Berkley Regional Specialty Insurance Co. v. Dowling Spray Service ( 2015 )

#27020-aff in pt, rev in pt & rem-JKK
2015 S.D. 35IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
BERKLEY REGIONAL SPECIALTY
INSURANCE COMPANY, Plaintiff and Appellee,
v.
DOWLING SPRAY SERVICE; TROY
DOWLING; SCOTT DOWLING; KELSEY
SEED, AG SERVICE LLC, FARM BUREAU
MUTUAL INSURANCE COMPANY, Defendants,
and
GREAT WEST CASUALTY COMPANY, Defendant and Appellee,
and
JAMES SEILER and KIMBERLY SEILER, Defendants and Appellants.
****
APPEAL FROM THE CIRCUIT COURT OF
THE THIRD JUDICIAL CIRCUIT
BEADLE COUNTY, SOUTH DAKOTA
****
THE HONORABLE JON R. ERICKSON
Judge
****
MICHAEL J. SCHAFFER
PAUL H. LINDE of
Schaffer Law Office, Prof., LLC
Sioux Falls, South Dakota Attorneys for plaintiff and
appellee Berkley Regional
Specialty Insurance Company.
****
ARGUED ON MARCH 25, 2015
OPINION FILED 05/20/15
ROBERT B. ANDERSON of
May, Adam, Gerdes & Thompson
Pierre, South Dakota Attorneys for defendant and
appellee Great West Casualty
Company.
JOHN W. BURK of
Thomas, Braun, Bernard & Burke
Rapid City, South Dakota
and
MATTHEW J. KINNEY of
Kinney Law Office
Spearfish, South Dakota Attorneys for defendants
and appellants.
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KONENKAMP, Retired Justice
[¶1.] This appeal addresses the remaining insurance coverage questions
arising from the intersection collision described in Berkley Regional Specialty
Insurance Company v. Dowling Spray Service, 2015 S.D. 9, 860 N.W.2d 257. In that
case, we ruled that the policy insuring the owner of the crop sprayer provided no
coverage. Here, we determine whether coverage is afforded by either of the two
policies insuring the driver of the crop sprayer. The circuit court ruled that neither
policy created a duty to defend and indemnify the driver.
Background
[¶2.] Troy Dowling operates Dowling Spray Service, a crop-spraying
business and sole proprietorship in Beadle County, South Dakota. As part of his
business, Troy owned a JD 4830 sprayer. This sprayer is a scheduled item on his
commercial general liability insurance policy through Berkley Regional Insurance
Company. Troy also had a commercial automobile insurance policy with Great
West Casualty Company. On July 1, 2010, Troy lent his sprayer to his uncle, Scott
Dowling. In return, Troy borrowed a John Deere 4720 self-propelled sprayer
(Sprayer), owned by Scott’s business, Dowling Brothers Partnership.
[¶3.] On July 11, 2010, Troy was driving the John Deere 4720 Sprayer to
one of his customer’s fields. At the intersection of Highway 27 and 218th Street in
Beadle County, the Sprayer collided with a motorcycle driven by James Seiler.
Kimberly Seiler was a passenger. The Seilers were both seriously injured and
sought damages.
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[¶4.] In circuit court, Berkley successfully obtained summary judgment
declaring that it had no duty to defend or indemnify Troy. With regard to Great
West’s policy, the court conducted a trial. Sarah Hanson, Vice President of Great
West’s Midwestern Region Underwriting, testified that “We are not . . . in the
business of insuring agricultural farm machinery. We insure over-the-road
trucking equipment.” The court found that the Sprayer “does not meet the
definition of a ‘motor vehicle’ as defined by the policy” and neither “does it fit within
the business scheme of Great West.” Accordingly, Great West obtained a
declaratory judgment that it had no duty to defend or indemnify Troy.
[¶5.] In this appeal, the Seilers assert that the circuit court erred in
granting declaratory judgements for Berkley and Great West.
