ASS Kickin Ranch, LLC v. N. Star Mut. Ins. Co.

• Citation: 2012 S.D. 73,822 N.W.2d 724
• Decision Date: 17 October 2012
• Docket Number: No. 26291.,26291.
• Parties: ASS KICKIN RANCH, LLC, Plaintiff and Appellant, v. NORTH STAR MUTUAL INSURANCE COMPANY, Defendant and Appellee.
• Court: South Dakota Supreme Court

822 N.W.2d 724

2012 S.D. 73

ASS KICKIN RANCH, LLC, Plaintiff and Appellant,

v.NORTH STAR MUTUAL INSURANCE COMPANY, Defendant and Appellee.

No. 26291.

Supreme Court of South Dakota.

Considered on Briefs Aug. 27, 2012.

Decided Oct. 17, 2012.

Lee C. “Kit” McCahren of Olinger, Lovald, McCahren & Reimers, PC, Pierre, South Dakota, Attorneys for plaintiff and appellant.

Douglas A. Abraham of May, Adam, Gerdes, Thompson, LLP, Pierre, South Dakota, Attorneys for defendant and appellee.

GILBERTSON, Chief Justice.

[¶ 1.] North Star Mutual Insurance Company (North Star) denied coverage for two unassembled wind turbines that were destroyed in a fire on Ass Kickin Ranch's property. North Star claimed a policy exclusion permitted it to deny coverage for the loss. Ass Kickin Ranch (Ranch) sued North Star, asserting North Star committed a breach of contract and acted in bad faith in denying coverage for the unassembled wind turbines. The parties filed cross-motions for summary judgment. The circuit court granted North Star's motion for summary judgment, finding the policy exclusion applied. Ranch appealed. We affirm.

FACTS

[¶ 2.] Ranch purchased an insurance policy from North Star in 2009. This insurance policy included coverage for unscheduled farm personal property from November 14, 2009, to November 14, 2010. On March 31, 2010, the shop building on Ranch's property burned down. The building and its contents were destroyed in the fire. The contents of the building included the complete set of unassembled parts for two electric generating wind turbines.

[¶ 3.] The unassembled wind turbines were purchased by Ranch with a check which indicated on the memo line that the payment was for “2 windmills.” Each of the unassembled wind turbines consisted of a tower, a generator, a transmission, blades, and controls. The wind turbines had never been assembled or installed on Ranch's property prior to being destroyed. In order to complete installation, Ranch would have needed to pour cement footings to support the assembled wind turbines and then connect the assembled wind turbines to a power source.

[¶ 4.] Ranch made a $100,000 claim on its insurance policy to recover for its loss of the unassembled wind turbines. However, North Star denied Ranch's claim, concluding coverage for the unassembled wind turbines was expressly excluded by the policy. Under Coverage F, subparagraph 5(g), the policy excluded coverage for “fences, windmills, windchargers, or their towers.”

[¶ 5.] In February 2011, Ranch sued North Star alleging breach of contract for North Star's failure to pay Ranch's $100,000 claim. Further, Ranch sought an award of punitive damages based on its allegation that North Star acted in bad faith by failing to properly evaluate Ranch's claim.¹ The parties filed cross-motions for summary judgment. After a hearing, the circuit court granted North Star's motion for summary judgment, finding the policy exclusion applied. The circuit court's rationale for granting North Star's motion was set forth in its order and memorandum decision. Ranch appeals, arguing the circuit court erred in denying its motion for summary judgment and in granting summary judgment in favor of North Star.

STANDARD OF REVIEW

[¶ 6.] When reviewing a circuit court's grant of summary judgment, this Court only decides “whether genuine issues of material fact exist and whether the law was correctly applied.” Zephier v. Catholic Diocese of Sioux Falls, 2008 S.D. 56, ¶ 6, 752 N.W.2d 658, 662 (quoting Bordeaux v. Shannon Cnty. Sch., 2005 S.D. 117, ¶ 11, 707 N.W.2d 123, 126). “With the material facts undisputed, [this Court's] review is limited to determining whether the trial court correctly applied the law.” De Smet Ins. Co. of S.D. v. Gibson, 1996 S.D. 102, ¶ 5, 552 N.W.2d 98, 99. If there is any legal basis to support the circuit court's decision, the case will be affirmed on appeal. Bozied v. City of Brookings, 2001 S.D. 150, ¶ 8, 638 N.W.2d 264, 268.

[¶ 7.] “Insurance contract interpretation is a question of law, reviewable de novo.” Gibson, 1996 S.D. 102, ¶ 5, 552 N.W.2d at 99 (citing State Farm Mut. Auto. Ins. Co. v. Vostad, 520 N.W.2d 273, 275 (S.D.1994)). “This includes determining whether an insurance contract is ambiguous.” Roden v. Gen. Cas. Co. of Wis., 2003 S.D. 130, ¶ 6, 671 N.W.2d 622, 625 (quoting Nat'l Sun Indus., Inc. v. S.D. Farm Bureau Ins. Co., 1999 S.D. 63, ¶ 7, 596 N.W.2d 45, 46).

