Zochert v. Protective Life Ins. Co.

#28467-a-MES
2018 S.D. 84

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

****

IVAN ZOCHERT individually and as
Administrator for the Estate of
Lenore Zochert, Plaintiff and Appellant,

v.

PROTECTIVE LIFE INSURANCE
COMPANY, Defendant and Appellee.

****
APPEAL FROM THE CIRCUIT COURT OF
THE THIRD JUDICIAL CIRCUIT
MOODY COUNTY, SOUTH DAKOTA
****
THE HONORABLE PATRICK T. PARDY
Judge
****

SEAMUS W. CULHANE
NANCY J. TURBAK BERRY of
Turbak Law Office, P.C.
Watertown, South Dakota Attorneys for plaintiff and
appellant.

MARK W. HAIGH
EDWIN E. EVANS
RYAN W. W. REDD of
Evans, Haigh & Hinton, LLP
Sioux Falls, South Dakota Attorneys for defendant and
appellee.

****

ARGUED OCTOBER 2, 2018
OPINION FILED 12/12/18
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SALTER, Justice

[¶1.] Ivan Zochert filed a complaint against Protective Life Insurance, Co.

(Protective), alleging breach of contract and bad faith. He appeals the circuit court’s

decision to grant Protective’s motion for summary judgment. We affirm.

Background

[¶2.] Ivan and Lenore Zochert obtained a supplemental cancer insurance

policy from Protective. The policy limited coverage to “loss resulting from definitive

[c]ancer treatment” with the requirement that “[p]athologic proof thereof must be

submitted.” The policy included a schedule of benefits which listed the specific

types of coverages available to the Zocherts. Benefits were “payable for those

expenses incurred by an insured from 10 days preceding the date of positive

diagnosis of [c]ancer or from the first day of a period of [h]ospital confinement

during which positive diagnosis is made, whichever is more favorable to you.” The

policy stated that Protective would send “forms for filing proof of loss” following

notice of a claim. Protective would then pay benefits due under the policy after

receiving proof of the loss established through “a written statement of the nature

and extent of [the] loss[.]”

[¶3.] On July 5, 2012, a needle core biopsy of tissue from a lump in Lenore’s

left breast revealed the presence of cancer. In a July 11 pathology report, doctors

listed the specific diagnosis as invasive ductal carcinoma. On August 14, Lenore

underwent a partial mastectomy and layered closure on her left breast. Two days

later she was discharged, but returned to the hospital on August 31 due to

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complications from the procedure. She spent three days in the intensive care unit

and was ultimately released from the hospital on September 7.

[¶4.] Ivan requested claim forms from Protective, which treated the request

as notice of a claim and responded by mailing him claim forms on August 17, 2012,

that included a patient information form, a physician statement form, and a

medical release form. Instructions on the patient information form required that

“[a] PATHOLOGY REPORT diagnosing cancer MUST accompany your first claim.”

The instructions also stated that the claimant should “[s]ubmit all bills related to

this cancer claim,” and that “[a]ll bills should be itemized” and indicate diagnosis,

services, actual charges, and provider information.

[¶5.] Ivan completed the forms and returned them to Protective. The

physician statement form filled out by Lenore’s doctor indicated the dates of

Lenore’s diagnosis and hospital stay. Ivan also sent Protective a Professional

Hospital Account Summary (PHAS) that contained a billing summary for the

August 14 partial left mastectomy and layered closure. The PHAS indicated that

Lenore was both admitted and discharged from the hospital on August 14. Ivan did

not include a pathology report or any other bills with his first submission.

[¶6.] Protective did not initially issue any benefits for the Zocherts’ claim,

indicating in an explanation of benefits that Ivan needed to include a pathology

report to verify the cancer diagnosis. After Ivan asked the hospital to send the

report, Protective received a pathology report from a biopsy conducted on August

14. Ivan did not provide the original July 11 pathology report until much later.

Based on the August 14 pathology report and the PHAS Ivan previously sent,

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Protective issued a benefit check on November 13, 2012, for the partial mastectomy

and layered closure procedure.

[¶7.] On December 12, 2012, Ivan called Protective to ask how benefits were

determined under the policy, but the claims handler noted that he was “elderly and

wasn’t able to discuss much.” Ivan inquired about a previous explanation of

benefits that indicated some charges for Lenore’s care had been excluded because

they “exceed[ed] the amount which can be considered a covered charge.” The

Protective claims handler called back the next day to explain the claims process.

