Acuity v. Terra-Tek, LLC & Waba

#30433-a-PJD
2024 S.D. 49IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
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ACUITY, a Mutual Insurance
Company, Plaintiff and Appellant,
v.
TERRA-TEK, LLC and JON WABA, Defendants and Appellees.
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APPEAL FROM THE CIRCUIT COURT OF
THE FIRST JUDICIAL CIRCUIT
BRULE COUNTY, SOUTH DAKOTA
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THE HONORABLE BRUCE V. ANDERSON
Judge
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MARK J. ARNDT
DELIA M. DRULEY of
Evans, Haigh & Arndt, LLP
Sioux Falls, South Dakota Attorneys for plaintiff and
appellant.
GREGORY G. STROMMEN of
DeMersseman Jensen Tellinghuisen
& Huffman, LLP
Rapid City, South Dakota Attorneys for defendants and
appellees.
****
CONSIDERED ON BRIEFS
APRIL 23, 2024
OPINION FILED 08/21/24
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DEVANEY, Justice
[¶1.] Acuity issued Terra-Tek, LLC a commercial auto policy, and Terra-Tek
paid a premium to list owners and employees John Waba and Sheila Foreman as
additional named insureds. After Waba sustained bodily injuries in an auto
accident with an underinsured motorist on December 30, 2019, he filed a claim for
underinsured motorist (UIM) benefits with Acuity. Acuity denied the claim because
Waba was not occupying a vehicle covered under Terra-Tek’s policy at the time of
the accident. Acuity also commenced a declaratory judgment action, seeking a
ruling that Waba is not entitled to UIM benefits. The parties filed cross-motions for
summary judgment, and after a hearing, the circuit court determined that Terra-
Tek’s UIM endorsement unambiguously provides Waba UIM coverage for the bodily
injuries he sustained from the December 2019 accident. Acuity appeals. We affirm.
Factual and Procedural Background
[¶2.] On December 30, 2019, Waba was driving a 1993 GMC Jimmy owned
by Foreman when another vehicle drove into Waba’s lane of travel and crashed into
him. Waba sustained injuries from the accident, and the other driver’s insurance
company accepted liability and tendered the driver’s policy limits, $250,000, to
Waba for the damages he sustained. Waba thereafter filed a claim for UIM benefits
with Acuity under the commercial auto policy issued to Terra-Tek. Terra-Tek is the
“FIRST NAMED INSURED,” and Waba and Foreman are “ADDITIONAL NAMED
INSUREDS.” According to Waba, Terra-Tek paid an additional premium to have
him and Foreman included as named insureds.
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[¶3.] Acuity denied Waba’s claim, informing him that because the 1993
GMC was not a “covered auto” under Terra-Tek’s policy, he was not entitled to UIM
benefits for injuries he sustained from the December 2019 accident. Acuity
thereafter commenced a declaratory judgment action against Terra-Tek and Waba,
seeking a ruling that Waba is not entitled to recover UIM benefits under Terra-
Tek’s policy. The parties filed cross-motions for summary judgment. Acuity argued
that because the introductory language “For a covered auto” in Terra-Tek’s UIM
endorsement precedes the coverage provisions under this endorsement, UIM
coverage exists only for bodily injuries a named insured sustains while occupying a
covered auto. In response, Waba argued that under the circumstances of this case,
UIM coverage exists because the endorsement covers bodily injuries an insured
sustains in an accident with a driver of an underinsured vehicle and the definition
of a named insured does not require the insured to be occupying a covered auto.
[¶4.] As it relates to Terra-Tek’s insurance contract with Acuity, the record
contains the following documents: the BUSINESS AUTO COVERAGE FORM (the
Policy), the Business Auto Amended Declarations (Declarations page), and the
South Dakota Uninsured and Underinsured Motorists Coverage (the Endorsement).
The relevant language of each is detailed below.
[¶5.] Under the Policy, an “Insured” is defined as “any person or
organization qualifying as an insured in the Who Is an Insured provision of the
applicable coverage.” The Policy also provides, under the section on COVERED
AUTOS, that:
Item Two of the Declarations shows the autos that are covered
autos for each of your coverages. The following numerical
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symbols describe the autos that may be covered autos. The
symbols entered next to a coverage on the Declarations
designate the only autos that are covered autos.
The “1” symbol means any auto, and the “7” symbol means “[o]nly those autos
described in Item Three of the Declarations for which a premium charge is shown[.]”
