Tovares v. Gallagher Bassett Services, Inc. et al
Filing
34
ORDER denying 11 Motion to Dismiss; denying 12 Motion to Dismiss; denying as moot 18 Motion for Leave to file supplemental authority; adopting 25 Report and Recommendation; overruling 26 Objection to Report and Recommendation. Signed by Chief Judge Jeffrey L. Viken on 9/12/17. (SB)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
WESTERN DIVISION
CIV. 16-5051-JLV
ANNIE TOVARES,
Plaintiff,
ORDER
vs.
GALLAGHER BASSETT SERVICES,
INC., AND PRAETORIAN INSURANCE
COMPANY,
Defendants.
INTRODUCTION
Plaintiff Annie Tovares filed an action against the defendants Gallagher
Bassett Services, Inc., and Praetorian Insurance Company alleging bad faith and
misrepresentation in violation of South Dakota law.
also seeks attorney’s fees and punitive damages.
(Docket 1).
Id.
The complaint
The defendants
separately filed motions to dismiss the complaint pursuant to Fed. R. Civ.
12(b)(1), asserting plaintiff’s damages would not exceed the jurisdictional
threshold of $75,000 required by 28 U.S.C. § 1332(a).
Plaintiff resists the motions.1 (Docket 15).
(Dockets 11 & 12).
Defendants’ motions were referred
to United States Magistrate Judge Daneta Wollmann pursuant to 28 U.S.C.
§ 636(b)(1)(B) and the standing order of March 9, 2015.
Magistrate Judge
Wollmann issued a report and recommendation (“R&R”) concluding the court
should deny defendants’ motions to dismiss.
(Docket 25 at p. 8).
Defendant
Praetorian Insurance Company (“Praetorian”) timely filed objections to
1Plaintiff
later filed a motion to file supplemental authority. (Docket 18).
Magistrate Judge Wollmann’s R&R.
those objections.
(Docket 26).
Plaintiff filed a response to
(Docket 27).
The court reviews de novo those portions of the report and
recommendation which are the subject of objections.
Thompson v. Nix,
897 F.2d 356, 357-58 (8th Cir. 1990); 28 U.S.C. § 636(b)(1).
The court may
then “accept, reject, or modify, in whole or in part, the findings or
recommendations made by the magistrate judge.”
28 U.S.C. § 636(b)(1).
The
court completed a de novo review of those portions of the R&R to which
objections were filed.
The court finds the magistrate judge’s report and
recommendation is an appropriate application of the law to the issue presented
by the parties.
For the reasons stated below, the defendant’s objections are
overruled and the report and recommendation of the magistrate judge is adopted
as amended.
DEFENDANT’S OBJECTIONS
Defendant Praetorian Insurance Company’s objections to the report
and recommendation are summarized as follows:
1.
The magistrate judge erred when she emphasized the
word “alleged.” (Docket 26 ¶ 1).
2.
The magistrate judge erred when she included
Praetorian as being involved in the denial of the claim
letter sent to plaintiff. Id.
3.
The magistrate judge erred when she used the
emphasized language as supportive of plaintiff’s claims.
Id. ¶ 2.
4.
The magistrate judge erred when she stated Praetorian
had access to the video of plaintiff’s fall and refused to
provide a copy to plaintiff’s counsel. Id. ¶ 3.
2
5.
The magistrate judge erred when she stated Praetorian
made the payment of $3,225.12 to plaintiff, or that an
agency relationship existed with Gallagher Bassett
Services, Inc. (“Gallagher”). Id. ¶ 4.
6.
The magistrate judge erred when she stated Ms.
Tovares incurred $806.28 in attorney’s fees based on
Praetorian’s unreasonable denial of the claim for
benefits. Id. ¶ 5.
7.
The magistrate judge erred when she stated the denial
of benefits was unreasonable. Id.
8.
The magistrate judge erred when she referenced
Forshee v. Waterloo Industries, Inc., 178 F.3d 527, 531
(8th Circuit 1999), in support of the analysis of
plaintiff’s emotional distress damages claim. Id. ¶ 6.
9.
The magistrate judge erred when she referenced Jordan
v. State Auto Insurance Companies, CIV 16-4053, 2016
WL 7235688 (D.S.D. December 13, 2016), in support of
plaintiff’s claims. Id. ¶ 7.
10.
The magistrate judge erred when she referenced Torres
v. Travelers, CIV. No. 01-5056 (D.S.D. 2001), in support
of plaintiff’s claims. Id. ¶ 8.