ANALYSIS AND DECISION

[¶ 8.] Neither party argues there is a genuine issue of material fact. Instead, the main issue addressed by the parties is whether the policy exclusion applies to the circumstances of this case. The parties dispute whether the unassembled wind turbines fit within the policy's exclusion of coverage for “fences, windmills, windchargers, or their towers.” This is a question of contract interpretation. As a result, the only question before this Court on appeal is whether the circuit court correctly applied the law.

[¶ 9.] “[T]he scope of coverage of an insurance policy is determined from the contractual intent and the objectives of the parties as expressed in the contract.” St. Paul Fire & Marine Ins. Co. v. Schilling, 520 N.W.2d 884, 887 (S.D.1994). “When an insurer seeks to invoke a policy exclusion as a means of avoiding coverage, the insurer has the burden of proving that the exclusion applies.” Opperman v. Heritage Mut. Ins. Co., 1997 S.D. 85, ¶ 4, 566 N.W.2d 487, 489 (quoting Am. Family Mut. Ins. Co. v. Purdy, 483 N.W.2d 197, 199 (S.D.1992)).

Where the provisions of an insurance policy are fairly susceptible to different interpretations, the interpretation most favorable to the insured should be adopted. [However,] [t]his rule of liberal construction in favor of the insured and strictly against the insurer applies only where the language of the insurance contract is ambiguous and susceptible of more than one interpretation....

Nat'l Sun Indus., 1999 S.D. 63, ¶ 18, 596 N.W.2d at 48–49. “The fact that the parties differ as to the contract's interpretation does not create an ambiguity.” Zochert v. Nat'l Farmers Union Prop. & Cas. Co., 1998 S.D. 34, ¶ 5, 576 N.W.2d 531, 532 (citing Alverson v. Nw. Nat'l Cas. Co., 1997 S.D. 9, ¶ 8, 559 N.W.2d 234, 235).

[¶ 10.] Further, a court may not “seek out a strained or unusual meaning for the benefit of the insured.” Rumpza v. Donalar Enters., Inc., 1998 S.D. 79, ¶ 12, 581 N.W.2d 517, 521 (quoting Olson v. U.S. Fid. & Guar. Co., 1996 S.D. 66, ¶ 6, 549 N.W.2d 199, 200). Instead, “[a]n insurance contract's language must be construed according to its plain and ordinary meaning and a court cannot make a forced construction or a new contract for the parties.” Stene v. State Farm Mut. Auto. Ins. Co., 1998 S.D. 95, ¶ 14, 583 N.W.2d 399, 402 (alteration in original) (quoting Schilling, 520 N.W.2d at 887). Essentially, this means that when the terms of an insurance policy are unambiguous, these terms “cannot be enlarged or diminished by judicial construction.” Am. Family Mut. Ins. v. Elliot, 523 N.W.2d 100, 102 (S.D.1994) (citing O'Neill v. Blue Cross of W. Iowa & S.D., 366 N.W.2d 816, 818 (S.D.1985)). Finally, “insurance policies must be subject to a reasonable interpretation and not one that amounts to an absurdity.” Prokop v. N. Star Mut. Ins. Co., 457 N.W.2d 862, 864 (S.D.1990) (citing Helmbolt v. LeMars Mut. Ins. Co., Inc., 404 N.W.2d 55, 59 (S.D.1987)).

[¶ 11.] In this case, the parties do not expressly assert the language of the policy exclusion is ambiguous. Nevertheless, each party argues for a different interpretation of the policy exclusion. North Star argues the policy language excluding coverage for “fences, windmills, windchargers, or their towers” encompasses all windmills and windchargers, regardless of whether or not they are assembled, unassembled, functional, or nonfunctional. In contrast, Ranch argues an unassembled wind turbine does not fit within the language of the policy exclusion. According to Ranch, a “pile of parts” that has never been assembled on the property does not constitute a windmill or a windcharger for purposes of the policy exclusion. However, although North Star and Ranch interpret the policy language differently, this does not automatically render the policy exclusion ambiguous.

[¶ 12.] Because North Star's policy did not provide definitions for the terms withinthe policy exclusion, the circuit court properly relied on definitions from Merriam–Webster's online dictionary as the plain and ordinary meanings of the terms. The circuit court noted that according to Merriam–Webster's, a “windmill” was defined as “a mill or machine operated by the wind usually acting on oblique vanes or sails that radiate from a horizontal shaft; especially: a wind-driven water pump or electric generator.” Additionally, a “windcharger” was defined as “a generator driven by a windmill and used to charge storage batteries.”

[¶ 13.] Ranch argues the unassembled wind turbines were not encompassed within these definitions because the unassembled wind turbines have never been capable of “spinning in the wind,” generating power, or charging storage batteries at Ranch. However, the plain and ordinary meanings of “windmill” and “windcharger” include Ranch's unassembled wind turbines for several reasons. First, Ranch acknowledged it purchased the wind turbines with the intent to use them to generate electricity on the ranch. Thus, Ranch's intended purpose for the unassembled wind turbines fits within the plain and ordinary meanings of “windmill” and “windcharger.” Next, the components of the unassembled wind turbines (towers, generators, transmissions, blades, and controls) are encompassed within the plain and ordinary meanings of “windmill” and “windcharger” because the components were designed to function as “windmills” and “windchargers” upon assembly.

[¶ 14.] Further, Ranch's unassembled wind turbines consisted of the components needed to create functioning “windmills” and “windchargers.”...