#27521-a-DG
2016 S.D. 52

                             IN THE SUPREME COURT
                                     OF THE
                            STATE OF SOUTH DAKOTA

                                    ****

TROY KERN,                                   Plaintiff and Appellant,

      v.

PROGRESSIVE NORTHERN
INSURANCE COMPANY,                           Defendant and Appellee.



                                    ****

                  APPEAL FROM THE CIRCUIT COURT OF
                    THE SEVENTH JUDICIAL CIRCUIT
                  PENNINGTON COUNTY, SOUTH DAKOTA

                                    ****

                   THE HONORABLE ROBERT A. MANDEL
                               Judge

                                    ****

CHARLES ABOUREZK
JON J. LAFLEUR of
Abourezk, Zephier & LaFleur, P.C.
Rapid City, South Dakota                     Attorneys for plaintiff and
                                             appellant.

MARK J. ARNDT of
May & Johnson, P.C.
Sioux Falls, South Dakota                    Attorneys for defendant and
                                             appellee.

                                    ****



                                             CONSIDERED ON BRIEFS
                                             ON MAY 23, 2016
                                             OPINION FILED 07/20/16
#27521

GILBERTSON, Chief Justice

[¶1.]        Troy Kern was involved in a rear-end collision in 2005. The other

driver was at fault but did not have sufficient insurance to cover Kern’s injuries.

Kern thus filed an underinsured motorist claim with his insurance provider,

Progressive. After months of unsuccessful negotiations, Kern sued Progressive for

bad faith alleging that its settlement offers had been intentionally inadequate. He

also sued for unpaid underinsured motorist (UIM) benefits. A jury subsequently

awarded Kern $18,650 in UIM benefits but did not find that Progressive acted in

bad faith. Kern appeals both the award and the bad faith finding. We affirm.

                                    Background

[¶2.]        In August 2005, Kern was involved in an accident in Rapid City. The

vehicle in front of him stopped abruptly, and while Kern was able to stop before a

collision, he was rear-ended by the vehicle behind him. According to the accident

report, Kern told the police he was traveling approximately 10 mph and the vehicle

collided into him at about 15 mph. A photograph taken at the time of the accident

did not depict any significant damage to Kern’s vehicle, but there was noticeable

damage to the tortfeasor’s vehicle. Kern did not complain of any injuries at the

scene.

[¶3.]        Progressive received notice of the accident shortly after it occurred,

and informed Kern that his policy provided for $5,000 in medical payments

coverage. Kern’s policy with Progressive also provided $100,000 in UIM coverage.

The tortfeasor who collided with Kern maintained a Geico auto policy providing

$25,000 in liability coverage. Kern accepted the medical payments coverage


                                          -1-
#27521

amount, but exhausted it approximately five months after the accident. There was

little contact between the parties for over a year, until Kern filed a UIM claim in

February of 2007, alleging the accident caused an injury to his left shoulder and

that treatment cost surpassed Progressive’s medical payments disbursement.

[¶4.]        After Kern filed the UIM claim, Progressive assigned Loren Sedevie as

claims handler. Sedevie’s supervisor was Delores Hoime. After his assignment,

Sedevie began collecting Kern’s medical records. In February 2008, Progressive

retained Dr. Nolan Segal to conduct an independent review of Kern’s medical

records and to render opinions regarding the nature and extent of the injuries. No

photographs of the tortfeasor’s vehicle were provided to Segal. He opined that the

accident appeared to be low velocity, that Kern had extensive neck and back

complaints prior to the accident, his post-accident complaints did not differ

significantly from his pre-accident complaints, and that there was no evidence that

Kern sustained a left shoulder injury due to the accident.

[¶5.]        In March 2008, Kern informed Progressive that he had settled his

claim with Geico. Geico agreed to pay $20,000 directly to Kern, and offered to pay

$5,000 to Progressive in subrogation for the medical payments coverage Progressive

previously paid to Kern. At this point, Kern had received a total of $25,000 for his

injuries—$20,000 from Geico as a part of the tortfeasor’s liability policy, and $5,000

from Progressive as a part of Kern’s medical payments coverage.

