DAVID H. EARLL and MARCIA R. EARLL, Individually and as Co-personal representatives of the ESTATE OF REBECCA A. EARLL v. FARMERS MUTUAL INSURANCE COMPANY OF NEBRASKA
#30732-r-SRJ
IN THE SUPREME COURT OF THE STATE OF SOUTH DAKOTA
OPINION FILED 03/26/25
2025 S.D. 20
ARGUED OCTOBER 2, 2024
RONALD A. PARSONS, JR. SCOTT A. ABDALLAH of Johnson, Janklow & Abdallah, LLP Sioux Falls, South Dakota Attorneys for plaintiffs and appellants.
JUSTIN T. CLARKE ALAYNA A. HOLMSTROM of Davenport, Evans, Hurwitz & Smith, LLP Sioux Falls, South Dakota Attorneys for defendant and appellee.
JENSEN, Chief Justice
[¶1.] After their daughter, Rebecca Earll, was killed in a motor vehicle accident by an underinsured motorist, David and Marcia Earll (the Earlls) made a claim for underinsured motorist (UIM) benefits under their motor vehicle liability policy issued by Farmers Mutual Insurance Company of Nebraska (Farmers Mutual). Farmers Mutual denied the claim based on an “owned but not insured” exclusion in the policy. The Earlls brought an action for declaratory judgment seeking a determination that the “owned but not insured” exclusion was contrary to public policy and they were entitled to UIM benefits for Rebecca‘s death. The parties filed cross motions for summary judgment. The circuit court granted summary judgment in favor of Farmers Mutual and denied the Earlls’ motion. The Earlls appeal. We reverse.
Factual and Procedural Background
[¶2.] On December 22, 2022, Rebecca was killed in a motor vehicle collision when William Pigg ran a stop sign while traveling at a speed of 97 miles per hour and crashed into Rebecca‘s Subaru Forester. Rebecca was not at fault for the accident. The collision and the resulting death of Rebecca were proximately caused by the negligence of Pigg, who had a motor vehicle liability policy with Progressive Insurance with limits of $25,000. Rebecca had a motor vehicle liability policy with Farmers Mutual covering the Subaru Forester that included $100,000 in UIM coverage.
[¶3.] Following Rebecca‘s death, the Earlls were appointed as co-personal representatives of Rebecca‘s Estate (the Estate). Progressive tendered the $25,000 from Pigg‘s policy to the Earlls and to Rebecca‘s Estate. Farmers Mutual gave
[¶4.] The Earlls sought an additional $250,000 in UIM benefits under a separate motor vehicle policy they purchased from Farmers Mutual, which provided coverage for two vehicles owned by the Earlls that were not involved in the accident. The policy includes UIM coverage for “insureds.” The policy defines an “insured” to include a “relative.” A “relative” is further defined as “a person related to you or your spouse by blood . . . who lives with you.” At the time of the accident, Rebecca lived with her parents, and it is undisputed that she qualifies as an “insured” for the purpose of UIM coverage under the policy.
[¶5.] Farmers Mutual denied UIM coverage to the Earlls based on an “owned but not insured” exclusion in the policy because Rebecca was driving her Subaru Forester—a vehicle not listed in the declarations of her parents’ policy—at the time of the accident. The “owned but not insured” exclusion at issue provides:
EXCLUSIONS FOR UNDERINSURED MOTOR VEHICLE COVERAGE
There is no coverage for: . . .
2. bodily injury to any insured while occupying, or through being struck by, a motor vehicle or trailer of any type owned by you, your spouse, or a relative if it is not insured for this coverage under this policy.
[¶6.] Following the denial, the Earlls, individually and as co-personal representatives of the Estate, filed an action for declaratory judgment. The Earlls sought a declaration that they were entitled to UIM benefits for all claims and liability arising from the accident up to the policy limits, and that the “owned but not insured” exclusion violated public policy and was unenforceable as applied to Rebecca and her parents as insureds under the policy.
[¶7.] The parties filed cross motions for summary judgment and agreed to stipulated facts in support of their respective motions. The Earlls’ motion sought a declaratory judgment that they were “entitled to recover up to the $250,000 limits of [UIM] coverage” and that the “owned but not insured” exclusion violated public policy. Farmers Mutual‘s motion sought a declaration that the “owned but not insured” exclusion is valid and enforceable.