11.
The magistrate judge erred when she found plaintiff
alleged facts to support her punitive damages claim so
as to exceed the jurisdictional minimum. Id. ¶ 9.
12.
The magistrate judge erred when she relied on SDCL
§ 58-12-3 to conclude plaintiff would be entitled to
attorney’s fees which would count toward the
jurisdictional minimum. Id. ¶ 10.
13.
The magistrate judge erred when she relied on SDCL
§ 58-33-5, because the attorney’s fees of $806.28 were
already incurred and cannot support the jurisdictional
minimum. Id. ¶ 11.
3
ANALYSIS
Ms. Tovares filed her complaint as a diversity action pursuant to 28 U.S.C.
§ 1332.
(Docket 1 ¶ 5).
For a case to qualify as a diversity action plaintiff must
satisfy two elements: (1) that the parties are “citizens of different States”; and
(2) that the amount “in controversy exceeds the sum or value of $75,000,
exclusive of interest and costs.”
28 U.S.C. § 1332(a).
Defendants move to
dismiss the complaint pursuant to Fed. R. Civ. 12(b)(1), asserting plaintiff’s
damages cannot meet the $75,000 requirement of § 1332(a).
(Dockets 11 & 12).
Under a Rule 12(b)(1) motion to dismiss, a defendant has the right to
challenge the “lack of subject-matter jurisdiction . . . .”
Fed. R. Civ. P. 12(b)(1).
While considering a Rule 12(b)(1) motion to dismiss for lack of subject matter
jurisdiction, the court must “accept all factual allegations in the pleadings as
true and view them in the light most favorable to the nonmoving party.”
Great
Rivers Habitat Alliance v. Federal Emergency Management Agency, 615 F.3d
985, 988 (8th Cir. 2010).
The court “has authority to consider matters outside
the pleadings when subject matter jurisdiction is challenged under Rule 12(b)(1).
. . . This does not . . . convert the 12(b)(1) motion to one for summary judgment.”
Harris v. P.A.M. Transp., Inc., 339 F.3d 635, 638 (8th Cir. 2003).
“The district
court may take judicial notice of public records and may thus consider them on a
[Rule 12(b)(1)] motion to dismiss.”
Stahl v. U.S. Department of Agriculture, 327
F.3d 697, 700 (8th Cir. 2003).
4
The Supreme Court instructed trial courts to apply the “legal certainty”
test to determine whether the amount in controversy element has been met.
The rule governing dismissal for want of jurisdiction in cases
brought in the federal court is that, unless the law gives a different
rule, the sum claimed by the plaintiff controls if the claim is
apparently made in good faith. . . . [I]f, from the face of the pleadings,
it is apparent, to a legal certainty, that the plaintiff cannot recover
the amount claimed or if, from the proofs, the court is satisfied to a
like certainty that the plaintiff never was entitled to recover that
amount, and that his claim was therefore colorable for the purpose
of conferring jurisdiction, the suit will be dismissed. Events
occurring subsequent to the institution of suit which reduce the
amount recoverable below the statutory limit do not oust
jurisdiction.
St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89 (1938).
Plaintiff’s statement in the complaint that her damages exceed $75,000 is
adequate, unless that declaration is challenged by the opposing party through a
Rule 12(b)(1) motion.
Scottsdale Ins. Co. v. Universal Crop Protection Alliance,
LLC, 620 F.3d 926, 931 (8th Cir. 2010).
If a challenge is made, plaintiff must
prove the jurisdictional amount in controversy by a preponderance of the
evidence.
Id.
“When the pleadings are inconclusive to establish the amount in
controversy, [the court] may look to other evidence in the record.”
Dupraz v.
Aventis CropScience USA Holding, Inc., 153 F. Supp. 2d 1102, 1104 (D.S.D.
2001).
At this point in the litigation, defendants have not answered the complaint
and their Rule 12(b)(1) motions challenge only the $75,000 damages threshold
required by § 1332(a). For purposes of resolving defendants’ motions only, the
5
allegations of the complaint are deemed true. Great Rivers Habitat Alliance,
615 F.3d at 988. Those facts are as follows.
Praetorian issued a worker’s compensation insurance policy to Ms.
Tovares’ employer, Menard, Inc. (“Menards”).
(Docket 1 ¶ 6).
delegated its claim administration services to Gallagher.
Praetorian
Id. ¶ 7.