[¶6.]        After the Geico claim was settled, Kern and the claims adjuster

Sedevie engaged in settlement negotiations. In October 2008, Progressive made an

offer to Kern with Dr. Segal’s report attached. Kern’s attorney wrote a letter in


                                          -2-
#27521

response giving the attorney’s negative opinion of Segal’s findings, and asked

Progressive to re-evaluate the claim. Kern later sought to admit this letter into

evidence at trial.

[¶7.]        Progressive’s last settlement offer prior to the lawsuit was for $12,500

over and above the $25,000 Kern had already received. Kern rejected this amount

and filed this suit in July 2009. Negotiations continued during the litigation

process, but no amount was ever agreed upon. A few weeks prior to trial,

Progressive offered $45,000 in UIM benefits, but Kern rejected this amount and the

parties proceeded to trial.

[¶8.]        Before the jury trial, Kern attempted to subpoena John Charles Jones,

the top manager of Progressive’s gainsharing program. Kern also attempted to

subpoena Scott Krank, the claims manager for both Sedevie and Hoime, whose

office was located in North Dakota. Progressive filed a motion to quash the

subpoenas, arguing that the trial court had no personal jurisdiction over the two

employees. The trial court agreed and quashed the subpoenas.

[¶9.]        Prior to trial, Kern also filed a notice of intent to use other acts

evidence. Kern argued that Sedevie and Hoime were involved in another

Progressive case involving bad faith, Bjornestad v. Progressive N. Ins. Co., No. CIV

08-4105, 2010 WL 4687640, at *3 (D.S.D. Nov. 10, 2010), aff’d, 664 F.3d 1195 (8th

Cir. 2011). In that case, the jury did not find bad faith, but the trial judge awarded

attorney’s fees because Progressive’s behavior was vexatious and without

reasonable cause under SDCL 58-12-3. The trial court denied the motion to include




                                           -3-
#27521

this other acts evidence, and denied Kern’s renewed motion when the issue came up

during trial.

[¶10.]          The jury trial took place in March 2015. Kern’s trial theory was that

Progressive acted in bad faith by deliberately “low-balling” Kern’s claim. Kern

argued that there were inconsistencies in Progressive’s claim management process,

alleging that some of Progressive’s settlement offers were less than their internal

valuation of the claim. When Kern confronted Progressive about these alleged

inconsistences, Sedevie answered that mistakes had been made in the claims

process. Sedevie’s supervisor Hoime also admitted that mistakes were made during

the process. Despite this testimony, the trial court found post-trial that no credible

evidence had been presented indicating that Progressive ever attempted to

negotiate a settlement for any amount less than its own internal evaluation range

for Kern’s claim.

[¶11.]          After Kern presented his case, he moved for judgment as a matter of

law regarding his bad faith claim, which the court denied. The case was submitted

to the jury. The jury found that Progressive had not acted in bad faith, but did

award Kern gross damages of $43,649.97. The jury’s verdict was in the form of a

special verdict form, which instructed them to subtract $25,000 from their

calculated total of damages, if they found any. Thus, Kern’s final award was

$18,649.97 in unpaid UIM damages.

[¶12.]          After the verdict was handed down, Kern renewed his motion for

judgment as a matter of law and moved for attorney’s fees under SDCL 58-12-3. A

hearing was held in June 2015. After issuing findings of fact and conclusions of


                                           -4-
#27521

law, the court denied both motions. The court found that Kern failed to meet his

burden proving that Progressive’s negotiations were vexatious or without

reasonable cause as required under the statute.

[¶13.]       Kern now appeals, arguing six issues:

             1. Whether the trial court abused its discretion when it issued
                the verdict form instructing the jury to subtract $25,000 from
                Kern’s total damages.
             2. Whether the trial court abused its discretion by excluding the
                letter from Kern’s counsel in response to Dr. Segal’s report.
             3. Whether the trial court abused its discretion by excluding
                Kern’s proposed other acts evidence.
             4. Whether the trial court abused its discretion by quashing the
                trial subpoenas of John Charles Jones and Scott Krank.
             5. Whether the trial court erred in refusing to award attorney
                fees under SDCL 58-12-3.
             6. Whether the trial court erred by refusing to grant Kern’s
                motion for judgment as a matter of law or a new trial.

