Fedderson v. Columbia Insurance Group , 2012 S.D. LEXIS 164 ( 2012 )


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  • #26327-a-SLZ
    
    2012 S.D. 90
    IN THE SUPREME COURT
    OF THE
    STATE OF SOUTH DAKOTA
    ****
    ILA FEDDERSON,                            Plaintiff and Appellant,
    v.
    COLUMBIA INSURANCE GROUP
    d/b/a COLUMBIA NATIONAL
    INSURANCE CO.,                            Defendant and Appellee.
    ****
    APPEAL FROM THE CIRCUIT COURT OF
    THE THIRD JUDICIAL CIRCUIT
    MINER COUNTY, SOUTH DAKOTA
    ****
    THE HONORABLE TIM D. TUCKER
    Judge
    ****
    CHRIS A. NIPE of
    Larson & Nipe
    Mitchell, South Dakota                    Attorneys for plaintiff
    and appellant.
    JEFFREY R. CONNOLLY of
    Gunderson, Palmer, Nelson
    & Ashmore, LLP
    Rapid City, South Dakota                  Attorneys for defendant
    and appellee.
    ****
    CONSIDERED ON BRIEFS
    ON NOVEMBER 6, 2012
    OPINION FILED 12/19/12
    #26327
    ZINTER, Justice
    [¶1.]        Columbia Insurance Group (Columbia) insured Ila and Gary
    Fedderson’s business, Whiskey Flow Dining and Minor Alley (Whiskey Flow). After
    Whiskey Flow was destroyed by fire, Ila and Gary submitted a sworn proof of loss
    statement. Gary was later convicted of conspiracy to commit arson and insurance
    fraud in connection with the fire. Because Gary made misrepresentations and
    committed fraud in submitting the proof of loss statement, Columbia declined to pay
    Ila benefits. Columbia relied on a condition that voided the policy for fraud or
    misrepresentation by any insured. Ila sued, contending that she was an innocent
    insured who was entitled to her share of the claim that related to her fifty percent
    interest in the business. The circuit court granted summary judgment in favor of
    Columbia. We affirm.
    Facts and Procedural History
    [¶2.]        Ila and Gary Fedderson owned and operated Whiskey Flow, a
    restaurant and bowling business located in Howard. In August 2008, they
    purchased an insurance policy from Columbia. Whiskey Flow was the named
    insured. The policy covered damage by fire but also contained a “Concealment or
    Fraud Condition.” The condition voided the insurance contract if any insured
    intentionally concealed or misrepresented a material fact or committed fraud or
    false swearing in connection with the policy.
    [¶3.]        In September 2008, Whiskey Flow was destroyed by fire. Ila and Gary
    submitted a $1 million claim to Columbia. In their proof of loss statement, Ila and
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    Gary swore that an “[u]nknown party started [the] fire.” Ila and Gary also swore
    that “[t]he . . . loss did not originate by any act, design or procurement on the part of
    your insured, or this affiant . . . .” Gary, however, was later convicted of conspiracy
    to commit arson and insurance fraud in connection with the fire.
    [¶4.]        Columbia declined to pay the claim, and Ila sued for the portion of the
    claim that related to her fifty percent interest in the business. Both Columbia and
    Ila moved for summary judgment. Columbia asserted that the policy was voided by
    Gary’s fraud and false swearing in submitting the proof of loss statement. Ila
    asserted that she was an “innocent insured,” and therefore, Gary’s actions did not
    void the policy as to her interest in the business. The circuit court denied Ila’s
    motion and granted Columbia’s motion. Ila appeals.
    Decision
    [¶5.]        “When reviewing a grant of summary judgment, ‘we decide only
    whether genuine issues of material fact exist and whether the law was correctly
    applied.’” Wehrkamp v. Wehrkamp, 
    2009 S.D. 84
    , ¶ 5 n.1, 
    773 N.W.2d 212
    , 214 n.1
    (quoting Bordeaux v. Shannon Cnty. Sch., 
    2005 S.D. 117
    , ¶ 11, 
    707 N.W.2d 123
    ,
    126). We view the evidence most favorably to Ila and resolve reasonable doubts
    against Columbia. See Metro. Life Ins. Co. v. Kinsman, 
    2009 S.D. 53
    , ¶ 5, 
    768 N.W.2d 540
    , 542. “Insurance contract interpretation is a question of law reviewed
    de novo.” Batiz v. Fire Ins. Exch., 
    2011 S.D. 35
    , ¶ 10, 
    800 N.W.2d 726