Both
defendants understood that Praetorian would act as the principal and Gallagher
would act as Praetorian’s agent in performing claim administration duties.
¶ 8.
Id.
Those duties included good faith and fair dealing, processing paperwork
relating to claims, investigating claims, obtaining medical reports, monitoring
treatment, verifying coverage, adjusting, settling and defending claims and
issuing checks for payment of benefits.
Id.
Gallagher performed all claim
administration services for claims submitted under Menards’ worker’s
compensation policy, including Ms. Tovares’ claim.
Id. ¶¶ 9-10.
Gallagher
knew it had the duty to handle claims in good faith and Praetorian knew it would
remain responsible for Gallagher’s violations of that duty.
Id. ¶¶ 11 & 12.
On March 19, 2014, while working at Menards in Rapid City South
Dakota, Ms. Tavares fell sideways and landed hard on a concrete floor, bruising
her left hip and arm.
Id. ¶ 13.
Menards received actual notice of her fall and
the incident was recorded on one of its security cameras.
Id. ¶ 14.
Over the next week, Ms. Tovares began experiencing intermittent ringing
in her ears, blurry vision, light-headedness and headaches.
6
Id. ¶ 15.
On
March 26, 2014, she went to the Rapid City Regional Hospital emergency room.
Id.
After obtaining her history of the work-related fall, the attending physician
prescribed a CT scan of Ms. Tovares’ head in order to rule out the presence of
internal bleeding or other brain injuries.
for internal bleeding.
Id. ¶ 17.
Id. ¶ 16.
The CT scan was negative
Her attending physician noted the “most likely
cause of her symptoms is . . . [her] head injury.”
Id. ¶ 18.
referred to an eye doctor to address her blurry vision.
examination disclosed no optical injuries.
Ms. Torvares was
Id. ¶ 19.
The eye
Id. ¶ 21.2 The bills for the
emergency room and the eye doctor totaled approximately $2,900 and were
submitted to Gallagher, as Praetorian’s agent.
Id. ¶¶ 21 & 22.
On April 30, 2014, Gallagher wrote to Ms. Tovares stating “we are in
receipt of your claim for Worker’s Compensation benefits due to an alleged injury
from an alleged accident on or around 3/19/2014.
We have investigated this
claim and found no evidence to support your claim for benefits under South
Dakota Worker’s Compensation provisions.”
Id. ¶ 24 (emphasis in complaint).
As the result of Gallagher’s failure to pay the medical bills, Ms. Tovares was
forced to take out a loan to pay these expenses.
Id. ¶ 26.
On May 16, 2014, Ms. Tovares’ attorney wrote Gallagher requesting a copy
of the video documenting her fall at Menards.
Id. ¶ 27.
Gallagher refused the
request stating that a subpoena would be required as the video belonged to
2
The complaint has no paragraph 20, which appears to be a typographical
error.
7
Menards.
Id. ¶ 28.
On October 9, 2014, counsel wrote Gallagher a second
time requesting a copy of the video and stating “[b]y withholding important
evidence, you force Ms. Tovares to take legal action, which makes it very difficult
for her (and other people like her) to simply get the evidence needed to determine
whether their claim is valid.”
Id. ¶ 29.
Counsel advised Gallagher that if a
positive response was not received by October 16, 2014, a petition for hearing
would be filed with the South Dakota Department of Labor.
Id. ¶ 30.
On
October 20, 2014, having heard nothing from Gallagher, Ms. Tovares filed a
petition for hearing with the Department of Labor.
Id. ¶ 31.
Praetorian admitted in its answer to the petition that Ms. Tovares had
fallen on March 19, 2014, and that she sought medical attention on March 26,
2014.
Id. ¶ 32.
The answer denied any health care provider indicated the
March 19 injury was a major contributing cause of any medical condition or need
for treatment.
Id. ¶ 33.
The answer concluded with a declaration that
“discovery [must be] conducted and expert opinions . . . obtained to determine
the exact nature of [Ms. Tovares’] alleged injuries, [her] current medical
condition, and whether [her] medical treatment was related to the incident . . . .”
Id. ¶ 34.
On February 6, 2015, the defendants offered $3,000, with a denial of
compensability, to settle Ms. Tovares’ claim.
Id. ¶ 35.
Ms. Tovares rejected the
offer, stating she was owed $3,225.12, together with interest, to fully satisfy the
medical bills.
Id.