                                       Analysis

[¶14.]       1.     Whether the trial court abused its discretion when it issued the
                    verdict form instructing the jury to subtract $25,000 from Kern’s
                    total damages.

[¶15.]       The trial court used a special verdict form to assist the jury in

rendering its verdict. Special verdict forms are useful when dealing with complex

causes of action. Zahn v. Musick, 2000 S.D. 26, ¶ 41, 605 N.W.2d 823, 831. Use of

such a form is within the trial court’s discretion, and we will not disturb its decision

absent an abuse of that discretion. Id. at ¶ 40, 605 N.W.2d at 831.

[¶16.]       Kern argues that because he only received $20,000 from Geico, only

that amount should have been deducted from the total award. Because the

tortfeasor’s policy limit was $25,000, Kern argues that he was entitled to that entire


                                          -5-
#27521

amount from Geico. Kern alleges Geico wrongfully paid $5,000 in subrogation to

Progressive to compensate for the medical payments coverage Progressive had

already disbursed.

[¶17.]       Kern’s argument is unpersuasive. Whether he was entitled to $25,000

from Geico is irrelevant, because the jury’s purpose in the verdict form was to

determine what damages were owed to Kern by Progressive over and above what he

had already received. The jury calculated his total damages, and then subtracted

previously received compensation. It is undisputed that Kern received $5,000 in

medical payments coverage from Progressive, and that amount was properly

subtracted from his final damages total. See Diggs v. Tillman, 985 So. 2d 767, 770

(La. Ct. App. 2008) (“[I]t is a well-settled rule that the UM carrier is entitled to a

credit for any amount which it has paid to the plaintiff under the medical payments

coverage.”); 12 Couch on Insurance 3d § 171:44 (2016) (“[T]he insurer can generally

setoff from the UM/UIM coverage the amounts paid to the insured under the

medical expenses provision on the basis that it prevents a ‘double recovery’ by the

insured.”). The trial court did not abuse its discretion by submitting to the jury the

verdict form that subtracted $25,000 from Kern’s total damages.

[¶18.]       2.      Whether the trial court abused its discretion by excluding the
                     letter from Kern’s counsel in response to Dr. Segal’s report.

[¶19.]       After Dr. Segal completed his report of Kern’s injuries and the report

was shared with Kern’s trial counsel, Kern’s trial counsel drafted a letter to

Progressive contesting some of Dr. Segal’s medical conclusions. Kern argues that

Progressive did not address his trial counsel’s objections in the letter, and the

refusal to acknowledge these objections was evidence of bad faith. Kern argues that

                                           -6-
#27521

the letter was not intended to be introduced as substantive evidence and thus his

trial counsel would not have been testifying.

[¶20.]       Regardless of whether Kern intended the letter to show Progressive’s

bad faith or as substantive evidence contesting Dr. Segal’s report, it was still a

letter written by Kern’s trial counsel containing trial counsel’s opinions. Attorneys

cannot participate in a trial after they have testified as witnesses in that trial.

SDCL 19-1-3. Additionally, the South Dakota Rules of Professional Conduct

prohibit an attorney from acting as both an advocate and a witness in a case with

exceptions that would not have applied here. South Dakota Rule of Professional

Conduct 3.7. It would have been exceedingly difficult for the jury to view the letter

only as evidence of Progressive’s bad faith in not responding and not as substantive

evidence of any deficiencies in Dr. Segal’s opinion.

[¶21.]       It is also unlikely that Kern was prejudiced by the exclusion of the

letter. Kern’s putative goal in introducing the letter was to highlight to the jury

that Progressive did not respond to his objections to Dr. Segal’s report and this

showed bad faith on Progressive’s part. Kern elicited this information explicitly

during the direct examination of Sedevie. Admitting the letter would not have

added any substantial relevant information, and its inclusion would have amounted

to Kern’s trial counsel giving testimony. The trial court did not abuse its discretion

by excluding the letter.

