Inadequate Claim Investigation, the “Fairly Debatable” Defense, and Punitive Exposure in South Dakota First-Party Bad Faith: Commentary on Fiechtner v. American West Insurance Co., 2025 S.D. 60

I. Introduction

In Fiechtner v. American West Insurance Co., 2025 S.D. 60, the South Dakota Supreme Court affirmed a sweeping jury verdict against an automobile insurer that included:

• $400,000 in underinsured-motorist (UIM) contract damages (plus prejudgment interest);
• $250,000 in first-party bad faith damages;
• $890,000 in punitive damages; and
• $96,045 in statutory attorney fees (plus sales tax) under SDCL 58‑12‑3.

The case arises out of an April 2018 collision in which plaintiff-insured Mark Fiechtner, driving a pickup truck, was T‑boned at an icy intersection by a tortfeasor who indisputably was at fault. After exhausting $10,000 in medical-pay benefits from his own carrier, American West, and recovering the tortfeasor’s $100,000 liability limits, Fiechtner claimed significant ongoing neck pain, headaches, cognitive and memory problems, and persistent vision problems diagnosed as convergence insufficiency, and he sought $900,000 in UIM benefits under his $1,000,000 policy.

American West offered only $10,000 on the UIM claim. The offer was based on a file review by a UIM adjuster with no medical training, who neither spoke to the insured nor contacted any treating providers and was barred by company policy from accessing the earlier, far more robust medical-pay investigation done by a different adjuster.

The central legal issues on appeal were:

• whether the insurer was entitled to judgment as a matter of law on the bad faith and punitive claims because the UIM claim was allegedly “fairly debatable”;
• whether the evidence supported a finding that American West’s refusal to pay was “vexatious or without reasonable cause” under SDCL 58‑12‑3 (statutory attorney fees); and
• whether certain evidentiary rulings (a “claims dollar” demonstrative exhibit and an expert slideshow on traumatic brain injury) were abuses of discretion.

The Court (Justice Myren for the majority, with separate concurrences by Chief Justice Jensen and Justice Salter) used this case to sharpen and integrate several core doctrines in South Dakota insurance law:

• what constitutes an “absence of a reasonable basis” for denial in first-party bad faith, particularly when the alleged misconduct is an inadequate investigation;
• how the “fairly debatable” defense operates, and its limits;
• when a bad faith claim can support punitive damages under SDCL 21‑1‑4.1 and SDCL 21‑3‑2 (malice, including presumed malice); and
• how an inadequate investigation can render a denial “vexatious or without reasonable cause” for purposes of fee-shifting under SDCL 58‑12‑3.

II. Summary of the Opinion

A. Holdings

The Supreme Court:

• Affirmed the denial of American West’s renewed motion for judgment as a matter of law (JMOL) on the bad faith claim and on punitive damages.
• Affirmed the submission of punitive damages to the jury under SDCL 21‑1‑4.1 and the $890,000 award as not excessive.
• Affirmed the award of $96,045 in attorney fees (plus sales tax) under SDCL 58‑12‑3, holding that American West’s refusal to pay UIM benefits could be found “vexatious or without reasonable cause,” particularly in light of its inadequate investigation.
• Affirmed the evidentiary rulings admitting:
  • a “claims dollar” demonstrative showing how premium dollars are allocated within an insurer; and
  • a slideshow used by a neuroradiologist (via video deposition) to explain mechanisms of traumatic brain injury.