1. Berkley’s Policy
[¶6.] The circuit court ruled that Berkley had no duty to defend or
indemnify Troy for the July 11, 2010 accident because Troy’s use of the John Deere
4720 Sprayer loaned to him by Dowling Brothers Partnership fell within Berkley’s
policy definition of an “auto,” for which commercial general liability coverage is
specifically excluded. But the Seilers argue that even if the Sprayer is an “auto,”
the exception to the exclusion applies. In their view, the Sprayer would have
qualified as “mobile equipment” (which is not excluded from coverage) if the
Sprayer were not subject to a compulsory or financial responsibility law or other
motor vehicle insurance law in South Dakota.
[¶7.] In Section I – Coverages (Insuring Agreement), the policy provides that
Berkley “will pay those sums that the insured becomes legally obligated to pay as
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damages because of ‘bodily injury’ or ‘property damage’ to which this insurance
applies.” Excluded from coverage, however, is “‘[b]odily injury’ or ‘property damage’
arising out of the ownership, maintenance, use or entrustment to others of any
aircraft, ‘auto’ or watercraft owned or operated by or rented or loaned to any
insured.” Section I – Coverages (Exclusions) (emphasis added). An “auto” is
defined as
a. A land motor vehicle . . . designed for travel on public roads,
including any attached machinery or equipment; or
b. Any other land vehicle that is subject to a compulsory or
financial responsibility law or other motor vehicle insurance law
in the state where it is licensed or principally garaged.
However, “auto” does not include “mobile equipment”.
Section V – Definitions. It cannot be disputed that the Sprayer is designed for
travel on public roads. It has four wheels, is self-propelled, has headlights,
taillights, turn signals, and other components similar to road-ready vehicles.
Moreover, the circuit court found that the Sprayer is subject to a compulsory or
financial responsibility law or other motor vehicle insurance law in South Dakota.
Thus, the Sprayer meets both policy definitions of an “auto.”
[¶8.] Yet the definition of “auto” specifically excludes “mobile equipment,”
and, therefore, we must look to the definition of “mobile equipment.” “Mobile
equipment” is defined as
any of the following types of land vehicles, including any attached
machinery or equipment:
a. Bulldozers, farm machinery, forklifts and other vehicles
designed for use principally off public roads;
...
f. Vehicles not described in a., b., c. or d. above
maintained primarily for purposes other than the
transportation of persons or cargo.
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However, self-propelled vehicles with the following types of
permanently attached equipment are not “mobile equipment”
but will be considered “autos”:
...
(3) Air compressors, pumps and generators, including
spraying, welding, building cleaning, geophysical
exploration, lighting and well servicing equipment.
However, “mobile equipment” does not include any land vehicles
that are subject to a compulsory or financial responsibility law
or other motor vehicle insurance law in the state where it is
licensed or principally garaged. Land vehicles subject to a
compulsory or financial responsibility law or other motor vehicle
insurance law are considered “autos”.
Section V – Definitions.
[¶9.] The Sprayer arguably meets the definition of “mobile equipment” in
one of two ways. First, it fits within subsection a. because it is farm machinery or a
vehicle designed for use principally off public roads. Although the Sprayer can be
used on and is equipped for use on public roads, its principal use is off public roads
— spraying crops. Second, if the Sprayer does not meet subsection a., it is
nonetheless “mobile equipment” under subsection f., because it is a vehicle “not
described in a., b., c. or d. above maintained primarily for purposes other than the
transportation of persons or cargo[.]” The Sprayer is maintained for spraying crops,
which is a purpose other than the transportation of persons or cargo.
[¶10.] Our review cannot end here, however. The last paragraph of the
definition of “mobile equipment” provides that “any land vehicles that are subject to
a compulsory or financial responsibility law or other motor vehicle insurance law in
the state where it is licensed or principally garaged” will be “considered ‘autos’.”
(Emphasis added.) In the summary judgment proceeding, no one disputed that the
Sprayer is subject to a compulsory or financial responsibility law in South Dakota.
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Therefore, although the Sprayer meets the definition of “mobile equipment” under
either subsection a. or f., the Sprayer must be considered an “auto.”
