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2019 S.D. 31

IN THE SUPREME COURT

OF THE

STATE OF SOUTH DAKOTA

* * * *

LEROY L. JAMES, JR., Plaintiff and Appellee,

v.

STATE FARM MUTUAL 

AUTOMOBILE INSURANCE 

COMPANY, Defendant and Appellant.

* * * *

APPEAL FROM THE CIRCUIT COURT OF

THE SEVENTH JUDICIAL CIRCUIT

PENNINGTON COUNTY, SOUTH DAKOTA

* * * *

THE HONORABLE ROBERT A. MANDEL

Judge

* * * *

JOHN STANTON DORSEY

KIMBERLY PEHRSON of

Whiting, Hagg, Hagg, Dorsey

 & Hagg, LLP

Rapid City, South Dakota Attorneys for plaintiff and 

appellee. 

HILARY L. WILLIAMSON of

Fuller & Williamson, LLP

Sioux Falls, South Dakota Attorneys for defendant and 

appellant.

* * * *

CONSIDERED ON BRIEFS

ON OCTOBER 1, 2018

OPINION FILED 05/29/19
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KERN, Justice

[¶1.] Melissa Rivers rear-ended LeRoy James Jr., causing him personal 

injury. State Farm insured both parties. Immediately following the accident, State 

Farm paid a portion of James’s medical expenses under the medical payment 

provisions of his policy. Acting on behalf of Rivers, State Farm then settled with 

James. Once James released Rivers from liability, State Farm demanded James 

use his settlement proceeds to reimburse it for paying his medical expenses under 

his policy. James sued for declaratory relief, arguing State Farm had no right to 

reimbursement or subrogation. The circuit court denied State Farm’s motion for 

summary judgment and entered a judgment in favor of James. State Farm appeals. 

We affirm. 

Facts and Procedural History

[¶2.] The automobile accident occurred on July 22, 2016, on Highway 16 

near Rapid City. At the time, State Farm insured both Rivers and James under 

separate auto insurance policies. Rivers’s policy provided $100,000 in liability 

coverage. James’s policy contained a $5,000 benefit for medical payments 

coverage.1 State Farm immediately paid $5,000 on James’ behalf to medical 

services providers for treatment of James’s injuries. 

 

1. James’s medical payment coverage provision provides: “The Medical Payment 

Coverage limit is shown on the Declarations Page under ‘Medical Payments 

Cover – Limit – Each person.’ This limit is the most we will pay for the 

medical expenses and funeral expenses combined, incurred by or on behalf

of any one insured as a result of any one accident . . . .” (Emphasis in 

original.)
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[¶3.] Ultimately, James settled his claim against Rivers. Rivers did not 

personally fund any of the settlement proceeds. Instead, State Farm paid James 

$43,000 on Rivers’s behalf in exchange for a full and complete release from liability. 

After paying his attorney a one-third contingency fee plus costs and sales tax, 

James’s net settlement was $19,927.54. 

[¶4.] James’s policy contained both a reimbursement clause and a 

subrogation clause. Following the settlement, State Farm demanded 

reimbursement from James for the $5,000 payment it made on James’s behalf to 

cover medical expenses under the reimbursement clause. State Farm did not 

reduce its request to account for the attorney fees and costs James incurred to 

obtain his recovery from Rivers. James refused to reimburse State Farm for any 

amount; instead, he sued State Farm, seeking a declaratory judgment to determine 

his contractual rights under the policy. The parties filed cross-motions for summary 

judgment based on stipulated facts. 

[¶5.] The circuit court concluded that State Farm could not subrogate 

against its own insured. It further held that the reimbursement clause was 

ambiguous. As a consequence, the court construed the policy against State Farm, 

the drafter, granting summary judgment to James. State Farm appeals, raising one 

issue and several sub-issues restated as follows:

1. Whether the language of the reimbursement clause is 

ambiguous.

2. Whether requiring James to reimburse State Farm 

implicates the anti-subrogation rule or offends public policy.

3. If State Farm is entitled to reimbursement, whether James 

is entitled to a portion of his attorney fees.
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Analysis and Decision

[¶6.] “We review a circuit court’s entry of summary judgment under the de 

novo standard of review.” Harvieux v. Progressive N. Ins. Co., 2018 S.D. 52, ¶ 9, 

915 N.W.2d 697, 700. When conducting this review, “[w]e give no deference to the 

circuit court’s decision[.]” Oxton v. Rudland, 2017 S.D. 35, ¶ 12, 897 N.W.2d 356, 

360. “When reviewing a circuit court’s grant of summary judgment, this Court only 

decides whether genuine issues of material fact exist and whether the law was 

correctly applied.” Ass Kickin Ranch, LLC v. N. Star Mut. Ins. Co., 2012 S.D. 73, 

¶ 6, 822 N.W.2d 724, 726. Here, there are no disputed facts, so our task is to 

determine whether the circuit court correctly applied the law. 