On March 19, 2015, a check was tendered from “Gallagher
8
Bassett Services, Inc., for Praetorian Ins. Co.” for $3,225.12.
Tovares dismissed her petition with the Department of Labor.
Id. ¶ 38.
Ms.
Id. ¶ 39.
Ms.
Tovares incurred attorney’s fees of $806.28, or 25 percent of the payment
received, with the balance being applied to the loan she took out to pay the
medical bills.
Id. ¶ 40.
With this background, Praetorian’s objections are grouped for ease of
resolution.
1.
DID THE MAGISTRATE JUDGE ERR BY GROUPING PRAETORIAN
WITH BASSETT IN THE R&R
In order to efficiently address defendants’ motions to dismiss, the
magistrate judge collectively identified the defendants as “Gallagher Bassett/
Praetorian.”
(Docket 25 at p. 1).
Three of Praetorian’s objections claim the
magistrate judge grouped Praetorian with Gallagher, as opposed to addressing
Praetorian individually.
(Docket 26 at pp. 2-3).
In South Dakota, the relationship of a principal and agent is delineated by
statute.
See SDCL § 59-1-1 (“Agency is the representation of one called the
principal by another called the agent in dealing with third persons.”);
§ 59-1-4 (“Agency is actual when the principal appoints the agent.”);
§ 59-6-1 (“All rights and liabilities which would accrue to an agent from
transactions within the scope of his actual . . . authority . . . accrue to the
principal.”); and § 59-6-4 (“Any instrument within the scope of his authority, by
9
which an agent intends to bind his principal, does bind him if such intent is
plainly inferable from the instrument itself.”).
When considering Praetorian’s objections to grouping or agency, the
allegations of plaintiff’s complaint are deemed true.
Alliance, 615 F.3d at 988.
between the defendants.
Great Rivers Habitat
The complaint identified the agency relationship
Praetorian is responsible to Ms. Tovares for any
wrongful acts committed by Gallagher.
See SDCL § 59-6-9 (“[A] principal is
responsible to third persons for the negligence of his agent in the transaction of
the business of the agency, including wrongful acts committed by such agent in
and as part of the transaction of such business; and for his willful omission to
fulfill the obligation of the principal.”).
It was proper for the magistrate judge to group the defendants for analysis
of their motions to dismiss.
2.
Praetorian’s objections #2, #4 and #5 are overruled.
DID THE MAGISTRATE JUDGE ERR BY EMPHASIZING THE WORD
“ALLEGED”
Praetorian objects to the magistrate judge’s use of the word “alleged” in
italics throughout the R&R.
(Docket 26 at p. 2).
Praetorian asserts that
Gallagher’s letter of April 30, 2014, “did not emphasize the word ‘alleged’ as
indicated in the [R&R].”
Id.
Defendant’s objection is misplaced.
It is the use of the word “alleged” by
Gallagher which the complaint asserts caused Ms. Tovares to suffer emotional
distress.
See Docket 1 ¶ 24.
“Alleged” was placed in italics in the complaint to
10
emphasize the negative impact of the challenge.
Id. ¶ 25. There is a significant
difference between an “alleged” fall and a fall which actually occurred and is
verifiable by an employer and its insurance carrier through a video recording.
Use of the word “alleged” in the letter questioned Ms. Tovares’ character for
truthfulness.
(Docket 15-1 ¶ 4).
It was proper for the magistrate judge to use the language of the complaint
and the emphasized word “alleged” in describing the factual background of
plaintiff’s complaint and her claim for damages.
Praetorian’s objections #1 and
#3 are overruled.
3.
DID THE MAGISTRATE JUDGE ERR WHEN CONCLUDING DENIAL
OF THE CLAIM WAS “UNREASONABLE”
Praetorian objects to the magistrate judge’s finding that the initial denial
and delay in payment of Ms. Tovares’ claim was unreasonable.
p. 3).
(Docket 26 at
Praetorian claims “it is inappropriate for the Report to indicate that any
such denial of benefits was ‘unreasonable’ as this is largely the ultimate issue
presented in the case.”
Id.
Again, for purposes of resolving defendants’ motions to dismiss, the court
must accept the allegations of plaintiff’s complaint as true.
Habitat Alliance, 615 F.3d at 988.
Great Rivers
While it is ultimately the question to be
resolved if this case goes to trial, the magistrate judge appropriately concluded
for purposes of resolving defendants’ motions that their conduct was
unreasonable.