Ivan told the claims handler that he was having difficulty hearing and requested

that she send a letter explaining how the initial claim was paid. He also stated that

he would send Protective additional bills. The claims handler sent Ivan a follow-up

letter explaining how the benefits had been determined under the policy.

[¶8.] On March 13, 2013, Ivan’s attorney, Seamus Culhane, contacted

Protective, asking how the surgical benefit was calculated and why in-hospital room

and board benefits and in-hospital attending physician benefits had not been paid.

Protective responded on March 22 and stated that Ivan had not submitted bills for

these other benefits. It explained that it issued payment for the surgery according

to the procedure codes on the PHAS. On May 6, Culhane sent Protective billing

records for Lenore’s first hospital stay, pathology lab charges, and pharmacy

charges. Protective processed these bills and issued Ivan a benefit check for the

services covered by the policy on May 13. Lenore passed away on August 2.

[¶9.] On August 14, Culhane sent a follow-up letter to Protective, asking

why he had not heard from a representative since March. Protective responded by

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email, attaching its March 22 response and informing Culhane that it processed

room and board benefits on May 13, but had not processed attending-physician

benefits because it had not received itemized bills from the physician. The delay did

not preclude coverage, though, and Protective assured Culhane that “[t]here is no

timely filing for a cancer claim, once we receive any/all itemized bills pertaining to

cancer treatment, we will process according to policy provisions.”

[¶10.] Culhane responded, asking whether Protective had requested itemized

billing from the physician, what actions Protective undertook to determine the

Zocherts’ applicable coverages, and how Protective determined the amount of

reimbursement Ivan was eligible to receive. Protective answered that it was the

insured’s responsibility to submit itemized bills so that Protective could, in turn,

determine what benefits were payable under the policy.

[¶11.] Culhane then asked Protective to indicate “where in the policy it says

that the insured has to submit the bills?” He also remarked that, “[a]ll I can seem

to find is that the insured must file a proof of loss, which I believe the Zocherts have

now done. I thought it was the insurer’s job to investigate the claim, not the policy

holder.” (Emphasis added). Culhane inquired about what other coverage might

apply and who determines if that coverage applies. He further asked, “what I am

curious about is what formula and code you used to calculate the payments made to

the Zocherts[?]”

[¶12.] Protective’s response confirmed the obligation to provide a notice of

claim and in subsequent emails also identified the need for itemized bills in order to

calculate the correct benefits due under the policy. Protective also noted Ivan’s

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intensive-care rider provided additional coverage. Finally, Protective explained how

the surgical-expense benefit was paid in accordance with the 1969 California

Relative Value Schedule, as provided in the policy.1 Communication between

Culhane and Protective about the calculation of benefits continued periodically into

November 2013.

[¶13.] On July 21, 2014, Culhane sent Protective a letter and enclosed a

spreadsheet he created of Lenore’s medical expenses generated from Lenore’s

billings and medical records, as well as a copy of the complaint for the civil action he

intended to file against Protective. The spreadsheet listed all of Lenore’s medical

procedures, costs, benefit limits, benefits paid, and benefits owed. Protective

reviewed the spreadsheet and replied by email, indicating it had only received a

pathology report for August 14, 2012, and needed an earlier pathology report to

process claims for the initial biopsy.2 Moreover, Protective indicated that it needed

itemized bills specifying the diagnosis and procedure codes.

[¶14.] Culhane responded that “[w]e will happily provide you with the

itemized billings.” On August 4, 2014, Culhane enclosed a copy of the first

pathology report and copies of all the itemized bills related to Lenore’s cancer

1. The 1969 California Relative Value Schedule provides value codes for
procedures. Protective used the value provided by the schedule and
multiplied that times $50 for surgery benefits and $42 for anesthesia
benefits. The policy included an explanation of this calculation and a sample
listing of value codes for common surgical procedures. Insureds could request
the benefit amount for procedures not listed on the policy.

2. The policy paid benefits up to ten days before the initial diagnosis. The
August 14 pathology report would not have covered the July 5 biopsy because
it did not fall within the time frame for coverage. Therefore, the July 11
pathology report was required to pay benefits for the earlier biopsy.
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treatment. Protective processed these bills and paid the benefits under the policy

on August 29. On September 2, Protective issued a final payment for Lenore’s

home-recovery benefits.