B. Key Facts Underlying the Legal Analysis

• American West had already aggressively and competently investigated the med-pay claim through adjuster Dahl, who:
  • obtained releases;
  • gathered medical records; and
  • spoke directly with providers, including an ophthalmologist who expressly linked convergence insufficiency to head injury and noted it was a common post‑concussive finding.
• For the UIM claim, adjuster Kramer:
  • handled 350–400 claims per year, with 20–30 UIM files;
  • had no medical or brain-injury-specific training;
  • did not speak with the insured;
  • did not contact any providers or seek updated records or opinions;
  • did not consult an independent medical examiner; and
  • was prohibited by company policy from accessing Dahl’s med‑pay claim notes, even though those notes contained causation information favorable to the insured.
• Kramer speculated in her evaluation that ongoing neck pain, memory issues, and visual disturbances might be “degenerative/result of getting older” despite no evidence of prior similar problems and despite contrary medical evidence in the company’s own med‑pay file.
• American West offered $10,000 on the UIM claim, asserted that the insured had already been “made whole” by the $100,000 liability settlement plus the $10,000 med‑pay, and declined to increase its offer despite counsel’s insistence that there was a serious brain injury.
• Internal compensation structures rewarded adjusters who paid less in claims.

Against this evidentiary backdrop, the Court concluded that a reasonable jury could find: (1) no reasonable basis for the denial or gross undervaluation of the UIM claim; (2) knowledge of that lack of basis (or at least conscious disregard); (3) bad faith; (4) presumed malice sufficient to support punitive damages; and (5) a vexatious or unreasonable refusal under SDCL 58‑12‑3.

III. Analysis

A. Standards of Review and Procedural Framework

As a preliminary matter, the Court carefully applied and reiterated structure around several standards of review:

• JMOL (Rule 50(a) and (b)) – Reviewed de novo. The Court views the evidence in the light most favorable to the non-movant (here, the insured) and asks whether there is any legally sufficient evidentiary basis for a reasonable jury to find for the non-movant. If reasonable minds could differ, JMOL is improper. (Citing In re Estate of Tank, Center of Life Church v. Nelson, Weiland v. Bumann.)
• Submission of punitive damages under SDCL 21‑1‑4.1 – The trial court’s determination that there is “a reasonable basis” to submit punitive damages is reviewed for clear error. (Citing Bertelsen II, Harter.)
• Attorney fees under SDCL 58‑12‑3 – Whether the refusal was “vexatious or without reasonable cause” is a finding of fact reviewed for clear error. (Citing Kern, Sawyer.)
• Evidentiary rulings – Reviewed for abuse of discretion and, if error, for prejudice. (Citing Weiland, Sedlacek.)

This framework strongly constrained American West’s appeal: the court’s role on JMOL and fees was limited to whether reasonable jurors or a reasonable trial judge could reach the conclusions they actually reached, not whether the Supreme Court might have weighed the evidence differently.

B. First-Party Bad Faith and the “Fairly Debatable” Defense

1. Governing Doctrine and Precedents

South Dakota’s first-party bad faith doctrine, as reaffirmed in Fiechtner, has its core elements from cases like Hein v. Acuity, Harvieux v. Progressive Northern, Mordhorst, and Champion:

• First-party bad faith is an intentional tort arising from the insurer’s conduct in processing or paying benefits owed to its own insured.
• The insured must show:
  1. Absence of a reasonable basis for denial or delay in paying policy benefits; and
  2. The insurer’s knowledge
• The inquiry is temporal: the Court looks at the facts and law available to the insurer at the time it made the coverage decision. (Citing Bertelsen III.)
• “Bad faith conduct may include the failure to conduct a reasonable investigation concerning the claim.” (Citing Dakota, Minn. & E. R.R. Corp. v. Acuity and Walz.)

Insurers are allowed to challenge claims that are fairly debatable. As Dakota, Minn. & E. R.R. framed it, if a claim is fairly debatable, the insurer has a reasonable basis to deny. However, as both the majority and concurring opinions emphasize, the “fairly debatable” concept is not a blanket shield; it is essentially the flip-side of the “reasonable basis” requirement.