    , 728.
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    #26327
    [¶6.]         Ila’s “rights and obligations” under the “insurance contract are
    determined by the language of the contract[.]” 1 See State Farm Fire & Cas. Co. v.
    Harbert, 
    2007 S.D. 107
    , ¶ 17, 
    741 N.W.2d 228
    , 234. The concealment or fraud
    condition in Columbia’s policy provided:
    This entire policy shall be void if, whether before or after a loss,
    any insured has intentionally concealed or misrepresented any
    material fact or circumstance concerning this insurance or the
    subject thereof or the interest of any insured therein, or in the
    case of any fraud or false swearing by any insured relating
    thereto.
    (Emphasis added.) We interpret this language according to its plain and ordinary
    meaning without forcing a construction or making “a new contract for the parties.”
    See Stene v. State Farm Mut. Auto Ins. Co., 
    1998 S.D. 95
    , ¶ 14, 
    583 N.W.2d 399
    ,
    402.
    [¶7.]         There is no dispute that the fraud condition applied to fraud or
    misrepresentation by “any insured.” Ila, however, argues that the condition did not
    apply because Gary was not an “insured.” Ila points out that Whiskey Flow was the
    named insured in the policy.
    [¶8.]         However, Ila’s theory of recovery is premised on both Gary’s and her
    status as insureds. Ila and Gary signed the proof of loss statement as “insureds.”
    1.      The parties have not identified a South Dakota statute mandating a standard
    form of fire insurance coverage. Therefore, we only rely on Columbia’s policy
    language. Ila’s cases finding coverage because the policy did not conform to
    statutory coverage requirements are inapposite. See, e.g., Watson v. United
    Servs. Auto. Ass’n, 
    551 N.W.2d 500
    , 501-03 (Minn. Ct. App. 1996); Lane v.
    Sec. Mut. Ins. Co., 
    747 N.E.2d 1270
    , 1271-72 (N.Y. 2001).
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    #26327
    In her answers to Columbia’s request for admissions, Ila admitted that Gary was an
    “insured.” And on appeal, Ila argues that she is entitled to recover because she was
    an innocent coinsured. Moreover, the policy provided that even though Ila and
    Gary were not named insureds, they were “insureds.” The Whiskey Flow business
    entity was insured as an “Individual.” The policy provided that when the insured
    business entity was denominated as an “Individual,” then “you [Ila] and your spouse
    [Gary]” are the “insureds” with respect to the business. Therefore, Gary was an
    “insured” within the meaning of the “any insured” language in the fraud condition.
    [¶9.]        Ila also argues that the fraud condition did not void the policy as to her
    interest because she was an innocent coinsured. Ila contends that the fraud
    condition does not indicate whether a coinsured’s liability for fraud is joint or
    several. Ila relies on cases observing that joint liability for fraud generally prohibits
    recovery by an innocent coinsured, but several liability allows recovery to the extent
    of the innocent coinsured’s interest. Ila argues that we should adopt the several
    liability view because Columbia’s fraud condition is ambiguous on the joint versus
    several liability question. See Econ. Aero Club, Inc. v. Avemco Ins. Co., 
    540 N.W.2d 644
    , 645 (S.D. 1995) (“If the language of the policy is ambiguous, the policy should
    be construed liberally in favor of the insured and strictly against the insurer.”);
    Howell v. Ohio Cas. Ins. Co., 
    327 A.2d 240
    , 243 (N.J. Super. Ct. App. Div. 1974)
    (“[U]nless the terms thereof are plainly to the contrary and in some fashion clearly
    called to the attention of the insureds, the obligation of the carrier should be
    considered several as to each person insured, and the fraud or misconduct of one
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    insured should not bar recovery by the innocent co-insureds to the extent of their
    respective interests in the property involved.”). See also Rena, Inc. v. Brien, 
    708 A.2d 747
    , 758-59 (N.J. Super. Ct. App. Div. 1998) (noting that several jurisdictions
