This story is reprinted with permission from FC&S Legal, the industry's only comprehensive digital resource designed for insurance coverage law professionals. Visit the website to subscribe.
The U.S. Court of Appeals for the Eighth Circuit has affirmed a decision by the U.S. District Court for the District of South Dakota awarding an injured woman $2.75 million in punitive damages from an insurance company that had “actively deceived” the woman — and her attorney — into believing that no underinsured (UIM) motorist benefits were available to her.
|Commercial auto insurance policy
Billion Empire Motors, Inc., an auto dealership in Sioux Falls, South Dakota, loaned a car to Lori Peterson. While driving the car on September 22, 2008, Ms. Peterson lost control and crashed in a ravine. Laura Dziadek, a passenger, was severely injured.
Ms. Dziadek hired Zimmer Duncan & Cole (ZDC) to represent her.
In early 2009, Billion's insurance agent notified The Charter Oak Fire Insurance Company, which had issued a commercial insurance policy to Billion, about the accident.
Faith Styles, Charter Oak's claims representative, learned that Ms. Peterson was insured by Progressive for $100,000 liability coverage. On February 6, Ms. Styles spoke with ZDC attorney Jeffery A. Cole about coverage for Ms. Dziadek. According to Mr. Cole, she said Ms. Dziadek had no coverage under the Charter policy. Days later, she wrote Mr. Cole a letter stating “no coverage for your client [Ms. Dziadek] exists under this policy.”
On February 18, Mr. Cole sent Ms. Styles a letter requesting the declaration sheet and “a true and correct copy” of the policy. According to Mr. Cole, she sent back the declarations sheet and excerpts of the policy but not the entire policy. According to the excerpts Ms. Styles sent, Ms. Dziadek was not an “insured.”
|Medical bills exceeded $100,000
On February 24, Progressive offered Ms. Peterson's $100,000 limit in exchange for a full release from Ms. Dziadek. Mr. Cole declined because Ms. Dziadek's medical bills exceeded $100,000 and he hoped to collect more from Ms. Peterson and other alleged tortfeasors.
Over the next two years, ZDC pursued claims against Ms. Peterson, the state of South Dakota, various state officials, and a signage company.
In June 2011, ZDC attorney Daniel K. Brendtro reviewed the Charter policy to see if Ms. Dziadek was covered. He noticed the UIM coverage and asked a paralegal to get a copy of the entire policy from Ms. Styles. In response, Ms. Styles asked the paralegal to request specific parts of the policy, asserting it could be over 2,000 pages. The paralegal narrowed the request. Ms. Styles did not respond. The following week, the paralegal repeated the request.
|Claims rep finally shared entire policy
On July 21, Ms. Styles sent a full copy of the policy.
After reviewing the entire policy, ZDC wrote Ms. Styles for confirmation that Ms. Dziadek was an insured with UIM coverage. After 50 days with no response, Ms. Dziadek filed a lawsuit in September 2011, alleging breach of contract, deceit, and bad faith.
Charter Oak's answer admitted the existence of UIM and medical payments coverage. Charter Oak also agreed to Ms. Dziadek's settlement with Ms. Peterson and Progressive for the $100,000 limit.
On February 21, 2012, Charter Oak paid $900,000 in UIM coverage (the $1 million limit minus $100,000 from the Progressive policy), plus $5,000 in medical payments coverage.
The jury found Charter Oak liable for deceit and breach of contract.
Among other things, it awarded Ms. Dziadek $2.75 million in punitive damages.
Charter Oak appealed to the Eighth Circuit, asserting that the evidence did not support the award of punitive damages.
|Appeals court upholds jury's punitive damages
The circuit court upheld the award of punitive damages in favor of Ms. Dziadek.
In its decision, it explained that:
- ZDC had asked Ms. Styles whether any coverage existed;
- Ms. Styles had said no coverage existed;
- ZDC had asked Ms. Styles twice for a copy of the entire policy; and
- Ms. Styles had refused, first sending excerpts where Ms. Dziadek was not an insured, then claiming the policy could be over 2,000 pages — but it actually was about 200.
The circuit court agreed with the district court that there were sufficient facts to find that “Charter Oak did not simply fail to disclose the existence of $900,000 of UIM coverage available to [Ms.] Dziadek, but actively deceived [Ms.] Dziadek and her attorney into believing that there was no such coverage.”
That evidence itself, the Eighth Circuit decided, supported Ms. Dziadek's punitive damages claim.
|Rejected insurer's argument that jury's award was excessive
It then rejected the insurer's argument that the jury's award of $2.75 million in punitive damages was excessive under South Dakota law and the Due Process Clause of the Fourteenth Amendment, reasoning that the punitives-to-compensatory ratio was 4.3 to 1 when interest was included on the compensatory award to Ms. Dziadek, which was “within the Supreme Court's single-digit rule.”
The case is Dziadek v. Charter Oak Fire Ins. Co., No. 16-4070/16-4210 (8th Cir. Aug. 15, 2017).
Steven A. Meyerowitz, Esq., is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. Email him at [email protected].
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