Accepting plaintiff’s allegations as true, Ms. Tovares fell at work
11
and suffered a compensable, worker’s compensation injury.
Menards had
actual notice of her work-related injury as her fall was recorded on the
employer’s video surveillance system.
Ms. Tovares sought prompt medical
attention for the injuries she believe were sustained in the fall.
The emergency
room attending physician’s notes indicated her symptoms were most likely
caused by a head injury suffered in the fall.
Ms. Tovares’ medical bills of $2,900
were compensable under South Dakota worker’s compensation law.
See
Mettler v. Sibco, 628 N.W.2d 722, 724 (S.D. 2001) (“Whenever the purpose of the
diagnostic test is to determine the cause of a claimant’s symptoms, which
symptoms may be related to a compensable accident, the cost of the diagnostic
test is compensable, even if it should later be determined that the claimant
suffered from both compensable and noncompensable conditions.”) (internal
citation omitted).
For purposes of evaluating defendants’ motions, these
medical expenses were compensable.
Id.
Defendants’ decision to withhold payment of Ms. Tovares’ medical bills
compelled her to take out a loan to pay the bills and file a petition with the
Division of Labor.
Even after defendants’ decision to tender payment, Ms.
Tovares still incurred attorney’s fees which she would not have incurred but for
defendants’ decision.
How this process impacted Ms. Tovares’ emotional state
remains to be determined.
Praetorian’s objections #6 and #7 are overruled.
12
4.
DID THE MAGISTRATE JUDGE ERR BY REFENCING FORSHEE v.
WATERLOO IND. INC., IN THE ANALYSIS OF PLAINTIFF’S
EMOTIONAL DISTRESS DAMAGES CLAIM
The magistrate judge cited Forshee for the general proposition that a jury’s
award of emotional distress damages “must be supported by competent evidence
of genuine [injury].” (Docket 25 at p. 5) (citing Forshee, 178 F.3d at 531). The
R&R cited the word “issue,” as opposed to “injury,” which is an obvious
typographical error.
Id.
The R&R is amended accordingly.
Defendants contend the magistrate judge erred in citing Forshee because
it “was a discrimination action and not a claim of bad faith in the context of a
South Dakota Worker’s Compensation matter.” (Docket 26 at p. 4).
Notwithstanding the objection, Praetorian argued Forshee “actually supports
Defendants’ motions.” Id.
Praetorian’s objection is misplaced. The magistrate judge cited Forshee
for the legal proposition stated above. It matters not whether plaintiff’s alleged
emotional distress damages are the result of a discrimination claim or a wrongful
denial of worker’s compensation benefits. Plaintiff’s emotional distress
damages “must be supported by competent evidence of genuine injury.”
Forshee, 178 F.3d at 531.
In the present analysis, that “competent evidence”
may include plaintiff’s testimony corroborated by proof of a physical injury,
treatment for an emotional injury or third-party witness testimony of “any
outward manifestation of emotional distress.” Id. But as acknowledged in
13
Forshee, plaintiff’s emotional distress damages claim may be “a compensatory
damage award . . . based solely on plaintiff’s own testimony . . . .” Id.
For purposes of the present analysis, plaintiff’s emotional distress claim is
supported by evidence of her physical injury and evidence of defendants’
unreasonable denial and delay in payment of her medical expenses.
The
magistrate judge did not err in citing Forshee in the analysis of plaintiff’s
emotional distress damages.
5.
Praetorian’s objection #8 is overruled.
DID THE MAGISRATE JUDGE ERR BY REFERENCING JORDAN v.
STATE FARM INS. CO., IN SUPPORT OF PLAINTIFF’S CLAIMS
The magistrate judge cited Jordan v. State Farm Ins. Co, CIV 16-4053,
2016 WL 7235688 (D.S.D. December 13, 2016), for the legal proposition that
“[p]unitive damages, when they are permitted to be awarded under the governing
substantive law for the claim being asserted by the plaintiff, can be included in
determining whether the . . . amount in controversy requirement has been met.”
(Docket 25 at p. 7) (citing Jordan v. State Farm, 2016 WL 7235688, * 3) (other
citation omitted).
Praetorian objects to this citation because “Jordan was a
first-party bad faith claim involving hail damage to a home.”
Again, Praetorian’s objection is misplaced.
(Docket 26 at p. 4).
The magistrate judge cited
Jordan v. State Farm for the legal proposition stated above.
