Standard Fire Insurance Co. v. Continental Resources, Inc.

#27794-r-JMK
2017 S.D. 41

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

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THE STANDARD FIRE INSURANCE
COMPANY, A SUBSIDIARY OF
TRAVELERS INSURANCE, Plaintiff and Appellant,

CONTINENTAL RESOURCES, INC., Defendant and Appellee.

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APPEAL FROM THE CIRCUIT COURT OF
THE SIXTH JUDICIAL CIRCUIT
HUGHES COUNTY, SOUTH DAKOTA

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THE HONORABLE MARK BARNETT
Judge

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THOMAS J. VON WALD of
Boyce Law Firm, LLP
Sioux Falls, South Dakota
Attorneys for plaintiff
and appellant.

MICHAEL F. SHAW of
May, Adam, Gerdes & Thompson LLP
Pierre, South Dakota Attorneys for defendant
and appellee.

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CONSIDERED ON BRIEFS
NOVEMBER 7, 2016
OPINION FILED 06/28/17
#27794

KERN, Justice

[¶1.] Standard Fire Insurance Co. appeals from a circuit court order

dismissing its case against Continental Resources Inc. Standard Fire sued

Continental Resources for reimbursement or in the alternative subrogation of

workers’ compensation benefits paid to an employee between 2009 and 2013. The

circuit court dismissed the case pursuant to SDCL 15-6-12(b)(5), finding that the

terms of a settlement agreement barred further litigation and that res judicata

applied. We reverse and remand.

Facts and Procedural History

[¶2.] Dale Denzin sustained a work-related injury while employed at one of

Koch Industries’ oilfields. The accident occurred on March 23, 1983, and crushed

Denzin’s pelvis. Standard Fire, a subsidiary of Travelers Insurance, provided Koch

Industries workers’ compensation insurance and paid Denzin temporary total

disability and permanent partial disability (PPD) benefits. Denzin resumed work in

January 1984. In 1995, Continental Resources acquired Koch Industries’ interest in

the oilfield and became Denzin’s employer. Denzin underwent hip-replacement

surgeries in 2009 and 2010. Standard Fire agreed to pay for the operations.

Following the surgeries, Denzin received a permanent partial impairment rating of

50% in both the lower-right and lower-left extremities.

[¶3.] In May 2012, Denzin filed a workers’ compensation petition against

Continental Resources with the Department of Labor and Regulation. Denzin

sought PPD benefits related to his hip-replacement surgeries. Under SDCL 62-4-6,

Denzin qualified for the maximum weekly benefit of $620 per week and was entitled

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to 160 weeks of compensation, totaling $99,200 in permanent partial impairment

payments.

[¶4.] On June 22, 2012, Continental Resources filed a third-party petition

against Koch Industries and Standard Fire. Continental Resources claimed that

Koch Industries—as Denzin’s employer at the time of the accident—was responsible

for any benefits that were then due and owing. Standard Fire answered and denied

any obligation to pay Denzin additional workers’ compensation benefits, claiming

that Continental Resources was responsible for payment of any such benefits.

[¶5.] In December 2013, Denzin, Standard Fire, and Continental Resources

entered into a settlement agreement. The agreement, entitled “Settlement

Agreement and Dismissal of Petition for Hearing,” reprised the foregoing facts and

stipulated that Continental Resources would accept Denzin’s claim, pay a lump sum

of $99,200, and dismiss its third-party action against Koch Industries and Standard

Fire. The agreement further provided that “the parties agree to settle this matter

without further litigation[.]” The Department of Labor and Regulation approved

the agreement, dismissed Continental Resources’ claim against Koch Industries and

Denzin’s workers’ compensation petition for hearing, and ordered Continental

Resources to pay Denzin within ten days.

[¶6.] On November 10, 2014, Standard Fire commenced a civil action

against Continental Resources seeking reimbursement or subrogation for workers’

compensation benefits paid to Denzin between 2009 and 2013. Standard Fire

claimed that it paid $82,276.26 in medical bills on Denzin’s behalf and $4,676.20 in

indemnity benefits directly to Denzin. Standard Fire sought reimbursement

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pursuant to SDCL 62-7-38 for these amounts, which totaled $86,952.46. Standard

Fire alleged that Continental Resources stipulated in the settlement agreement

that Denzin’s work duties after Continental Resources’ acquisition of the oilfield in

1995 contributed independently to Denzin’s need for medical treatment in 2009 and

beyond. Standard Fire also asserted an alternative claim for equitable subrogation.

