Applegren v. Milbank Mut. Ins. Co., 9439

• Decision Date: 28 June 1978
• Docket Number: No. 9439,9439
• Citation: 268 N.W.2d 114
• Parties: W. E. APPLEGREN and Marvin Applegren, doing business as Applegren Construction, Inc., Plaintiffs and Appellees, v. MILBANK MUTUAL INSURANCE COMPANY, Defendant and Appellant. Civ.
• Court: North Dakota Supreme Court

Page 114

268 N.W.2d 114

W. E. APPLEGREN and Marvin Applegren, doing business as Applegren Construction, Inc., Plaintiffs and Appellees, v. MILBANK MUTUAL INSURANCE COMPANY, Defendant and Appellant.

Civ. No. 9439.

Supreme Court of North Dakota.

June 28, 1978.

Mack, Moosbrugger, Leonard & Ohlsen, Grand Forks, for plaintiffs and appellees; argued by Shirley A. Dvorak, Grand Forks.

Letnes, Marshall & Hunter, Grand Forks, for defendant and appellant; argued by F. John Marshall, Grand Forks.

SAND, Justice.

Milbank Mutual Insurance Company, of Milbank, South Dakota (hereinafter Milbank), appealed from a Grand Forks County district court judgment which held that Milbank breached a duty to defend Applegren Construction, Inc. (hereinafter Applegren, Inc.), in a prior action against them by Crookston Electric Motor and Marine.

Milbank also appealed from an order denying its motion to amend findings of fact, conclusions of law, and order for judgment.

Applegren, Inc., a subcontractor, ¹ had a contract to build a utility building "in good workmanlike manner" for Crookston Electric Motor and Marine.

The building, while still under construction, collapsed following a severe windstorm. Donald Peterson, doing business as Crookston Electric Motor and Marine, brought an action against Applegren, Inc., and others, in the Ninth Judicial District of Minnesota, alleging that the building was erected negligently. (The pertinent parts of the amended complaint are set out later herein.) ²

Milbank, after having been duly informed of the summons and complaint served upon Applegren, Inc., refused to honor the request to defend on the ground that the Applegren, Inc., insurance policy did not cover the subject of the lawsuit.

Applegren, Inc., then retained counsel at its own expense and, following a trial in Polk County, Minnesota, district court, settled its part of the case for $3,250.00.

Thereafter Applegren, Inc., brought a declaratory judgment action against Milbank seeking adjudication of the rights and liabilities of the parties regarding the insurance policy and an order directing Milbank to indemnify Applegren, Inc., for any and all losses and attorney fees incurred in defense of its lawsuit. After a trial, the Grand Forks district court issued a judgment in favor of Applegren, Inc., for attorney fees and costs plus reasonable losses paid by them in settling the previous lawsuit in Minnesota. Milbank appealed from this judgment.

The principal issue before us is whether or not the insurance policy issued to Applegren Construction Company by Milbank Mutual Insurance Company covered negligent workmanship of the insured so that Milbank should have defended Applegren, Inc., in the prior action by Crookston Electric Motor and Marine against Applegren, Inc., and others.

A brief reference to Milbank's appeal of the order denying the Rule 52(b) (North Dakota Rules of Civil Procedure) motion for amended findings of fact is appropriate before we consider the main issues.

A motion under Rule 52(b), NDRCivP, is not appealable under federal practice. North Dakota adopted its Rule 52(b) from the Federal Rule. In addition, in North Dakota the Legislature, pursuant to Section 90 of the North Dakota Constitution, as amended, determines what is appealable. A Rule 52(b) motion is not included in § 28-27-02, North Dakota Century Code, which sets out what is appealable, and therefore it is not appealable. In Ellendale Farmers Union Cooperative Association v. Davis, 219 N.W.2d 829 (N.D.1974), we said an order granting a motion to amend findings of fact was not appealable. However, a nonappealable order is reviewable on appeal from a judgment (Danks v. Holland, 246 N.W.2d 86 (N.D.1976)), if the order and facts essential to review are embodied in the record on appeal (Wahpeton Public School District No. 37 v. North Dakota Education Association, 166 N.W.2d 389 (N.D.1969)), and may be reviewed as an incident to or as a part of the final action of the Supreme Court (Schaff v. Kennelly, 69 N.W.2d 777 (N.D.1955)).