[¶6.] The Declarations page provides under SCHEDULE OF COVERAGES
AND COVERED AUTOS that “[e]ach of these coverages apply only to those autos
shown as covered autos by the entry of one or more of the symbols from the Covered
Autos section of the Business Auto Coverage Form next to the name of the
coverage.” In the table detailing coverages, “Underinsured Motorists” has a “7”
symbol under the column for “Covered Auto Symbols,” and a $1,000,000 limit of
insurance for each person and $1,000,000 for each accident. There is also a list of
twelve COVERAGE FORMS AND ENDORSEMENTS APPLICABLE TO THIS
COVERAGE PART, including the Policy and the Endorsement at issue here.
[¶7.] Also within the Declarations page, the SCHEDULE OF COVERAGES
AND PREMIUM DETAIL lists specific automobiles and trailers and the coverages
applicable to them. The 1993 GMC driven by Waba on the date of the accident is
not included on this list. Finally, the Declarations page lists Terra-Tek as the first
named insured and Waba and Foreman as additional named insureds.
[¶8.] The Endorsement for uninsured and underinsured motorist coverage
provides:
This endorsement modifies insurance provided under the
following:
BUSINESS AUTO COVERAGE FORM
GARAGE COVERAGE FORM
MOTOR CARRIER COVERAGE FORM
...
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For a covered auto licensed or principally garaged in, or garage
operations conducted in, South Dakota:
1. COVERAGE
...
c. Underinsured Motorists Coverage
We will pay all sums the insured is legally entitled to recover as
compensatory damages from the owner or driver of an
underinsured motor vehicle. The damages must result from
bodily injury sustained by the insured caused by an accident.
The owner’s or driver’s liability for these damages must result
from the ownership, maintenance or use of the underinsured
motor vehicle.
...
2. WHO IS AN INSURED
If the Named Insured is designated In the Declarations as:
a. An individual, then the following are insureds:
(1) The Named Insured and any family members.
(2) Anyone else occupying a covered auto or a temporary
substitute for a covered auto. The covered auto must be
out of service because of its breakdown, repair, servicing,
loss or destruction.
(3) Anyone for damages he or she is entitled to recover
because of bodily injury sustained by another insured.
b. A partnership, limited liability company, corporation, or any
other form of organization, then the following are insureds:
(1) Anyone occupying a covered auto or a temporary
substitute for a covered auto. The covered auto must be
out of service because of its breakdown repair, servicing,
loss or destruction.
(2) Anyone for damages he or she is entitled to recover
because of bodily injury sustained by another insured.
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[¶9.] The circuit court held a hearing on the parties’ cross-motions for
summary judgment, and after considering their arguments and written
submissions, the court issued a memorandum decision. The court noted that the
case implicates a matter that this Court has not before examined and that a review
of decisions from other courts reflects a split of authority. Some courts have
concluded that the “For a covered auto” language in the UIM endorsement does not
control who is deemed an insured; instead, the language in the “Who Is an Insured”
section controls the applicable UIM coverage. These courts have held that because
the “Who Is an Insured” section in the endorsement does not condition UIM
coverage for a named insured on occupying a covered auto, the named insured is
entitled to UIM coverage under the endorsement. See, e.g., Grinnell Mut.
Reinsurance Co. v. Haight, 697 F.3d 582 (7th Cir. 2012). Other courts have held
that the “For a covered auto” language in a UIM endorsement limits UIM coverage
to insureds occupying covered autos listed in the declarations page for the
commercial auto policy. See, e.g., Lisowski v. Hastings Mut. Ins. Co., 759 N.W.2d
754 (Wis. 2009).
[¶10.] As it pertains to Terra-Tek’s insurance contract with Acuity, the circuit
court noted that the Declarations page lists Waba as a named insured and that it
was “unrefuted” that Terra-Tek paid an additional premium to have Waba included
as a named insured. The court also noted that the Endorsement lists several types
of insureds and distinguishes between individual and business entities, and as it
pertains to a named insured, like Waba, there is no requirement that the insured be
occupying a covered auto. Thus, the court concluded “that the language clearly
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indicates that Mr. Waba is insured under the UIM Endorsement for the injuries he
sustained in an accident despite the fact that those injuries occurred while driving
the GMC Jimmy owned by Shelia Foreman.”
[¶11.] Further, although the Declarations page uses a “7” to designate
covered autos, the court determined that “the UIM Endorsement clearly amends
those provisions.” In the court’s view, to conclude otherwise and read the “For a
covered auto” as Acuity contends would render “superfluous” the language defining
non-named insureds as “[a]nyone else occupying a covered auto.” The court noted
that if Acuity intended to limit UIM coverage to named insureds occupying a
covered auto, “all that would be required is a definition including ‘anyone in a
covered auto.’” Alternatively, the court held “that the terms of the contract under
these circumstances are ambiguous[,]” which requires an interpretation of the
insurance contract in favor of UIM coverage.