[¶11.] Returning, then, to the provision that specifically excludes coverage for
damages arising out of the use of any “auto,” the Seilers contend that the exception
to the exclusion applies. The exception states,
This exclusion does not apply to:
...
(5) ‘Bodily injury’ or ‘property damage’ arising out of:
(a) The operation of machinery or equipment that is
attached to, or part of, a land vehicle that would
qualify under the definition of “mobile equipment”
if it were not subject to a compulsory or financial
responsibility law or other motor vehicle insurance
law in the state where it is licensed or principally
garaged; or
(b) the operation of any of the machinery or
equipment listed in Paragraph f.(2) or f.(3) of the
definition of “mobile equipment”.
Section I – Coverages (Exclusions). The Seilers argue that the claims against Troy
for the July 11, 2010 accident arose out of his operation of the Sprayer, which
Sprayer would qualify as “mobile equipment” if it were not subject to a compulsory
or financial responsibility law or other motor vehicle law in South Dakota. Berkley,
on the other hand, argues that the exception is not implicated because the accident
arose out of “the use of the vehicle as a vehicle” and not the operation of the
spraying machinery or equipment.
[¶12.] The policy language is unambiguous. For the exception to the
exclusion to apply, the bodily injury or damage must arise out of the operation of
the machinery or equipment that is attached to either (1) the land vehicle that
would qualify as “mobile equipment,” or (2) to a self-propelled vehicle with certain
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types of machinery or equipment listed in subsection f.(2) or f.(3) of the definition of
“mobile equipment.” Here, the accident did not arise out of Troy’s use of the
machinery or equipment attached to the Sprayer, but rather from the operation of
the land vehicle or self-propelled vehicle that would qualify as mobile equipment.
[¶13.] Berkley’s policy specifically excludes coverage for bodily injury and
damage arising out of the use of an “auto,” and the Sprayer meets the policy’s
definition of an “auto.” Because no exception to the exclusion applies, the circuit
court properly granted Berkley summary judgment declaring that it had no duty to
defend or indemnify Troy for any claims from the July 11, 2010 accident.
2. Great West’s Policy
[¶14.] The circuit court first denied Great West summary judgment, ruling
that there was a material issue of fact in dispute whether Great West had a duty to
defend and indemnify Troy for the July 11, 2010 accident. It based its decision in
part on its previous finding that the Sprayer “is required to be licensed and insured
under South Dakota law.” Yet, after trial, the court issued a finding of fact that the
Sprayer was “not subject to compulsory or financial responsibility laws or other
motor vehicle insurance laws of the State of South Dakota.” (Emphasis added.)
The court further concluded that the Sprayer was “mobile equipment” as defined in
Great West’s policy, for which commercial automobile liability coverage is
specifically excluded. Its ruling was based in part on testimony from Great West
that it insures over-the-road semi-tractor and trailer businesses, not farm
equipment, and that Great West would have declined to provide coverage for the
Sprayer had Troy sought insurance coverage.
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[¶15.] On appeal, the Seilers contend that the circuit court founded its
decision on three fundamental errors. First, the court erred when it ruled that the
Sprayer is not subject to a compulsory or financial responsibility law or other motor
vehicle insurance law in South Dakota. Second, the court erred when it went
outside the unambiguous terms of the policy and considered testimony from Great
West’s representative. Third, the court ignored the plain and ordinary policy
language when it ruled that the Sprayer is not a covered “auto.”
[¶16.] In Section I – Covered Autos (Description of Covered Auto Designation
Symbols), Great West’s policy provides that it insures only designated autos. In
this case, the designation for hired autos is implicated. That provision states that
Great West insures “only those ‘autos’ you lease, hire, rent or borrow.” The policy
further states that “[i]f Liability Coverage is provided by this Coverage Form, the
following types of vehicles are also covered ‘autos’ for Liability Coverage: . . . 5. Any
‘auto’ that is subject to a compulsory or financial responsibility law or other motor
vehicle insurance law in the state where it is licensed or principally garaged that
would otherwise qualify as ‘mobile equipment’.” Section I – Covered Autos (Certain
Trailers, Certain Leased Autos, Mobile Equipment and Temporary Substitute
Autos).
