An important aspect of trial is the preparation of jury instructions. In Bertelsen v. Allstate Insurance Company, No. 25647, 2011 WL 1320525 (S.D. April 6, 2011), the Supreme Court of South Dakota evaluated how an improper jury instruction can affect an insured’s bad faith case against an insurance company.
Bonnie Bertelsen worked as an in-home registered nurse for Universal Pediatric Services (UPS). On December 26, 2005, she was severely injured in an automobile accident while driving a UPS vehicle to a patient’s home to perform her nursing duties. As a result of the accident, Bonnie spent six weeks in the hospital recovering from life-threatening injuries, underwent numerous surgeries, lost eight months of work, and incurred $382,849.92 in medical expenses. Mrs. Bertelsen filed a claim for workers’ compensation benefits with AIG, UPS’s workers’ compensation carrier. AIG denied the claim on January 10, 2006, and again on February 7, 2006. AIG asserted that her injuries did not arise out of and in the course of her employment with UPS. AIG sent a copy of its denial letter to the South Dakota Department of Labor.
In February 2006, the Bertelsens advised Allstate Insurance Company that AIG denied Mrs. Bertelsen’s workers’ compensation claim and gave Allstate notice of a potential medical payments claim. Allstate was, at the time, the carrier for the Bertelsen’s personal auto insurance policy.
Although Allstate’s claims manual requires immediate notice to policyholders of any coverage issues, Allstate wrote to the Bertelsens in June 2006, raising the workers’ compensation exclusion in the policy for the first time.
When Allstate ultimately failed to pay, the Bertelsen brought an action against Allstate for breach of contract and bad faith arising out of Allstate’s failure to pay medical benefits under the Bertelsens’ personal automobile insurance policy. When the court entered a verdict in favor of Allstate on the bad faith claim, the Bertelsens appealed on several grounds. The issue addressed in today’s post is whether the trial court abused its discretion by improperly instructing the jury regarding the bad faith claim.
The Bertelsens finally challenge Final Instruction No. 35: “Conduct is reckless when a person consciously disregards a substantial risk. A person cannot be reckless if they are unaware of the risk their behavior creates.”
The Bertelsens argue that these instructions were error in light of Bertelsen. In that case, Allstate argued that Bonnie’s medical payments claim was fairly debatable because the application of SDCL 62–1–1.3 to an automobile insurer was a case of first impression. Yet we said that “the language of SDCL 62–1–1.3 is plain, unambiguous, and not susceptible to debate.” [citation omitted]. “Allstate’s obligation was clear from the statutory language alone, and an interpretative decision from this Court was not necessary for Allstate to have determined its duty under [the] policy”…Because a disputed issue of material fact remained regarding Allstate’s intent in failing to pay medical benefits, we remanded for trial on the Bertelsens’ bad faith claim.
“SDCL” stands for “South Dakota Codified Law,” and section 62-1-1.3 is titled “Presumption that certain noncompensable injuries are nonwork related–Coverage under other insurance policy.”
The Supreme Court of South Dakota explained that the trial court’s instructions on the Bertelsens’ bad faith claim constituted an abuse of discretion. The trial court should have instructed the jury that Mrs. Bertelsen’s medical payments claim was not fairly debatable and that the only issue for its determination on the bad faith claim was Allstate’s intent in failing to pay benefits. The Court added that because the denial of a claim that is not fairly debatable is strong evidence of bad faith, the trial court’s failure to properly instruct the jury prejudiced the Bertelsens’ substantial rights. As such, the Court remanded the issue to the trial court finding that the trial court should instruct the jury in a manner consistent with the Court’s analysis of the Bertelsens’ bad faith claim.
Please keep in mind that the decision is founded on law that is specific to South Dakota. Other jurisdictions might reach a different outcome on this issue.
Please tune in next week for another evaluation of bad faith issues.