Luze v. New FB Co.

952 N.W.2d 264

Jeanette LUZE, as personal representative of the Estate of Charles Edward Luze, Plaintiff and Appellant,

v.NEW FB COMPANY, f/k/a Farner-Bocken Company and Zurich American Insurance Company, Defendants and Appellees.

29073

Supreme Court of South Dakota.

CONSIDERED ON BRIEFS MARCH 17, 2020

OPINION FILED December 9, 2020

SHAWN M. NICHOLS of Cadwell, Sanford, Deibert, & Garry, LLP, Sioux Falls, South Dakota, Attorneys for plaintiff and appellant.

KATELYN A. COOK, DANIEL E. ASHMORE of Gunderson, Palmer, Nelson, & Ashmore, LLP, Rapid City, South Dakota, Attorneys for defendants and appellees.

DEVANEY, Justice

[¶1.] Charles Luze was killed in a motor vehicle accident at work, after which his employer paid his wife, Jeanette Luze, workers’ compensation benefits. Jeanette, as the personal representative of Charles's estate, brought suit against the negligent driver and ultimately settled the claim. The estate also settled a claim against Zurich American Insurance Company (Zurich), the employer's insurer providing underinsured motorist coverage. Zurich is also the employer's workers’ compensation insurance carrier. This appeal concerns the circuit court's determination that Zurich is entitled to a statutory workers’ compensation lien on 50% of the settlement proceeds received by the estate and that Zurich is able to subrogate against its own settlement payment of underinsured motorist benefits. We remand on issue one and affirm on issue two.

Factual and Procedural Background

[¶2.] Charles Luze, age forty-nine, died tragically in a motor vehicle accident on September 14, 2014. Charles was driving a truck for his employer—New FB Company (New FB)—when James Miller ignored a stop sign and drove his semitruck through an intersection at highway speeds. The collision killed Charles instantly and seriously injured Charles's son, who was also in the truck. Miller pled guilty to criminal charges stemming from the collision.

[¶3.] At the time of the accident, New FB maintained workers’ compensation insurance through Zurich. After Charles's death, Zurich began paying $705 per week in workers’ compensation benefits to Jeanette Luze as Charles's personal representative and sole beneficiary. Zurich also paid $10,000 in funeral expenses.

[¶4.] Jeanette brought a wrongful death suit against Miller in her capacity as the personal representative of Charles's estate and ultimately settled the claim for $898,000. Jeanette also brought suit in federal district court against Zurich to recover under New FB's automobile insurance policy provision relating to underinsured motorists. Zurich disputed that coverage existed, arguing that Charles's vehicle was not a "covered vehicle" under New FB's automobile policy. The federal district court agreed with Zurich, and Jeanette appealed that ruling to the Eighth Circuit Court of Appeals. While the appeal was pending, Zurich and Jeanette settled the coverage claim for $230,000. The estate received a total settlement of $1,128,000 from both Miller and Zurich.¹

[¶5.] Because Zurich had paid Jeanette workers’ compensation benefits owed by New FB, Zurich was entitled to a statutory lien under SDCL 62-4-38 and SDCL 62-4-39 against the portion of the settlement proceeds Jeanette had recovered representing "like damages." However, because Jeanette and Zurich could not agree on the value of the statutory workers’ compensation lien, they filed a joint complaint for a declaratory judgment, requesting that the circuit court determine what portion of the settlement proceeds is subject to Zurich's statutory lien and whether Zurich could subrogate against the $230,000 it paid to Jeanette under New FB's underinsured motorist coverage.

[¶6.] The circuit court held an evidentiary hearing on the parties’ joint request for a declaratory judgment. During the hearing, Jeanette presented testimony from multiple witnesses related to their respective loss of Charles's society and companionship, including his advice, guidance, protection, and assistance. Jeanette also presented expert testimony from Sam Goodhope, a personal injury attorney with experience in wrongful death suits, to opine on the value of Jeanette's wrongful death claim, including economic and non-economic damages.

