#28547-a-JMK 2019 S.D. 31
IN THE SUPREME COURT OF THE STATE OF SOUTH DAKOTA
****
LEROY L. JAMES, JR., Plaintiff and Appellee,
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant and Appellant.
APPEAL FROM THE CIRCUIT COURT OF THE SEVENTH JUDICIAL CIRCUIT PENNINGTON COUNTY, SOUTH DAKOTA **** THE HONORABLE ROBERT A. MANDEL Judge
JOHN STANTON DORSEY KIMBERLY PEHRSON of Whiting, Hagg, Hagg, Dorsey & Hagg, LLP Rapid City, South Dakota Attorneys for plaintiff and appellee.
HILARY L. WILLIAMSON of Fuller & Williamson, LLP Sioux Falls, South Dakota Attorneys for defendant and appellant.
**** CONSIDERED ON BRIEFS ON OCTOBER 1, 2018 OPINION FILED 05/29/19 #28547
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.
1. James’s medical payment coverage provision provides: “The Medical Payment Coverage limit is shown on the Declarations Page under ‘Medical Payments Cover – Limit – Each person.’ This limit is the most we will pay for the medical expenses and funeral expenses combined, incurred by or on behalf of any one insured as a result of any one accident . . . .” (Emphasis in original.) -1- #28547
[¶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 of his attorney fees.
-2- #28547
Analysis and Decision
[¶6.] “We review a circuit court’s entry of summary judgment under the de
novo standard of review.” Harvieux v. Progressive N. Ins. Co., 2018 S.D. 52, ¶ 9,
915 N.W.2d 697, 700. When conducting this review, “[w]e give no deference to the
circuit court’s decision[.]” Oxton v. Rudland, 2017 S.D. 35, ¶ 12, 897 N.W.2d 356,
360. “When reviewing a circuit court’s grant of summary judgment, this Court only
decides whether genuine issues of material fact exist and whether the law was
correctly applied.” Ass Kickin Ranch, LLC v. N. Star Mut. Ins. Co., 2012 S.D. 73,
¶ 6, 822 N.W.2d 724, 726. Here, there are no disputed facts, so our task is to
determine whether the circuit court correctly applied the law.
[¶7.] Each party filed briefs advising the circuit court of their interpretation
of the policy. James alleged that the reimbursement provision was ambiguous and
should therefore be construed against its drafter, State Farm. In response, State
Farm argued the policy provided it with an unambiguous contractual right to
reimbursement. In addition to the question of ambiguity, the parties also disputed
whether the anti-subrogation rule applied to the reimbursement provision in the
policy.
[¶8.] A brief explanation of these concepts is helpful to understand the
arguments advanced by the parties both before the circuit court and in this appeal.
“[S]ubrogation is a time-honored theory [in which] insurers who pay a loss [for
insureds] are entitled, within the limits of [the] subrogation doctrine, to pursue the
actual wrongdoer.” 16 Steven Plitt et al., Couch on Insurance § 222:4 (3d ed. Supp.
2018); see also Am. Family Mut. Ins. Co. v. Auto-Owners Ins. Co., 2008 S.D. 106, ¶
13, 757 N.W.2d 584, 588. By subrogating a claim, the insurer is allowed to stand in -3- #28547
the shoes of the insured to sue the tortfeasor to recover the payments it made. One
limitation to the doctrine of subrogation, however, is the anti-subrogation rule, a
defense that prohibits insurers from suing their own insureds to recover a loss. See
Plitt, supra § 224:3. Even though the anti-subrogation rule is widely recognized,
courts take varying approaches when applying the rule. 2
[¶9.] Reimbursement, on the other hand, often differs factually from
subrogation because rather than seeking recovery from a third party, it allows “the
insurer to recover policy payments directly from its own insured or beneficiary upon
that party’s recovery of the same loss from a third party . . . .” Id. at § 222:81.
