Allied Mut. Ins. Co. v. Dakota Rose, Inc., Civ. 98-4004.

• Decision Date: 27 April 1999
• Docket Number: No. Civ. 98-4004.,Civ. 98-4004.
• Citation: 43 F.Supp.2d 1081
• Parties: ALLIED MUTUAL INSURANCE COMPANY, Plaintiff, v. DAKOTA ROSE, INC., Warren Lester and Amy Lester, Defendants.
• Court: U.S. District Court — District of South Dakota

43 F.Supp.2d 1081

ALLIED MUTUAL INSURANCE COMPANY, Plaintiff, v. DAKOTA ROSE, INC., Warren Lester and Amy Lester, Defendants.

No. Civ. 98-4004.

United States District Court, D. South Dakota, Southern Division.

April 27, 1999.

Timothy M. Gebhart, Davenport, Evans, Hurwitz & Smith, Sioux Falls, SD, for plaintiff, Allied Mut. Ins. Co.

Cecelia A. Grunewaldt, Sioux Falls, SD, for defendant, Dakota Rose.

Michael W. Ellwanger, Rawlings, Nieland, Probasco Law Firm, Sioux City, IA, for defendant, Warren Lester, Amy Lester.

MEMORANDUM OPINION AND ORDER

PIERSOL, Chief Judge.

[¶ 1] Plaintiff Allied Mutual Insurance Company seeks a declaratory judgment that a commercial general liability insurance policy it issued to defendant, The Dakota Rose, Inc. ("Dakota Rose"), expressly excludes liquor liability coverage. Dakota Rose raises affirmative defenses and brings a counterclaim for breach of contract. Allied moves for summary judgment, and Dakota Rose resists. For the reasons stated below, the Court grants in part and denies in part Allied's motion for summary judgment.

[¶ 2] Dakota Rose is a video lottery casino and bar located in North Sioux City, South Dakota, owned by John J. and Sharon R. Nilges. Dakota Rose's on-site liquor sales comprise more than seventy-five percent of the total annual receipts of the business. Former restaurant operations at Dakota Rose ceased in September 1993, when the business was owned by Leroy and Carmen Nilges, parents of John Nilges.

[¶ 3] In 1997 Warren and Amy Lester filed suit in Iowa District Court for Woodbury County alleging that early on the morning of August 10, 1995, Warren Lester became intoxicated through consumption of alcoholic drinks served to him at Dakota Rose. The state court complaint further alleges that Warren Lester, in his intoxicated state, drove a vehicle to Sioux City, Iowa, where he collided with another vehicle and suffered serious and permanent injuries. Warren and Amy Lester seek compensatory damages for Warren's injuries from Dakota Rose pursuant to South Dakota law.¹

[¶ 4] Allied filed this diversity action in federal court requesting a declaration that it does not have duties to defend or indemnify Dakota Rose in the Lester lawsuit. In its answer, Dakota Rose raised the affirmative defenses of waiver and estoppel and counterclaimed for damages against Allied for breach of contract. Dakota Rose alleges that Allied acted through its agent, Richard "Dick" Rasmussen, of Lennox Insurance, formerly known as Olson & Associates Insurors, Inc., of Lennox, South Dakota, and that Dakota Rose reasonably relied upon Rasmussen's representations that liquor liability coverage existed under the policy. In answer to the counterclaim, Allied alleges that Rasmussen acted as an independent broker for Dakota Rose, and not as an agent of Allied, and Allied denies that it made any representations of liquor liability coverage to Dakota Rose.

[¶ 5] At the time of Warren Lester's injury, there was in effect a commercial general liability insurance policy, number ACP GLO 7230081802, that Allied issued to Dakota Rose for the period March 31, 1995, to March 31, 1996 ("the policy"). Allied contends that, although the policy provides certain coverage for products liability, Allied does not have duties to defend or indemnify Dakota Rose in the Lester lawsuit because the policy expressly excludes liquor liability coverage as follows:

Section I — Coverages

****

2. Exclusions.

This insurance does not apply to:

****

c. Liquor Liability

"Bodily injury" or "property damage" for which any insured may be held liable by reason of:

1) Causing or contributing to the intoxication of any person;

2) The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or

3) Any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages.

This exclusion applies only if you are in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.

(Gebhart Aff., Ex. 1, Commercial General Liability Coverage Form, CG 00 01 (10-93) at pages 1 & 2 of 16.)

[¶ 6] Dakota Rose argues that Allied has duties to defend and to indemnify because an endorsement to the policy modifies the contract under both the Commercial General Liability Coverage Part and the Products/Completed Operations Liability Coverage Part, as follows:

SCHEDULE

Description of Premises and Operations:

Restaurants — With Sales Of Alcoholic Beverages That Are More Than 75% Of The Total Annual Receipts Of The Restaurants — Without Dance Floor

(If no entry appears above, information required to complete this endorsement will be shown in the Declarations as applicable to this endorsement.)

