Western Cas. & Sur. Co. v. Waisanen, Civ. No. 85-5192.

• Decision Date: 12 February 1987
• Docket Number: Civ. No. 85-5192.
• Citation: 653 F. Supp. 825
• Court: U.S. District Court — District of South Dakota
• Parties: WESTERN CASUALTY & SURETY COMPANY, Plaintiff, v. Sally WAISANEN and Charles H. Waisanen; Security Mutual Life Insurance Company; the City of Deadwood, a municipal corporation; and Rural Security Life Insurance Company, Defendants.

653 F. Supp. 825

WESTERN CASUALTY & SURETY COMPANY, Plaintiff, v. Sally WAISANEN and Charles H. Waisanen; Security Mutual Life Insurance Company; the City of Deadwood, a municipal corporation; and Rural Security Life Insurance Company, Defendants.

Civ. No. 85-5192.

United States District Court, D. South Dakota, W.D.

February 12, 1987.

Edward C. Carpenter, Rapid City, S.D., for plaintiff.

Wayne F. Gilbert, Rapid City, S.D., for City of Deadwood.

Dennis Finch, Rapid City, S.D., for Waisanens.

Allen G. Nelson, Rapid City, S.D., for Sec. Mut. Life.

Tom Fritz, Rapid City, S.D., for Rural Sec. Life.

MEMORANDUM OPINION

BATTEY, District Judge.

I PROCEDURAL HISTORY

The plaintiff, Western Casualty & Surety Company (hereafter referred to as Western), is the insurer of the defendant, City of Deadwood (hereafter referred to as the City), under a standard and an umbrella liability insurance policy. In this declaratory judgment action Western seeks to determine whether it is obligated to defend a South Dakota state court action brought against the City by the defendants, Sally and Charles Waisanen. The remaining defendants have been joined as persons who have or claim an interest which would be affected by the judgment in this case.

All parties have stipulated that this Court may base its decision upon the briefs and depositions submitted and entered on the record.

II FACTS

For several years prior to October 1984, the defendant Rural Security Life Insurance (hereafter called Rural), provided group health coverage for the employees of the City and their dependents. Because it was operating in the red, the City had adopted a practice of not paying its bills until funds became available. By virtue of this practice the City had been habitually late in its payment of the monthly premiums on its group health policy with Rural. Rural went along with this practice for a number of years until October 1984 when it canceled the policy for nonpayment of the September premium.

At the time of the cancellation, the defendant Sally Waisanen — whose husband the defendant Charles H. Waisanen, was then employed by the City — was suffering from and undergoing treatment for cancer. Following cancellation of the group health insurance, Waisanens sued the City for allowing the insurance to lapse. The City tendered defense of the lawsuit to Western. Western declined on the following grounds:

1. That the events which precipitated the state court action did not constitute an "occurrence" as defined in the policies.

2. That no "bodily injury" or "personal injury" had resulted as required under those policies.

III DISCUSSION

In the resolution of this matter the liability insurer's duty to defend its insured is measured by the terms of the policies and the pleadings. Rolette County v. Western Casualty and Surety Company, 452 F.Supp. 125 (D.N.D.1978); Appleman, Insurance Law and Practice, § 4863 (Berdal ed., Supp.1986). The Court in addition has the stipulation of fact and the depositions on file.

Since this is a diversity action it is the Court's duty to ascertain the law of the State of South Dakota and apply it to the facts of the case. St. Paul Fire & Marine Insurance Co. v. Northern Grain Co., 365 F.2d 361, 368 (8th Cir., 1966)

The applicable rule to be applied to the construction of insurance policies was set forth by the South Dakota Supreme Court in the case of Grandpre v. Northwestern National Life Insurance Company, 261 N.W.2d 804, 807 (S.D.1977):

A Contract of Insurance is to be construed liberally in favor of insured and strictly against the insurer only when the language of the contract is ambiguous and susceptible to more than one interpretation. Thus, the insurance contract's language must be construed according to its plain and ordinary meaning. It does not permit the Court to make a forced construction or a new contract for the parties.

A. "Occurrence"

The pertinent coverage section of the Western standard policy reads as follows:

Western will pay in behalf of the insured all sums which the insured shall become legally obligated to pay as damage because of

A. bodily injury, or

B. property damage

to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent,....

"Occurrence" is defined as follows:

An accident including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.

The language of the umbrella policy is identical except that "personal injury" is substituted for "bodily injury."