[¶22.]       3.     Whether the trial court abused its discretion by excluding Kern’s
                    proposed other acts evidence.

[¶23.]       Prior to trial, Kern sought to introduce the facts from Bjornestad v.

Progressive N. Ins. Co., a bad faith case involving both Sedevie and his supervisor

                                           -7-
#27521

Hoime. 2010 WL 4687640, at *3 (D.S.D. Nov. 10, 2010). In that case, after the jury

found that Progressive did not act in bad faith, the plaintiff moved for attorney’s

fees. Id. The trial judge found that Progressive had intentionally made settlement

offers below its internal valuation of the claim and that Progressive was dishonest

with the plaintiff’s doctor. Id. The trial judge found that Progressive’s behavior

was vexatious and without reasonable cause and awarded attorney’s fees under

SDCL 58-12-3. Id.

[¶24.]       The trial court in this case denied Kern’s pre-trial motion to include

the facts from Bjornestad, stating the issue could be brought up again at trial if

necessary. During trial, Kern sought to introduce these prior acts to show absence

of mistake after Sedevie admitted mistakes occurred in their investigation. The

trial court denied his motion.

[¶25.]       SDCL 19-19-404(b) prohibits the use of evidence of a past act to prove

a person’s character. This evidence can be admitted to show absence of mistake or

lack of accident. SDCL 19-19-404(b)(2); see State v. Jolley, 2003 S.D. 5, ¶ 22, 656

N.W.2d 305, 310. However, the evidence should still be excluded if another rule of

evidence requires it. If the evidence’s probative value is substantially outweighed

by the potential waste of time, the trial court is correct to exclude it. SDCL 19-19-

403.

[¶26.]       In this case, the trial court was correct to exclude the evidence because

the potential for confusion and waste of time substantially outweighed the

evidence’s limited probative value. Kern sought to introduce the evidence to show




                                          -8-
#27521

that Progressive’s actions were not mistakes and that its conduct was in bad faith.

However, the jury explicitly did not find bad faith in Bjornestad, thus limiting that

case’s applicability to Kern’s situation. See Tripp v. W. Nat. Mut. Ins. Co., 664 F.3d

1200, 1205 (8th Cir. 2011) (holding that "where a jury finds in favor of an isured on

a tort claim of bad faith, South Dakota law requires a seperate analysis to

determine whether an insurer's refusal o pay is vexatious or without reasonable

cause under § 58-12-3."see also Isaac v. State Farm Mut. Auto. Ins. Co., 522 N.W.2d

752, 763 (S.D. 1994) (“[A] finding of bad faith on the part of an insurance company

does not mean ‘ipso facto’ that its conduct was vexatious or without reasonable

cause [under SDCL 58-12-3].”); Crabb v. Nat’l Indem. Co., 87 S.D. 222, 205 N.W.2d

633, 639 (1973) (indicating a finding “that an insurer lacked good faith does not

signify [the insurer’s] conduct was ‘vexatious or without reasonable cause’, as a

matter of law”).

[¶27.]       In addition to the limited probative value, the Bjornestad facts would

have inevitably led Progressive to counter with facts from other cases where its

behavior was not found to be improper, leading to each case being effectively

retried. This would have greatly lengthened and muddled an already long and

confusing case, and would not have aided the jury in its decision. Royal Bahamian

Ass’n, Inc. v. QBE Ins. Corp., 745 F. Supp. 2d 1380, 1385 (S.D. Fla. 2010) (holding

that any probative value from an insurer’s conduct in prior claims would be

substantially outweighed by the prejudice of having to re-try many other cases in

one trial). The trial court did not abuse its discretion by excluding the facts from

the Bjornestad case.


                                          -9-
#27521

[¶28.]       4.     Whether the trial court abused its discretion by quashing the
                    trial subpoenas of John Charles Jones and Scott Krank.