[¶7.] In arriving at an estimated value of the estate's wrongful death claim, Goodhope reviewed Jeanette's deposition testimony and an economic loss appraisal prepared in Jeanette's federal suit to recover underinsured motorist benefits. Jeanette had utilized this appraisal, which projected economic losses between $1.2 and $4.5 million, to support her assertion in the federal suit that the recovery from Miller was wholly inadequate, thus implicating the maximum $1 million benefit for underinsured motorist coverage. In light of the significant economic losses related in the appraisal, Goodhope opined "that at a minimum you [would] get a verdict range between" $3 and $6 million in a wrongful death suit brought on the facts of this case. He acknowledged that "non-economics are somewhat ambiguous" but explained that he resolved that ambiguity by "factoring off of the hard damages, the economic damages, the lost wages, the medical expenses." He further explained that a jury's determination of the non-economic damages "can be anywhere from one up to five times" the amount of economic damages or "even greater," depending on the facts of the case. According to Goodhope, the $1.1 million recovery in this case does not adequately represent the total damages, as the non-economic damages alone would be more than $900,000.

[¶8.] Zurich did not call any witnesses or offer additional exhibits but did cross-examine Goodhope on his valuation of Jeanette's wrongful death claim and his estimation of the relationship between economic and non-economic damages. At the conclusion of the hearing, the circuit court directed the parties to submit briefs in support of their respective proposed allocations of the settlement proceeds to which Zurich's statutory lien could attach as "like damages."

[¶9.] In her post-hearing brief, Jeanette proposed alternative avenues by which the court could determine a proper allocation. Jeanette's first proposal suggested that the court allocate 16% as "like damages," calculated by dividing the value of the workers’ compensation lien (present value of future benefits plus the benefits already paid) by $4.5 million (the midpoint of Goodhope's estimated "true value" of the claim).² Her second proposal suggested a 19% allocation, calculated by dividing the $898,000 settlement obtained from Miller by the asserted $4.5 million midpoint value of the claim. Jeanette did not include the $230,000 settlement amount paid by Zurich in this calculation because, in her view, Zurich was not entitled to subrogate against the amount it paid under New FB's underinsured motorist coverage. Jeanette also pointed to Goodhope's testimony that non-economic damages could be up to five times greater than economic damages, as an additional basis supporting her suggested 19% allocation of like damages.

[¶10.] In its post-hearing brief, Zurich proposed a 50% allocation of "like damages" based upon dividing $572,062.81 (the present value of the future workers’ compensation benefits) by the $1,128,000 total settlement amount recovered by the estate. Zurich further suggested that the allocation could be set as high as 75% based on "the nature of the evidence provided, the weight of the testimony provided, and the $147,475.00 [in workers’ compensation benefits] already paid to the [estate] by Zurich[.]"³ Finally, Zurich asserted that it was entitled to seek subrogation against the entire settlement amount, including the $230,000 it agreed to pay under New FB's underinsured motorist coverage, not just against the amount Jeanette recovered from Miller.

[¶11.] The circuit court issued a memorandum decision and order determining "that Zurich is entitled to a 50% lien on the settlement proceeds." The court indicated that "[t]his figure takes into consideration [Jeanette's] pecuniary loss of Charles’ society and companionship, which was significant." The court noted that Charles's "unfortunate and untimely death deprived [Jeanette] of his society and companionship at a time when they were planning for retirement and enjoying their growing family." The court also determined that Zurich could subrogate against the portion of the settlement proceeds Zurich paid to Jeanette under New FB's underinsured motorist coverage because Zurich had paid workers’ compensation benefits to Jeanette as New FB's workers’ compensation carrier.

[¶12.] The circuit court then adopted the calculation set out in a table attached to Zurich's post-hearing brief to arrive at the total amount of the settlement proceeds to which Zurich is entitled.⁴ The judgment entered by the circuit court ordered that Zurich be reimbursed $98,356.22, representing the workers’ compensation benefits already paid to Jeanette minus Zurich's pro rata share of the costs and attorney fees expended in obtaining the settlement. The court further ordered that Zurich receive a credit of $87,806 to be offset against Jeanette's future workers’ compensation payments.⁵

[¶13.] Jeanette appeals, asserting the following issues:

1. Whether the circuit court erred in concluding that Zurich is entitled to a 50% lien on the $1,128,000 that Jeanette received in settlement proceeds.

2. Whether the circuit court erred in concluding that Zurich may subrogate against the $230,000 in settlement proceeds Zurich paid to Jeanette under its policy covering underinsured motorists.

Standard of Review

[¶14.] "We review declaratory judgments as we would any other order, judgment, or decree." Hanson Farm Mut. Ins. Co. v. Degen , 2013 S.D. 29, ¶ 14, 829 N.W.2d 474, 477–78 (citations omitted). We therefore review de novo the circuit court's interpretation of a statute. Liberty Mut. Ins. Co. v. Garry , 1998 S.D. 22, ¶ 4, 574 N.W.2d 895, 896. However, "our standard...