziadek were injured as a result of the accident, and that Peterson was insured under a Progressive Insurance Company ("Progressive") policy. Doc. 132 at ¶ 28; Doc. 123 at 14; Doc. 124-2 at 3. Styles contacted a Progressive adjuster and learned that Peterson had a $100, 000 liability coverage limit under the Progressive policy, that Dziadek was a nurse, and that Dziadek's medical bills already had exceeded $100, 000. Doc. 124-2 at 3. Shortly thereafter, on February 2, 2009, Styles received information about Dziadek's injuries from Dziadek's sister, Mae Schafer ("Schafer").[2] Doc. 124-2 at 5.

On February 6, 2009, after an exchange of voice messages in the days prior, Styles spoke with Cole. Doc. 124-2 at 5-6. Cole recalls that he asked Styles about coverage for Peterson and Dziadek and that Styles said there was no coverage under Charter Oak's Policy for either. Doc. 124-10 at 123-24, 130-31. Styles, however, recalls only being asked about liability coverage for Peterson and not about coverage for Dziadek. Doc. 135 at ¶ 18.

On February 12, 2009, Styles consulted with Unit Manager, Tim Westbrook ("Westbrook")-a UIM and uninsured motorist specialist-and with in-house coverage counsel Dawn Midkiff ("Midkiff') about whether Peterson was an insured under the Policy. Doc. 124-35 at 2-3; Doc. 132 at ¶48; Doc. 126 at 23. These three Charter Oak representatives determined that the Policy did not provide liability coverage for Peterson. Doc. 132 at ¶ 50; Doc. 126 at 24-26; Doc. 135 at ¶ 22. Midkiff testified that neither Styles nor Westbrook mentioned that there was an injured passenger during that meeting. Doc. 124-13 at 67, 109-11.

On the same day, February 12, 2009, and after the meeting, Styles wrote a letter to Cole regarding "YOUR CLIENT: Laura Dziadek." Doc. 124-19 at 2. The letter stated:

We have reviewed the facts of this loss in conjunction with the policy issued to our insured and it is our determination that no coverage for your client exists under this policy. Under the terms of the policy, Lori Peterson's liability coverage would be primary. If she did not have insurance or if the limits of her policy were less than the minimum required limits for South Dakota, then she would qualify as an insured under our insured's policyat [sic] amount is $25, 000. It is my understanding that Ms. Peterson had a liability limit of $100, 000 so she would not qualify as an insured under this policy.

Doc. 124-19 at 2.

Cole replied to Styles by letter dated February 18, 2009, and requested "a copy of the Declaration Sheet of the Billion Empire Motors, Inc. insurance policy . . . and a true and correct copy of the insurance policy." Doc. 120-12 at 2. Over two weeks later, on March 5, 2009, Styles sent Cole the declaration sheet and excerpts of the Policy used to determine that Peterson lacked liability coverage, but none of the provisions on UIM or medical payments coverage. See Doc. 120-13. Styles claims that she understood Cole's request to be one for information she had relied upon, so she sent the same policy provisions she had previously sent to Progressive. Doc. 135 at ¶ 28. The declaration sheet indicated that there was $1, 000, 000 UIM and $5, 000 medical payments coverage, Doc. 120-13 at 11, but Cole assumed Styles' statement in the February 12, 2009 letter-"it is our determination that no coverage for your client exists under this policy" applied to all coverage provisions, Doc. 124-46 at ¶¶ 4-5; Doc. 124-19 at 2. Meanwhile, on February 24, 2009, Progressive offered its $100, 000 liability limits to Dziadek in exchange for a full release. Doc. 124-21. Cole declined the offer because Dziadek's medical bills already had exceeded $100, 000 and because she was receiving workers' compensation benefits and hopeful to collect more from Peterson, other alleged tortfeasors, or through insurance. Doc. 124-46 at ¶18.

On September 22, 2009, exactly one year after the accident, Dziadek sued Peterson. Doc. 1. About one year later, on September 17, 2010, Cole and another attorney in Cole's office, Daniel Brendtro ("Brendtro"), filed a second lawsuit on Dziadek's behalf against the State of South Dakota Department of Transportation, various state officials, a road contractor, and a signage company ("DOT case"), alleging that the configuration and maintenance of the Interstate 90 construction zone caused or contributed to the motor vehicle accident. Doc. 132 at ¶ 81; Doc. 126 at 51-52; Doc. 128-46. However, by June or July of 2011, both Cole and Brendtro had determined that Dziadek was unlikely to recover anything substantial in the DOT case. Doc. 132 at ¶83; Doc. 126 at 52.

