Atwater Creamery Co. v. Western Nat. Mut. Ins. Co.

• Decision Date: 19 April 1985
• Docket Number: No. C5-82-581,C5-82-581
• Citation: 366 N.W.2d 271
• Parties: ATWATER CREAMERY COMPANY, Appellant, v. WESTERN NATIONAL MUTUAL INSURANCE COMPANY, and Strehlow Insurance Agency, et al., Respondents.
• Court: Minnesota Supreme Court

Page 271

366 N.W.2d 271

52 A.L.R.4th 1217

ATWATER CREAMERY COMPANY, Appellant, v. WESTERN NATIONAL MUTUAL INSURANCE COMPANY, and Strehlow Insurance Agency, et al., Respondents.

No. C5-82-581.

Supreme Court of Minnesota.

April 19, 1985.

Syllabus by the Court

1. A conformity clause in an insurance policy operates to substitute a statutory provision for a policy provision only where the policy provision directly conflicts with the statute.

2. Where the technical definition of burglary in a burglary insurance policy is, in effect, an exclusion from coverage, it will not be interpreted so as to defeat the reasonable expectations of the purchaser of the policy.

3. The standard of care of an insurance agent must be established by expert testimony in an action against the agent for failure to act where there is no request by the insured or any evidence of a pattern of past practice.

George L. May, Brent D. Bostrom, St. Paul, for appellant.

James T. Martin, John Varpness, Edina, for Western Nat.

Clarance E. Hagglund, Sally Holmgren, Minneapolis, for Strehlow Ins. Agency.

Heard, considered and decided by the court en banc.

WAHL, Justice.

Atwater Creamery Company (Atwater) sought a declaratory judgment against its insurer, Western National Mutual Insurance Company (Western), seeking coverage for losses sustained during a burglary of the creamery's storage building. Atwater joined Strehlow Insurance Agency and Charles Strehlow (Strehlow), its agent, as defendants, seeking damages in the alternative due to Strehlow's alleged negligence and misrepresentation. The Kandiyohi County District Court granted a directed verdict for Strehlow because Atwater failed to establish an insurance agent's standard of care by expert testimony. The trial court then dismissed the jury for lack of disputed issues of fact and ordered judgment in favor of the insurer, concluding that the burglary insurance policy in effect defined burglary so as to exclude coverage of this burglary. We affirm the directed verdict for Strehlow but reverse as to the policy coverage.

Atwater does business as a creamery and as a supplier of farm chemicals in Atwater, Minnesota. It was insured during the time in question against burglary, up to a ceiling of $20,000, by Western under Merchantile Open Stock Burglary Policy SC10-1010-12, which contained an "evidence of forcible entry" requirement in its definition of burglary. The creamery had recovered small amounts under this policy for two separate burglaries prior to the events in this case.

Atwater built a separate facility, called the Soil Center, a few blocks away from its main plant in 1975 for the purpose of storing and selling chemicals. The Soil Center is a large rectangular building with two regular doors along the north side and two large, sliding doors, one each on the east and west sides. There are no other entrances or exits to or from the building itself. One of the doors on the north side leads into the office in the northwest corner of the building. It is secured by a regular dead bolt lock, opened with a key. There is no access into the main portion of the building from the office. Persons entering the main area must use the other door on the north side which is secured by a padlock after hours. The large sliding doors on the east and west are secured by large hasps on each side of each door which are held tight by turnbuckles that must be loosened before the doors can be opened.

Inside the main area of the building, along the north wall, is a large storage bin with three separate doors, each of which is secured by a padlock. Between the storage bin and the office is an "alleyway," entered through the large sliding doors, which runs east and west the length of the building. Trucks are stored in the alleyway when not in use.

Sometime between 9:30 p.m., Saturday, April 9, and 6 a.m., Monday, April 11, 1977, one or more persons made unauthorized entry into the building, took chemicals worth $15,587.40, apparently loading them on the truck that had been parked inside and driving away after loosening the turnbuckles on the east door and closing it. The truck was later found parked near the town dump, with the key still in the ignition.

Larry Poe, the plant manager at the Soil Center, had left at 9:30 p.m. on Saturday, after making sure everything was properly secured. On Monday morning, the north side doors were locked securely, but two of the three doors to the storage bin were ajar. Their padlocks were gone and never found. The turnbuckles had been loosened on the east sliding door so that it could be easily opened or closed.