Therefore, although the mechanisms of recovery are different, “the effect of
subrogation and reimbursement are essentially the same.” Id.
[¶10.] James relied upon subrogation principles to argue State Farm was not
entitled to recovery under either the reimbursement or subrogation provisions
based on the anti-subrogation rule. Even though the rule is generally applicable
only to subrogation claims, James contended the language and effect of the
provisions were similar enough to apply the principal of anti-subrogation to the
2. Some courts have held that the rule applies only when co-insureds share insurance coverage under a single policy. See, e.g., Benge v. State Farm Mut. Auto. Ins. Co., 697 N.E.2d 914, 918 (Ill. App. Ct. 1998).
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#28547-a-JMK 2019 S.D. 31
IN THE SUPREME COURT OF THE STATE OF SOUTH DAKOTA
****
LEROY L. JAMES, JR., Plaintiff and Appellee,
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant and Appellant.
APPEAL FROM THE CIRCUIT COURT OF THE SEVENTH JUDICIAL CIRCUIT PENNINGTON COUNTY, SOUTH DAKOTA **** THE HONORABLE ROBERT A. MANDEL Judge
JOHN STANTON DORSEY KIMBERLY PEHRSON of Whiting, Hagg, Hagg, Dorsey & Hagg, LLP Rapid City, South Dakota Attorneys for plaintiff and appellee.
HILARY L. WILLIAMSON of Fuller & Williamson, LLP Sioux Falls, South Dakota Attorneys for defendant and appellant.
**** CONSIDERED ON BRIEFS ON OCTOBER 1, 2018 OPINION FILED 05/29/19 #28547
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.
1. James’s medical payment coverage provision provides: “The Medical Payment Coverage limit is shown on the Declarations Page under ‘Medical Payments Cover – Limit – Each person.’ This limit is the most we will pay for the medical expenses and funeral expenses combined, incurred by or on behalf of any one insured as a result of any one accident . . . .” (Emphasis in original.) -1- #28547
[¶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 of his attorney fees.
-2- #28547
Analysis and Decision
[¶6.] “We review a circuit court’s entry of summary judgment under the de
novo standard of review.” Harvieux v. Progressive N. Ins. Co., 2018 S.D. 52, ¶ 9,
915 N.W.2d 697, 700. When conducting this review, “[w]e give no deference to the
circuit court’s decision[.]” Oxton v. Rudland, 2017 S.D. 35, ¶ 12, 897 N.W.2d 356,
360. “When reviewing a circuit court’s grant of summary judgment, this Court only
decides whether genuine issues of material fact exist and whether the law was
correctly applied.” Ass Kickin Ranch, LLC v. N. Star Mut. Ins. Co., 2012 S.D. 73,
¶ 6, 822 N.W.2d 724, 726. Here, there are no disputed facts, so our task is to
determine whether the circuit court correctly applied the law.
[¶7.] Each party filed briefs advising the circuit court of their interpretation
of the policy. James alleged that the reimbursement provision was ambiguous and
should therefore be construed against its drafter, State Farm. In response, State
Farm argued the policy provided it with an unambiguous contractual right to
reimbursement. In addition to the question of ambiguity, the parties also disputed
whether the anti-subrogation rule applied to the reimbursement provision in the
policy.
[¶8.] A brief explanation of these concepts is helpful to understand the
arguments advanced by the parties both before the circuit court and in this appeal.
“[S]ubrogation is a time-honored theory [in which] insurers who pay a loss [for
insureds] are entitled, within the limits of [the] subrogation doctrine, to pursue the
actual wrongdoer.” 16 Steven Plitt et al., Couch on Insurance § 222:4 (3d ed. Supp.