Also in June or July of 2011, Brendtro reviewed Dziadek's file in an effort to determine if any further coverage was available. Doc. 132 at ¶¶ 84-85; Doc. 126 at 52-53. Brendtro observed that the Policy issued by Charter Oak to Billion included UIM coverage and directed paralegal Jennifer Doubledee ("Doubledee") to request from Charter Oak a copy of the entire Policy. Doc. 132 at ¶¶ 85-86; Doc. 126 at 53; Doc. 124-9 at 155-56. Doubledee called Styles and requested the entire Policy, but Styles required Doubledee to request specific parts. Doc. 124-9 at 157. Doubledee, on July 15, 2011, then narrowed her request to Styles to the Policy's UIM and uninsured motorist provisions. Doc. 132 at ¶ 86; Doc. 126 at 53; Doc. 124-9 at 157; Doc. 128-10 at 2. Styles, however, did not immediately send the requested policy provisions. See Doc. 124-24 at 2. After Doubledee repeated her request on July 21, 2011, Styles provided the UIM and uninsured motorist policy language to Cole and Brendtro's firm on July 22, 2011. Doc. 124-24 at 2, 157; Doc. 132 at ¶88; Doc. 126 at 54.

Brendtro reviewed the UIM policy language and on July 28, 2011, sent a letter to Styles seeking to confirm that Dziadek had UIM coverage under the Policy. Doc. 124-25 at 2-5. Charter Oak received Brendtro's letter on August 1, 2011, but did not respond. Doc. 124-25 at 2; Doc. 132 at ¶ 98; Doc. 126 at 59. Dziadek filed this lawsuit on September 20, 2011. Doc. 1. Charter Oak's answer admitted the existence of UIM and medical payments coverage for Dziadek, although it denied other claims and matters. Doc. 8.

Cole ultimately demanded on January 17, 2011, that Charter Oak pay both the UIM and medical payments limits. Doc. 128-21 at 2. Cole then requested assent from Charter Oak to settle Dziadek's claim against Peterson and Progressive for the $100, 000 liability limit on February 3, 2012. Doc. 128-23 at 2. Charter Oak, on February 16, 2012, consented to that settlement and also consented to Dziadek's dismissal of the DOT case. Doc. 128-24 at 3. On February 21, 2012, Charter Oak sent two checks totaling $905, 000 to pay the UIM and medical payments coverage claims of Dziadek.[3] Doc. 128-25 at 2-5.


South Dakota substantive law applies in this diversity jurisdiction case. Hammonds v. Hartford Fire Ins. Co.. 501 F.3d 991, 996 n.6 (8th Cir. 2007) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)); Doc. 15 at ¶ 4.


Under the Federal Rules of Civil Procedure, summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). Summary judgment is not "a disfavored procedural shortcut, but rather ... an integral part of the Federal Rules as a whole, which are designed 'to secure the just, speedy and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986) (quoting Fed.R.Civ.P. 1). Rule 56 places the burden initially on the moving party to clearly establish the absence of a genuine issue of material fact and entitlement to judgment as a matter of law. Fed.R.Civ.P. 56(a). Once the moving party has met that burden, the nonmoving party must establish that a material fact is genuinely disputed either by "citing to particular parts of materials in the record" or by "showing that the materials cited do not establish the absence or presence of a genuine dispute." Fed.R.Civ.P. 56(c)(1)(A), (B); Gacek v. Owens & Minor Distribution, Inc., 666 F.3d 1142, 1145-46 (8th Cir. 2012). On summary judgment, courts view the evidence "and reasonable inferences in the light most favorable to the nonmoving party." Ferguson v. Cape Girardeau Cty., 88 F.3d 647, 650 (8th Cir. 1996).


Dziadek asserts that she is entitled to declarations that she is an insured under the UIM coverage and thus, that Charter Oak owes her a duty of good faith and fair dealing (Count 1), that $1, 000, 000 of UIM coverage exists (Count 2), and that she is an insured under the medical payments coverage (Count 3). Doc. 15 at ¶¶ 15-51. Charter Oak counters that because Charter Oak paid both UIM and medical payments benefits owed, the declaratory requests should be dismissed as moot. Doc. 133 at 14-15.

"A case becomes moot-and therefore no longer a 'Case' or 'Controversy' for purposes of Article III-'when the issues presented are no longer "live" or the parties lack a legally cognizable interest in the outcome.'" Already. L.L.C. v. Nike. Inc., 133 S.Ct. 721, 726-27 (2013) (quoting Murphy v. Hunt, 455 U.S. 478, 481 (1982) (per curiam)). Charter Oak admitted the key paragraphs of Counts 1, 2, and 3 setting forth the declaratory judgments sought by Dziadek. Doc. 1 at ¶¶ 24, 36, 51; Doc. 8 at ¶¶ 24, 36, 51; Doc. 15 at ¶¶ 24, 36, 51; Doc. 16 at ¶¶ 24, 36, 51. With regard to Count 1, Charter Oak admitted:

Laura Dziadek, therefore, is an "insured" under the Underinsured Endorsement because she was occupying a covered auto at the time she received her injuries; as an "insured", [Charter Oak] owes her an implied covenant of good faith and fair dealing; and [Dziadek] seeks a ...

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