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Krueger v. Grinnell Mutual Reinsurance Co.

Supreme Court of South Dakota

December 19, 2018

STEVEN J. KRUEGER and CORALEE A. KRUEGER, Plaintiffs and Appellees,
v.
GRINNELL MUTUAL REINSURANCE COMPANY, Defendant and Appellant.

          CONSIDERED ON BRIEFS ON NOVEMBER 12, 2018

          APPEAL FROM THE CIRCUIT COURT OF THE FIFTH JUDICIAL CIRCUIT DAY COUNTY, SOUTH DAKOTA, THE HONORABLE JON S. FLEMMER Judge

          LEE SCHOENBECK JOE ERICKSON of Schoenbeck Law, P.C. Attorneys for plaintiffs and appellees.

         MELANIE L. CARPENTER of Woods, Fuller, Shultz & Smith, P.C. Attorneys for defendant and appellant.

          GILBERTSON, Chief Justice

         [¶1.] Steven and Coralee Krueger filed a complaint against Grinnell Mutual Reinsurance Co. (Grinnell) alleging failure to pay underinsured motorist benefits. The Kruegers served written discovery requests on Grinnell. Grinnell responded but raised several objections. The Kruegers wrote a letter demanding answers to certain discovery requests within a week. Grinnell did not respond, and the Kruegers filed a motion to compel. The circuit court granted the Kruegers' motion in its entirety, finding that Grinnell had sufficient notice of the Kruegers' bad faith claim and thus had intentionally not responded to requests related to a bad faith cause of action. The circuit court also granted the Kruegers' request for attorney fees. We granted Grinnell's request for discretionary appeal. We reverse.

         Facts and Procedural History

         [¶2.] This case arises from an accident on March 14, 2015. The Kruegers were rear-ended by a vehicle driven by William Akron. Akron's insurance had limits of $50, 000 per person. The Kruegers' policy with Grinnell included a $25, 000 per person medical payment (med-pay) coverage and underinsured motorist coverage of $250, 000 per person or $500, 000 per accident. Following the accident, claims for med-pay coverage and vehicle damage were opened. The Kruegers' medical bills were paid as they were incurred. Initially, there was no claim for underinsured motorist coverage.

         [¶3.] On January 17, 2017, Lee Schoenbeck informed Grinnell he would be representing the Kruegers. On March 31, the Kruegers told Grinnell they reached a settlement agreement against Akron to his policy's limits. They also noted, "We now intend to pursue an underinsured motorist claim against your company." Grinnell continued to pay the Kruegers' medical bills until Steven's med-pay limits were exhausted in May 2017. Coralee's limits were exhausted after the filing of this lawsuit.

         [¶4.] On July 12, 2017, the Kruegers demanded payment of underinsured motorist benefits, asking Grinnell, "[W]ould it be reasonable to expect that you complete your investigation by August 1, 2017?" The adjuster who had been working on the Kruegers' med-pay file, Pat McCumber, replied on July 13. She informed the Kruegers that Grinnell had opened an underinsured motorist benefits file and that Sheryl Stepanek was the assigned adjuster to that file.

         [¶5.] On July 27, Stepanek wrote the Kruegers a letter advising them that she had received their demand for underinsured motorist coverage and that she was assigned to the underinsured motorist file to avoid a conflict of interest while the med-pay file was still open. She requested authorization from the Kruegers for McCumber to release documents from the med-pay file to the underinsured motorist file so that she could consider their claim. On August 3, the Kruegers replied, providing the requested authorization. The same day, the Kruegers' counsel signed a summons and complaint against Grinnell.

         [¶6.] The Kruegers' complaint alleged in pertinent part:

14. Grinnell Mutual has refused to pay the underinsurance benefits owing under the contract, and has not been reasonable ...

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