Opperman v. Heritage Mutual Insurance Co. , 1997 S.D. LEXIS 92 ( 1997 )

KONENKAMP, Justice.

[¶ 1] Harlan Opperman lost a front-end loader when one of his buildings burned. The loader was ordinarily used at gravel pits several miles away, but was on the premises for an overhaul. His insurance policy covered “vehicles or self-propelled machines ... you manufacture, process or warehouse,” but excluded vehicles “operated principally away from the described premises.” Was the loader being “processed” or “warehoused” at the time of the fire, removing it from exclusion and allowing coverage? The trial court ruled it was, but we reverse, holding the plain language of the insurance contract bars coverage.

Facts

[¶ 2] Opperman conducts two businesses in Gregory: Opperman Sand and Gravel and Opperman Construction. A fire damaged his business premises on November 20, 1993, and he sought coverage under a commercial property insurance policy he held with Heritage Mutual Insurance Company. The insured premises listed in the policy consisted of a frame office, a noneombustible shop, and a frame shop. Renewed annually, this policy had been in effect since November 1, 1991. Among the items damaged was a Fiat-AUis Model # 945-B front-end loader, dismantled at the time for maintenance. It most recently had been used six and one-half miles from the business premises at one of Opperman’s three gravel pits; none of these pits were insured under the policy. We quote the relevant provisions:

2. Property Not Covered

Covered Property does not include:

* * *

0. Vehicles or self-propelled machines (including aircraft or watercraft) that:

(1) Are licensed for use on public roads; or

(2) Are operated principally away from the described premises.

This paragraph does not apply to:

(1) Vehicles or self-propelled machines or autos you manufacture, process or warehouse;

(2) Vehicles or self-propelled machines, other than autos, you hold for sale; or

(3)Rowboats or canoes out of water at the described premises.

Along with other items, two engines damaged in the fire were covered as they were kept in the building for spares and were not operated elsewhere. Heritage sought to exclude coverage for the front-end loader under 2.0.(2) because it was “operated principally away from the described premises.” Opper-man looked to exception (1), claiming the loader was a vehicle being “process[ed]” or “warehous[ed]” in the building.¹ The trial court agreed, ruling the policy covered the loss, and Heritage appealed.

Analysis and Decision

[¶ 3] When interpreting insurance contracts, we have uniformly held them reviewable as a matter of law under the de novo standard. De Smet Ins. Co. v. Gibson, 1996 SD 102, ¶ 5, 552 N.W.2d 98, 99; Economic Aero Club, Inc. v. Avemco Ins. Co., 540 N.W.2d 644, 645 (S.D.1995); State Farm Mut. Auto. Ins. Co. v. Vostad, 520 N.W.2d 273, 275 (S.D.1994). This includes determining whether an insurance contract is ambiguous. Rogers v. Allied Mut. Ins. Co., 520 N.W.2d 614, 616 (S.D.1994). We review a trial court’s findings of fact under a clearly erroneous standard. Jasper v. Smith, 540 N.W.2d 399, 401 (S.D.1995).

[¶ 4] Opperman accords broad meanings to “process” and “warehouse,” at odds with Heritage’s reliance on more narrow definitions. ‘When an insurer seeks to invoke a policy exclusion as a means of avoiding coverage, the insurer has the burden of proving that the exclusion applies.” American Family Mut. Ins. Co. v. Purdy, 483 N.W.2d 197, 199 (S.D.1992)(citing Western Cas. & Sur. Co. v. Anderson, 273 N.W.2d 203, 205 (S.D.1979)). If an insurance contract is “fairly susceptible of different interpretations, the interpretation most favorable to the insured should be adopted.” Olson v. United States Fid. & Guar. Co., 1996 SD 66, ¶ 6, 549 N.W.2d 199, 200 (quoting Rogers, 520 N.W.2d at 616); American Family Mut. Ins. v. Elliot, 523 N.W.2d 100, 102 (S.D.1994); Pete Lien & Sons, Inc. v. First Am. Title Ins. Co., 478 N.W.2d 824, 827 (S.D.1991); Tri-State Ins. Co. of Minn. v. Bollinger, 476 N.W.2d 697, 701 (S.D.1991). These principles serve to guide us, but we cannot “seek out a strained or unusual meaning for the benefit of the insured.” Rogers, 520 N.W.2d at 616 (citations omitted). Insurance contracts warrant reasonable interpretation, in the context of the risks insured, without stretching terminology. Vostad, 520 N.W.2d at 275 (citing Prokop v. North Star Mut. Ins. Co., 457 N.W.2d 862, 864 (S.D.1990)). We ascribe to contract language plain and ordinary meaning. Economic Aero Club, Inc., 540 N.W.2d at 645; Elliot, 523 N.W.2d at 102; O’Neill v. Blue Cross of Western Iowa & S.D., 366 N.W.2d 816, 818 (S.D.1985).

