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Kern v. Progressive Northern Insurance Co.

Supreme Court of South Dakota

July 20, 2016

TROY KERN, Plaintiff and Appellant,

          CONSIDERED ON BRIEFS ON MAY 23, 2016


          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.

          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.


         [¶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 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 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 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 ...

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