[¶15.] Around the same time, Ivan commenced this action against Protective,

alleging breach of contract and tortious breach of the duty of good faith and fair

dealing. The parties both moved for summary judgment.

[¶16.] At a November 6, 2017, hearing, the circuit court granted Protective’s

motion for summary judgment and denied Ivan’s motion. The court ruled that the

language of the contract was unambiguous, and Protective did not fail “to pay other

benefits allegedly owed[.]” Ivan does not challenge these determinations on appeal.

The court noted that the “insurer made timely payments once the pathology report

was received, and additional payments once itemized bills were received.” It found

that Ivan’s claim for breach of the covenant of good faith and fair dealing failed

because “[t]he benefits were clearly articulated . . . Protective Life paid the benefits

that the Plaintiff was entitled in accordance with the language of the policy, and

had not breached the language of the policy, and had not acted deceitful[ly].” The

court also ruled that “[i]n regards to the independent tort for breach of duty of good

faith and fair dealing . . . South Dakota [has] not recognized that action . . . if it did,

the record does not support such a claim.” For those reasons, the court also rejected

Ivan’s claim for attorney fees.

[¶17.] Ivan now appeals, and based upon the parties’ submissions, we have

identified the following issues for our consideration:

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1. Whether Ivan’s claim that Protective breached the
implied contractual duty of good faith and fair dealing is
reviewable.

2. Whether the circuit court erred when it determined that
Protective did not breach the implied contractual duty of
good faith and fair dealing.

3. Whether the circuit court erred in ruling that Protective
did not commit bad faith in handling Ivan’s claims.

Standard of Review

[¶18.] “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 (quoting Wyman v. Bruckner, 2018 S.D. 17, ¶ 9, 908 N.W.2d

170, 174). When conducting a de novo 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.

Analysis

[¶19.] The legal principles guiding our review of a circuit court’s decision to

grant a motion for summary judgement are well-settled:

We must determine whether the moving party demonstrated the
absence of any genuine issue of material fact and showed
entitlement to judgment on the merits as a matter of law. The
evidence must be viewed most favorably to the nonmoving party
and reasonable doubts should be resolved against the moving
party. The nonmoving party, however, must present specific
facts showing that a genuine, material issue for trial exists. Our
task on appeal is to determine only whether a genuine issue of
material fact exists and whether the law was correctly applied.
If there exists any basis which supports the ruling of the trial
court, affirmance of a summary judgment is proper.

Brandt v. Cty. of Pennington, 2013 S.D. 22, ¶ 7, 827 N.W.2d 871, 874 (quoting

Jacobson v. Leisinger, 2008 S.D. 19, ¶ 24, 746 N.W.2d 739, 745). Moreover,

“[u]nsupported conclusions and speculative statements do not raise a genuine issue
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of fact.” Dakota Indus., Inc. v. Cabela’s.com, Inc., 2009 S.D. 39, ¶ 20, 766 N.W.2d

510, 516.

1. Whether Ivan’s claim that Protective breached the implied
contractual duty of good faith and fair dealing is reviewable.

[¶20.] Protective argues as an initial matter that Ivan’s contractual claim for

a breach of the implied duty of good faith and fair dealing is not contained in his

complaint, which alleges a breach of contract for express policy provisions and

tortious breach of the duty of good faith and fair dealing. Therefore, Protective

argues that Ivan is raising a new claim on appeal, and it cannot be considered. See

Liebig v. Kirchoff, 2014 S.D. 53, ¶ 35, 851 N.W.2d 743, 752.

[¶21.] While there may be some uncertainty in the formulation of Ivan’s

claims in the complaint and in his initial summary judgment briefing, a broader

review of the record indicates that Ivan raised the contractual duty of good faith

and fair dealing in the circuit court. In his response to Protective’s motion for

summary judgment, Ivan argued specifically that Protective breached its

contractual duty of good faith and fair dealing. Also, the circuit court perceived that

the issue was before it and addressed the merits of the good faith argument, stating

that “the Plaintiff’s claim on covenant of good faith and fair dealing fails[.]”

2. Whether the circuit court erred when it determined that
Protective did not breach the implied contractual duty of good
faith and fair dealing.