[¶12.] The circuit court issued a judgment denying Acuity’s motion for
summary judgment and granting Waba’s. The court also declared that Terra-Tek’s
commercial auto policy with Acuity “provide[s] coverage for Defendant Waba for the
automobile collision on December 30, 2019.” Acuity appeals, asserting the circuit
court erred in its interpretation of Terra-Tek’s insurance contract.
Standard of Review
[¶13.] As the Court recently stated,
This Court’s standard of review on summary judgment is well-
settled. “We affirm the circuit court ‘when there are no genuine
issues of material fact and the legal questions have been
correctly decided.’” Culhane v. W. Nat’l Mut. Ins. Co., 2005 S.D.
97, ¶ 5, 704 N.W.2d 287, 289 (quoting Sanford v. Sanford, 2005
S.D. 34, ¶ 11, 694 N.W.2d 283, 287). The interpretation of an
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insurance contract is a question of law reviewed de novo with no
deference to the circuit court. N. Star Mut. Ins. v. Korzan, 2015
S.D. 97, ¶ 13, 873 N.W.2d 57, 61 (citing Ass Kickin Ranch, LLC
v. N. Star Mut. Ins. Co., 2012 S.D. 73, ¶ 7, 822 N.W.2d 724, 726).
State Farm Mut. Auto. Ins. Co. v. Grunewaldt, 2023 S.D. 61, ¶ 7, 998 N.W.2d 361,
364.
Analysis and Decision
[¶14.] Acuity argues the Declarations page clearly provides that Terra-Tek’s
UIM coverage is limited to an insured occupying a covered auto and that nothing in
the Endorsement modifies this coverage requirement. Acuity relies on the “initial
prefatory language” in the Endorsement stating that it applies “For a covered auto
licensed . . . in South Dakota[.]” Acuity also notes that Terra-Tek could have listed
the 1993 GMC as a covered auto and paid a premium for UIM coverage, but it did
not do so. Thus, Acuity contends the court erred in its determination that Waba is
entitled to UIM coverage for injuries he sustained while occupying a vehicle that
was not a covered auto under Terra-Tek’s policy.
[¶15.] We construe insurance contract language “according to its plain and
ordinary meaning[,]” and we “cannot make a forced construction or a new contract
for the parties.” W. Agric. Ins. Co. v. Arbab-Azzein, 2020 S.D. 12, ¶ 11, 940 N.W.2d
865, 868 (quoting Ass Kickin Ranch, 2012 S.D. 73, ¶ 10, 822 N.W.2d at 727).
“Essentially, this means that when the terms of an insurance policy are
unambiguous, these terms ‘cannot be enlarged or diminished by judicial
construction.’” Ass Kickin Ranch, 2012 S.D. 73, ¶ 10, 822 N.W.2d at 727 (citation
omitted). Further, “[c]ontract interpretation requires examination of the entire
contract.” Larimer v. Am. Fam. Mut. Ins. Co., 2019 S.D. 21, ¶ 8, 926 N.W.2d 472,
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475. As SDCL 58-11-39 provides, “Every insurance contract shall be construed
according to the entirety of its terms and conditions as set forth in the policy and as
amplified, extended, or modified by any rider, endorsement, or application lawfully
made a part of the policy.”
[¶16.] In support of its argument that the Declarations page controls over the
Endorsement here, Acuity directs this Court to the following language from
Peterson v. The Travelers Indemnity Co.:
Insurance companies routinely use covered auto symbols on the
declarations page to delineate coverage. See, e.g., Haberman v.
The Hartford Insurance Group, 443 F.3d 1257, 1267–68 (10th
Cir. 2006) (interpreting an insurance policy that uses a “Covered
Auto Symbol” to indicate coverage). Attached endorsements
must be read together with [the] rest of the policy. Mid-Century
Ins. Co. v. Lyon, 562 N.W.2d 888, 890 (S.D. 1997). “When the
declarations page clearly communicates the coverage provided by
the insurance contract, and the other policy provisions neither
expressly change the coverage nor reflect a different intention
than that clearly expressed on the declarations page, the
declarations page controls.” Munroe v. Cont’l W. Ins. Co., 735
F.3d 783, 787 (8th Cir. 2013) (quoting Jackson v. Gen. Accident
Ins. Co., 720 S.W.2d 428, 429 (Mo. App. 1986) (internal
quotation marks omitted)).
