Facts
- Henry and Dorothy Lentsch were injured in an auto collision caused by a driver insured by De Smet Insurance Company of South Dakota.
- The Lentsches received chiropractic treatment from A. Unruh Chiropractic Clinic, which sought payment through written assignments executed by each Lentsch.
- The assignments transferred to Unruh the proceeds of the Lentsches’ personal-injury claim recovery (up to the amount of unpaid chiropractic charges), rather than the personal-injury claims themselves.
- Unruh gave De Smet written notice of the assignments and instructed De Smet to pay Unruh directly to the extent of unpaid charges and to include Unruh as a payee on any settlement checks.
- A dispute arose within the Lentsch family over the necessity and cost of Dorothy’s continued treatment; Dorothy was incompetent to make medical or financial decisions.
- The Lentsches’ son later negotiated settlements with De Smet; Henry refused to settle if Unruh would be listed as a payee.
- De Smet settled with the Lentsches, obtained releases, and delivered settlement checks payable only to the Lentsches despite notice of the assignments.
- Unruh demanded payment for unpaid services; when both the Lentsches and De Smet refused, Unruh sued De Smet to recover the assigned portion of the settlement proceeds.
Issues
- Whether assignments limited to the proceeds of personal-injury claims (up to unpaid medical charges) are valid and enforceable under South Dakota law.
- Whether an insurer with notice of such assignments can discharge its obligation by paying settlement proceeds solely to the injured parties and obtaining releases.
- Whether a later settlement and release between the insurer and the injured parties can defeat the assignee’s right to the previously assigned proceeds.
Decision
- The South Dakota Supreme Court affirmed judgment for Unruh.
- The court held the documents were valid assignments of proceeds, not prohibited assignments of personal-injury claims.
- Because De Smet had notice of the assignments, it remained obligated to protect Unruh’s assigned interest and paid the Lentsches at its peril.
- De Smet’s payment of the full settlement to the Lentsches and receipt of releases did not extinguish Unruh’s right to the assigned portion; De Smet remained liable to Unruh for the unpaid charges within the assignments’ scope.
Legal Principles
- South Dakota distinguishes between impermissible assignments of personal-injury claims and permissible assignments of the proceeds of such claims.
- An assignment of anticipated recovery proceeds transfers a contractual right to a portion of any settlement or judgment, without transferring control of the underlying tort claim.
- After an obligor receives notice of an assignment, payment to the assignor does not discharge the obligor’s duty as to the assigned portion; the obligor remains liable to the assignee.
- An assignor’s subsequent release or settlement with the obligor cannot impair the assignee’s rights in the previously assigned portion of the proceeds.
Conclusion
The court enforced a medical provider’s assignment of personal-injury claim proceeds and held that an insurer with notice cannot avoid liability to the assignee by paying the insured alone and taking a release; the assignee may recover the assigned amount directly from the insurer.