DAKOTA, MN & EASTERN RR v. HERITAGE MUT., 21903.

• Decision Date: 16 January 2002
• Docket Number: No. 21903.,21903.
• Citation: 2002 SD 7,639 N.W.2d 513
• Court: South Dakota Supreme Court
• Parties: DAKOTA, MINNESOTA & EASTERN RAILROAD CORPORATION, Plaintiff and Appellant, v. HERITAGE MUTUAL INSURANCE COMPANY, d/b/a Heritage Insurance, Defendant and Appellee.

639 N.W.2d 513

2002 SD 7

DAKOTA, MINNESOTA & EASTERN RAILROAD CORPORATION, Plaintiff and Appellant, v. HERITAGE MUTUAL INSURANCE COMPANY, d/b/a Heritage Insurance, Defendant and Appellee.

No. 21903.

Supreme Court of South Dakota.

Argued October 1, 2001.

Decided January 16, 2002.

Brian J. Donahoe and Michael D. Bornitz of Cutler, Donahoe & Mickelson, Sioux Falls, for plaintiff and appellant.

Gary Thimsen and Jennifer Wollman of Woods, Fuller, Shultz & Smith, Sioux Falls, for defendant and appellee. ERICKSON, Circuit Judge.

¶ The Dakota, Minnesota and Eastern Railroad Company (DM & E) appeals from the judgment granting the cross-motion for summary judgment filed by Heritage Mutual Insurance Company (Heritage Insurance). We affirm.

FACTS

¶ DM&E operates an interstate common carrier railroad within the State of South Dakota. Heritage Insurance is an insurance company doing business in South Dakota. At all times pertinent to this action, Heritage Insurance had a policy covering DM&E for damages because of bodily injury or property damage, and a corresponding duty to defend DM&E from claims. Julian Olson (Olson) was an employee of the DM&E. While acting in the course of his employment he was severely injured in a motor vehicle accident.

¶ DM&E has two insurance policies in force with the intent to cover this type of situation. The first, with Heritage Insurance, is a business automobile insurance policy, with policy limits of $1,000,000. The second, with CNA Insurance, is a railroad liability insurance policy, with a retained limit of $1,000,000. In obtaining these policies, DM&E tried to coordinate them to provide a total coverage package.

¶ The railroad liability insurance policy contained the following endorsement:

In consideration of the premium charged, it is understood and agreed that Section I, Exclusion I, does not apply to any Bodily Injury or Property Damage which arises out of or results from the ownership, maintenance, operation, use, loading or unloading of any Auto but only to the extent that such coverage is available to the Insured in the underlying insurance as scheduled below.

With respect to coverage provided by this endorsement, the Company's liability for Each Incident shall apply in excess of a retained limit of $1,000,000 each incident. If the retained limit is not satisfied in full by the underlying insurance, the Retained Limit as specified on the Declarations, shall apply for the remainder up to the $1,000,000 each incident.

¶ The Heritage Insurance policy is then noted as being the underlying insurance carrier.

¶ In other words, the railroad liability insurance policy is an excess coverage policy and DM&E is responsible for the first $1,000,000 of liability. To that end they purchased the Heritage policy in an attempt to cover that first $1,000,000 of potential liability.¹

¶ As a railroad worker, Olson was not subject to workers' compensation insurance and filed suit against DM&E under the Federal Employer's Liability Act (FELA) 45 U.S.C. § 51 et seq. DM&E requested that Heritage defend the case, but it refused. Heritage also refused to contribute towards an eventual settlement. That refusal was based upon the following policy exclusions:

B. Exclusions

This insurance does not apply to any of the following

...

3. Workers' Compensation

Any obligation for which the insured or insured's insurer may be held liable under any worker's compensation law, disability benefits law or unemployment compensation law or any similar law.

4. Employee Indemnification and Employer's Liability

Bodily injury to:

a. An employee of the insured arising out of and in the course of employment by the insured; or

...

This exclusion applies:

1. Whether the insured may be liable as an employer or in any other capacity;

And

2. to any obligation to share damages with or repay someone else who must pay damages because of the injury.

But this exclusion does not apply to bodily injury to domestic employees not entitled to worker's compensation benefits or to liability assumed by the insured under an insured contract.

¶ The trial court ruled that Clause B-3 (workers' compensation or similar law) did not apply to the FELA; therefore, the workers' compensation exclusion did not exclude coverage. The Court also held that under Clause B-4 (Employee Indemnification and Employer's Liability Exclusion) the DM&E was not provided coverage and coverage was excluded. The court further ruled that the "South Dakota legislature enacted a statutory exception which permits an automobile insurance policy to exclude liability coverage to employees while operating within the scope of their employment," so Clause B-4 did not violate public policy of this state.