867 F.3d 992, 996 (8th Cir. 2017) (emphasis added). In Peterson, the declarations
page listed optional coverages under the policy, including medical pay coverage, and
because there was no covered auto symbol next to medical pay coverage, the court
concluded that there was no medical pay coverage for the medical payments at
issue. Id. (noting that the declarations page provides that “[i]nsurance only applies
to a coverage for which a Covered Auto Symbol is shown”).
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[¶17.] Here, in contrast, Terra-Tek’s Declarations page specifically denotes
that Terra-Tek obtained UIM coverage. 1 Also, although the Declarations page
states that the coverages listed apply only to those autos shown as covered autos,
that language does not clearly communicate the full scope of UIM coverage
available to Terra-Tek under the Policy. Thus, unlike in Peterson, it cannot be said
that the Declarations page here controls all aspects of Terra-Tek’s UIM coverage.
[¶18.] In regard to Terra-Tek’s UIM coverage, under the COVERAGE section
in the Endorsement defining the scope of both uninsured and underinsured
motorists coverage, there are three subsections—one for uninsured motorists
coverage, another for uninsured motorists property damage coverage, and the third
for underinsured motorists coverage. In both the uninsured and underinsured
motorists coverage provisions, which provide coverage for bodily injury sustained by
an insured, there is no language requiring that the insured be occupying a covered
auto. However, as it relates to uninsured motorists property damage coverage, the
Endorsement specifically states that coverage exists only for property damage an
insured sustains to an auto listed in the schedule of covered autos attached to the
Declarations page showing uninsured motorists property damage coverage.
Although Acuity views the phrase “For a covered auto” in the introductory language
in the Endorsement as a limitation on everything stated thereafter, including in the
1. Terra-Tek’s Declarations page is structured differently than the one at issue
in Peterson v. The Travelers Indemnity Co., 867 F.3d 992 (8th Cir. 2017). It
does not contain language identifying the optional coverages under the policy.
Rather, it identifies the types of coverages actually obtained by Terra-Tek.
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provisions under the Coverage and Who is an Insured sections, such a reading
produces awkward syntax and sentences that make little sense.
[¶19.] For example, under the Coverage section, it does not make sense to
state, in regard to underinsured motorists coverage, that: “For a covered auto . . .
We will pay all sums the insured is legally entitled to recover as compensatory
damages . . . result[ing] from bodily injury sustained by the insured[.]” The covered
auto does not, of course, sustain the bodily injuries referenced in the insuring
clause—the insured individual does. Distilled to its essence, then, the sentence is
confounding because it seems to say that Acuity will pay bodily injury damages “For
a covered auto.” Interpreting the policy language in this way would also conflict
with SDCL 58-11-9.5, which states that a UIM carrier “agrees to pay its own
insured for uncompensated damages as its insured may recover on account of bodily
injury or death[.]” (Emphasis added.); see also De Smet Ins. Co. of S. Dakota v.
Pourier, 2011 S.D. 47, ¶ 6, 802 N.W.2d 447, 449 (“[U]nderinsured motorist coverage
is generally portable: it follows the insured rather than the vehicle.”).
[¶20.] Grafting the “For a covered auto” phrase to the Who Is an Insured
section is perhaps even more problematic. The Endorsement expressly lists
multiple classes of insureds, including named insureds and family members of
named insureds without qualification. Notably, the Endorsement also creates an
additional class of insureds who are defined as “Anyone else occupying a covered
auto[.]” Aside from the fact that it would be redundant to apply the phrase “For a
covered auto” to this latter class of insureds, if this prefatory phrase applies to all
identified insureds, it effectively dissolves the other classes of insureds by
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delineating the universe of insureds as those occupying a covered auto.
Interpreting the policy in this way would be confusing and inconsistent with the
rule that “[a]n interpretation which gives a reasonable and effective meaning to all
the terms is preferred to an interpretation which leaves a part unreasonable or of
no effect.” Nelson v. Schellpfeffer, 2003 S.D. 7, ¶ 14, 656 N.W.2d 740, 744 (citation
omitted).
[¶21.] However, this does not mean the phrase “For a covered auto” has no
meaning. Rather, the phrase makes sense when it is read in conjunction with the
provision on coverage for UIM property damage: “For a covered auto . . . We will pay
all sums in excess of any deductible shown in the Declarations that the insured is
legally entitled to recover” for “damages . . . result[ing] from property damage to an
auto specifically described in Item Three of the Declarations for which a limit is
shown for Uninsured Motorists Property Damage Coverage.”