As pointed out by Western's counsel, "accident" is synonymous with "occurrence" under the policy definition.

Western contends:

1. That Waisanen's complaint in the state court action does not allege an occurrence as above defined. Citing, Taylor v. Imperial Casualty & Indemnity Company, 82 S.D. 298 144 N.W.2d 856, 858 (S.D.1966);

2. That allegations of "mere negligent business conduct" do not constitute an occurrence. Citing, Chicago Title & Trust Company, 424 F.Supp. 830, 835 (M.E. N.D. Ill.1976); and

3. That the City admits that its failure to timely pay the annual premium was intentional and therefore such conduct cannot constitute an occurrence. Citing, Rolette County v. Western Casualty & Surety Company, 452 F.Supp. 125, 129-30 (D.N.D.1978).

The stipulation of the parties to this action incorporates the pretrial depositions taken in this case as well as the complaint and its amendments filed in the state court action. Thus, this Court may consider both the allegation of the state court pleadings, and the facts giving rise to the state court action as revealed by the pretrial depositions in this case.

The parties agree that the failure of the City to timely pay the September 1984 premium of its employees' group health policy with Rural was an intentional act.

Taylor v. Imperial Casualty & Indemnity Company, supra, arose out of damage to property of an adjoining landowner caused by gasoline leaking from the insured's underground storage tanks over a period of time. The policy covered "... injury to property ... caused by accident." The policy did not contain a definition of "accident." Thus, left to its own means, the court defined accident as "an undesigned, sudden and unexpected event, usually of an afflictive nature or unfortunate character, and often accompanied by a manifestation of force". Id. 144 N.W.2d at 858. (Emphasis supplied). Taken out of context, this definition appears to support Western's position that the character of the cause, as opposed to consequences, is the test. However, in resolving the coverage question, the court took the opposite view and adopted the following rule:

Injuries are caused by accident according to the quality of the result rather than the quality of the causes. Id. at 859. (Emphasis supplied).

In support of this rule, the court cited two of its prior decisions, Johnson v. LaBolt Oil Company, 62 S.D. 391, 252 N.W. 869, 871 (1934) and Campbell v. City of Chamberlain, 78 S.D. 245, 100 N.W.2d 707 (1960) and the oft-cited case of Messersmith v. American Fidelity Company, 232 N.Y. 161, 133 N.E. 432, 19 A.L.R. 876 (N.Y. 1921).

In Johnson and Campbell, supra, the South Dakota Supreme Court had before it the question of whether the injury under consideration was an "injury by accident" and therefore compensable under the state's Worker's Compensation Law. In Johnson, the worker suffered a hernia due to the strain of lifting a heavy timber. In the Campbell case the worker suffered a fatal heart attack caused by extreme exertion on his part while repairing a break in a city water main during extremely cold weather. In both cases the court held that the worker had suffered a compensable "injury by accident." Campbell reiterated the holding in Johnson to the effect that to constitute an "injury by accident" within the meaning of the statute it is sufficient that the injury itself is unexpected, and that it is not necessary that the cause of the injury should be untoward and unexpected, occurring without design. In Messersmith, the plaintiff sued upon the defendant's policy of insurance, indemnifying him against liability for injuries accidentally suffered by anyone through the maintenance or use of his automobile. The defense was that, in violation of state statute, the automobile was driven by an infant under the age of eighteen who was not accompanied either by the owner or by a duly licensed chauffeur; that this was done with the plaintiff's knowledge and under his directions; and that the accident was directly caused by the improper and negligent conduct of the said infant while thus violating the law. In holding that there was coverage, Justice Cardozo stated:

The plaintiff in intrusting his car to a youth under eighteen, did not desire or intend that there should be an injury to travelers. The act of so intrusting it was wilful, but not the ensuing conduct of the custodian, through which injury resulted. Indeed, the violation of the statute would have been the same though the driver's age had been unknown. What was wilful was not actionable, except as it became so in the sequel, through what was unintended or fortuitous.

Injuries are accidental or the opposite, for the purpose of indemnity, according to quality of the results rather than the quality of the causes. The field of exclusion would be indefinitely expanded, if the defendant's the insurer's argument were pursued to the limit of its logic. Every act, if we exclude, as we must, gestures or movements that are automatic or instinctive, is wilful, when viewed in isolation and irrespective of its consequences.

In each of these cases cited in Taylor, the conduct of the insured causing or...