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South Dakota court blocks third-party suits against insurers.

In a case of first impression, the South Dakota Supreme Court ruled that a pedestrian injured in a fall could not directly sue the property owner's insurance company. (Trouten v. Heritage Mutual Ins. Co., 632 N.W.2d 856 (S.D. 2001).)

Citing Zegar v. Sears Roebuck & Co., an Illinois decision in favor of Allstate Insurance Co., the South Dakota court voted 3-2 against extending privity to third parties seeking medical payments under general liability policies. (570 N.E.2d 1176 (Ill. App. Ct. 1991).)

"Until the legislature enacts a statute, [that] permits direct action against an insurer, this court declines to participate in judicially legislating such a public policy," the court said. "Allowing this action to proceed would, in essence, provide for a potential for multiplicity of lawsuits, i.e., a direct claim against the insurer and a tort claim against the insured, which both arise out of the same incident."

Ruling on a second issue, the court also rejected a third party's right to sue an insurer for bad faith breach of an obligation to pay, for two reasons. "First, the injured person does not have a relationship with the insurer that justifies such a result on public policy grounds," the court said. "Second, the insurer's first duty is to its insured and not to the injured party. We decline to place the insurer in the impossible position of having to choose its loyalties since the insured can always be sued by the injured party for any and all damages flowing from his actions."

Because the insurer's fiduciary obligation is to its insured, it "stands in the shoes of the insured and has an adversarial relationship to the victim. As such, the insurance company cannot be required to serve two masters who have antagonistic interests," the court said.
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Author:Magnuson, Carolyn
Geographic Code:1U4SD
Date:Dec 1, 2001
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