2. Application to American West’s Investigation

The Court’s bad faith analysis turned almost entirely on the insurer’s investigation (or lack thereof):

• Contrast between med‑pay and UIM handling:
  • Dahl (med‑pay adjuster) actively investigated:
    • spoke with the insured repeatedly;
    • obtained releases and medical records; and
    • communicated with providers, including a specific statement from the ophthalmologist linking convergence insufficiency to head injury and noting it as a common post‑trauma finding.
  • Kramer (UIM adjuster):
    • conducted only a paper review of records provided by plaintiff’s counsel;
    • supplemented only with a social media search;
    • did not talk to the insured or any providers;
    • did not seek updated medical information or an IME; and
    • did not review Dahl’s med‑pay notes, due to a company policy barring UIM adjusters from accessing other adjusters’ claim notes.
• Speculation versus evidence: Kramer speculated that ongoing problems “could be degenerative” and due to aging, without:
  • any documented pre‑accident similar complaints; or
  • any supporting medical opinion.
  Her speculation was directly at odds with the ophthalmologist’s earlier letter in the company’s own files.
• Failure to resolve crucial issues: Questions of causation and permanency were critical to valuing the UIM claim, yet the insurer did nothing beyond an out‑of‑date record review to resolve them.

The majority held that, under this evidence, a jury could reasonably find that American West lacked a reasonable basis when it effectively denied most of the UIM claim by offering just $10,000, and knew or recklessly disregarded that it lacked such a basis.

3. Rejection of the “Jury Midpoint = Fairly Debatable” Argument

American West advanced a novel argument: because the jury ultimately awarded $400,000 (approximately the midpoint between the insured’s pre‑suit $900,000 UIM demand and the insurer’s $10,000 offer), the claim, by definition, must have been “fairly debatable,” precluding bad faith.

The Court emphatically rejected this on two grounds:

• Temporal focus: Reasonableness is judged at the time of the claims decision. The insurer did not know what a future jury would award; that future jury valuation could not retrospectively create a reasonable basis it did not actually have. (Citing Bertelsen III.)
• Structural concern: Accepting the argument would mean that any time a jury lands between the insured’s demand and the insurer’s offer, bad faith would be categorically impossible, regardless of how deficient the insurer’s investigation or rationale had been. The Court held that this is “inconsistent with our prior decisional law.”

4. Rejection of a “UIM Claims Are Always Fairly Debatable” Theory

American West also argued that because valuing UIM claims is inherently subjective, such claims are always “fairly debatable,” and therefore cannot support bad faith.

The Court rejected this categorical view. While the value of a UIM claim may be uncertain, an insurer’s duty of good faith still requires a reasonable investigation and a rational, evidence-based valuation. Subjectivity in valuation does not excuse investigative shortcomings or arbitrary offers.

5. The Concurring Opinions: Clarifying the Role of the “Fairly Debatable” Defense

a. Chief Justice Jensen’s Concurrence (Bad Faith and Investigation)

Chief Justice Jensen concurred fully but wrote separately to emphasize an important distinction: an inadequate investigation is not itself the tort, but it can be powerful evidence of the two bad faith elements:

• First element: No reasonable basis – If crucial questions (causation, permanency) are left unresolved because the insurer declined to gather available information, the resulting valuation can be objectively unreasonable.
• Second element: Knowledge – Persisting in a low‑ball offer without investigating obvious red flags can support an inference that the insurer knew or recklessly disregarded the unreasonableness of its position.

He underscored that insurers do not have to conclusively disprove the insured’s claimed value; they must instead reach a valuation that has a reasonable factual and legal basis. In Harvieux, the insurer met its duty by sending records to a medical expert for review. In this case, by contrast, American West:

• questioned causation and permanency despite no support in the available records,
• ignored a physician’s direct linkage of convergence insufficiency to the accident, and
• failed to seek any further medical clarification or IME.

Under these facts, he agreed that a jury could find American West’s valuation arbitrarily low and objectively unreasonable.

b. Justice Salter’s Concurrence (Fairly Debatable as a Corollary of “No Reasonable Basis”)

Justice Salter’s concurrence offers a concise doctrinal clarification:

• “Fairly debatable” is not a free-standing doctrine separate from bad faith; it is simply another way of describing the first element – the existence (or not) of a reasonable basis.
• If a claim is fairly debatable, the insurer does have a reasonable basis; if it is not fairly debatable, the insurer does not have a reasonable basis. The two concepts are reciprocal.