[¶22.] “Every contract contains an implied covenant of good faith and fair

dealing that prohibits either contracting party from preventing or injuring the other

party’s right to receive the agreed benefits of the contract.” Schipporeit v. Khan,

2009 S.D. 96, ¶ 7, 775 N.W.2d 503, 505 (quoting Farm Credit Servs. of Am. v.

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Dougan, 2005 S.D. 94, ¶ 8, 704 N.W.2d 24, 28). Lack of good faith may be evidenced

by various conduct, such as “evasion of the spirit of the deal; abuse of power to

determine compliance; and, interference with or failure to cooperate in the other

party’s performance.” Garrett v. BankWest, Inc., 459 N.W.2d 833, 845 (S.D. 1990).

“A breach of contract claim is allowed even though the conduct failed to violate any

of the express terms of the contract agreed to by the parties.” Id. at 841. The

meaning of good faith “varies with the context” of the contract. Farm Credit Servs.,

2005 S.D. 94, ¶ 8, 704 N.W.2d at 28. Yet, “‘if the express language of a contract

addresses an issue, then there is no need to construe intent or supply implied terms’

under the implied covenant.” Nygaard v. Sioux Valley Hosps. & Health Sys.,

2007 S.D. 34, ¶ 22, 731 N.W.2d 184, 194 (quoting Farm Credit Servs., 2005 S.D. 94,

¶ 10, 704 N.W.2d at 28).

a. Whether Protective fulfilled its duty to investigate.

[¶23.] Insurers must make a reasonable investigation of insurance claims

before denying benefits. Dakota, Minn. & E. R.R. Corp. v. Acuity, 2009 S.D. 69,

¶ 19, 771 N.W.2d 623, 629. The investigation must be based upon the “facts and

law available to Insurer at the time it made the decision to deny coverage.” Walz v.

Fireman’s Fund Ins. Co., 1996 S.D. 135, ¶ 8, 556 N.W.2d 68, 70. However, where an

insurer’s obligation to process claims is governed by the policy’s express language,

“[t]he covenant of good faith does not create an amorphous companion contract with

latent provisions to stand at odds with or in modification of the express language of

the parties’ agreement.” Nygaard, 2007 S.D. 34, ¶ 22, 731 N.W.2d at 194 (quoting

Farm Credit Servs., 2005 S.D. 94, ¶ 9, 704 N.W.2d at 28).

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[¶24.] Here, Ivan’s effort to invoke the implied duty of good faith by claiming

Protective did not discharge what he views as its duty to investigate is at odds with

the express claims provisions of the policy. In clear and unambiguous terms, the

policy required an insured seeking benefits to provide Protective with notice of the

claim and affirmatively prove the nature and extent of the loss. As to the latter

obligation, the policy provided that “you will meet the proof of loss requirements by

giving us a written statement of the nature and extent of your loss.” The claim

forms Protective sent Ivan were designed for this purpose and were even referenced

in the policy, which stated: “we will send you forms for filing proof of loss.” See

SDCL 58-12-1 (insurers have a duty to furnish forms of proof of loss, but do not

“have any responsibility for or with reference to the completion of such proof or the

manner of any such completion or attempted completion.”).

[¶25.] Though Ivan correctly observes that the policy did not expressly

mandate the submission of itemized billing statements, he overlooks two important

considerations. First, he is plainly not exempt from the requirement to provide

proof of his loss, and one way, perhaps the most effective way, to meet this

obligation is through the submission of itemized bills. In addition, however, even if

utilizing itemized bills is not the exclusive means for an insured to furnish a

“written statement of the nature and extent of [the] loss[,]” Ivan has not suggested

a different or superior method of proving his loss.3 Indeed, even after sending the

3. A Protective claims official testified at her deposition that the company would
have assisted Ivan if he indicated he could not produce bills: “If the insured
said: This is all they gave me and they won’t give me any more, we would
certainly do everything we could to help them file that claim.”
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spreadsheet summarizing Lenore’s bills, Culhane stated he “would be happy” to

send the itemized bills.

