Court Opinion

ID: 9581267
Source: CourtListenerOpinion
Date Created: 2023-08-21 22:13:12.437282+00
Date Added: 2024-06-11T13:36:48.978196
License: Public Domain

MORGAN, Justice
(dissenting).
I dissent.
The majority’s reliance on SDCL 2-14-12 is misplaced. SDCL 58-12-3 cannot be read in a vacuum. South Dakota is firmly entrenched within the American rule that attorney fees are not ordinarily recoverable in the absence of statutory authorization. Boland v. City of Rapid City, 315 N.W.2d 496, 503 n. 4 (S.D.1982). SDCL 15-17-7, states that “[t]he court may allow attorneys’ fees as costs for or against any party to an action only in the cases where the same is specifically provided by statute .... ” The defendant’s claim for costs is based on SDCL 58-12-3, as set out in full in the majority opinion. In reviewing SDCL 58-12-3, we must keep in mind the appropriate standard of review for examination of an exception to a general rule. That is, we must construe it strictly, resolving doubts in favor of the general provision and consistent with the overall purpose of the entire statute. First American Systems, Inc. v. Rezatto, 311 N.W.2d 51, 55 (S.D.1981).
A review of the statute indicates four specific criteria: (1) The action or proceeding must be against an insurance company; (2) it must appear that the company has refused to pay the full amount of a loss; (3) the refusal must be vexatious or without reasonable cause; and (4) judgment or award must be rendered for the insured.
The majority opinion would brush aside the first requirement in this case and ignore the distinction created by the fact that the insurance company initiated the declaratory judgment action. In effect, a declaratory judgment action provides an insurance company’s best protection against potential actions by its insureds for refusal to pay benefits. This is a question of first impression in South Dakota. While Brown cites South Dakota decisions wherein the court reviewed declaratory judgments instituted by insurance companies, it does not appear the precise issue was ever discussed. The opinions indicate that in each case there was a counterclaim by the insureds asserting a loss. That is not the case here. Had the Browns counterclaimed and showed a loss as the Golden Rule Construction Company did in North River Ins. Co. v. Golden Rule Construction, Inc., 296 N.W.2d 910 (S.D.1980), I would agree that designation of the insured and insurer as plaintiff or as defendant would be irrelevant. In the event of a counterclaim by the insured there would be, as there was in North River, (1) a claim against an insurance company by an insurer presenting a loss, and (2) the apparent refusal of the company to pay the loss in full. In this case, there was no such claim, counter or otherwise, against the insurance company. The majority opinion by the statement cited above seems to infer that the insurer is liable under the statute when they commence a declaratory judgment action to determine the rights of the parties in order to avoid a charge of vexatious or unreasonable refusal to pay. In this same vein the majority opinion makes a monumental leap when it states, as justification for its holding, that “the obvious objective of SDCL 58-12-3 is to discourage contesting insurance coverage .... ” In my view, the objective is to discourage only vexatious and unreasonable contests.
An insurance policy is a contract. Under SDCL ch. 21-24, a party to a contract has a right to bring a declaratory judgment action to determine the rights of the parties under that contract or to determine the existence of the contract. In my opinion it would be unconstitutional to single out in*497surance companies and impose a penalty upon them for exercising their right to a court determination of their contractual obligations. Regardless of the policy arguments to be made for insurance companies, the award of attorney fees in this case is certainly not required in light of the first criterion of SDCL 58-12-3.
The second criterion of SDCL 58-12-3 is also not met in this case. There was not a refusal to pay the full amount of a loss. Nothing in this record indicates that a loss was arrived at. Indeed, the Browns claim no loss other than their attorney’s fees. The defense was tendered to it, the company furnished counsel for the Browns and then brought this declaratory judgment action. Presumably, the Browns’ procedural rights are being protected by a company-furnished attorney and the liability for the loss, if one ultimately arises, has been determined by the declaratory judgment action. Since the company did not cross-appeal from that declaratory judgment we assume they have decided to fulfill their obligations under the insurance contract.
The company’s course of action, in my opinion, absolutely rules out the possibility that the refusal was vexatious or without reasonable cause, and thereby eliminates the third criteria for the award of attorney’s fees. I refuse to equate the commencement of a declaratory judgment action with a vexatious or unreasonable refusal to pay. The company did not refuse to perform its contract, but merely sought a declaration of its rights and obligations under that contract. Based on our previous decisions I would hold as a matter of law that the company was not guilty of a vexatious or unreasonable refusal to pay nor to defend and I would affirm the judgment of the trial court.
I am authorized to state that WOLL-MAN, J., joins in this dissent.