An investigation by the local police, the Kandiyohi County Sheriff's Department, and the Minnesota Bureau of Criminal Investigation determined that no Atwater Creamery employees, past or present, were involved in the burglary. Suspicion settled on persons wholly unconnected with the creamery or even with the local area, but no one has been apprehended or charged with the crime.

Atwater filed a claim with Western under the burglary policy. Western denied coverage because there were no visible marks of physical damage to the exterior at the point of entrance or to the interior at the point of exit, as required by the definition of burglary in the policy. The creamery then brought suit against Western for the $15,587.40 loss, $7,500 in other directly related business losses and costs, disbursements and reasonable attorney fees.

Charles H. Strehlow, the owner of the Strehlow Insurance Agency in Willmar, Minnesota, and Western's agent, testified that he is certain he mentioned the evidence-of-forcible-entry requirement to Poe and members of the Atwater Board of Directors but was unable to say when the discussion occurred. Poe and the board members examined do not remember any such discussion. None of the board members had read the policy, which is kept in the safe at the main plant, and Poe had not read it in its entirety. He stated that he started to read it but gave up because he could not understand it.

The issues on appeal are:

1. whether the conformity clause in the policy operates to substitute the statutory definition of the crime of burglary for the definition of burglary in the policy;

2. whether the reasonable expectations of the insured as to coverage govern to defeat the literal language of the policy; and

3. whether expert testimony is necessary to establish an insurance agent's standard of care in advising customers of gaps in policy coverage.

1. CONFORMITY CLAUSE.

Atwater argues that the conformity clause in the burglary insurance policy operates to substitute the statutory definition of burglary for the policy definition. The conformity clause reads:

14. Terms of Policy Conformed to Statute. Terms of this policy which are in conflict with the statutes of the State wherein this policy is issued are hereby amended to conform to such statutes.

The burglary definition in the policy reads:

[T]he felonious abstraction of insured property (1) from within the premises by a person making felonious entry therein by actual force and violence, of which force and violence there are visible marks made by tools, explosives, electricity or chemicals upon, or physical damage to, the exterior of the premises at the place of such entry, or * * * (3) from within the premises by a person making felonious exit therefrom by actual force and violence as evidenced by visible marks made by tools, explosives, electricity or chemicals upon, or physical damage to, the interior of the premises at the place of such exit.

Minnesota Statutes § 609.58, subd. 2 (1982), reads:

Whoever enters a building without the consent of the person in lawful possession, * * * with intent to commit a crime in it, or whoever remains within a building without the consent of the person in lawful authority, with intent to commit a crime in it, commits burglary.

The question is whether the two definitions actually conflict with each other. We conclude that they do not.

The statutory definition of burglary operates to impose criminal sanctions on those whose acts fall within its purview. The purpose of the policy definition, however, is to limit the risk the insurer is willing to underwrite. There is no reason an insurer must necessarily define terms in its contracts in the same manner as a statute that exists for an entirely different purpose. We do not agree, however, with the insurer's argument that a conformity clause operates to substitute statutory provisions for policy provisions only where the statute is one that directly regulates insurance. Maryland Casualty Co. v. American Lumber & Wrecking Co., 204 Minn. 43, 282 N.W. 806 (1938), cited by Western to support its argument, merely stands for the proposition that where there is a statute regulating the insurance industry, the industry must conform to that statute. We hold that an insurance policy provision must be in direct conflict with a statute before a conformity clause operates to substitute the statutory provisions for the policy provision. It makes no difference whether the statute is one regulating insurance.

An insurer may limit the risks against which it is willing to indemnify the insured. The policy definition of burglary is different and more limited than the criminal statute definition, but there is no conflict between the two given their disparate functions. The difference between the two, however, has a bearing on the insured's reasonable expectations in purchasing burglary insurance.

2. APPLICATION OF THE POLICY DEFINITION OF BURGLARY.

The definition of burglary in this policy is one used generally in burglary insurance. Courts have construed it in different ways. ¹ It has been held ambiguous and construed in favor of coverage in the absence of visible marks of forceable entry or exit. United States Fidelity & Guaranty Co. v. Woodward, 118 Ga.App. 591, 164 S.E.2d 878 (1968). We reject this analysis because we vie...