[¶26.] Distilled to its essence, Ivan’s principal argument conflates the

separate concepts of notice of a claim or loss and proof of the loss. See 13 Steven

Plitt et al., Couch on Insurance § 186:19 (3rd ed.), Westlaw (June 2018 update)

(although notice of loss and proof of loss may be interrelated, “the submission of a

proof of loss is a distinct obligation from the insured’s duty to provide notice of an

occurrence or loss”). Notice of an insured’s loss is meant to preserve a claim and

prevent an insurer from denying a claim as untimely. Auto-Owners. Co. v. Hansen

Hous., Inc., 2000 S.D. 13, ¶ 31, 604 N.W.2d 504, 513. The requirement that an

insured furnish proof of loss is different, though, and its purpose is to “allow an

insurer to adequately investigate the claim and to estimate its liability.” 16 Samuel

Williston & Richard A. Lord, Williston on Contracts § 49:89 (4th ed.), Westlaw

(November 2018 update). Insurers rely “on the insured or other interested parties

to supply . . . sufficient and accurate proof of the amount of loss.” 13 Steven Plitt et

al., Couch on Insurance § 186:1 (3rd ed.), Westlaw (June 2018 update).

[¶27.] Here, once Ivan provided both pathology reports and itemized bills as

proof of the nature and extent of his loss, Protective properly investigated and

processed the claim. It verified Lenore’s diagnosis through the pathology reports,

checked to see that the services on the bills were covered benefits, and used the

medical release form as needed to verify charges on the bills.

[¶28.] At least one other court has reached the same result when confronted

with a similar duty to investigate issue. See United Ins. Co. of Am. v. Cope, 630 So.

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2d 407 (Ala. 1993). In Cope, the insured argued that because he sent some bills to

the insurer, the insurer should have been prompted to investigate and locate

remaining bills based on the information already submitted. Id. at 411. The

Alabama Supreme Court, however, rejected this argument, holding that “the

obligation to pay or to evaluate the validity of the claim does not arise until the

insured has complied with the terms of the contract with respect to submitting

claims.” Id. The court reasoned, “[u]ntil the insured furnishes proof of loss in the

form required by the policy, the insurer is under no obligation to pay or to

investigate the claim.” Id. at 412.

[¶29.] Accepting Ivan’s argument that the claims process should be

effectively self-executing is unsupportable for reasons that are as practical as they

are legal. An insurer in circumstances such as those present here will seldom, if

ever, have complete information about when or where an insured is receiving

treatment. As one Protective claims official explained during her deposition,

“unfortunately, if we don’t know . . . what your bills are and what your diagnosis is

and when you are going to the doctor, there’s no way for us to try and even get that

information[.]”

b. Whether Protective fulfilled its duty to disclose and
accurately represent policy provisions.

[¶30.] An insurer violates its duty of good faith by failing to disclose policy

benefits it knows it has a duty to provide under the language of the contract.

Biegler v. Am. Family Mut. Ins. Co., 2001 S.D. 13, ¶¶ 33-34, 621 N.W.2d 592, 602

(liability insurer engaged in deceit when, among other things, it failed to advise

insured of its duty to defend after receiving notice of a third-party’s civil action

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against its insured). Additionally, an insurer cannot misrepresent what it requires

of the insured by forcing the insured to “elect upon which of the clauses in the policy

the claim might be made.” Eide v. S. Sur. Co., 55 S.D. 405, 226 N.W. 555, 556

(1929).

[¶31.] Here, Ivan cannot prevail on his claim that Protective breached the

implied contractual duty of good faith and fair dealing by failing to inform him of

the coverages for which he qualified. Initially, because the contract was

unambiguous and set forth a schedule of benefits, Ivan should be charged with

knowing applicable coverages, and therefore, what kinds of bills to send. See

Culhane v. W. Nat’l Mut. Ins. Co., 2005 S.D. 97, ¶ 16, 704 N.W.2d 287, 292

(rejecting the doctrine of reasonable expectations where policy language is

unambiguous). Moreover, there is no indication in the record that Protective

misrepresented the benefits to which Ivan was entitled. In fact, in its

communication with Ivan and Culhane, Protective explained the reasons for its

actions, did not avoid answering inquiries, and provided answers consistent with

the policy.

[¶32.] Also, contrary to Ivan’s claims, Protective did not require him to

identify policy provisions as a pre-requisite to making his claim. It merely sought

compliance with the policy provisions which required a pathology report and a

written statement of loss as part of the claims process so it could accurately

investigate and process his claim.

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c. Whether Protective fulfilled its duty of equal consideration.

[¶33.] We have recognized a tort duty of equal consideration in insurance bad

faith cases dealing with the third-party claims process. Generally, “‘an insurer

breaches its duty to give equal consideration to the interests of its insured when

making a decision to settle a case’ brought against its insured by a third party.”