[¶17.] Section II – Liability Coverage provides that Great West “will pay all
sums an ‘insured’ legally must pay as damages because of ‘bodily injury’ or ‘property
damage’ to which this insurance applies, caused by an ‘accident’ and resulting from
the ownership, maintenance or use of a covered ‘auto’.” An “auto” is defined as:
1. A land motor vehicle, “trailer” or semitrailer designed
for travel on a public road; or
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2. Any other land vehicle that is subject to a compulsory
or financial responsibility law or other motor vehicle
insurance law in the state where it is licensed or
principally garaged.
However, “auto” does not include “mobile equipment”.
Section VI – Definitions. The Sprayer is an “auto.” It is designed for travel on
public roads based on the fact that it has four wheels, is self-propelled, has
headlights, taillights, turn signals, and other components similar to road-ready
vehicles.
[¶18.] Yet the definition of “auto” specifically excludes “mobile equipment.”
“Mobile equipment” is defined as
any of the following types of land vehicles, including any attached
machinery or equipment:
1. Bulldozers, farm machinery, forklifts and other vehicles
designed for use principally off public roads;
...
6. Vehicles not described in Paragraph 1., 2., 3. or 4. above
maintained primarily for purposes other than the
transportation of persons or cargo. However, self-
propelled vehicles with the following types of permanently
attached equipment are not “mobile equipment” but will
be considered “autos”:
...
c. Air compressors, pumps and generators,
including spraying, welding, building cleaning,
geophysical exploration, lighting and well servicing
equipment.
However, “mobile equipment” does not include land vehicles that
are subject to a compulsory or financial responsibility law or
other motor vehicle insurance law where it is licensed or
principally garaged. Land vehicles subject to a compulsory or
financial responsibility law or other motor vehicle insurance law
are considered “autos”.
Section VI – Definitions.
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[¶19.] Although “farm machinery” is not defined in the policy, the circuit
court found as fact that the Sprayer is “farm machinery.” This finding can hardly
be disputed. But even if not farm machinery, it is nonetheless a vehicle designed for
use principally off public roads — its purpose is to spray crops. Therefore, the
Sprayer meets the policy definition of “mobile equipment.”
[¶20.] Yet the last paragraph in the definition of “mobile equipment” declares
that “mobile equipment” does not include a land vehicle subject to a compulsory or
financial responsibility law or other motor vehicle insurance law where it is licensed
or principally garaged. This language is nearly identical to the wordage in
Berkley’s policy, in which case the circuit court specifically ruled that the Sprayer is
subject to a compulsory or financial responsibility law or other motor vehicle
insurance law in South Dakota. Also, in earlier denying Great West’s motion for
summary judgment, the court again concluded that the Sprayer “is subject to South
Dakota’s financial responsibility law.” But in its findings of fact and conclusions of
law after trial, the circuit court made the opposite ruling and held that the Sprayer
is not subject to a compulsory or financial responsibility law or other motor vehicle
insurance law in South Dakota. We can find no support for the court’s divergent
conclusion.* The Sprayer is subject to South Dakota’s compulsory or financial
* See generally SDCL 32-35-2; SDCL 32-5-1,-2. The John Deere 4720 Sprayer
was owned by a commercial entity, Dowling Brothers Partnership. According
to the South Dakota Department of Transportation Commercial &
Agricultural Vehicle Handbook:
Self-propelled fertilizer or pesticide applicators, if used by a
farmer for his own farming operation, are exempt from licensing
and titling. However, if these units are used by a commercial
(continued . . .)
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responsibility laws, and, therefore, is an “auto” under the clear and unambiguous
terms of the definition of “mobile equipment.”
[¶21.] We return, then, to the provision defining the scope of coverage, which
specifically provides coverage for an “auto.” Great West argues that even if the
Sprayer is considered an “auto” because it is subject to a compulsory or financial
responsibility law or other motor vehicle insurance law in South Dakota, the policy
exclusion provision applies. The Exclusion to the Liability Coverage section
provides that
[t]his insurance does not apply to any of the following:
...