[¶ 5] Finding the insurance policy unambiguous, the trial court held “process” included a maintenance overhaul. Given its ordinary and plain meaning within a commercial or business context, “process” refers to a systematic series of actions whereby an item is prepared, converted or transformed for marketability. See, e.g., Cochrane v. Deener, 94 U.S. 780, 788, 24 L.Ed. 139, 141 (1876)(defining “process” as a “mode of treatment of certain materials to produce a given result. It is an act, or a series of acts, performed upon the subject-matter to be transformed and reduced to a different state or thing”); United States v. Douglas Aircraft Co., 62 C.C.P.A. 53, 510 F.2d 1387, 1391 n. 3 (1975) (“‘Processing’ means a process of manufacture.”); State v. Four States Drilling Co., 278 Ala. 273, 177 So.2d 828, 832 (1965)(to “process” is “to subject to some special treatment, to prepare for market, to convert into marketable form”); Linwood Stone Prods. Co. v. State Dep’t of Revenue, 175 N.W.2d 393, 395 (Iowa 1970)(“process” is an operation whereby raw materials change form); Landis v. Zoning Bd. of Adjustment, 414 Pa. 146, 198 A.2d 574, 577 (1964)(“process” is to treat, handle, or prepare through special treatment); Krienke v. Southwestern Superior Prod. Corp., 376 S.W.2d 936, 938 (Tex.Civ.App.1964)(defining “process” as to subject to treatment by special process, especially raw materials; to convert into marketable form or prepare for market); compare Nelson by Carson v. Park Indus., Inc., 717 F.2d 1120, 1124 n. 5 (7th Cir.1983) (construing “to process” in a broader sense, i.e., “subjecting something to a particular system of handling to effect a particular result,” and still holding only that it applies to one who “purchased and sold goods in the ordinary course of trade in a distribution system”).

[¶ 6] The circuit court concluded the term “warehouse” applied to stored personal items, machinery, and equipment, thus encompassing the loader. “Warehouse,” given its common, industry usage, means to store items for later commercial distribution. Fisher v. Board of Zoning Appeals of Town of Monroe, 143 Conn. 358, 122 A.2d 729, 731 (1956)(“warehouse” means a building for the reception and keeping of goods of others to be stored for hire); City of Detroit v. General Foods Corp., 39 Mich.App. 180, 197 N.W.2d 315, 323 (1972)(“warehouse” is a place for storing goods and merchandise); Webster’s Third New International Dictionary, Unabridged 2576 (1976)( “to put or hold in safekeeping ... ” or “to deposit, store, or secure in a warehouse ... to put or hold in safekeeping ... to hold a shipment beyond the free time permitted a consignee to obtain or take delivery of his goods”). The court specifically found as a matter of fact the front-end loader was “operated principally away from the building,” but as it was inoperable, it was being processed or warehoused.

[¶ 7] To understand their meanings, these terms ought to be measured with their companions: “vehicles or self-propelled machines or autos you manufacture, process or warehouse.” Under the canon of noscitur a sociis, words take import from each other. Jarecki v. G.D. Searle & Co., 367 U.S. 303, 307, 81 S.Ct. 1579, 1582, 6 L.Ed.2d 859, 862-63 (1961). This maxim of interpretation is “wisely applied where a word [or phrase] is capable of many meanings in order to avoid the giving of unintended breadth” to contract provisions. Id. at 307, 81 S.Ct. at 1582, 6 L.Ed.2d at 863; State Auto. Club, Inc. v. Volk, 305 N.W.2d 693, 696 (S.D.1981); Brookings Mall, Inc. v. Cpt. Ahab’s, Ltd., 300 N.W.2d 259, 262 (S.D.1980)(applying doctrines of ejusdem generis and noscitur a sociis in contract interpretation); State v. Janisch, 290 N.W.2d 473, 476 (S.D.1980). See also Utility Electric Supply, Inc. v. ABB Power T & D Co, Inc., 36 F.3d 737, 740 (8th Cir.1994)(using this maxim to interpret South Dakota law). By the context in which these terms are used, noscitur a sociis supports a more restrictive meaning to “process” and. “warehouse” than Opperman advances. “Manufacture, process or warehouse” describe common steps in bringing a product to market from production through the chain of distribution. Exception (2) strengthens this interpretation: “self-propelled machines ... you hold for sale” covering vehicles held at the point of sale. The loader was not in the chain of distribution or held at the point of sale; it was being rebuilt or repaired to be put back in service.