[¶7.] Each party filed briefs advising the circuit court of their interpretation 

of the policy. James alleged that the reimbursement provision was ambiguous and 

should therefore be construed against its drafter, State Farm. In response, State 

Farm argued the policy provided it with an unambiguous contractual right to 

reimbursement. In addition to the question of ambiguity, the parties also disputed 

whether the anti-subrogation rule applied to the reimbursement provision in the 

policy.

[¶8.] A brief explanation of these concepts is helpful to understand the 

arguments advanced by the parties both before the circuit court and in this appeal. 

“[S]ubrogation is a time-honored theory [in which] insurers who pay a loss [for 

insureds] are entitled, within the limits of [the] subrogation doctrine, to pursue the 

actual wrongdoer.” 16 Steven Plitt et al., Couch on Insurance § 222:4 (3d ed. Supp. 

2018); see also Am. Family Mut. Ins. Co. v. Auto-Owners Ins. Co., 2008 S.D. 106, ¶ 

13, 757 N.W.2d 584, 588. By subrogating a claim, the insurer is allowed to stand in 
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the shoes of the insured to sue the tortfeasor to recover the payments it made. One 

limitation to the doctrine of subrogation, however, is the anti-subrogation rule, a 

defense that prohibits insurers from suing their own insureds to recover a loss. See 

Plitt, supra § 224:3. Even though the anti-subrogation rule is widely recognized, 

courts take varying approaches when applying the rule.2

[¶9.] Reimbursement, on the other hand, often differs factually from 

subrogation because rather than seeking recovery from a third party, it allows “the 

insurer to recover policy payments directly from its own insured or beneficiary upon 

that party’s recovery of the same loss from a third party . . . .” Id. at § 222:81. 

Therefore, although the mechanisms of recovery are different, “the effect of 

subrogation and reimbursement are essentially the same.” Id. 

[¶10.] James relied upon subrogation principles to argue State Farm was not 

entitled to recovery under either the reimbursement or subrogation provisions 

based on the anti-subrogation rule. Even though the rule is generally applicable 

only to subrogation claims, James contended the language and effect of the 

provisions were similar enough to apply the principal of anti-subrogation to the 

 

2. Some courts have held that the rule applies only when co-insureds share 

insurance coverage under a single policy. See, e.g., Benge v. State Farm Mut. 

Auto. Ins. Co., 697 N.E.2d 914, 918 (Ill. App. Ct. 1998). Other jurisdictions 

expand the rule’s application to any situation when the same insurance 

company covers both insureds, even if the parties have separate, unrelated 

policies. See, e.g., Control Specialists Co. v. State Farm. Mut. Auto. Ins. Co., 

423 N.W.2d 775, 776–77 (Neb. 1988).
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reimbursement clause. This is because permitting reimbursement, according to 

James, would allow State Farm to recover against James, its own insured.3 

[¶11.] In response, State Farm argued that: (1) it was exercising an 

unambiguous contractual right of reimbursement completely distinct from 

instituting a subrogation action; (2) even if subrogation principles applied to its 

request for reimbursement, the anti-subrogation rule did not preclude State Farm’s 

rights because the rule applied only to co-insureds under a single insurance policy; 

and (3) enforcing the reimbursement clause did not offend public policy. 

[¶12.] Because it is dispositive of the issues in this case, we address only the 

question of whether the language of the reimbursement clause was ambiguous. 

“Insurance contract interpretation is a question of law reviewed de novo.” W. Nat’l 

Mut. Ins. Co. v. Decker, 2010 S.D. 93, ¶ 10, 791 N.W.2d 799, 802. We construe the 

language of an insurance contract “according to its plain and ordinary 

meaning . . . .” St. Paul Fire & Marine Ins. Co. v. Schilling, 520 N.W.2d 884, 887 

(S.D. 1994). Ambiguity exists “when application of rules of interpretation leave a 

 

3. Our survey of the case law reveals an emerging trend concerning the 

parameters of an insurer’s right to reimbursement from an insured. The vast

majority of jurisdictions, including the Eighth Circuit Court of Appeals, have

recognized reimbursement as a separate right from subrogation. See, e.g.,

McIntosh v. Pac. Holding Co., 992 F.2d 882, 884 (8th Cir. 1993). But at least 

three states—Nebraska, New York, and Texas—have directly rejected 

attempts by insurance companies to disguise subrogation as reimbursement 

in order to overcome the effects of a waiver or the anti-subrogation rule. See 

Wausau Underwriters Ins. Co. v. Wedel, 518 S.W.3d 615, 622 (Tex. App. 2017)

(analyzing a statutory rather than a common-law right); Cont’l W. Ins. Co. v. 