The magistrate
judge further cited to Judge Piersol’s ruling in Jordan v. State Farm that “[w]hile
the contractual damage claim alone would not satisfy the jurisdictional
minimum for diversity purposes, the contract[ual] damage claim, combine[d]
14
with claims for emotional distress damages, punitive damages, and attorney’s
fees, collectively satisfy the jurisdictional requirement.”
(citing Jordan v. State Farm, 2016 WL 7235688, *4).
(Docket 25 at p. 6 n.1)
Praetorian acknowledges
the magistrate judge “correctly quoted Judge Piersol’s holding.”
(Docket 26 at
p. 5).
The magistrate judge did not err in citing Jordan v. State Farm in the
analysis of defendants’ jurisdictional challenge.
Praetorian’s objection #9 is
overruled.
6.
DID THE MAGISTRATE JUDGE ERR IN REFERENCING TORRES v.
TRAVELERS3 IN SUPPORT OF PLAINTIFF’S CLAIMS
The magistrate judge acknowledged that in evaluating defendants’
jurisdictional challenge to the $75,000 damages threshold, “courts look to cases
with factually similar situations to determine whether the plaintiff could receive
the claimed emotional distress award.”
v. State Farm, 2016 WL 7235688, *3).
(Docket 25 at p. 6) (referencing Jordan
The magistrate judge applied that
directive and chose Torres as a similar case to evaluate Ms. Tovares’ claims for
emotional damages and punitive damages.
Id. at pp. 6-7.
Praetorian objects to the comparison to Torres because of the distinctions
between that case and Ms. Tovares’ claims.
(Docket 26 at p. 5).
Praetorian
also objects to this comparison because the plaintiff in Torres only recovered
3
Torres, Civ. 01-5056 (D.S.D. 2001).
15
“$60,000 in compensatory damages” which “falls short of the required
jurisdictional minimum.”4 Id.
The court finds Torres is a similar case to the claims alleged by Ms.
Tovares.
Torres was a South Dakota bad faith case brought in the Western
District of the District of South Dakota in which plaintiff suffered a pecuniary
loss of about $8,6612.87.
Torres, Civ. 01-5056, Docket 327 at p. 8.
At trial on
plaintiff’s bad faith claim based on the defendants’ denial of worker’s
compensation benefits, the jury awarded Ms. Torres $60,000 in compensatory
damages for emotional distress and punitive damages of $12 million.
Id. at p. 9.
The punitive damages award was later reduced by the trial court to $2 million.
Id. at p. 44.
The magistrate judge did not err in citing Torres in the analysis of
plaintiff’s damages claim and defendants’ jurisdictional challenge.
Praetorian’s
objection #10 is overruled.
7.
DID THE MAGISTRATE JUDGE ERR BY FINDING PLAINTIFF’S
ALLEGED FACTS SUFFICIENT TO SUPPORT A PUNITIVE
DAMAGES CLAIM
The magistrate judge found that plaintiff “alleged in her complaint that
Gallagher Bassett/Praetorian acted with knowledge of a lack of reasonable basis,
or reckless disregard for the lack of reasonable basis and acted with fraud,
This is the same argument the defendants made to the magistrate judge
(Docket 17 at p. 5) which was rejected in the R&R. (Docket 25 at p. 6)
(“Gallagher Bassett/Praetorian argues that Torres is unavailing. This court
disagrees with Gallaher Basset/Praetorian.”).
4
16
malice, or oppression. . . .[The] Court finds that Tovares has alleged sufficient
facts to support a punitive damages claim, which would exceed the jurisdictional
minimum.”
(Docket 25 at p. 7).
Praetorian’s objection to this finding “relate[s] to the procedural
requirements necessary to conduct discovery or submit punitive damages to a
jury under South Dakota law.”
§ 21-1-4.1).
(Docket 26 at p. 5) (referencing SDCL
“Praetorian presumes the Magistrate Judge’s Report was not
intended to address SDCL § 21-1-4.1 or be determinative on the issue.
Nonetheless, out of an abundance of caution Praetorian objects to the language
and re-urges and incorporates its prior arguments regarding punitive damages
generally.”
Id.
The magistrate judge’s conclusion was not intended to address SDCL
§ 21-1-4.1 or whether the procedure established by that statute is applicable to
this federal court litigation.
Praetorian’s objection on this basis is overruled.
Referencing Torres, the magistrate judge properly concluded plaintiff
alleged a claim for punitive damages and that the potential sum which a jury
may award as punitive damages would contribute to plaintiff’s proof her claims
exceed the jurisdictional minimum.