He also highlights that an insurer cannot invoke the “fair” in “fairly debatable” when its own investigation is so deficient that it deprives the company of a reasonable understanding of the facts. A “passive and insular” investigation, unresponsive to the specific claims being made, undermines the fairness of any debate about value and can vitiate the defense.

6. Net Doctrinal Takeaways on Bad Faith

• “Fairly debatable” is not a talisman; it is simply another phrasing of the “reasonable basis” requirement, and it rises or falls with the objective reasonableness of the insurer’s position given the investigation actually performed.
• Inadequate investigation is not a separate cause of action but can be central evidence that:
  • the insurer lacked a reasonable basis; and
  • it knew or recklessly disregarded this.
• Subsequent jury awards do not retroactively validate earlier denials; reasonableness is assessed at the time of the coverage decision.
• Subjectivity in valuing UIM claims does not immunize adjusters from bad faith where they ignore obvious investigative steps, especially on complex medical issues.

C. Punitive Damages: Malice, Presumed Malice, and Excessiveness

1. Threshold for Submitting Punitive Damages (SDCL 21‑1‑4.1)

Under SDCL 21‑1‑4.1, punitive damages may not even be submitted to a jury unless, after a hearing, the court finds “based upon clear and convincing evidence, that there is a reasonable basis to believe that there has been willful, wanton or malicious conduct” by the defendant.

Drawing on Kjerstad, Sells, Harter, and Biegler, the Court reiterates:

• This is a preliminary, lower-order quantum of proof than what must be shown at trial. The plaintiff must clearly and convincingly show a reasonable basis to believe malice will be provable, not prove it fully at that stage.
• Malice is required under SDCL 21‑3‑2. It may be:
  • Actual malice: a positive desire and intention to injure, actuated by hatred or ill will; or
  • Presumed malice: inferred from acts that are willful or wanton to the injury of others, even without hatred or ill will.

The Court affirms the trial court’s finding that the evidence here met this preliminary threshold, emphasizing:

• the stark contrast between the thorough med‑pay investigation and the cursory UIM investigation;
• the deliberate structural policy of preventing UIM adjusters from accessing med‑pay claim notes;
• the absence of any effort by Kramer to speak with the insured or treating providers; and
• a bonus structure that rewarded lower claim payments.

Together, these could support a finding of presumed malice – a willful and wanton disregard for the insured’s rights – even if there was no explicit ill will toward the specific insured.

2. Evaluating Excessiveness of the $890,000 Punitive Award

American West also argued that $890,000 in punitive damages was excessive and warranted a new trial under SDCL 15‑6‑59(a)(5)-(6). The Court applied the familiar multi-factor test from Grynberg v. Citation Oil & Gas and earlier cases like Flockhart, Hulstein, and Stene v. Hillgren:

1. Amount of compensatory damages – The jury awarded:
   • $400,000 for breach of contract; and
   • $250,000 for bad faith.
   The Court focused on the $250,000 bad faith compensatory award for ratio analysis. The punitive-to-compensatory ratio was approximately 3.56:1, within the range the Court had previously approved (e.g., Biegler upheld 4:1).
2. Nature and enormity of the wrong – This was not a simple mistake; the jury could find a systemic practice of:
   • ignoring or structurally walling off favorable medical evidence already in-house;
   • refusing to investigate serious alleged brain and vision injuries adequately; and
   • using compensation incentives that arguably encouraged underpayment of claims.
3. Intent of the wrongdoer – While there was no evidence of hatred toward this particular insured, the conduct could reasonably be viewed as willful and wanton, satisfying presumed malice.
4. Financial condition of the wrongdoer – American West’s parent company’s net worth was reported at $250–300 million; a punitive award under $1 million is not financially crippling in that context and serves a deterrent function.
5. All attendant circumstances – The jury had heard extensive evidence about how claims were handled and how adjusters were incentivized.

Given these factors and the strong deference owed to jury verdicts, the Court held that the punitive award was not so large as to be oppressive or to “shock the sense of fair-minded persons,” and that the trial court did not abuse its discretion in denying a new trial.