Continental Resources answered, denying these claims and asserting various

affirmative defenses. Continental Resources filed a motion to dismiss pursuant to

SDCL 15-6-12(b)(5) on October 9, 2014, arguing that res judicata barred Standard

Fire’s claims and that any equitable claims were “barred by the Settlement

Agreement of the parties, Plaintiff’s available remedies at law, and Plaintiff’s

voluntary payment of workers’ compensation benefits to Dale Denzin.”

[¶7.] On January 19, 2016, the circuit court set the matter for hearing.

Because Continental Resources moved to dismiss under SDCL 15-6-12(b)(5), the

parties asked the court to consider the complaint and attached pleadings and

documents from the administrative proceeding. The parties did not ask the circuit

court to take judicial notice of the administrative record and agreed that there were

no material facts in dispute.

[¶8.] After oral argument, the circuit court observed that both the identity of

the parties and the issues of “who’s on the risk, [and] who’s got to pay for the hips”

were identical to those resolved in the settlement agreement. The court noted that

the agreement stated that “the parties agree to settle this matter without further

litigation,” and deemed this language a “shotgun clause.” The court refused “to

surgically interpret . . . ‘this matter’ . . . as dissecting out disability from medicals,”

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which the court viewed as calling for “a mighty fine scalpel.” The court then orally

granted Continental Resources’ motion to dismiss. It concluded that the language

of the settlement agreement resolved all the issues concerning workers’

compensation benefits related to Denzin’s hip surgeries, including the benefits

previously paid and the most-recently-requested impairment benefits. In its

written order, the court found that Standard Fire’s “case involves identical parties

[and] identical issues”; that the Department of Labor entered a final judgment on

the merits; that “both parties had a full and fair opportunity to litigate the issues

involved in this matter”; and that “the parties entered into a Stipulation settling the

matter without reimbursement to [Standard Fire] for any reason and agreed to a

settlement ‘without further litigation.’” The court concluded that “the parties’

settlement agreement and [dismissal of the workers’ compensation case] was a valid

contract that fully resolved the workers’ compensation issues between” Denzin,

Standard Fire, and Continental Resources, and “which preclude[d] further litigation

between” Standard Fire and Continental Resources “regarding this matter.”

[¶9.] Standard Fire appeals, raising the following issue for our review:

Whether the circuit court erred when it determined that the
workers’ compensation settlement agreement fully resolved all
claims between Standard Fire and Continental Resources.

Decision

[¶10.] We review de novo whether the circuit court properly dismissed

Standard Fire’s complaint under SDCL 15-6-12(b)(5). Total Auctions & Real Estate,

LLC v. S.D. Dep’t of Revenue & Regulation, 2016 S.D. 95, ¶ 8, 888 N.W.2d 577, 580.

“A complaint need only contain a short plain statement of the claim showing the

pleader is entitled to relief and a demand for judgment for the relief to which the
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pleader deems himself entitled.” Nooney v. StubHub, Inc., 2015 S.D. 102, ¶ 9,

873 N.W.2d 497, 499. Here, the court considered the pleadings, the attachments to

the pleadings, and documents incorporated by reference in the pleadings. See id.

¶ 8 (explaining that a court may consider documents incorporated by reference in

the complaint). We consider the same.

[¶11.] In its complaint, Standard Fire asserted claims for statutory

reimbursement or equitable subrogation. In particular, Standard Fire alleged that

it paid Denzin $86,952.46 in medical and indemnity benefits between 2009 and

2013. Standard Fire cited to the parties’ settlement agreement and claimed that

Continental Resources stipulated that “Denzin’s work duties after 1995 contributed

independently to his need for medical treatment in 2009 and beyond and that

payment for such treatment (and subsequent impairment rating) is Continental’s

responsibility instead of Standard Fire’s (via Travelers Insurance) responsibility.”

In its answer, Continental Resources did not dispute that it entered into a

settlement agreement with Standard Fire. It, however, alleged in its motion to

dismiss that the settlement agreement barred Standard Fire’s right to recover

under any theory advanced by Standard Fire.