(Docket 25 at p. 7).
Ms. Tovares’ sworn
affidavit in support of her response in opposition to defendants’ jurisdictional
challenge provides testimony very similar to the claims which resulted in
$60,000 in compensatory damages and $2 million in punitive damages in Torres.
(Docket 15-1).
17
Ms. Tovares “experienced stress and worry” over her inability to pay the
medical bills once her claim was denied by the defendants.
Id. ¶ 2.
Her
emotional distress was compounded because she had to go into debt by
borrowing money to pay the medical bills.
Id. ¶ 3.
She suffered further worry
and betrayal by both her employer and its insurance carrier as she believed they
were calling her a liar about her “alleged” fall and injuries.
Id. ¶¶ 4 & 10.
Ms.
Tovares testified she was compelled to hire an attorney and worried about paying
for his services because of the denial letter.
Id. ¶ 5.
She was emotionally
distressed over filing a worker’s compensation petition against her employer and
was fearful that her job was in jeopardy because of her claim.
Id. ¶¶ 6-7 & 10.
Plaintiff’s factual allegations of emotional distress support a claim for
punitive damages.
The magistrate judge did not err in the analysis of plaintiff’s
compensatory and punitive damages claims and defendants’ jurisdictional
challenge.
8.
Praetorian’s objection #11 is overruled.
DID THE MAGISTRATE JUDGE ERR IN CONCLUDING PLAINTIFF
IS ENTITLED TO RECOVER ATTORNEY’S FEES
The magistrate judge found plaintiff’s allegation that defendants’ April 30,
2014, denial letter misrepresented the benefits available to Ms. Tovares alleged
sufficient facts to recover attorney’s fees pursuant to SDCL § 58-12-3.
25 at pp. 7-8).
(Docket
The R&R properly acknowledges that statutory attorney’s fees
count toward satisfying the $75,000 requirement of § 1332(a).
Id. at p. 7 (citing
Crawford v. F. Hoffman-La-Roche Ltd., 267 F.3d 760, 766 (8th Cir. 2001).
18
Praetorian argues the magistrate judge erred when she relied on SDCL
§ 58-12-3 to conclude plaintiff would be entitled to attorney’s fees and when she
included the $806.28 fees which were deducted by her attorney when the
worker’s compensation claim was paid. (Docket 26 at pp. 5-6). These
objections will be addressed separately.
Praetorian’s objection is premised on its claim that Ms. Tovares does not
specifically reference any statutory authority in either her complaint or her brief
in opposition to defendants’ motions to dismiss. (Docket 26 at p. 6).
Praetorian’s objection is without merit. The complaint specifically alleges in
count II a claim of “misrepresentation pursuant to SDCL § 58-33-5.” (Docket 1
¶ 51) (capitalization and bold omitted). Count II alleges plaintiff is entitled to
attorney’s fees “pursuant to SDCL § 58-33-46.1.” Id. ¶ 57.
SDCL § 58-33-5 addresses misrepresentation or false advertising of an
insurance policy. “No person shall make . . . or cause to be made . . . any . . .
statement misrepresenting the terms of any policy issued . . . or the benefits . . .
promised thereby . . . . Violation of this section is a Class 2 misdemeanor.” Id.
This statute “prohibits insurer misrepresentation concerning insurance
coverage.” Delka v. Continental Casualty Co., 748 N.W.2d 140, 152 (S.D.
2008). “Any person who claims to have been damaged by any act or practice
declared to be unlawful by this chapter shall be permitted to bring a civil action
for the recovery of all actual and consequential damages suffered as a result of
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such act or practice including reasonable attorneys’ fees to be set by the court.”
SDCL § 58-33-46.1.
“Chapter 58–33 provides a private right of action and recovery of attorney’s
fees for claims based on unfair trade practices.” Hill v. Auto Owners Ins. Co.,
Civ. No. 14-5037, 2015 WL 2092680, *9 (D.S.D. May 5, 2015) (addressing SDCL
§§ 58-33-5 and 58-33-46.1). Plaintiff’s complaint alleges with particularity the
alleged misrepresentation by defendants. Id.; see also Docket 1 ¶¶ 51-58.