[¶ 8] An expansive interpretation of “process” or “warehouse” would conceivably cover any vehicle Opperman might have chosen to put in the building for repairs, regardless of how valuable it might be. That hardly fits within the risk the parties contemplated. Design Data Corp. v. Maryland Cas. Co., 243 Neb. 945, 503 N.W.2d 552, 559 (1993); Resseguie v. American Mut. Liab. Ins. Co., 51 Wis.2d 92, 186 N.W.2d 236, 241 (1971). Three days before the fire, Opper-man signed a Statement of Values representing the worth of the contents in the building at $30,000. The front-end loader alone was valued at $35,000. By his own admission, the loader was in the building at the time he signed the Statement of Values and had been there since the previous fall.

[¶ 9] Certainly, the value of the property covered is material to the risk an insurer undertakes. 8 Couch on Insurance 2d § 37A:263 (Rev ed 1985)(“Statements by the insured as to the value or cost of the property insured are generally regarded as material to the risk.”); 43 AmJur2d Insurance § 1010 (1982 & 1996 Supp)(insureds have a duty to disclose all facts material to the risk). A “statement as to the location of the insured property is material since such fact enters into the matter of fixing the premium rate.” 8 Couch on Insurance 2d § 37A.251; Curran v. National-Ben Franklin, 261 N.W.2d 822, 827 (Iowa 1978)(as the location of property is material to the risk, if the description is in error, the “coverage ordinarily will not be extended to other locations”). Although blanket coverage on the policy was $165,200 (for building and contents, including expensive tools and engines) and Opperman specifically requested coverage for the maintenance and repair operations in his building, the Statement of Values he signed while the loader was in the building intimates his anticipated level of covered risk and the contents he considered insured. Cf. U.P. Terminal Fed. Cr. Union v. Employers Mut. Liab. Ins. Co., 172 Neb. 190, 109 N.W.2d 115, 119 (1961)(poliey premium as an indication of the intent of the parties with regard to the extent of the risk assumed).

[¶ 10] Finally, Opperman maintained an inland marine insurance policy with another company, but obtained through the same agent, covering “contractor’s equipment.” He chose to protect with this policy only a sand conveyor ($40,000) and miscellaneous “tools and equipment usual to the trade or profession of the insured” ($5,000 total or $250 per item). He represented he would self-insure any remaining equipment. Op-perman never chose to insure the loader on this policy. Inland marine policies typically cover machinery like front-end loaders. 10A Couch on Insurance 2d § 42.162 (inland marine policies commonly used for “mobile equipment,” including construction equipment and the like); Robert E. Keeton & Alan I. Widiss, Insurance Law § 1.5(b)(2), at 20 (1988)(inland marine policies generally insure any types of goods or property that might be affected by movement).

[¶ 11] Policy terms clearly exclude the loss claimed here. We cannot, by judicial construction, strain to reach a definition of “process” and “warehouse” to compensate for an oversight in not insuring a valuable piece of equipment. The judgment of the trial court is reversed, as the policy, given common and ordinary meaning, provides no coverage for the loss of Opperman’s front-end loader.

[¶ 12] Reversed.

[¶ 13] MILLER, C.J., and SABERS and AMUNDSON, JJ., concur. [¶ 14] GILBERTSON, J., dissents.

1 . Opperman also argues representations made by Heritage's agent estopped Heritage from denying coverage. The trial court ruled against Opper-man on this issue and he did not file a notice of review, so the matter was waived. SDCL 15-26A-22; Rude Transp. Co. v. South Dakota Pub. Utils. Comm’n, 431 N.W.2d 160, 162 (S.D.1988).