A. Unruh Chiropractic Clinic v. De Smet Insurance Co.
782 N.W.2d 367, 2010 S.D. LEXIS 40, 2010 SD 36 (2010)
Rule of Law:
The common-law prohibition against the assignment of personal injury claims extends to prohibit the assignment of the proceeds of personal injury claims when such assignments implicate public policy concerns such as maintenance and champerty, discourage settlement, or place an undue burden on the tortfeasor and insurer.
Facts:
- On June 5, 2007, Henry and Dorothy Lentsch (Lentsches) were involved in an automobile accident with Opal Omanson, who was insured by De Smet Insurance Company (De Smet), which conceded Omanson was at fault.
- On June 6, 2007, A. Unruh Chiropractic Clinic (Unruh) began treating the Lentsches for injuries sustained in the accident.
- Prior to treatment, the Lentsches each signed documents entitled “ASSIGNMENT OF PROCEEDS,” irrevocably selling, assigning, transferring, and setting over to Unruh all their right, title, and interest in any settlement, judgment, or recovery from Omanson and any insurance policy proceeds, to the extent of unpaid chiropractic charges.
- The assignments clarified that the Lentsches would remain the real party in interest in their claim, and Unruh's interest was an equitable assignment, lien, or security arrangement, with no rights to a cause of action.
- Unruh served De Smet with copies of the assignments and notices, informing De Smet that any proceeds for Lentsches’ claims should be paid directly to Unruh to the extent of unpaid services and warning of a second payment requirement if Unruh was not named as a payee.
- In September 2007, Henry Lentsch arranged for their son, who held a power of attorney for Dorothy, to enter into settlement negotiations with De Smet.
- The Lentsches disputed some of Unruh’s charges and refused to settle with De Smet if Unruh was included as a payee on the settlement checks.
- The Lentsches’ son ultimately executed releases of Omanson and De Smet for cash settlements, with the releases providing that the Lentsches would be responsible for paying their medical care providers, and De Smet delivered the settlement checks directly to the Lentsches without including Unruh as a payee, even though the settlement amount exceeded Unruh’s unpaid charges.
- Unruh subsequently demanded payment from the Lentsches, who refused, and then from De Smet, which also refused.
Procedural Posture:
- Unruh filed an action to enforce the assignments against De Smet in small claims court.
- De Smet removed the case to the formal side of magistrate court.
- Both Unruh and De Smet moved for summary judgment in magistrate court.
- The magistrate court ruled in favor of Unruh, concluding the assignments were enforceable due to a distinction between assignments of claims and assignments of proceeds.
- De Smet appealed the magistrate court's ruling to the circuit court (De Smet as appellant, Unruh as appellee).
- The circuit court affirmed the magistrate court's decision, acknowledging a split of authority but following those recognizing the distinction and finding no public policy reason to preclude the assignment of proceeds.
- De Smet appealed the circuit court's decision to the South Dakota Supreme Court (De Smet as appellant, Unruh as appellee).
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Issue:
Does the common-law prohibition on the assignment of personal injury claims extend to preclude the enforcement of assignments of the proceeds of personal injury claims when those assignments raise public policy concerns?
Opinions:
Majority - ZINTER, Justice
No, the common-law prohibition on the assignment of personal injury claims extends to preclude the enforcement of assignments of the proceeds of personal injury claims when those assignments raise public policy concerns. While South Dakota recognizes a technical distinction between a legal assignment of a claim (transferring present right and control) and an equitable assignment of proceeds (a future right where the assignor typically retains control), this distinction does not permit the enforcement of an equitable assignment if it violates public policy. The court found that Unruh's actions amounted to 'officious intermeddling' in the Lentsches' suit, consistent with the concept of maintenance, by attempting to influence their litigation decisions and their son's power of attorney. These assignments also contravened the law's strong preference for settlement by creating disputes over charges and compelling the Lentsches to litigate with the tortfeasor and insurer or concede to Unruh’s demands for full payment. Furthermore, allowing such assignments could open the door for various creditors to seek debt protection, complicate settlements, and burden insurers by forcing them into a de facto collection agent role, unrelated to the underlying accident. Therefore, the court concluded that the assignments implicated common-law concerns underlying maintenance and champerty, discouraged settlement, and increased the burden on the insurer and tortfeasor, making them unenforceable. The court explicitly stated that balancing competing public policies and authorizing such assignments is a matter for the Legislature.
Analysis:
This case significantly reinforces South Dakota's long-standing public policy against maintenance and champerty, extending it to assignments of proceeds from personal injury claims. It clarifies that a technical distinction between claims and proceeds does not circumvent public policy concerns when the practical effect of an assignment is to foster litigation, interfere with settlement, or burden third parties. The ruling places a substantial hurdle for healthcare providers seeking to secure payment through such assignments, indicating a preference for legislative action to alter this common-law stance. Future litigants and insurers can expect increased scrutiny of any third-party agreements that might be seen as 'intermeddling' or complicating settlement processes in personal injury cases.