Bertelsen v. Allstate Ins. Co., 2011 S.D. 13, ¶ 46, 796 N.W.2d 685, 700 (quoting Hein

v. Acuity, 2007 S.D. 40, ¶ 9, 731 N.W.2d 231, 235). However, we have not applied

this concept outside of the realm of third-party bad faith tort litigation.

[¶34.] Nevertheless, Ivan alleges in his brief that Protective breached the

implied contractual duty of good faith and fair dealing by failing to give his “interest

in having the claim paid equal weight to the company’s interest in not paying the

claim.” (Original emphasis). He cites one occasion in which Protective used the

medical authorization form to verify the length of Lenore’s hospital stay, asserting

this act demonstrates that Protective was motivated by an inclination to limit

benefits and find reasons not to pay.4

[¶35.] We are not inclined to transfigure the duty of equal consideration into

an implied contractual provision in a first-party claims context such as the one

presented here. An insurer determining a first-party claim does not act “like . . . a

fiduciary” with respect to its insured as it does for a claim by a third-party against

its insured. Bertelsen, 2011 S.D. 13, ¶ 47, 796 N.W.2d at 700. Indeed, it may well

4. Even if we were to review Ivan’s equal consideration claim further, this
example illustrates vexing incongruity in Ivan’s argument—Protective should
undertake an investigation to determine the details of Lenore’s care, but
doing so can be evidence of an intent to avoid paying benefits.
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be that an insurer and an insured have distinct and even conflicting interests in

some first-party claims. Harvieux, 2018 S.D. 52, ¶ 13, 915 N.W.2d at 701 (quoting

Hein, 2007 S.D. 40, ¶ 10, 731 N.W.2d at 235) (for first-party allegations of bad faith,

the insurer and the insured are adversaries, and the insurer may challenge claims

that are “fairly debatable” and not “frivolous or unfounded”). Therefore, imposing a

duty of equal consideration for first-party claims could fundamentally alter the

rights and obligation of insureds and insurers contained in the express contractual

provisions of the policy.

[¶36.] Here, the policy provisions governed the claims process, and when Ivan

furnished proof of his loss, Protective paid him the benefits to which he was

entitled. No arguable duty of equal consideration could be implicated here in any

event.

3. Whether the circuit court erred in ruling that Protective did not
commit bad faith.

[¶37.] In general terms, “we have consistently refused to recognize an

independent tort action” for the breach of the implied covenant of good faith and fair

dealing. Trouten v. Heritage Mut. Ins. Co., 2001 S.D. 106, ¶ 30, 632 N.W.2d 856,

862. However, an exception exists in the context of insurance contracts where a

violation of the implied contractual provision constitutes the independent tort of

bad faith. Id. ¶¶ 29-30, 632 N.W.2d at 862–63. In Trouten, we also recognized an

insured’s ability to seek punitive damages for bad faith as an incident of the “special

relationship between the insurer and the insured” and discouragement of

“objectionable corporate policies[.]” Id. ¶ 31, 632 N.W.2d at 863 (quoting Egan v.

Mut. Omaha Ins. Co., 620 P.2d 141, 146 (Cal. 1979)).

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[¶38.] An insurance bad faith action in the first-party context arises “when

an insurance company consciously engages in wrongdoing during its processing or

paying of policy benefits to its insured.” Bertelsen, 2011 S.D. 13, ¶ 46, 796 N.W.2d

at 700 (quoting Hein, 2007 S.D. 40, ¶ 10, 731 N.W.2d at 235). “In order to be

successful on a claim of bad faith, a plaintiff must prove: ‘(1) an absence of a

reasonable basis for denial of policy benefits, and (2) the insurer’s knowledge of the

lack of a reasonable basis for denial.’” Harvieux, 2018 S.D. 52, ¶ 13, 915 N.W.2d at

701 (quoting Mordhorst v. Dakota Truck Underwriters & Risk Admin. Servs.,

2016 S.D. 70, ¶ 9, 886 N.W.2d 322, 324).

[¶39.] The knowledge or reckless disregard of a reasonable basis may be

inferred based on “indifference to facts or to proofs submitted by the insured.”