D. Attorney Fees Under SDCL 58‑12‑3: Vexatious or Without Reasonable Cause

1. Statutory Framework and Precedent

SDCL 58‑12‑3 provides that in actions against insurers:

In all actions or proceedings hereafter commenced against any . . . insurance company, . . . on any policy . . . if it appears from the evidence that such company . . . has refused to pay the full amount of such loss, and that such refusal is vexatious or without reasonable cause, . . . the trial court and the appellate court, shall, if judgment is rendered for the plaintiff, allow the plaintiff a reasonable sum as an attorney's fee to be recovered and collected as a part of the costs.

Key points from precedent, reaffirmed or applied here, include:

• The statute’s purpose is “to discourage contesting insurance coverage and to reimburse an insured for any reasonable attorney fees necessarily incurred in defending or enforcing a valid insurance contract right.” (All Nation Ins. Co. v. Brown.)
• The fee-shifting is rooted in the contract claim, so fees must relate to enforcing the policy, not to independent tort claims like bad faith. (Bertelsen III.)
• Proof of bad faith does not automatically entitle a party to SDCL 58‑12‑3 fees, and fees attributable to the bad faith claim should be excluded. (Bertelsen III.)
• However, an insurer’s refusal of coverage after an inadequate investigation can be deemed “without reasonable cause,” satisfying the statute. (Lagler v. Menard, citing Eldridge.)

2. The Missing Findings Problem and the Presumption of Regularity

The record did not include written findings of fact and conclusions of law on the fee motion, and no transcript of the fee hearing was included in the appellate record. Normally, the Supreme Court insists on findings in support of attorney fee awards (e.g., Hoffman v. Olsen, Pengra, Nickles, Crisman).

Here, however:

• Both parties agreed in their briefs that the trial court had found the refusal vexatious or without reasonable cause.
• Under the “presumption of regularity,” the Supreme Court assumes, in the absence of a contrary record, that the circuit court acted properly. (Citing Goeden v. Goeden, Graff.)

Given the evidence heard at trial and this presumption, the Court declined to reverse the fee award on procedural grounds alone.

3. Substantive Review: Inadequate Investigation as “Without Reasonable Cause”

On the merits, American West again leaned on the “midpoint verdict” theory as proof that its position was reasonable. The Court rejected that argument in the fee context for the same reasons it rejected it in the bad faith context.

Substantively, the Court pointed to the same investigative deficiencies discussed under bad faith:

• failure to contact the insured;
• failure to contact any treating providers (despite their testimony that they routinely cooperate with insurers and, in one case, had actually cooperated with American West’s med‑pay adjuster);
• failure to review or even be allowed to review the earlier med‑pay claim file notes; and
• limiting the investigation to counsel‑supplied records and social media.

The Court applied Lagler and Eldridge to hold that when an insurer refuses payment after making an inadequate investigation of a claim, that refusal may be deemed “without reasonable cause” for SDCL 58‑12‑3 purposes. On this record, the trial court’s finding to that effect was not clearly erroneous.

E. Evidentiary Rulings: Demonstratives and Expert Visual Aids

1. The “Claims Dollar” Demonstrative Exhibit

The “claims dollar exhibit” was a stylized picture of a dollar bill with explanatory text about how insurers allocate premium dollars (e.g., to overhead, profit, claim payments). It was used during the testimony of American West’s Vice President of Claims, Oen, to illustrate his explanations of insurance business operations and claim economics.

American West objected on two grounds:

• lack of foundation; and
• failure to disclose the exhibit before trial.

South Dakota has “long recognized the admissibility of demonstrative evidence” whose purpose is not direct probative value but to help the jury understand other evidence or testimony. (Citing Shelton and Kaiser.) A demonstrative is admissible if it “clearly depicts the factual situations and will allow the trier of fact to more clearly understand a witness’s descriptions.”

The Court found:

• Oen’s testimony demonstrated his knowledge of how premiums are processed and allocated in the industry.
• The claims dollar exhibit simply visually illustrated the economics he was describing; it was not complex or misleading.
• Any initial procedural misstep (the exhibit was briefly shown before being offered) was corrected when the judge insisted on an offer and ruled it admissible.