[¶12.] Before the circuit court and on appeal, the parties contend that the

settlement agreement is unambiguous. The agreement reads in part:

8. That based upon Claimant’s earnings at the time of his
hip replacements in 2009, he qualified for the maximum weekly
benefit under South Dakota law which was $620.00 per week
and he would thereby be entitled to a total permanent partial
impairment payment of Ninety Nine Thousand Two Hundred
Dollars and no cents ($99,200.00).
9. That this case has been in litigation where there has been
a genuine dispute existing as between Continental Resources
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and Koch Industries as to the responsibility for payment of this
impairment benefit.
10. That the parties agree that based upon the applicable
medical testimony and opinions Claimant’s work duties after
1995 contributed independently to his need for the hip
replacements and thus the permanent partial impairments as
spelled out above.
11. That the parties agree to settle this matter without
further litigation as follows:
A. Continental Resources will agree to accept
Claimant’s claim and pay a lump sum payment to him
and his counsel of Ninety Nine Thousand Two Hundred
Dollars and no cents ($99,200.00).
B. Continental Resources will dismiss its Third Party
action against Koch Industries upon approval of this
settlement agreement by the South Dakota Department of
Labor and Regulation.
C. Claimant agrees to dismiss the current Petition for
Hearing and to waive any claim for interest or penalties
in exchange for payment of the impairment benefits in a
lump sum, all of which will take place within ten (10)
days after approval of this agreement by the South
Dakota Department of Labor and Regulation.

The parties dispute whether “this matter” should be read broadly, so as to resolve

all workers’ compensation benefit matters related to Denzin’s hip surgeries, or

narrowly, such that it refers only to the PPD payments referenced in the foregoing

paragraphs. Because we find that the settlement agreement “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,” Dowling Family

P’ship v. Midland Farms, 2015 S.D. 50, ¶ 13, 865 N.W.2d 854, 860), we reverse and

remand.

[¶13.] Settlement agreements are subject to the same rules of construction as

contracts. In re Estate of Neiswender, 2003 S.D. 50, ¶ 15, 660 N.W.2d 249, 252.

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“Thus, whether a settlement agreement is ambiguous is a question of law.” Lewis v.

Benjamin Moore & Co., 1998 S.D. 14, ¶ 9, 574 N.W.2d 887, 889. We may not “go

beyond the four corners of the contract” unless we first determine that the

settlement agreement is ambiguous. Dowling Family P’ship, 2015 S.D. 50, ¶ 14,

865 N.W.2d at 861. Even so, ambiguity does not arise merely because different

interpretations of the contract are offered. Roden v. Gen. Cas. Co. of Wis., 2003 S.D.

130, ¶ 10, 671 N.W.2d 622, 625. Rather, “[a] contract is ambiguous when

application of rules of interpretation leave a 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. Here, two reasonable, competing interpretations of the settlement

agreement exist.

[¶14.] In Standard Fire’s view, the terms of the settlement agreement did not

bar its claim for reimbursement or subrogation. Standard Fire argues that

paragraph 9 of the settlement agreement narrows the subject of “this matter” by

providing that “there has been a genuine dispute existing . . . as to the

responsibility for payment of this impairment benefit.” (Emphasis added.)

Standard Fire contends that “this impairment benefit” is limited to the PPD

payment of $99,200 referenced in paragraph 8 of the settlement agreement.

Standard Fire thus concludes that the medical and indemnity benefits it now seeks

are outside the scope of the foregoing paragraphs.

[¶15.] While the circuit court described the task of “dissecting out disability

from medicals” as unwieldly and requiring “a mighty fine scalpel,” this distinction is

well established in workers’ compensation law. Impairment benefits and medical

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benefits are separate scheduled benefits governed by different statutes. PPD

benefits are provided under SDCL 62-4-6, whereas medical benefits are governed by

SDCL 62-4-1. Compare Streeter v. Canton Sch. Dist., 2004 S.D. 30, ¶ 25, 677

N.W.2d 221, 226 (applying SDCL 62-4-1 to payment of medical expenses), with

Cozine v. Midwest Coast Transp., Inc., 454 N.W.2d 548, 551 (S.D. 1990) (“SDCL 62-

4-6 specifies the amount of compensation an employee shall receive for the loss of a

part of the body or its loss of use.”). Further, the settlement agreement lacks the

kind of language typical in an agreement providing a broad release from future

claims. See, e.g., Gores v. Miller, 2016 S.D. 9, ¶ 10, 875 N.W.2d 34, 37 (involving

settlement agreement that released party from “all ‘additional claims’ of ‘any kind

or nature whatsoever’ against ‘all other persons’ for ‘all injuries’ that had or might

‘result from,’ ‘develop’ from, or ‘arise out of’ [an] accident”). Also notably absent is

any language dismissing the matter with prejudice.