Swartzendruber, 570 N.W.2d 708, 711 (Neb. 1997); N.Y.C. Dep’t of Transp. v. 

Petric & Assocs., 19 N.Y.S.3d 48, 48 (N.Y. App. Div. 2015). Because our 

resolution of this case hinges on the question of ambiguity we express no 

opinion on this issue.
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genuine uncertainty as to which of two or more meanings is correct.” Alverson v. 

Nw. Nat’l Cas. Co., 1997 S.D. 9, ¶ 8, 559 N.W.2d 234, 235. 

[¶13.] But mere disagreement as to which interpretation is correct is not 

sufficient to create ambiguity. “Rather, a contract is ambiguous only when it is 

capable of more than one meaning when viewed objectively by a reasonably 

intelligent person who has examined the context of the entire integrated 

agreement.” Coffey v. Coffey, 2016 S.D. 96, ¶ 9, 888 N.W.2d 805, 809. “[A]ny 

uncertainty or ambiguity in a contract of insurance [is to] be construed most 

strongly against the insurer and in favor of the insured.” Wilson v. Allstate Ins. Co., 

85 S.D. 553, 557, 186 N.W.2d 879, 881 (S.D. 1971).

[¶14.] State Farm claims that the circuit court erred by finding the provisions 

of the reimbursement clause ambiguous. The relevant portion of James’s insurance 

policy provides:

12. Our Right to Recover Our Payments

* * * * *

b. Reimbursement

If we make payment under this policy and the person or 

organization to or for whom we make payment recovers or 

has recovered from another person or organization, then:

(1) we are entitled, upon payment, to an assignment of 

any cause of action, or judgment obtained against 

such other person or organization and

(2) the person or organization to or for whom we make 

payment must:

(a) Hold in trust for us the proceeds of any 

recovery; and

(b) Reimburse us to the extent of our payment; 

with no reduction taken for attorney fees 

incurred in obtaining a settlement from a 

judgment against such other person or 

organization.
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(Emphasis in original.) In analyzing the terms of the reimbursement clause, person

is defined within the policy as “a human being,” but organization is left without a 

definition. 

[¶15.] The parties dispute focuses on the meaning of “recovers or has 

recovered from another person or organization.” State Farm’s highlighted 

reference to itself using the first-person pronouns “we,” “us” and “our” establishes it 

cannot be considered to be “another . . . organization.” Therefore, we must next 

determine whether the phrase “recovers or has recovered from another person” is 

ambiguous.

[¶16.] State Farm argues the phrase recovery from “another person” includes 

any other person, even other individuals who also hold State Farm insurance 

policies. In its view, this language unambiguously includes Rivers, who is “another 

person” from James, even if State Farm funded the settlement on Rivers’s behalf. 

In response, James argues the policy is ambiguous because it could also be 

interpreted to require reimbursement only when the insured recovers from another

person or organization, but not another insured by State Farm. He contends that, 

here, there is no other “person or organization”—there is only State Farm. 

[¶17.] From our review, there are two equally reasonable interpretations of 

the reimbursement provision when viewed objectively in the context of the entire 

agreement. See Alverson, 1997 S.D. 9, ¶ 8, 559 N.W.2d at 235. James had a legal 

claim against Rivers, but his actual recovery came from settlement proceeds State 

Farm paid pursuant to its policy with Rivers. Therefore, the language could be 

interpreted to mean State Farm has a right to reimbursement because James 
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recovered from Rivers, who is “another person.” But James recouped his financial 

loss following the accident from State Farm’s pocket, not “another person or 

organization.” Therefore, the language could also be interpreted to mean James 

recovered from State Farm, the party who paid James. Based on the uncertainty 

regarding the term ‘recovery,’ we conclude the text of the reimbursement provision 

is ambiguous.4 

[¶18.] Because ambiguity “is to be construed most strongly against the 

insurer and in favor of the insured,” see Wilson, 85 S.D. at 558, 186 N.W.2d at 881 

(emphasis added), we conclude that the language “another person or organization” 

in the reimbursement provision does not include State Farm or any of its insureds. 

Thus, State Farm has no contractual right to reimbursement for the $5,000 paid to 

James for medical expenses under the policy. We affirm.

[¶19.] GILBERTSON, Chief Justice, and JENSEN and SALTER, Justices, 

concur.

 

4. Indeed, to avoid this ambiguity State Farm could have specified that “another 

person or organization” could include both another person that State Farm 

insured or State Farm, itself, or simply allowed reimbursement where an 

insured recovers from another person or his insurer.