With respect to "bodily injury" or "property damage" arising out of "your products" manufactured, sold, handled or distributed:

1. On, from or in connection with the use of any premises described in the Schedule, or

2. In connection with the conduct of any operation described in the Schedule, when conducted by you or on your behalf,

Paragraph a. of the definition of "Products —completed operations hazard" in the DEFINITIONS Section is replaced by the following:

a. "Products — completed operations hazard" includes all "bodily injury" and "property damage" that arises out of "your products" if the "bodily injury" or "property damage" occurs after you have relinquished possession of those products.

(Gebhart Aff., Ex. 1, Products/Completed Operations Hazard Redefined, CG 24 07 (11-85).) Dakota Rose contends that the endorsement modifies the Commercial General Liability Coverage Part and the Products/Completed Operations Liability Coverage Part to cover bodily injury and property damage arising from the sale of the products of Dakota Rose.

[¶ 7] The Court must grant the motion for summary judgment if there are no genuine issues of material fact for trial and Allied is entitled to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). "[T]here is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). "[T]rial courts should believe the evidence of the party opposing summary judgment and all justifiable inferences should be drawn in that party's favor." Commercial Union Ins. Co. v. Schmidt, 967 F.2d 270, 271 (8th Cir.1992).

[¶ 8] The interpretation of an insurance policy is governed by state law, TNT Speed & Sport Center, Inc. v. American States Ins. Co., 114 F.3d 731, 732 (8th Cir.1997), and under state law, the interpretation of an insurance contract is a question of law. Zochert v. National Farmers Union Property, 576 N.W.2d 531, 532 (S.D.1998). In South Dakota, the insurer's duty to defend and the insurer's duty to indemnify are severable and independent duties, and the duty to defend an insured is much broader than the duty to indemnify for a judgment rendered against the insured. Hawkeye-Security Ins. Co. v. Clifford, 366 N.W.2d 489, 490 (S.D.1985). See also U.S. Fidelity & Guar. Co. v. Louis A. Roser Co., 585 F.2d 932 (8th Cir.1978). Allied bears the burden to show that the Lesters' claims for damages against Dakota Rose clearly fall outside of the policy coverage. See North Star Mut. Ins. Co. v. Kneen, 484 N.W.2d 908, 912 (S.D.1992). The Court may consider the pleadings and "where appropriate, other evidence of record." Id. Any doubts whether the claims arguably fall within the policy coverage must be resolved in favor of the insured. Id. However, the scope of liability insurance is determined from the contractual intent and objectives of the parties as expressed in the policy, and the Court may not seek out a strained or unusual meaning for the benefit of the insured. See Fort Pierre v. United Fire and Cas. Co., 463 N.W.2d 845, 848 (S.D. 1990) (citing Black Hills Kennel Club v. Fireman's Fund Indem. Co., 77 S.D. 503, 506-07, 94 N.W.2d 90, 92 (1959)).

[¶ 9] Dakota Rose does not argue that the endorsement renders the policy ambiguous in any way. Rather, Dakota Rose contends that the endorsement modifies the insurance contract to provide liquor liability coverage and eliminates the exclusion of coverage for alcoholic beverages sold or served on the premises. The Court cannot agree.

[¶ 10] As Allied argues, numerous courts faced with the identical question have held that the redefinition of "products hazard" in the endorsement does no more than extend coverage for completed operations and products liability hazards to situations in which products, such as food and beverages, injure patrons before they leave the premises, and the endorsement leaves undisturbed the policy's exclusion of coverage for an intoxicated patron who leaves the premises and causes injury to himself or others. See e.g. State Auto. Ins. Ass'n v. Young Men's Republican Club of Allegheny County, Inc., 663 F.Supp. 1077, 1083 (W.D.Pa.1987); Continental Western Ins. Co. v. The Dam Bar, 478 N.W.2d 373, 375-76 (N.D.1991); B.L.G. Enter., Inc. v. First Fin. Ins. Co., 328 S.C. 374, 491 S.E.2d 695, 697-98 (S.C.Ct.App.1997), aff'd 1999 WL 118515 (S.C. Mar.8, 1999); Paradigm Ins. Co. v. Texas Richmond Corp., 942 S.W.2d 645, 652 (Tex.App.1997); Exchange Ins. Co. v. Mar-Fran Enter., Inc., 169 Ariz. 187, 818 P.2d 172, 173 (Ariz.Ct.App.1991); Smith Jean, Inc. v. Royal Globe Ins. Companies, 139 A.D.2d 503, 526 N.Y.S.2d 604, 605 (N.Y.App.Div.1988). "[T]he only difference between the original definition of `products hazard' and the endorsement is that under the original definition of the term, bodily injury or property damage had to occur away from the premises in order for there to be coverage, whereas the endorsement deleted the emphasized language." B.L.G. Enter., Inc., 491 S.E.2d at 697. Dakota Rose does not cite any ca...