    allow an innocent coinsured to recover despite another coinsured’s wrongful acts if
    no policy provision unambiguously provides otherwise).
    [¶10.]         Ila’s cases are distinguishable because the language of Columbia’s
    fraud condition unambiguously imposed joint liability on all coinsureds for the
    fraud of the other coinsureds. The condition expressly voided Columbia’s policy for
    the fraud of “any insured.” (Emphasis added.) In contrast, Ila’s cases involved the
    interpretation of policy language prohibiting fraud by “the insured,” or they only
    involved a discussion of the joint versus several liability theory without regard to
    the “any insured” policy language. 2 A New Jersey court explained the significance
    of Columbia’s type of policy language and the distinction between conditions
    prohibiting fraud by “the insured” and fraud by “any insured”:
    An increasing number of courts . . . hold that the right of
    innocent coinsureds to recover after fraud or misrepresentation
    by an insured is based upon the language of the insurance
    policy. Thus, a provision voiding a policy for willful and
    fraudulent misrepresentation by “the insured” before or after a
    loss voids the policy only for the person(s) responsible for the
    fraud and not for innocent coinsureds. On the other hand, a
    provision voiding a policy for fraud or misrepresentation by “any
    2.       See Hosey v. Seibels Bruce Grp., S.C. Ins. Co., 
    363 So. 2d 751
    , 752 (Ala. 1978);
    Steigler v. Ins. Co. of North Am., 
    384 A.2d 398
    , 399-402 (Del. 1978); St. Paul
    Fire & Marine Ins. Co. v. Molloy, 
    433 A.2d 1135
    , 1142 (Md. 1981); Morgan v.
    Cincinnati Ins. Co., 
    307 N.W.2d 53
    , 54-55 (Mich. 1981); Howell, 
    327 A.2d at 242
    ; Winter v. Aetna Cas. & Sur. Co., 
    409 N.Y.S.2d 85
    , 87 (N.Y. Special Term
    1978); Ryan v. MFA Mut. Ins. Co., 
    610 S.W.2d 428
    , 437 (Tenn. Ct. App. 1980).
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    #26327
    insured” expresses an intent to create joint obligations, [and]
    therefore prohibits recovery by innocent coinsureds.
    Rena, 708 A.2d at 756-57 (quoting 5A John Alan Appleman & Jean Appleman,
    Insurance Law and Practice § 3594 (Supp. 1997)).
    [¶11.]       Thus, courts interpreting language involving fraud by “any insured” or
    “an insured” conclude that such language unambiguously indicates that the
    coinsureds’ obligations are joint. See, e.g., Amick v. State Farm Fire & Cas. Co., 
    862 F.2d 704
    , 706 (8th Cir. 1988); Sales v. State Farm Fire & Cas. Co., 
    849 F.2d 1383
    ,
    1385 (11th Cir. 1988); Spezialetti v. Pac. Emp’rs Ins. Co., 
    759 F.2d 1139
    , 1141-42 (3d
    Cir. 1985); McCauley Enters., Inc. v. N.H. Ins. Co., 
    716 F. Supp. 718
    , 721 (D. Conn.
    1989); State Farm Fire & Cas. Ins. Co. v. Kane, 
    715 F. Supp. 1558
    , 1561-62 (S.D.
    Fla. 1989); Bryant v. Allstate Ins. Co., 
    592 F. Supp. 39
    , 41-42 (E.D. Ky. 1984);
    Trinity Universal Ins. Co. v. Kirsling, 
    73 P.3d 102
    , 104-05 (Idaho 2003); Vance v.
    Pekin Ins. Co., 
    457 N.W.2d 589
    , 592-93 (Iowa 1990); Woodhouse v. Farmers Union
    Mut. Ins. Co., 
    785 P.2d 192
    , 193-94 (Mont. 1990); Volquardson v. Hartford Ins. Co.
    of the Midwest, 
    647 N.W.2d 599
    , 605-06 (Neb. 2002); McAllister v. Millville Mut. Ins.
    Co., 
    640 A.2d 1283
    , 1288-89 (Pa. Super. Ct. 1994); Dolcy v. R.I. Joint Reinsurance
    Ass’n, 
    589 A.2d 313
    , 315-16 (R.I. 1991). And when the coinsureds’ liability and
    obligations are joint, there is no coverage for an innocent coinsured’s claim when
    another coinsured engaged in wrongdoing. See 
    id.
     (all indicating that the “any
    insured” or “an insured” policy language denotes joint liability, which voids the
    entire policy if one coinsured engaged in wrongdoing).
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    [¶12.]       In this case, the insurance contract explicitly voided the policy if “any
    insured” misrepresented a material fact or committed fraud relating to the policy.
    This language is unambiguous. Gary’s fraud and misrepresentation contractually