[¶29.]       While this Court has never directly addressed the standard of review

of a trial court’s decision to quash a subpoena, we have previously analyzed a trial

court’s quash of a subpoena as a discovery or evidentiary issue and thus reviewed it

for an abuse of discretion. See Lien v. Lien, 2004 S.D. 8, ¶ 33, 674 N.W.2d 816, 826-

27; Phipps Bros. Inc. v. Nelson’s Oil & Gas, Inc., 508 N.W.2d 885, 890 (S.D. 1993)

(“We have held that a party seeking to modify or quash such a subpoena has the

burden of proving the necessity of doing so . . . . We generally recognize that the

trial court should be allowed considerable discretion on its evidentiary rulings.”)

(citation omitted); see also Mitzel v. Emp’rs Ins. of Wausau, 878 F.2d 233, 235 (8th

Cir. 1989) (affirming the federal district court’s quash of a subpoena under South

Dakota law “[b]ecause no abuse of discretion has been shown”).

[¶30.]       Krank and Jones were not parties to this case. They are Progressive

employees, but are not its registered agents. They do not live in South Dakota, and

do not work in South Dakota. The trial court would not have been able to exert

personal jurisdiction over the individuals. Kern attempts to overcome this by

arguing that SDCL 58-6-39 compels any insurance company doing business in

South Dakota to designate the director of the Division of Insurance as its attorney

for service of legal process. SDCL 58-6-39. However, this statute applies to

“insurers” not employees of insurers, as the individuals are. As the statute is

inapplicable, the trial court would have been without power to compel the

individuals to appear in court, and properly quashed the subpoena.



                                         -10-
#27521

[¶31.]       5.     Whether the trial court erred in refusing to award attorney fees
                    under SDCL 58-12-3.

[¶32.]       In order to be awarded attorney’s fees under this statute, a court must

find that an insurer’s denial of coverage was vexatious or without reasonable cause.

SDCL 58-12-3; Brooks v. Milbank Ins. Co., 2000 S.D. 16, ¶ 17, 605 N.W.2d 173, 178.

The court’s decision of whether the insurer’s conduct was vexatious or without

reasonable cause is a finding of fact and thus will not be reversed unless the

decision was clearly erroneous. Sawyer v. Farm Bureau Mut. Ins. Co., 2000 S.D.

144, ¶ 29, 619 N.W.2d 644, 652.

[¶33.]       The facts of this case are complicated, and the trial judge had the

benefit of observing the trial’s many subtleties. In light of this, and upon looking at

the entire record, it cannot be said that the trial judge’s finding that Progressive did

not act without reason was clearly erroneous. Progressive never denied that Kern

was entitled to UIM coverage. It never claimed that Kern was at fault in the

accident. A few weeks prior to trial, Progressive offered to settle the case for

$45,000 in UIM benefits, a higher amount than what the jury determined his actual

damages to have been. In light of these factors, the trial judge’s determination that

Progressive’s conduct was not vexatious was not clearly erroneous.

[¶34.]       6.     Whether the trial court erred by refusing to grant Kern’s motion
                    for judgment as a matter of law or a new trial.

[¶35.]       Kern supports this argument by restating the arguments in his other

issues. He does not present any new arguments or authority to support his theory

that the trial court should have granted him a new trial or judgment as a matter of




                                          -11-
#27521

law. As such, the argument is waived. Longwell v. Custom Benefit Programs

Midwest, Inc., 2001 S.D. 60, ¶ 30, 627 N.W.2d 396, 401.

                                       Conclusion

[¶36.]          Kern’s alleged errors do not merit reversal. The trial court did not

abuse its discretion regarding the verdict form or its evidentiary rulings, when it

quashed the subpoenas of Krank and Jones, or when it refused to order a new trial.

The trial court also did not clearly err by refusing to award attorney’s fees. We

affirm.

[¶37.]          ZINTER, SEVERSON and WILBUR, Justices, and KONENKAMP,

Retired Justice, concur.

[¶38.]          KONENKAMP, Retired Justice, sitting for KERN, Justice,

disqualified.




                                           -12-
