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James v. State Farm Mutual Automobile Insurance Co.

Supreme Court of South Dakota

May 29, 2019

LEROY L. JAMES, JR., Plaintiff and Appellee,
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant and Appellant.

          CONSIDERED ON BRIEFS ON OCTOBER 1, 2018

          APPEAL FROM THE CIRCUIT COURT OF THE SEVENTH JUDICIAL CIRCUIT PENNINGTON COUNTY, SOUTH DAKOTA THE HONORABLE ROBERT A. MANDEL JUDGE.

          HILARY L. WILLIAMSON OF FULLER & WILLIAMSON, LLP SIOUX FALLS, SOUTH DAKOTA ATTORNEYS FOR PLAINTIFF AND APPELLEE.

          JOHN STANTON DORSEY KIMBERLY PEHRSON OF WHITING, HAGG, HAGG, DORSEY & HAGG, LLP RAPID CITY, SOUTH DAKOTA ATTORNEYS FOR DEFENDANT AND APPELLANT.

          KERN, Justice

         [¶1.] Melissa Rivers rear-ended LeRoy James Jr., causing him personal injury. State Farm insured both parties. Immediately following the accident, State Farm paid a portion of James's medical expenses under the medical payment provisions of his policy. Acting on behalf of Rivers, State Farm then settled with James. Once James released Rivers from liability, State Farm demanded James use his settlement proceeds to reimburse it for paying his medical expenses under his policy. James sued for declaratory relief, arguing State Farm had no right to reimbursement or subrogation. The circuit court denied State Farm's motion for summary judgment and entered a judgment in favor of James. State Farm appeals. We affirm.

         Facts and Procedural History

         [¶2.] The automobile accident occurred on July 22, 2016, on Highway 16 near Rapid City. At the time, State Farm insured both Rivers and James under separate auto insurance policies. Rivers's policy provided $100, 000 in liability coverage. James's policy contained a $5, 000 benefit for medical payments coverage.[1] State Farm immediately paid $5, 000 on James' behalf to medical services providers for treatment of James's injuries.

         [¶3.] Ultimately, James settled his claim against Rivers. Rivers did not personally fund any of the settlement proceeds. Instead, State Farm paid James $43, 000 on Rivers's behalf in exchange for a full and complete release from liability. After paying his attorney a one-third contingency fee plus costs and sales tax, James's net settlement was $19, 927.54.

         [¶4.] James's policy contained both a reimbursement clause and a subrogation clause. Following the settlement, State Farm demanded reimbursement from James for the $5, 000 payment it made on James's behalf to cover medical expenses under the reimbursement clause. State Farm did not reduce its request to account for the attorney fees and costs James incurred to obtain his recovery from Rivers. James refused to reimburse State Farm for any amount; instead, he sued State Farm, seeking a declaratory judgment to determine his contractual rights under the policy. The parties filed cross-motions for summary judgment based on stipulated facts.

         [¶5.] The circuit court concluded that State Farm could not subrogate against its own insured. It further held that the reimbursement clause was ambiguous. As a consequence, the court construed the policy against State Farm, the drafter, granting summary judgment to James. State Farm appeals, raising one issue and several sub-issues restated as follows:

1. Whether the language of the reimbursement clause is ambiguous.
2. Whether requiring James to reimburse State Farm implicates the anti-subrogation rule or offends public policy.
3. If State Farm is entitled to reimbursement, whether James is entitled to a portion ...

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