On this foundation, the Court held there was no abuse of discretion. On the disclosure issue, the Court implicitly treated this as a classic demonstrative (rather than an independent piece of substantive evidence) used to illustrate live testimony; given Oen’s knowledge and the simplicity of the exhibit, any lack of pretrial disclosure was not prejudicial.

2. Dr. Chaudry’s Slideshow on Brain Injury Mechanisms

Expert neuroradiologist Dr. Ammar Chaudry testified by video deposition, having reviewed the plaintiff’s MRI and opined that his symptoms were “most consistent with traumatic brain injury.” During his deposition, he used a slideshow:

• depicting a T‑bone collision scenario consistent with the accident facts;
• illustrating rotational forces on the head and brain; and
• demonstrating how such forces can create the type of findings he identified.

American West objected that:

• the slideshow lacked proper foundation and did not accurately depict this particular accident;
• the testimony turned into impermissible “narrative” while presenting the slideshow;
• plaintiff’s counsel improperly assisted in creating the slideshow; and
• the slideshow was not separately disclosed as a trial exhibit in violation of the pretrial order.

The Court rejected these arguments:

• Foundation and demonstrative purpose – Dr. Chaudry explained that:
  • he understood the accident to be a T‑bone collision;
  • the images represented a plausible biomechanical mechanism for the type of brain injury he diagnosed; and
  • the slideshow was meant to help the jury understand his explanations, not to reconstruct the accident with scientific exactness.
  As such, the images served the same demonstrative function endorsed in Shelton and Kaiser.
• Narrative testimony – Under SDCL 19‑19‑611(a), trial courts have wide discretion over the “mode and order” of witness examination to make proceedings effective for determining the truth and avoid wasting time.
  • Dr. Chaudry’s testimony involved complex medical concepts; longer, explanatory answers were responsive and helpful, not improper narrative.
  • The trial court had pre‑screened the video and could reasonably find it an effective mode of presentation.
• Disclosure and “trial by ambush” – Although the slideshow itself was not separately listed as an exhibit, the defense:
  • attended and participated in Dr. Chaudry’s deposition where the slideshow was used;
  • objected contemporaneously (objection later overruled pretrial); and
  • was on notice that the plaintiff intended to play the deposition video at trial, along with MRI images and Dr. Chaudry’s CV.
  Given these facts, there was no genuine surprise or prejudice; the purpose of pretrial disclosure—to prevent “trial by ambush” (citing City of Sioux Falls v. Missouri Basin Municipal Power Agency)—was not violated.

The Court found no abuse of discretion in allowing the jury to view the deposition, including the slideshow.

F. Precedent Integration and Doctrinal Continuity

Fiechtner does not announce entirely new doctrines; rather, it integrates and sharpens existing South Dakota law. Key precedents and how they influenced the decision include:

• First-party bad faith framework:
  • Hein v. Acuity, Harvieux v. Progressive N., Mordhorst, Champion – Provide the basic two-element structure (no reasonable basis and knowledge) and recognize unreasonable investigation as potential bad faith.
  • Dakota, Minn. & E. R.R. v. Acuity, Walz – Emphasize that failure to conduct a reasonable investigation, especially when liability or coverage is not seriously disputed, can support bad faith.
  • Bertelsen II and Bertelsen III – Clarify temporal focus (facts and law at the time of denial) and differentiate between contract-based fee shifting and tort damages.
• “Fairly debatable” concept:
  • Dakota, Minn. & E. R.R. – Introduces the formulation that if a claim is fairly debatable, the insurer has a reasonable basis to deny.
  • Bertelsen II – Shows that where a claim is not fairly debatable, the insurer lacks a reasonable basis, leaving only intent to be decided.
  • Case v. Toshiba America Information Systems (8th Cir. interpreting South Dakota law) – Notes that adequacy of investigation and reasonableness of evaluation are “integral” to the bad faith inquiry.
  • In Fiechtner, the Court and concurrences make explicit that “fairly debatable” is simply a corollary of the first element and that an insurer’s own investigative failures can undermine its claim to a fair debate.
• Punitive damages:
  • Kjerstad, Sells, Harter, Biegler – Define malice (actual and presumed), interpret SDCL 21‑1‑4.1’s clear-and-convincing “reasonable basis” threshold, and affirm that clear breach or non‑debatable denial can indicate malice.
  • Grynberg, Flockhart, Hulstein, Stene – Provide the multi‑factor test for excessiveness and articulate deference to the jury’s role.
• Attorney fees under SDCL 58‑12‑3:
  • All Nation v. Brown – States the purpose of SDCL 58‑12‑3: discourage coverage contests and reimburse insureds who must litigate to enforce contract rights.
  • Bertelsen III – Distinguishes fees related to enforcing the contract from those arising from bad faith claims.
  • Lagler, Eldridge – Explicitly link inadequate investigation to a finding that refusal was “without reasonable cause.”
  • Hoffman, Pengra, Nickles, Crisman – Require findings of fact and conclusions of law when awarding fees, backgrounding the Court’s discussion of the missing transcript and presumption of regularity in Fiechtner.
• Demonstrative evidence and discovery:
  • Shelton, Kaiser – Approve use of demonstratives that clearly depict situations and help the jury understand testimony.
  • City of Sioux Falls v. Missouri Basin – Explains that pretrial orders and disclosure rules aim to eliminate “trial by ambush,” a principle the Court applies in rejecting American West’s discovery-based objections.

IV. Complex Concepts Simplified

A. First-Party Bad Faith (Insurer vs. Its Own Insured)

In first-party bad faith, the insured sues their own insurer for how the insurer handled a claim for benefits under the policy (like UIM, med-pay, or property damage), not for failing to defend or indemnify against a third party.

The insured must show:

1. The insurer did not have a reasonable basis to deny or low‑ball the claim when it made that decision.
2. The insurer either knew this or acted with reckless disregard of that fact.

A reasonable basis requires an objectively supportable, fact‑ and law‑grounded reason for the insurer’s position. An insurer that simply speculates or ignores obvious investigative avenues may lack such a basis.

B. “Fairly Debatable” Defense

If a claim is fairly debatable, that means:

• reasonable minds could differ about the insurer’s obligation or the amount owed, based on the facts it had properly investigated and the law at the time;
• the insurer, therefore, had a reasonable basis for denying or limiting payment; and
• bad faith cannot be found even if the insurer ultimately turns out to be wrong.

But “fairly debatable” is not a magic phrase: if the insurer’s own investigative failures deprive it of an accurate understanding of the claim, its position may no longer be fairly debatable, because it is not based on a reasonable investigation.

C. Presumed Malice and Punitive Damages

“Malice” for punitive damages does not always require hatred or personal animus. South Dakota recognizes:

• Actual malice – genuine hostility, hatred, or desire to harm the particular plaintiff.
• Presumed (legal) malice – inferred when:
  • a defendant’s conduct is willful (intentional) or wanton (reckless disregard) and
  • is likely to injure others or shows disregard for their rights.

In insurance bad faith cases, systemic practices that consistently disadvantage insureds (such as reward systems for underpaying claims, or structural barriers to seeing favorable evidence) can support presumed malice even without any personal ill will.

D. SDCL 58‑12‑3: “Vexatious or Without Reasonable Cause”

To award attorney fees under SDCL 58‑12‑3, a court must find:

• the insurer refused to pay the full amount of the loss; and
• that refusal was either:
  • vexatious – essentially, in bad spirit, stubbornly or consciously wrongful; or
  • without reasonable cause – no objectively sound basis, often because of an inadequate or skewed investigation.

Inadequate investigation matters here too: if the insurer simply did not bother to gather the facts necessary to evaluate the claim reasonably, its refusal can be deemed “without reasonable cause,” triggering fee-shifting even if a separate tort claim for bad faith also exists.

E. Demonstrative Evidence vs. Substantive Evidence

Demonstrative evidence (like charts, diagrams, or animations) is used to illustrate or explain testimony or other evidence. It is not itself proof of the underlying facts unless it is also admitted as substantive evidence.