Champion v. U.S. Fid. & Guar. Co., 399 N.W.2d 320, 324 (S.D. 1987) (quoting

Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1275 (Colo. 1985)). When the issue is the

delay of payments, rather than outright denial, the plaintiff “must demonstrate that

there was an absence of a reasonable basis for the delay and defendants’ knowledge,

or reckless disregard, of the absence of a reasonable basis.” McDowell v. Citicorp

U.S.A., 2007 S.D. 53, ¶ 16, 734 N.W.2d 14, 19; see also Julson v. Federated Mut. Ins.

Co., 1997 S.D. 43, ¶ 8, 562 N.W.2d 117, 120 (when there has not been a denial of

benefits, plaintiff must demonstrate that insurer violated “any of the duties

imposed by the insurance contract which would constitute a basis for this tort

action.”). However, “[b]ecause an insurance policy is a contract, the parties are

bound to its terms and insurance companies are allowed, subject to statutory

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constraints, to limit their liability and impose conditions upon their obligation to

pay.” Phen v. Progressive N. Ins. Co., 2003 S.D. 133, ¶ 6, 672 N.W.2d 52, 54.

[¶40.] Here, the undisputed material facts fail to support the existence of a

separate tort claim against Protective. The circuit court correctly held that the

claims provisions of the policy were unambiguous—a conclusion that Ivan does not

dispute in this appeal. Therefore, the contract terms which are at the heart of the

bad faith analysis apply to the question of whether Protective had a reasonable

basis for its conduct.

[¶41.] As indicated, the policy expressly required Ivan to provide proof of loss

in the form of “a written statement of the nature and extent of . . . loss[.]”

Protective relied upon the unambiguous language in determining whether and

when Ivan was entitled to receive benefits under the policy. There are, on this

record, no disputed material facts which suggest it acted with the kind of conscious

wrongdoing required to sustain a bad faith tort claim.5 Simply put, waiting for an

insured to furnish sufficient proof of loss pursuant to the requirements of the policy

is a reasonable basis for not paying benefits.

[¶42.] Ivan’s additional claims of further tortious conduct on the part of

Protective do not raise disputed issues of material fact because they are

5. Although the circuit court overlooked the existence of the bad faith tort in the
insurance context, we can affirm the court for any basis which supports the
court’s ultimate determination. BAC Home Loans Servicing, LP v.
Trancynger, 2014 S.D. 22, ¶ 8, 847 N.W.2d 137, 140 (quoting De Smet Farm
Mut. Ins. Co. of S.D. v. Busskohl, 2013 S.D. 52, ¶ 11, 834 N.W.2d 826, 831)
(“If there exists any basis which supports the ruling of the trial court,
affirmance of a summary judgment is proper.”).

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unconnected to the payment of benefits in this case. For example, his allegation

that claims handlers searched for ways to avoid paying covered benefits had no

causal bearing upon the payment of Ivan’s claim. The same is true of a

handwritten note from Protective’s claim file which incorrectly stated a policy

provision.6 Ivan’s claim that Protective “uses employee incentive plans to promote

individual adherence to practices that promote the company’s profitability” is also

not material to the dispute before us since it bears no causal connection to the

claims process here. See Harvieux, 2018 S.D. 52, ¶ 20, 915 N.W.2d at 703

(“Harvieux presented no evidence that . . . Progressive’s internal policies caused it

to unreasonably investigate or evaluate her UM claim.”).

[¶43.] Here, Ivan acknowledges he received all the benefits due under the

policy. There is no evidence that any of this additional alleged conduct led to

Protective processing his claim incorrectly. In fact, the undisputed material facts

show that when sufficient proof of Ivan’s loss was submitted, Protective consistently

and promptly processed the claim and paid all benefits owed.

Conclusion

[¶44.] We recognize that the process of gathering paperwork and

documentation necessary to comply with the proof of loss requirements of an

insurance policy can be challenging, especially when simultaneously dealing with

the sickness or death of a loved one. However, the insurer-insured relationship is

governed by contract, and the record before us demonstrates that Protective acted

6. The claims handler’s note mistakenly failed to recognize the ten-day period
prior to a cancer diagnosis during which claims can be made.
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within the terms of its policy with Ivan. We affirm the circuit court’s order granting

Protective’s motion for summary judgment because there are no genuine issues of

material fact indicating Protective breached its contract with Ivan.

[¶45.] GILBERTSON, Chief Justice, and KERN and JENSEN, Justices,

concur.

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