[¶8.] In its motion for summary judgment and in resistance to the Earlls’ motion, Farmers Mutual argued that the phrase “subject to the terms and conditions” in
[¶9.] The Earlls, by contrast, contended that Pourier should either be overruled or distinguished. They emphasized that the South Dakota Supreme Court has since held that similar “owned but not insured” exclusions violate public policy in the context of uninsured motorist (UM) coverage. Wheeler v. Farmers Mut. Ins. Co., 2012 S.D. 83, ¶ 23, 824 N.W.2d 102, 109. Given the shared statutory purpose of UM and UIM coverage and that both types of coverage are mandatory, the Earlls argued that the “owned but not insured” exclusion violates South Dakota public policy because
[¶10.] Following a hearing, the circuit court granted Farmers Mutual‘s motion for summary judgment and denied the Earlls’ motion. The court acknowledged that “the purpose of UM/UIM coverage is to protect the insured party who is injured in an automobile accident by the negligence of an uninsured/underinsured motorist.” Gloe v. Iowa Mut. Ins. Co. (Gloe I), 2005 S.D. 29, ¶ 17, 694 N.W.2d 238, 245 (citation omitted). Nonetheless, the circuit court concluded that the “owned but not insured” exclusion was enforceable based upon this Court‘s decision in Pourier.
[¶11.] The Earlls appeal raising a single issue of whether the “owned but not insured” exclusion to UIM coverage violates South Dakota public policy.
Standard of Review
[¶12.] “We review a circuit court‘s entry of summary judgment under the de novo standard of review.” Larimer v. Am. Family Mut. Ins. Co., 2019 S.D. 21, ¶ 6, 926 N.W.2d 472, 475 (citations omitted). “We affirm the circuit court ‘when there are no genuine issues of material fact and the legal questions have been correctly decided.‘” Acuity v. Terra-Tek, LLC, 2024 S.D. 49, ¶ 13, 11 N.W.3d 96, 100 (citation omitted). When the facts are undisputed “our task is to determine whether the circuit court correctly applied the law.” Larimer, 2019 S.D. 21, ¶ 6, 926 N.W.2d at 475.
Analysis
[¶13.] The Earlls ask this Court to overrule our decision in Pourier or alternatively distinguish it from the circumstances of the present case. The core of the Earlls’ argument is that the “owned but not insured” exclusion undermines the purpose of UIM coverage, as expressed in statute and our cases. They contend that UIM coverage, like UM coverage, is designed to protect insureds who suffer injuries or death due to the negligence of underinsured/uninsured motorists. See Gloe I, 2005 S.D. 29, ¶ 17, 694 N.W.2d at 245. The Earlls argue that Pourier failed to consider the similar public policy underlying mandatory UM/UIM coverage and largely sidestepped the issue of what types of exclusions are permissible under the “subject to the terms and conditions” language in
[¶14.] Relying on Pourier and Wheeler, Farmers Mutual argues that the different treatment of UIM and UM coverage is properly grounded in the statutory language of
[¶15.] For both UIM and UM coverage, we have stated that “[t]he public policy of this state is set forth in its statutes and cases.” Gloe I, 2005 S.D. 29, ¶ 17, 694 N.W.2d at 244–45. In general, contracts cannot alter existing statutory laws, and stipulations in an insurance contract
[¶16.] South Dakota first mandated UM coverage in motor vehicle liability policies in 1966.
No policy insuring against a loss resulting from liability imposed by law for bodily injury or death suffered by any person arising out of the ownership, maintenance, or use of a motor vehicle may be delivered or issued for delivery in this state with respect to any motor vehicle registered or principally garaged in this state . . . unless coverage is provided . . . for bodily injury or death equal to the coverage provided by such policy for bodily injury and death, for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured motor vehicles[.]
[¶17.] Nine years after the Legislature mandated UM coverage,
No motor vehicle liability policy of insurance may be issued or delivered in this state with respect to any motor vehicle registered or principally garaged in this state . . . unless underinsured motorist coverage is provided therein at a face amount equal to the bodily injury limits of the policy.
By requiring UIM coverage, “the legislature clearly sought to protect insured motorists from underinsured motorists.” Heitmann, 498 N.W.2d at 624 (emphasis added). See also Gloe v. Union Ins. Co. (Gloe II), 2005 S.D. 30, ¶ 12, 694 N.W.2d 252, 257 (“The purpose of the UIM statutory scheme is to provide protection to insured motorists against underinsured motorists.“).