[¶16.] Nevertheless, Continental Resources provides a competing view,

interpreting “this matter” broadly to encompass medical and indemnity benefits.

According to Continental Resources, paragraph 9 does not define “this matter.” In

Continental Resources’ view, paragraph 9 refers to but one component of a larger

dispute between Denzin, Standard Fire, and Continental Resources. Continental

Resources highlights the language used in paragraph 9, “[t]hat this case has been in

litigation where there has been a genuine dispute existing as between Continental

Resources and Koch Industries as to the responsibility for payment of this

impairment benefit.” (Emphasis added.) The settlement agreement could be

interpreted as resolving “this case.” The language “where there has been” could be

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read to mean that “this case” involved a disagreement over responsibility for

Denzin’s PPD payments. However, it does not necessarily limit the scope of “this

case” and in turn, “this matter” exclusively to the contents of that particular

dispute.

[¶17.] As “this matter” could be read broadly or narrowly, the circuit court

erred when it determined that the plain language of the settlement agreement

barred Standard Fire’s claim. We reverse and remand for further proceedings.

[¶18.] GILBERTSON, Chief Justice, and ZINTER, Justice, concur.

[¶19.] WILBUR, Retired Justice, and SEVERSON, Justice, dissent.

WILBUR, Retired Justice (dissenting).

[¶20.] The resolution of this case should not turn on the interpretation of only

one phrase within the agreement: “whether ‘this matter’ should be read broadly, so

as to resolve all workers’ compensation benefit matters related to Denzin’s hip

surgeries, or narrowly, such that it refers only to the PPD payments referenced in

the foregoing paragraphs.” Supra majority opinion ¶ 12 (emphasis added). Such

view is problematic because the phrase “this matter” is one clause within an entire

settlement agreement. The question we must decide is whether the settlement

agreement precludes Standard Fire’s current suit against Continental Resources.

[¶21.] It is well established that we review contracts as a whole and “‘give

effect to the language of the entire contract,’ and ‘particular words and phrases are

not interpreted in isolation.’” Jones v. Siouxland Surgery Ctr. Ltd. P’ship, 2006 S.D.

97, ¶ 15, 724 N.W.2d 340, 345 (quoting Hartig Drug Co. v. Hartig, 602 N.W.2d 794,

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797-98 (Iowa 1999)). Here, “this matter” must be viewed with reference to the

contract language that Continental Resources agreed to dismiss its “Third Party

action against Koch Industries [(Standard Fire)].” If that reference is ignored, then

that would mean the parties intended the settlement agreement to bind only

Denzin and Continental Resources. But the settlement agreement specifically

provides that “the parties agree to settle this matter[.]” (Emphasis added.)

Standard Fire is a party and under the terms of the settlement agreement,

Standard Fire agreed to no further litigation on Continental Resources’ third-party

claim disputing responsibility to pay Denzin’s workers’ compensation benefits

related to the hip surgeries.

[¶22.] We often say that an ambiguity does not arise merely because the

parties offer different interpretations of the contract. See, e.g., Roden, 2003 S.D.

130, ¶ 10, 671 N.W.2d at 625. Instead, “[a] contract is ambiguous when application

of rules of interpretation leave a genuine uncertainty as to which of two or more

meanings is correct.” Alverson, 1997 S.D. 9, ¶ 8, 559 N.W.2d at 235. Because, here,

the settlement agreement unambiguously resolved all workers’ compensation

benefit matters related to Denzin’s hip surgeries, which includes Standard Fire’s

right to seek reimbursement from Continental Resources for benefits paid between

2009 and 2013, I dissent.

[¶23.] SEVERSON, Justice, joins this dissent.

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