2018); see also Am. Family Mut. Ins. Co. v. Auto-Owners Ins. Co., 2008 S.D. 106, ¶
13, 757 N.W.2d 584, 588. By subrogating a claim, the insurer is allowed to stand in -3- #28547
the shoes of the insured to sue the tortfeasor to recover the payments it made. One
limitation to the doctrine of subrogation, however, is the anti-subrogation rule, a
defense that prohibits insurers from suing their own insureds to recover a loss. See
Plitt, supra § 224:3. Even though the anti-subrogation rule is widely recognized,
courts take varying approaches when applying the rule. 2
[¶9.] Reimbursement, on the other hand, often differs factually from
subrogation because rather than seeking recovery from a third party, it allows “the
insurer to recover policy payments directly from its own insured or beneficiary upon
that party’s recovery of the same loss from a third party . . . .” Id. at § 222:81.
Therefore, although the mechanisms of recovery are different, “the effect of
subrogation and reimbursement are essentially the same.” Id.
[¶10.] James relied upon subrogation principles to argue State Farm was not
entitled to recovery under either the reimbursement or subrogation provisions
based on the anti-subrogation rule. Even though the rule is generally applicable
only to subrogation claims, James contended the language and effect of the
provisions were similar enough to apply the principal of anti-subrogation to the
2. Some courts have held that the rule applies only when co-insureds share insurance coverage under a single policy. See, e.g., Benge v. State Farm Mut. Auto. Ins. Co., 697 N.E.2d 914, 918 (Ill. App. Ct. 1998). Other jurisdictions expand the rule’s application to any situation when the same insurance company covers both insureds, even if the parties have separate, unrelated policies. See, e.g., Control Specialists Co. v. State Farm. Mut. Auto. Ins. Co., 423 N.W.2d 775, 776–77 (Neb. 1988).
-4- #28547
reimbursement clause. This is because permitting reimbursement, according to
James, would allow State Farm to recover against James, its own insured. 3
[¶11.] In response, State Farm argued that: (1) it was exercising an
unambiguous contractual right of reimbursement completely distinct from
instituting a subrogation action; (2) even if subrogation principles applied to its
request for reimbursement, the anti-subrogation rule did not preclude State Farm’s
rights because the rule applied only to co-insureds under a single insurance policy;
and (3) enforcing the reimbursement clause did not offend public policy.
[¶12.] Because it is dispositive of the issues in this case, we address only the
question of whether the language of the reimbursement clause was ambiguous.
“Insurance contract interpretation is a question of law reviewed de novo.” W. Nat’l
Mut. Ins. Co. v. Decker, 2010 S.D. 93, ¶ 10, 791 N.W.2d 799, 802. We construe the
language of an insurance contract “according to its plain and ordinary
meaning . . . .” St. Paul Fire & Marine Ins. Co. v. Schilling, 520 N.W.2d 884, 887
(S.D. 1994). Ambiguity exists “when application of rules of interpretation leave a
3. Our survey of the case law reveals an emerging trend concerning the parameters of an insurer’s right to reimbursement from an insured. The vast majority of jurisdictions, including the Eighth Circuit Court of Appeals, have recognized reimbursement as a separate right from subrogation. See, e.g., McIntosh v. Pac. Holding Co., 992 F.2d 882, 884 (8th Cir. 1993). But at least three states—Nebraska, New York, and Texas—have directly rejected attempts by insurance companies to disguise subrogation as reimbursement in order to overcome the effects of a waiver or the anti-subrogation rule. See Wausau Underwriters Ins. Co. v. Wedel, 518 S.W.3d 615, 622 (Tex. App. 2017) (analyzing a statutory rather than a common-law right); Cont’l W. Ins. Co. v. Swartzendruber, 570 N.W.2d 708, 711 (Neb. 1997); N.Y.C. Dep’t of Transp. v. Petric & Assocs., 19 N.Y.S.3d 48, 48 (N.Y. App. Div. 2015). Because our resolution of this case hinges on the question of ambiguity we express no opinion on this issue. -5- #28547
genuine uncertainty as to which of two or more meanings is correct.” Alverson v.
Nw. Nat’l Cas. Co., 1997 S.D. 9, ¶ 8, 559 N.W.2d 234, 235.