[¶22.] Moreover, had Acuity intended UIM coverage to apply only to
scenarios involving covered autos, it could have included limiting language similar
to that contained in the Policy language on LIABILITY COVERAGE. The Who Is
an Insured section for LIABILITY COVERAGE defines an insured as:
a. You for any covered auto.
b. Anyone else while using with your permission a
covered auto you own, hire or borrow [with exceptions].
c. Anyone liable for the conduct of an insured described
above but only to the extent of that liability.
Importantly, the Policy’s general definition of an Insured is not tethered to the
individual occupying a covered auto. Rather, whether an individual is an insured
depends on how the “Who Is an Insured provision of the applicable coverage”
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defines an insured for that particular coverage. As such, the lack of limiting
language in the first category identified under the Who Is an Insured provision in
the UIM Endorsement indicates an intent that a named insured need not be
occupying a covered auto to receive UIM benefits.
[¶23.] Acuity, however, directs this Court to the Wisconsin Supreme Court’s
decision in Lisowski, wherein the court interpreted the phrase “For a covered ‘auto’”
to modify the coverage provisions in the UIM endorsement at issue such that UIM
coverage was not implicated unless a named insured was occupying a covered auto
at the time of the accident. 759 N.W.2d at 759. In particular, Acuity notes that the
Wisconsin court found the phrase “For a covered ‘auto,’” rather than the definition
of who is an insured, to be the “key” language on the coverage question. Id. at 762.
[¶24.] In response, Waba contends that Lisowski reflects the minority view
and that this Court should follow the majority view expressed by the Seventh
Circuit Court of Appeals in Grinnell, 697 F.3d 582. 2 Waba also asserts that
Grinnell is more persuasive because it applies rules of insurance contract
interpretation similar to what this Court employs, such as construing the terms
according to their plain and ordinary meaning and ascertaining and giving effect to
the parties’ intentions as expressed in the words of the policy. See Heitmann v. Am.
Fam. Mut. Ins. Co., 2016 S.D. 51, ¶ 12, 883 N.W.2d 506, 509.
[¶25.] In Grinnell, the insurance company, like Acuity here, argued that
coverage did not exist because the “For a covered auto” phrase means an insured
2. The circuit court similarly expressed an opinion based on its extensive review
of the case law on this issue that “the Grinnell line of cases appears to be the
majority opinion.”
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must be occupying a covered auto even though the definition of an insured did not
include such language. The Seventh Circuit disagreed, concluding that Grinnell’s
reading of the endorsement “is strained both as a matter of grammar and of logic”
and would render the distinctions between types of insureds meaningless. 697 F.3d
at 588–89. The court also considered that the definition of who is an insured for
liability coverage in the policy included language that the insured must be
occupying a covered auto, thus buttressing the court’s view that an insured family
member need not be occupying a covered auto for UIM motorist coverage. Id. at
589. Finally, although the declarations page in Grinnell signified the coverages
applicable to the covered autos, the court determined that its reading of the UIM
endorsement did not render the designations of applicable coverages for covered
autos irrelevant. Rather, in the court’s view, “[w]hich autos are covered can be
relevant in determining UIM coverage, including when . . . the identity of covered
autos is necessary and relevant”; however, “when there is no reference to a ‘covered
auto,’ such as [with a named insured and family members], reference to the list of
covered autos is not necessary.” Id.[¶26.] Although Lisowski and Grinnell examined similar policy language, the
analysis in Grinnell is more persuasive. In particular, Grinnell more thoroughly
examined the import of the phrase “For a covered auto” in light of other provisions
in the policy. Lisowski, in contrast, did not refer to other policy language that might
bear on the proper interpretation of the UIM endorsement. Importantly, here,
according to the Policy’s general definitions, whether a person qualifies as an
Insured is governed by the Who is an Insured provision of each applicable coverage.
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Also, unlike the analysis in Grinnell, the Lisowski Court did not address the syntax
issues resulting from its interpretation; rather, the Court simply declared that the
difference in language for anyone else occupying a covered auto cannot be read to
create UIM coverage for an insured family member.
[¶27.] We conclude, as the Court did in Grinnell, that based on the plain
language of the Policy, Declarations page, and Endorsement, UIM coverage applies
to a named insured for bodily injuries sustained in an accident with an
underinsured driver without a requirement that the insured be occupying a covered
auto at the time of the accident. To conclude otherwise would require this Court to,
contrary to our rules of interpretation, “make a forced construction or a new
contract for the parties.” See Arbab-Azzein, 2020 S.D. 12, ¶ 11, 940 N.W.2d at 868
(citation omitted). As such, we affirm the circuit court’s judgment in favor of Terra-
Tek and Waba.
[¶28.] Affirmed.
[¶29.] JENSEN, Chief Justice, and KERN, SALTER, and MYREN, Justices,
concur.
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