Paulsen v. Ability Insurance
906 F. Supp. 2d 909
D.S.D.2012Background
- Plaintiff Dorothy Paulsen filed suit against Ability and related entities over long-term care policy benefits.
- Ability allegedly denied benefits at first, then paid a reduced amount after a state-rule appeal; full benefits were not until after this suit.
- Plaintiff asserts emotional damages from the alleged breach of the covenant of good faith and fair dealing; defendants move for partial summary judgment on that claim.
- South Dakota law governs substantive issues; the court assesses whether emotional damages are cognizable in a contract-based bad-faith claim.
- Plaintiff presented affidavits suggesting emotional distress tied to billing and care decisions, but defendants contend plaintiff lacked awareness of coverage decisions and any provable distress.
- The court grants partial summary judgment to dismiss the emotional damages claim under the Kunkel framework, with discussion of alternative theories under later SD Supreme Court decisions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SD law allows emotional damages for breach of covenant in insurance | Kunkel permits emotional damages with pecuniary loss; plaintiff argues distress is tied to bad-faith denial. | Need proximate cause and an exceptional pecuniary-loss scenario; distress must arise from financial harm. | Yes; summary judgment granted to limit/emotion damages under Kunkel framework. |
| Whether plaintiff showed proximate cause and an exceptional-case requirement | Damages stem from defendants' denial of full benefits causing pecuniary impact. | No evidence of pecuniary loss beyond benefits; no exceptional-case showing. | Lacks evidence of distinct pecuniary loss beyond policy benefits; supports granting partial SJ. |
| Whether Stene framework overrides Kunkel in this context | Emotional distress claims may be analyzed under tort frameworks if appropriate. | Kunkel controls; Stene creates potential conflict but SD Supreme Court has not abrogated Kunkel. | Stene does not control here; court adheres to Kunkel as governing; nevertheless, grants partial SJ. |
Key Cases Cited
- Kunkel v. United Sec. Ins. Co. of N.J., 168 N.W.2d 723 (S.D.1969) (establishes exceptional case/pecuniary-loss requirement for emotional damages in contract bad-faith claims)
- Crisci v. Security Insurance Co., 426 P.2d 173 (Cal.1967) (background for emotional-distress damages in bad-faith insurance claims)
- Stene v. State Farm Mut. Auto. Ins. Co., 583 N.W.2d 399 (S.D.1998) (tort-like analysis discussed but not clearly controlling over Kunkel)
- Athey v. Farmers Ins. Exch., 234 F.3d 357 (8th Cir.2000) (recognizes contract-based emotional-distress framework in SD context)
- State Farm Mut. Auto. Ins. Co. v. Smoot, 381 F.2d 331 (5th Cir.1967) (illustrates damages theory referenced by SD court in Kunkel analysis)
- McElgunn v. Cuna Mut. Ins. Soc’y, 700 F.Supp.2d 1141 (D.S.D.2010) (course of analysis in SD related to emotional damages in bad-faith claim)
- Wright v. Coca Cola Bottling Co., 414 N.W.2d 608 (S.D.1987) (negligent infliction of emotional distress requires physical manifestations)
- Tibke v. McDougall, 479 N.W.2d 898 (S.D.1992) (intentional infliction of emotional distress standard in SD)