9. OPERATIONS
“Bodily injury”, “property damage” . . . arising out of the
operation of:
...
b. Air compressors, pumps and welding, including
spraying . . . servicing equipment; or
c. Machinery or equipment that is on, attached to,
or part of, a land vehicle that would qualify under
the definition of ‘mobile equipment’ if it were not
subject to a compulsory or financial responsibility
law or other motor vehicle insurance law where it is
licensed or principally garaged.
Great West focuses on subsection c., specifically on the fact that the Sprayer “would
qualify under the definition of ‘mobile equipment’ if it were not subject to a
compulsory or financial responsibility law or other motor vehicle insurance law
where it is licensed or principally garaged.”
__________________
(. . . continued)
entity, they must be titled and licensed under the
noncommercial vehicle fee schedule listed in Table 4.
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[¶22.] As we stated in Ass Kickin Ranch, LLC v. North Star Mutual
Insurance Company, “‘[T]he scope of coverage of an insurance policy is determined
from the contractual intent and the objectives of the parties as expressed in the
contract.’” 2012 S.D. 73, ¶ 9, 822 N.W.2d 724, 727 (quoting St. Paul Fire & Marine
Ins. Co. v. Schilling, 520 N.W.2d 884, 887 (S.D. 1994)) (alteration in original). We
interpret contract language according to its plain and ordinary meaning and will
not “make a forced construction or a new contract for the parties.” Stene v. State
Farm Mut. Auto. Ins. Co., 1998 S.D. 95, ¶ 14, 583 N.W.2d 399, 402 (quoting St. Paul
Fire & Marine Ins. Co., 520 N.W.2d at 887) (internal quotation mark omitted).
Moreover, “‘[w]hen 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.’” Opperman v. Heritage Mut. Ins. Co., 1997 S.D. 85, ¶ 4, 566 N.W.2d 487,
489 (quoting Am. Family Mut. Ins. Co. v. Purdy, 483 N.W.2d 197, 199 (S.D. 1992)).
[¶23.] Here, the plain and ordinary meaning of the policy exclusion is that
the accident must arise out of the operation of the machinery or equipment and not
merely the operation of the land vehicle itself. The exclusion, read as a whole,
provides that “[t]his insurance does not apply to . . . ‘Bodily injury’, ‘property
damage’ . . . arising out of the operation of: . . . Machinery or equipment that is on,
attached to, or part of, a land vehicle that would qualify under the definition of
‘mobile equipment’ . . . .” The accident on July 11, 2010 arose, not out of the
operation of the machinery or equipment attached to the Sprayer, but from the
operation of the land vehicle — the Sprayer. The circuit court was wrong to
conclude otherwise. Moreover, the court erred when it relied on testimony from a
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Great West employee to declare the intent of the Great West’s insurance coverage
under the policy. Extrinsic evidence must not be considered when the language of a
contract is unambiguous. Vander Heide v. Boke Ranch, Inc., 2007 S.D. 69, ¶ 37, 736
N.W.2d 824, 835. No one contends this policy is ambiguous.
[¶24.] Great West’s policy plainly states that it will pay damages for bodily
injury and property damage arising out of the use of a covered auto. A covered auto
includes an auto Troy borrows. Coverage applies to a vehicle subject to a
compulsory or financial responsibility law or other motor vehicle insurance law in
the state where the land vehicle is licensed or principally garaged when that land
vehicle would otherwise qualify as “mobile equipment.” Because a covered auto is
unambiguously defined to include the Sprayer as it was used at the time of the
collision, and Great West has failed to prove that a policy exclusion applies, Great
West has the duty to defend and indemnify Troy for claims related to the July 11,
2010 accident.
[¶25.] We affirm the judgment for Berkley Regional Insurance Company and
reverse and remand the judgment for Great West Casualty Company.
[¶26.] GILBERTSON, Chief Justice, and ZINTER, SEVERSON, and KERN,
Justices, concur.
[¶27.] WILBUR, Justice, deeming herself disqualified, did not participate.
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