To admit a demonstrative, a court must ensure:

• it fairly and accurately depicts what the witness is describing; and
• it will help, not confuse, the jury.

Because demonstratives are explanatory tools, courts are often flexible about their use, especially where the opposing party is not truly surprised and the demonstrative genuinely aids understanding of complex topics.

V. Impact and Practical Implications

A. For Insurers and Claims Departments

• Investigation duties cannot be compartmentalized away. Company policies that bar adjusters from reviewing related claim files (e.g., med‑pay vs. UIM) can directly support findings of:
  • bad faith;
  • presumed malice for punitive damages; and
  • “without reasonable cause” under SDCL 58‑12‑3.
• Serious or complex medical claims demand heightened investigation. Allegations of brain injuries, vision disorders, or cognitive issues generally require:
  • contact with the insured;
  • direct communication with treating providers;
  • consideration of updated records; and
  • often, an IME or at least a specialist review.
• Bonus or incentive structures matter. Compensation schemes that reward lower claim payouts can be evidence of willful or wanton disregard for insureds’ rights and support punitive awards.
• “Fairly debatable” is not a safe harbor when investigation is weak. Insurers must earn this defense through documented, rational investigations, not merely by pointing to the difficulty of valuing non-economic damages.
• Internal documentation and explanations to insureds are important. The Court noted that Kramer’s eight-page evaluation existed but was not shared with the insured when he asked for the basis of the $10,000 offer. Transparent, reasoned explanations can both improve settlement prospects and help demonstrate good faith if litigation ensues.

B. For Insureds and Policyholder Counsel

• Discovery into claims-handling practices is critical. Documents showing:
  • internal restrictions on file access;
  • training (or lack thereof) for adjusters;
  • bonus structures; and
  • prior, more thorough investigations (like med‑pay files)
  can significantly strengthen bad faith, punitive, and SDCL 58‑12‑3 fee claims.
• Medical causation evidence should be documented and highlighted early. Letters from treating physicians linking injuries to the accident, as here with convergence insufficiency, can be powerful in showing that an insurer’s contrary speculation was unreasonable.
• Demonstrative evidence and medical experts can be deployed effectively. Well-prepared visual aids (animations, diagrams) by qualified experts are likely admissible if tied to testimony and disclosed through depositions.

C. For Trial Courts and Litigators

• Be explicit on attorney-fee findings. Although the Court applied a presumption here, the decision reiterates its expectation of express findings and conclusions on SDCL 58‑12‑3 fee awards.
• Early punitive-damages hearings remain critical. Fiechtner shows how systemic business practices, not just egregious conduct in a single file, can satisfy the SDCL 21‑1‑4.1 threshold.
• Deposition video and demonstratives must be managed carefully. Courts should preview such evidence and ensure it remains explanatory rather than unduly prejudicial, but the bar for exclusion is relatively high where the content clearly relates to issues the jury must decide.

VI. Conclusion

Fiechtner v. American West Insurance Co. reinforces and deepens South Dakota’s commitment to a robust first-party bad faith doctrine. The decision:

• clarifies that “fairly debatable” is simply the converse of the requirement that an insurer have a reasonable basis for denial or undervaluation and that a deficient investigation can strip an insurer of that defense;
• underscores that systemic claims-handling practices—from walling off files to incentivizing low payouts—can support findings of bad faith, presumed malice, and substantial punitive damages;
• connects inadequate investigation not only to tort liability but also to fee shifting under SDCL 58‑12‑3 as a “refusal without reasonable cause”; and
• gives trial lawyers and judges guidance on demonstrative evidence and expert visuals in complex medical cases.

Practically, the decision sends a clear message to insurers operating in South Dakota: perfunctory or siloed investigations—especially in serious injury UIM claims—carry significant risk of contract liability, tort damages, punitive exposure, and statutory attorney fees. For insureds, Fiechtner confirms that the courts will scrutinize not just what decision an insurer made, but how it got there.