    voided the policy as to all coinsureds. See Rena, 708 A.2d at 757-58 (discussing
    cases from fourteen jurisdictions where each court determined that unambiguous
    policy language precluded an innocent coinsured from recovering). Because the
    language in Ila’s policy unambiguously voided the policy for fraud or
    misrepresentation by “any insured,” we need not engage in general joint versus
    several liability analysis. Under Columbia’s condition, Ila was specifically
    responsible for Gary’s fraud.
    [¶13.]       Ila finally argues that she is entitled to recover under the policy’s
    “Control of Property Condition.” That condition provided that “any act or neglect of
    any person other than you beyond your direction or control will not affect this
    insurance.” (Emphasis added.) Ila points out that she was not involved in the
    arson, and Gary’s wrongful and fraudulent acts were not undertaken at her
    direction or control. Therefore, Ila contends that the control of property condition
    explicitly affirms her right to recover, or at the very least, creates an ambiguity
    because that condition conflicts with the fraud condition. We disagree.
    [¶14.]       The Supreme Court of Virginia concluded that the word “you” in an
    identical control of property condition included any insured. K & W Builders, Inc. v.
    Merchs. & Bus. Men’s Mut. Ins. Co., 
    495 S.E.2d 473
    , 477 (Va. 1998). Ila’s argument,
    which assumes that the word “you” only includes her, “ignores the indisputable fact
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    that there are other insureds under the policy.” See id. at 476-77. And because “the
    act or neglect in question was not attributed to a person or entity other than [an
    insured], the Control of Property provision simply does not apply . . . .” Id. at 477.
    This interpretation also renders the control of property condition consistent with
    the concealment or fraud condition. Each condition “negate[s] coverage for all
    insureds based upon the acts of any coinsured.” Id. (alteration in original).
    [¶15.]         We agree that the word “you” in the control of property condition refers
    to all insureds. 3 And because both Gary and Ila were insureds, the control of
    property condition did not apply. Further, no conflict or ambiguity existed between
    the control of property and the concealment or fraud conditions. Under both
    conditions, coinsureds were contractually responsible for the acts of the other
    coinsureds. See id.
    3.       The policy defines “you” as the named insured (Whiskey Flow). However,
    there is nothing in the record to suggest that the Feddersons were doing
    business in any capacity other than as individuals. Indeed, the record
    reflects that the business was insured as an “individual” and not as a
    separate legal entity. Under those circumstances, limiting the meaning of
    “you” to the named insured would lead to an absurd result. Whiskey Flow
    could not “act” within the meaning of the control of property condition except
    through its owners, who the policy defined as insureds “with respect to the
    business of which you are the sole owner.” If the individual insureds are not
    included within the meaning of the word “you,” the control of property
    condition would have no meaning because all “acts” or “neglect” with respect
    to property would be the act or neglect of someone other than Whiskey Flow,
    the named insured. Such an interpretation would immunize rather than hold
    responsible those with the insurable interest in the property. We must
    interpret this provision to avoid such an absurd result. See Nelson v.
    Schellpfeffer, 
    2003 S.D. 7
    , ¶ 12, 
    656 N.W.2d 740
    , 743 (“[T]his Court is
    constrained from interpreting a contract literally if doing so would produce
    an absurd result.”).
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    [¶16.]      Gary’s misrepresentation and fraud voided the policy. We affirm the
    circuit court’s grant of Columbia’s motion for summary judgment.
    [¶17.]      GILBERTSON, Chief Justice, and KONENKAMP, SEVERSON, and
    WILBUR, Justices, concur.
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Document Info