[¶18.] In addition to the statutory mandate for UIM coverage,
Subject to the terms and conditions of such underinsured motorist coverage, the insurance company agrees to pay its own insured for uncompensated damages as its insured may recover on account of bodily injury or death arising out of an automobile accident because the judgment recovered against the owner of the other vehicle exceeds the policy limits thereon. Coverage shall be limited to the underinsured motorist coverage limits on the vehicle of the
party recovering less the amount paid by the liability insurer of the party recovered against.
[¶19.] We have referred to
[¶20.] Standing the statutes side by side, the public policy of the Legislature for UM and UIM coverages is clear.
mandates UIM coverage for any motor vehicle policy issued on a vehicle registered in this state. Additionally,
[21.] Consistent with the statutory framework, our cases have expressed that UM and UIM statutes share a common purpose: “to protect the insured party who is injured in an automobile accident by the negligence of an uninsured/underinsured motorist.” Id. Moreover, “because of the similarity of subject and purpose of UM and UIM statutes and coverage most of the cases . . . construe UM and UIM claims, policies, and statutory language interchangeably.” Id. at ¶ 11, 694 N.W.2d at 242 (internal citation omitted). See also Canal Ins. Co. v. Abraham, 1999 S.D. 90, ¶¶ 28–30, 598 N.W.2d 512, 519 (applying UIM and UM cases interchangeably in the context of UIM coverage); Cornelius v. Nat‘l Cas. Co., 2012 S.D. 29, ¶ 13, 813 N.W.2d 167, 171 (applying UIM and UM cases interchangeably in the context of UM coverage).
[22.] We extensively discussed the similar statutory purposes of UM/UIM coverage in Gloe I, 2005 S.D. 29, 694 N.W.2d 238. The insured in Gloe I sought UIM benefits under his motor vehicle liability policy for the wrongful death of his parents who were not insureds under his policy. Id. ¶ 1, 694 N.W.2d at 240. Nonetheless, he argued that pursuant to the language of
[¶23.] We determined that the Legislature‘s purpose in enacting the UM/UIM statutes was to protect an “insured party who is injured in an accident,” not to provide coverage “for the wrongful death of one not insured under the claimant‘s policy.” Id. ¶ 27, 694 N.W.2d at 249. Because the underlying purposes of UM and UIM coverage in the statutes was for the protection of insureds, we upheld the policy provision limiting UIM coverage to an insured‘s bodily injury, relying on the language in
[¶24.] In Pourier we considered for the first time whether an “owned but not insured” exclusion to UIM coverage violated public policy. 2011 S.D. 47, ¶ 6, 802 N.W.2d at 449. The case involved a minor who was seriously injured in a motor vehicle accident while occupying a vehicle covered under her mother‘s motor vehicle policy. The minor‘s parents were divorced and she was an insured under both of her parents’ motor vehicle policies. After receiving compensation from the at-fault driver‘s insurance and her mother‘s UIM policy, the minor sought UIM benefits under her father‘s policy, which covered a vehicle not involved in the accident. The insurer denied the claim based on an “owned but not insured” exclusion in its policy and the circuit court determined the exclusion was enforceable.
[¶25.] In a 3-2 decision, this Court upheld the exclusion, relying on the “subject to the terms and conditions” language in
[¶26.] Justice Meierhenry‘s dissent in Pourier argued that the “owned but not insured” exclusion was void as against the public policy stated in
[¶27.] One year after Pourier, this Court held in Wheeler that an “owned but not insured” exclusion was void as against public policy in the context of UM coverage. 2012 S.D. 83, ¶ 23, 824 N.W.2d at 109. Notably, Wheeler involved similar facts to Pourier, except that the at-fault driver was uninsured rather than underinsured. Distinguishing the invalidity of the “owned but not insured” exclusion in the context of UM coverage, Wheeler reasoned that the Legislature‘s inclusion of the “subject to the terms and conditions” language for UIM coverage in
[¶28.] Justice Zinter, in his concurring opinion, encouraged the South Dakota Legislature to provide clarity regarding the state‘s policy on UM and UIM coverage. Id. ¶ 35, 824 N.W.2d at 112. Recognizing the inconsistent treatment of UM and UIM coverage in Pourier and Wheeler, he questioned whether the “subject to the terms and conditions” language in