The record on appeal contained all of the evidence and facts considered by the trial court. The proposed findings of fact consisted primarily of interpretations and constructions of the policy and would have been more properly labeled as conclusions of law.

The issues raised by the Milbank Rule 52(b), NDRCivP, motion are similar to and, for all practical purposes, will be resolved with the resolution of the basic issues raised in the appeal from the judgment. Therefore it will not be necessary to consider and treat the denial of the Rule 52(b), NDRCivP, motion separately.

We now examine certain provisions of the insurance policy which need to be considered in connection with the allegations in the complaint of the previous lawsuit (the one in the ninth district in Minnesota). The provisions which need to be considered are found under the heading of "Exclusions."

This insurance does not apply:

"(a) to liability assumed by the insured under any contract or agreement except an incidental contract; but this exclusion does not apply to a warranty of fitness or quality of the named insured's products or a warranty that work performed by or on behalf of the named insured will be done in a workmanlike manner;

"(k) to property damage to

(1) property owned or occupied by or rented to the insured,

(2) property used by the insured, or

(3) property in the care, custody or control of the insured or as to which the insured is for any purpose exercising physical control;

but parts (2) and (3) of this exclusion do not apply with respect to liability under a written sidetrack agreement and part (3) of this exclusion does not apply with respect to property damage (other than to elevators) arising out of the use of an elevator at premises used by, rented to or controlled by the named insured."

(Underscoring ours.)

The policy also contained the following provision which needs to be considered:

"COVERAGE B PROPERTY DAMAGE LIABILITY

"The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages 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, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements."

With reference to the insurer's obligation to defend, the North Dakota Supreme Court, in Kyllo v. Northland Chemical Co., 209 N.W.2d 629, 634 (N.D.1973), quoted with approval from Eichler Homes, Inc. v. Underwriters at Lloyd's, London, 238 Cal.App.2d 532, 538, 47 Cal.Rptr. 843, 847 (1965), as follows:

"The insurer's obligation to defend must be measured by the terms of the insurance policy and the pleading of the claimant who sues the insured. . . . If the allegations of the claimant's complaint would support a recovery upon a risk covered by the insurer's policy, then the duty to defend is present."

The Court observed that the same rule, with possible different phraseology, is followed in the following cases: Lee v. Aetna Casualty & Surety Co., 178 F.2d 750, 751 (2 Cir. 1949); Republic Vanguard Insurance Co. v. Buehl, 295 Minn. 327, 204 N.W.2d 426 (1973); Pow-Well Plumbing & Heat. v. Merchants Mut. Cas. Co., 195 Misc. 251, 89 N.Y.S.2d 469 (1949); and Wilson v. Maryland Cas. Co., 377 Pa. 588, 105 A.2d 304 (1954).

The Court further observed that "Generally, where there is doubt as to whether the duty to defend exists, such doubt is resolved in favor of the insured." Kyllo, supra, at 634.

In the instant case we have basically only the pleadings upon which the issue can be resolved.

With these principles of law in mind, we now examine the allegations of the complaint material to the issues.

The amended complaint of Crookston Electric Motor and Marine, in a prior lawsuit in the Ninth Judicial District of Minnesota against Applegren, Inc. (and others), contained the following pertinent allegations:

"XIII.

"That by virtue of said contract between defendants Wagner and Defendants Applegren, Defendants Applegren agreed to erect said building in a good workmanlike manner.

"XIV.

"That said building was not erected in a good workmanlike manner.

"XV.

"That Defendants Applegren failed to erect said building in a good workmanlike manner constituting a breach of said contract.

"XVI.

"Defendants Applegren were negligent in the erection of said building.

"XIX.

"That on or about April 18, 1973 said building collapsed as a direct and proximate result of the negligence, breach of contract, and breach of warranty of each of the Defendants, all to Plaintiff's damage in the sum of Twenty-Six Thousand Five Hundred Dollars ($26,500.00)."

The amended complaint was attached and submitted to the trial court by the Applegrens in a memorandum of law in support of declaratory judgment.

We note that the trial court did not predicate its decision that Milbank had a duty to appear and defend the Applegrens on a finding that the "care, custody or control" in paragraph (k) of the exclusion did or did not apply. The trial court, in its amended judgment and decree, stated:

"4. That certain small print exclusions contained in the aforementioned policy of insurance are ambiguous and contradictory when considered together with prior and more conspicuous provisions of the policy.

"5. That...