Additionally, Praetorian claims the statute is not applicable because
“Gallagher Bassett . . . denied that Plaintiff was entitled to benefits, which is a
distinction rendering SDCL § 58-33-5 inapplicable.” (Docket 26 at p. 6)
(emphasis in original). Praetorian argues “there appears to be no
representations at all regarding the terms or benefits of the policy.” Id.
Praetorian’s argument is a distinction without a difference. Whether there was
a misrepresentation by denial of entitlement to benefits or a misrepresentation of
the benefits to which plaintiff may have been entitled, the issue remains a jury
question.
SDCL § 58-12-3 provides in pertinent part:
In all actions . . . against any . . . insurance company . . . on any
policy . . . of insurance, if it appears from the evidence that such
company . . . has refused to pay the full amount of such loss, and
that such refusal is vexatious or without reasonable cause, . . . the
trial court . . . shall, if judgment or an award is rendered for plaintiff,
allow the plaintiff a reasonable sum as an attorney’s fee to be
recovered and collected as a part of the costs, provided, however,
that when a tender is made by such insurance company . . . before
the commencement of the action . . . in which judgment or an award
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is rendered and the amount recovered is not in excess of such
tender, no such costs shall be allowed. The allowance of attorney
fees hereunder shall not be construed to bar any other remedy,
whether in tort or contract, that an insured may have against the
same insurance company . . . arising out of its refusal to pay such
loss.
This section does not require a claim of unfair trade practices, but rather only
that a claim refusal was vexatious or without reasonable cause. Whether
defendants’ “conduct was vexatious or without reasonable cause is a question of
fact.” Biegler v. Am. Family Mutual Ins. Co., 621 N.W.2d 592, 606 (S.D. 2001).
“[T]he obvious objective of SDCL 58–12–3 is to discourage contesting
insurance coverage and to reimburse an insured for any reasonable attorney’s
fees necessarily incurred in defending or enforcing a valid insurance contract
right.” Bertelsen v. Allstate Ins. Co., 833 N.W.2d 545, 557 (S.D. 2013),
abrogated on other grounds, Magner v. Brinkman, 883 N.W.2d 74 (S.D. 2016).
For purposes of resolving defendants’ motions to dismiss, it appears
plaintiff may be entitled to attorney’s fees under either SDCL § 58-33-46.1 or
§ 55-12-3. The magistrate judge did not err in relying on SDCL § 55-12-3 in her
analysis of plaintiff’s damages. Whether in successful pursuit of her claim of
bad faith through vexatious or unreasonable denial of benefits or her claim for
unfair trade practices, plaintiff’s attorney’s fees claim is likely to exceed the
jurisdictional threshold on its own. “Absolute certainty . . . is not required” to
meet the diversity jurisdiction damages threshold. Hedberg v. State Farm
21
Mutual Automobile Ins. Co., 350 F.2d 924, 928 (8th Cir. 1965) (citing Aetna
Casualty and Surety Co. v. Flowers, 330 U.S. 464, 468 (1947)).
Praetorian also argues the magistrate judge erred in considering in the
jurisdictional threshold analysis the $806.28 in attorney’s fees deducted from
the payment tendered by the defendants. (Docket 26 at p. 6). The only
reference to that fee appears in the magistrate judge’s background discussion of
the case. See Docket 26 at p. 2. The magistrate judge did not include that fee
in the analysis of the attorney’s fees claim. See id. at pp. 7-8.
Praetorian’s objections #12 and #13 are overruled.
CONCLUSION
The court finds that Ms. Tovares established by a preponderance of the
evidence that her damages exceed the $75,000 threshold mandated by § 1332(a).
Her claim for compensatory damages, in the form of emotional distress, together
with her claims for attorney’s fees and punitive damages collectively satisfy the
jurisdictional requirement.
Praetorian’s objections are overruled and the report and recommendation
is adopted as amended by this order.
ORDER
Based on the above analysis, it is
ORDERED that defendant Praetorian’s objections (Docket 26) are
overruled.
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IT IS FURTHER ORDERED that the report and recommendation (Docket
25) is adopted as amended by this order.
IT IS FURTHER ORDERED that plaintiff’s motion (Docket 18) is denied as
moot.
IT IS FURTHER ORDERED that the defendants’ motions to dismiss
(Docket 11 & 12) are denied.
IT IS FURTHER ORDERED that the defendants shall file their answers to
plaintiff’s complaint on or before October 3, 2017.
Dated September 12, 2017.
BY THE COURT:
Jeffrey L. Viken
/s/
JEFFREY L. VIKEN
CHIEF JUDGE
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