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Haanen v. North Star Mutual Insurance Co.

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

October 25, 2016

GREG A. HAANEN, Plaintiff,
v.
NORTH STAR MUTUAL INSURANCE COMPANY, Defendant.

          OPINION AND ORDER

          CHARLES B. KORNMANN United States District Judge

         Greg Haanen initially filed a complaint against North Star Mutual Insurance Company ("North Star") in the Fifth Judicial Circuit of South Dakota, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, bad faith, breach of fiduciary duty, attorney's fees, and punitive damages. On January 11, 2016, North Star removed the case to federal district court under 28 U.S.C. §§ 1332 and 1441. North Star has filed a motion for partial judgment on the pleadings on Haanen's claims of breach of the implied covenant of good faith and fair dealing, bad faith, breach of fiduciary duty, attorney's fees, and punitive damages, pursuant to Fed.R.Civ.P. 12(c).

         FACTUAL BACKGROUND

         This case arises from an automobile accident that occurred on March 18, 2010. Plaintiff, Greg Haanen, is a resident of Browns Valley, South Dakota. Defendant, North Star, sells insurance policies to South Dakota residents. At the time of the accident, Haanen was insured by North Star. The automobile insurance policy provides $500, 000.00 of underinsurance coverage. The party responsible for the accident, Leo Cameron, had $100, 000.00 of liability insurance coverage. Haanen notified North Star that he intended to accept Cameron's liability insurance policy limit of $100, 000.00, unless it wished to substitute its draft. North Star declined to substitute its draft. Accordingly, Haanen accepted Cameron's offer of $100, 000.00. Haanen admits North Star would be entitled to a $100, 000.00 credit as a result of Cameron's payment, leaving $400, 000.00 of available underinsurance coverage.

         Haanen made a claim for benefits under the policy. North Star refused to pay any benefits. Haanen alleges he suffered serious bodily injury as a result of the automobile accident. Moreover, Haanen claims he incurred medical bills of approximately $30, 000.00 and farm expenses of approximately $41, 485.85. Lastly, Haanen pleads he will continue to incur additional farm expenses in the future as a result of the accident.

         STANDARD OF REVIEW

         "We review a 12(c) motion under the standard that governs 12(b)(6) motions." Haney v. Portfolio Recovery Associates, L.L.C., No. 15-1932, 2016 WL 5112026, at 4 (8th Cir. 2016) (quoting Westcott v. City of Omaha. 901 F.2d 1486, 1488 (8th Cir. 1990)). "We accept as true all facts pleaded by the non-moving party and grant all reasonable inferences from the pleading in favor of the non-moving party." Id. (quoting United States v. Any & All Radio Station Transmission Equip., 207 F.3d 458, 462 (8th Cir. 2000)). "Pursuant to Rule 12(b)(6), a complaint must contain sufficient factual matter, accepted as true, to 'state a claim that is plausible on its face.' " Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. "We assess plausibility by drawing on our own judicial experience and common sense." Id. "Further, we review the plausibility of the plaintiffs claim as a whole, not the plausibility of each individual allegation." Zoltek Corp. v. Structural Polymer Grp., 592 F.3d 893, 896 n.4 (8th Cir. 2010).

         ANALYSIS

         A. South Dakota Law Applies

         Subject matter jurisdiction is established by diversity of citizenship in this case. "It is, of course, well-settled that in a suit based on diversity of citizenship jurisdiction the federal courts apply federal law as to matters of procedure but the substantive law of the relevant state." Jacobs ex rel. Estate of Jacobs v. Evangelical Lutheran Good Samaritan Soc, 849 F.Supp.2d 893, 896-97 (D.S.D. 2012) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 118 (1938)). "In a choice-of-law analysis for a diversity action brought in federal district court, the choice-of-law rules are substantive for Erie purposes, and the choice-of-law rules of the forum state are applied to determine the litigating parties' rights." Id. The forum state is "the state in which a lawsuit is filed." FORUM STATE, Black's Law Dictionary (10th ed. 2014). Haanen originally filed his claim with the Fifth Judicial Circuit of South Dakota. Therefore, South Dakota law governs the substantive issues in this case.

         B. Breach of the Implied Covenant of Good Faith and Fair Dealing

         The first issue is whether Haanen failed to plead a plausible factual basis for his claim of breach of the implied covenant of good faith and fair dealing. "South Dakota does not recognize an independent tort for breach of the implied covenant of good faith and fair dealing." Nygaard v. Sioux Valley Hosps. & Health Svs., 731 N.W.2d 184, 193 (S.D. 2007) (quoting Farm Credit Servs. of Am. v. Dougan, 704 N.W.2d 24, 28-29 (S.D. 2005)); Garrett v. BankWest, Inc., 459 N.W.2d 833, 842 (S.D. 1990). While South Dakota recognizes that "every contract contains an implied covenant of good faith and fair dealing that prohibits either contracting party from preventing or injuring the other party's right to receive the agreed benefits of the contract, " the "duty of good faith permits an aggrieved party to bring a breach of contract action .. ." Id. at 193-194. Therefore, Haanen has failed to plead a plausible factual basis for his claim of breach of the implied covenant of good faith and fair dealing because such claim is not recognized as an independent tort in South Dakota.

         C. Bad Faith

         The next issue is whether Haanen failed to plead a plausible factual basis for a breach of the implied covenant of good faith and fair dealing. "Before undertaking a study of the law of bad faith, ' it is necessary to understand the difference between 'first party' and 'third party' insurance coverage." Roger M. Baron, When Insurance Companies Do Bad Things: The Evolution of the "Bad Faith" Causes of Action in South Dakota. 44 S.D. L. Rev. 471, 472-73 (1999). "Third party insurance typically protects the insured against claims of third parties which may be made against him/her." Id. "First party insurance is a broad term that is utilized to describe just about everything else other than third party coverage." Id. "[A]n understanding of the distinction between first party and third party coverage is critical to understanding the ...


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