Docket Number: 26327

Citation Numbers: 2012 S.D. 90, 824 N.W.2d 793, 2012 SD 90, 2012 S.D. LEXIS 164, 2012 WL 6627928

Judges: Gilbertson, Konenkamp, Severson, Wilbur, Zinter

Filed Date: 12/19/2012

Precedential Status: Precedential

Modified Date: 10/19/2024

Authorities (20)

Metropolitan Life Insurance Co. v. Kinsman , 2009 S.D. LEXIS 94 ( 2009 )

Batiz v. Fire Insurance Exchange , 2011 S.D. LEXIS 63 ( 2011 )

Watson v. United Services Automobile Ass'n , 551 N.W.2d 500 ( 1996 )

State Farm Fire & Casualty Co. v. Harbert , 2007 S.D. LEXIS 175 ( 2007 )

McCauley Enterprises, Inc. v. New Hampshire Insurance , 716 F. Supp. 718 ( 1989 )

Woodhouse v. Farmers Union Mutual Insurance , 241 Mont. 69 ( 1990 )

Vance v. Pekin Insurance Co. , 1990 Iowa Sup. LEXIS 162 ( 1990 )

Bordeaux v. Shannon County Schools , 2005 S.D. LEXIS 180 ( 2005 )

Steigler v. Insurance Co. of North America , 1978 Del. LEXIS 560 ( 1978 )

Wilburt Sales, Jr., Janice T. Sales, Cross-Appellants v. ... , 849 F.2d 1383 ( 1988 )

Hosey v. Seibels Bruce Group, S.C. Ins. Co. , 363 So. 2d 751 ( 1978 )

Nelson v. Schellpfeffer , 2003 S.D. LEXIS 6 ( 2003 )

State Farm Fire & Casualty Insurance v. Kane , 715 F. Supp. 1558 ( 1989 )

Irene Amick v. State Farm Fire and Casualty Company , 862 F.2d 704 ( 1988 )

Fiorangelo Spezialetti and Lorraine Spezialetti, Husband ... , 759 F.2d 1139 ( 1985 )

Stene v. State Farm Mutual Automobile Insurance Co. , 1998 S.D. LEXIS 98 ( 1998 )

Bryant v. Allstate Insurance , 592 F. Supp. 39 ( 1984 )

Howell v. Ohio Casualty Ins. Co. , 130 N.J. Super. 350 ( 1974 )

Dolcy v. Rhode Island Joint Reinsurance Ass'n , 1991 R.I. LEXIS 59 ( 1991 )

Ryan v. MFA Mutual Insurance Co. , 1980 Tenn. App. LEXIS 392 ( 1980 )

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