[¶13.] But mere disagreement as to which interpretation is correct is not
sufficient to create ambiguity. “Rather, a contract is ambiguous only when it is
capable of more than one meaning when viewed objectively by a reasonably
intelligent person who has examined the context of the entire integrated
agreement.” Coffey v. Coffey, 2016 S.D. 96, ¶ 9, 888 N.W.2d 805, 809. “[A]ny
uncertainty or ambiguity in a contract of insurance [is to] be construed most
strongly against the insurer and in favor of the insured.” Wilson v. Allstate Ins. Co.,
85 S.D. 553, 557, 186 N.W.2d 879, 881 (S.D. 1971).
[¶14.] State Farm claims that the circuit court erred by finding the provisions
of the reimbursement clause ambiguous. The relevant portion of James’s insurance
policy provides:
12. Our Right to Recover Our Payments ***** b. Reimbursement If we make payment under this policy and the person or organization to or for whom we make payment recovers or has recovered from another person or organization, then: (1) we are entitled, upon payment, to an assignment of any cause of action, or judgment obtained against such other person or organization and (2) the person or organization to or for whom we make payment must: (a) Hold in trust for us the proceeds of any recovery; and (b) Reimburse us to the extent of our payment; with no reduction taken for attorney fees incurred in obtaining a settlement from a judgment against such other person or organization.
-6- #28547
(Emphasis in original.) In analyzing the terms of the reimbursement clause, person
is defined within the policy as “a human being,” but organization is left without a
definition.
[¶15.] The parties dispute focuses on the meaning of “recovers or has
recovered from another person or organization.” State Farm’s highlighted
reference to itself using the first-person pronouns “we,” “us” and “our” establishes it
cannot be considered to be “another . . . organization.” Therefore, we must next
determine whether the phrase “recovers or has recovered from another person” is
ambiguous.
[¶16.] State Farm argues the phrase recovery from “another person” includes
any other person, even other individuals who also hold State Farm insurance
policies. In its view, this language unambiguously includes Rivers, who is “another
person” from James, even if State Farm funded the settlement on Rivers’s behalf.
In response, James argues the policy is ambiguous because it could also be
interpreted to require reimbursement only when the insured recovers from another
person or organization, but not another insured by State Farm. He contends that,
here, there is no other “person or organization”—there is only State Farm.
[¶17.] From our review, there are two equally reasonable interpretations of
the reimbursement provision when viewed objectively in the context of the entire
agreement. See Alverson, 1997 S.D. 9, ¶ 8, 559 N.W.2d at 235. James had a legal
claim against Rivers, but his actual recovery came from settlement proceeds State
Farm paid pursuant to its policy with Rivers. Therefore, the language could be
interpreted to mean State Farm has a right to reimbursement because James
-7- #28547
recovered from Rivers, who is “another person.” But James recouped his financial
loss following the accident from State Farm’s pocket, not “another person or
organization.” Therefore, the language could also be interpreted to mean James
recovered from State Farm, the party who paid James. Based on the uncertainty
regarding the term ‘recovery,’ we conclude the text of the reimbursement provision
is ambiguous. 4
[¶18.] Because ambiguity “is to be construed most strongly against the
insurer and in favor of the insured,” see Wilson, 85 S.D. at 558, 186 N.W.2d at 881
(emphasis added), we conclude that the language “another person or organization”
in the reimbursement provision does not include State Farm or any of its insureds.
Thus, State Farm has no contractual right to reimbursement for the $5,000 paid to
James for medical expenses under the policy. We affirm.
[¶19.] GILBERTSON, Chief Justice, and JENSEN and SALTER, Justices,
concur.
4. Indeed, to avoid this ambiguity State Farm could have specified that “another person or organization” could include both another person that State Farm insured or State Farm, itself, or simply allowed reimbursement where an insured recovers from another person or his insurer. -8-