[¶29.] Later, in Streff v. State Farm, 2017 S.D. 83, 905 N.W.2d 319, we addressed a different challenge to a UIM coverage exclusion. Streff applied the public policy underlying the UIM statutes to invalidate a government-owned vehicle exclusion in an umbrella insurance policy providing UIM coverage. Id. ¶ 9, 905 N.W.2d at 322. While the outcome in Streff is not instructive here, the Court again reiterated that ”
[¶30.] Subsequently in Larimer, we determined that an “owned but not insured” exclusion to UIM coverage was ambiguous and did not apply to exclude coverage for an insured riding a moped that was not listed as a covered vehicle under the policy. 2019 S.D. 21, ¶ 13, 926 N.W.2d at 476–77. Because we resolved the appeal in favor of the insured, we did not address the insured‘s cross-appeal challenging the validity of the “owned but not insured” exclusion as against public policy. In a concurring opinion, Justice Severson reiterated his view that “[t]he Legislature mandates that an insurance company ‘agree[] to pay its own insured for uncompensated damages as its insured may recover on account of bodily injury or death arising out of an automobile accident[.]‘” Id. ¶ 19, 926 N.W.2d at 477 (quoting
[¶31.] Given our prior expression of the similarities of the underlying public policy for UM and UIM coverage, and the seeming inconsistency in considering the policy underlying UM/UIM coverage in Pourier and Wheeler, we think it is appropriate to re-visit our decision in Pourier. Since we do not perceive any basis to limit or distinguish Pourier from the case before us, we consider the continued efficacy of Pourier under the well-established doctrine of stare decisis.
i. Stare decisis.
[¶32.] “The doctrine of stare decisis exists as a prudential means of promoting stability in the law by adhering to the holdings in our prior decisions and regarding them as precedential.” In re Noem, 2024 S.D. 11, ¶ 48, 3 N.W.3d 465, 479. “However, when we are convinced that a decision was wrongly decided, we remain free to correct it.” Id. “In these instances, stare decisis becomes less efficacious . . . ‘and it is the manifest policy of our courts to hold the doctrine of stare decisis subordinate to legal reason and justice, and to depart therefrom when such departure is necessary to avoid the perpetuation of pernicious error.‘” Id. (quoting Brekke v. Crew, 43 S.D. 106, 178 N.W. 146, 154 (1920)).
[¶33.] The United States Supreme Court outlined five factors that courts should consider when deciding whether to depart from precedent. Janus v. Am. Fed‘n of State, 585 U.S. 878, 917, 138 S. Ct. 2448, 2478–79, 201 L. Ed. 2d 924 (2018). We recently applied these factors in Noem, 2024 S.D. 11, ¶ 50, 3 N.W.3d at 480, and they guide our analysis in the present case. These five factors include: “(1) the quality of [the] prior decision‘s reasoning; (2) the workability of the prior rule established by its precedent; (3) the consistency of the prior decision with other related decisions; (4) subsequent developments since the erroneous decision; and (5) the extent of the reliance on the earlier decision.” Id. (citation omitted).
1. Quality of prior decision.
[¶34.] We have stated that South Dakota public policy “is set forth in its statutes and cases.” Gloe I, 2005 S.D. 29, ¶ 17, 694 N.W.2d at 244–45. Yet there was little consideration in Pourier concerning the defined public policy to provide UIM benefits for an insured who has not been fully compensated for their injuries and the overarching view that UIM coverage follows the insured, not the vehicle. Instead, our reasoning was based primarily upon a broad interpretation of the “subject to the terms and conditions” language in
[¶36.] Pourier overlooked the public policy underlying UIM coverage. In particular, Pourier did not directly address whether the exclusion at issue was inconsistent with our stated public policy that both UM and UIM coverages are intended to protect the insured who is injured in an automobile accident by the negligence of an uninsured/underinsured driver. Moreover, although Pourier acknowledged that UIM coverage “follows the insured rather than the vehicle[,]” it did not further reconcile this principle with its holding. Pourier, 2011 S.D. 47, ¶ 6, 802 N.W.2d at 449 (emphasis added).