ANALYSIS

¶ The parties agree that no genuine issues of material fact exist and that the issues presented are solely questions of law as to the interpretation of an insurance policy's exclusionary provisions.

Summary Judgment

¶ As has often been said:

"Summary judgment shall be granted `if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.' We will affirm only when there are no genuine issues of material fact and the legal questions have been correctly decided. All reasonable inferences drawn from the facts must be viewed in favor of the nonmoving party. The burden is on the moving party to clearly show an absence of any genuine issue of material fact and entitlement to judgment as a matter of law. On the other hand, `[t]he party opposing a motion for summary judgment must be diligent in resisting the motion, and mere general allegations and denials which do not set forth specific facts will not prevent issuance of a judgment.'"

Truck Ins. Exch. v. CNA, 2001 SD 46, ¶ 23, 624 N.W.2d 705, 710.

Standard of Review

¶ In Farm and City Ins. v. Estate of Davis, 2001 SD 71, ¶ 6, 629 N.W.2d 586, 587 this Court reaffirmed that it would:

interpret provisions in an insurance policy which are "fairly susceptible" to different interpretations by choosing that interpretation most favorable to the insured. (citations omitted). We will not, however, "seek out a strained or unusual meaning for the benefit of the insured." (citations omitted). We read and understand insurance contracts "according to the natural and obvious import of the language, without resorting to subtle and forced construction or the purpose of either limiting or extending their operation." (citations omitted). When it is necessary to review an insurance policy in light of a certain statute, we treat that statute "as if it were actually written into the policy."

¶ Additionally, we review the construction of a contract under the de novo standard as a question of law. Mahan v. Avera St. Lukes, 2001 SD 9, ¶ 15, 621 N.W.2d 150, 153.

ISSUE ONE

¶ Whether the phrase "any similar law" in a business automobile insurance policy's exclusionary provision which excludes coverage for "any workers' compensation law, disability benefits law or unemployment compensation law or any similar law" is sufficiently unambiguous to exclude an insured's employee from coverage under an action brought pursuant to the FELA.

¶ This issue was brought before the trial court by Heritage Insurance. The court specifically found that policy exclusions are to be strictly construed. In doing so, it concluded that the phrase "any similar law" found in exclusion B-3 did not encompass the FELA. Thus, DM&E won on this issue. DM&E filed a notice of appeal on April 10, 2001. Heritage Insurance did not file a notice of review on any issue in this case. Therefore, Heritage Insurance is precluded from asking this Court to reverse on this issue because of its failure to file a notice of review. Himrich v. Carpenter, 1997 SD 116, ¶ 3, 569 N.W.2d 568, 570.

¶ DM&E raised the issue in its original brief. Heritage has merely responded. Since it is not properly before the Court, we need not decide this issue at this time.

ISSUE TWO

¶ Whether the phrase "domestic employees" in an exception to an exclusionary clause of a business automobile insurance policy means "of one's own country," or "household servant."

¶ DM&E argues that Clause B-4 is ambiguous because the clause is fairly susceptible to two constructions. Clause B-4 excludes coverage for bodily injury to a DM&E employee arising out of and in the course of employment. However, this exclusion does not apply to "domestic employees not entitled to workers' compensation benefits[.]" DM&E argues that the phrase "domestic employees" is susceptible to two constructions. DM&E admits the first definition is well known and means "a worker employed in and around the household." DM & E's second definition, which it argues is controlling, is "of one's own country."

¶ Heritage Insurance argues that the phrase is not ambiguous and is subject to its plain and ordinary meaning. Heritage argues that DM & E's construction is strained, illogical and unreasonable.

¶ The trial court ruled that a "domestic employee" is one engaged in household work. It further ruled that it would be a strained interpretation to find that it meant being "of this country."

¶ In Jackson v. Lee's Travelers Lodge, Inc., 1997 SD 63, ¶ 18-19, 563 N.W.2d 858, 862 this Court interpreted the term "domestic employee" in light of our workers' compensation statutes. Citing an Arizona Court of Appeals case, Griebel v. Industrial Com'n of Arizona, 133 Ariz. 270, 650 P.2d 1252, 1255 (Ariz.Ct.App. 1982), this Court found its rationale to be sound and applied its "profit test" to determine whether an injured worker was excluded from coverage as a domestic servant. That "profit test" was defined as follows:

We believe the rule to be that if the master is regularly using his servant's labor in a commercial enterprise, that is, attempting to profit in an

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