[¶37.] In a footnote responding to the dissent, the majority in Pourier quoted the last sentence of
[¶38.] Pourier‘s reasoning in this footnote also improperly tied the mandatory UIM coverage to the insured vehicle rather than the insured person. But this is contrary to our case law, as well as the mandate in
[¶39.] In emphasizing the “subject to the terms and conditions” language in
[¶40.] Our cases demonstrate that although UM and UIM coverage is mandated, it may be limited when reasonable and consistent with the rest of the statutory scheme. See Gibson, 1996 S.D. 102, ¶ 10, 552 N.W.2d at 101 (“[
[¶41.] The notion that the “subject to the terms and conditions” language in
2. Workability.
[¶42.] The unworkability of Pourier became evident a year later in Wheeler. While Pourier upheld an “owned but not insured” exclusion for UIM coverage, Wheeler invalidated an “owned but not insured” exclusion for UM coverage. See Wheeler, 2012 S.D. 83, ¶¶ 17–19, 824 N.W.2d at 107–08. The inconsistency between the two cases is particularly striking given the nearly identical factual circumstances—both involved minors who were insured under their divorced parents’ policies and injured while driving an owned vehicle not covered by one of the policies.
[¶43.] Justice Zinter‘s concurrence in Wheeler expressed concerns about the quality of Pourier‘s reasoning and whether the public policy underlying UM/UIM coverage—to protect insured individuals from uncompensated damages—was adequately considered. Wheeler did not address the
[¶44.] By emphasizing the “subject to the terms and conditions” language in
3. Consistency.
[¶45.] In addition to the inconsistency with Wheeler, the reasoning in Pourier is inconsistent with both prior and subsequent decisions involving UM and UIM coverage. For instance, Gloe I reinforced the principle that UIM coverage is personal to the insured, and designed to protect against bodily injury or death suffered by the insured. 2005 S.D. 29, ¶ 14, 694 N.W.2d at 243–44. In our recent decision in Terra-Tek, we reaffirmed that “underinsured motorist coverage is generally portable: it follows the insured rather than the vehicle.” 2024 S.D. 49, ¶ 19, 11 N.W.3d at 102 (citation omitted). See also Streff, 2017 S.D. 83, ¶ 16, 905 N.W.2d at 324. In contrast, Pourier upheld an “owned but not insured” exclusion, effectively allowing the insurer to exclude UIM coverage based on the status of the vehicle involved, despite the general understanding that UIM coverage follows the insured, not the vehicle. By allowing the “subject to the terms and conditions” language in
4. Subsequent developments.
[¶46.] Since Pourier, subsequent cases have either avoided applying its reasoning or limited its scope. See Wheeler, 2012 S.D. 83, ¶ 17, 824 N.W.2d at 107 (attempting to distinguish Pourier after holding that the “owned but not insured” exclusion in a motor vehicle policy was void in the context of uninsured motorist statute); Larimer, 2019 S.D. 21, ¶ 13, 926 N.W.2d at 476–77 (“Having concluded that the language of the policy is ambiguous and that underinsured motorist coverage applied, we need not address whether the ‘owned but not insured’ exclusion from underinsured motorist coverage violates public policy.“); Streff, 2017 S.D. 83, ¶ 9, 905 N.W.2d at 322 (“[I]f our public policy dictates that an insurer cannot exclude UIM coverage in a ‘motor vehicle liability policy’ for accidents involving government vehicles [then] that same public policy appl[ies] when, under
5. Reliance.
[¶47.] Lastly, the parties have not addressed any specific concerns about undue reliance on our decision in Pourier. However, a review of our decisions since Pourier demonstrates that Pourier has given rise to increasing uncertainty and inconsistency. It is possible that insurers may have priced their risks and structured their UIM policies based on our ruling in Pourier, but Farmers Mutual has not made that argument and there is no claim that reversing Pourier will significantly impact their underwriting.3 To the contrary, the Earlls have argued that any economic impact on insurers is minimal, as the record demonstrates that six months of UIM coverage costs $11.00 per vehicle listed on the declarations page of their Farmers Mutual policy. Finally, the goal of the statutes is to protect insured individuals, and any undue reliance on an erroneous interpretation must be balanced against the broader public interest.
Conclusion
[¶48.] While we acknowledge Pourier‘s careful reasoning by a sharply divided Court, our review of the public policy of this State for UM/UIM coverage and the Janus factors lead us to conclude that Pourier is an outlier in this Court‘s decisions. For the reasons discussed above, we reverse our decision in Pourier and we hold that the “owned but not insured” exclusion to UIM coverage in motor vehicle policies—when used to deny coverage to an insured individual under circumstances like those in this case—violates South Dakota public policy.
[¶49.] We reverse the circuit court‘s ruling granting summary judgment in favor of Farmers Mutual and remand for the circuit court to enter summary judgment in favor of the Earlls.
[¶50.] KERN, SALTER, DEVANEY, and MYREN, Justices, concur.