Auto-Owners Ins. Co. v. Jensen

Decision Date29 December 1981
Docket NumberNo. 81-1265,AUTO-OWNERS,81-1265
Citation667 F.2d 714
Parties9 Fed. R. Evid. Serv. 1369 INSURANCE COMPANY, Appellant, v. Wayne JENSEN, d/b/a Jensen Bridge Maintenance; Corwin-Churchill Motors, Inc.; Century Motors, Inc.; V. P. Building Fund; and Charles A. Butz, Jr., Appellees.
CourtU.S. Court of Appeals — Eighth Circuit

Leonard H. Bucklin (argued), Zuger & Bucklin, Bismarck, N.D., for appellant.

Patrick R. Morley (argued), O'Grady & Morley, Grand Forks, N.D., for appellee Charles A. Butz, Jr.

Before LAY, Chief Judge, McMILLIAN, Circuit Judge, and HUNTER, * Senior District Judge.

ELMO B. HUNTER, Senior District Judge.

This is an appeal from the judgment of the district court declaring that the appellant, Auto-Owners Insurance Company, had a duty to defend appellee, Charles A. Butz, Jr., under the terms of its Comprehensive Commercial Policy for all claims arising out of the painting of a highway bridge, and that the appellant could not apply a deductible to claims arising out of the painting of the bridge. We reverse in part, affirm in part, and remand for a new trial.

In 1977 the Sornsin Construction Company contracted with the State of North Dakota to paint and repair a highway bridge across the Missouri River between Bismarck, South Dakota, and Mandan, North Dakota. Sornsin in turn subcontracted the work of sandblasting and painting the bridge to Jensen Bridge Maintenance. Jensen employed the appellee to do the actual painting of the bridge. Prior to commencing the painting, the appellee made inquiry through an independent insurance agent about obtaining comprehensive business liability insurance. Ultimately, the appellant issued its Comprehensive Commercial Policy to the appellee, effective August 3, 1977, to August 8, 1978.

On September 19, 1977, the appellee began spray painting the bridge with a tung oil base spray paint. The physical characteristics of this paint caused it to be slow drying and of such composition that it floated easily on air currents. Use of this type of paint was required by the State. On October 13, 1977, spray paint drifting from the bridge caused damage to numerous automobiles parked in the vicinity of the bridge. As a result of this damage various claims were filed against the appellee in state court. The appellant, under a reservation of rights, undertook the defense of those suits and thereafter filed this action for declaratory judgment in the district court pursuant to 28 U.S.C. 2201. Essentially, the appellant sought a declaration that the appellee was not afforded coverage under the policy because the damages incurred were expected from the standpoint of the appellee and therefore excludable from coverage under the policy. Alternatively, the appellant sought a declaration that if the appellee was afforded coverage under the policy it was subject to a deductible amount set forth in the policy.

This action was tried to a jury and the issues were submitted to them in the form of a special verdict. F.R.Civ.P., Rule 40(a). After the jury returned its special verdict resolving the issues in favor of the appellee, the trial judge entered findings of fact, in accordance with the special verdict, and conclusions of law. Judgment was entered for the appellee.

The parties agree that Minnesota substantive law governs the policy of insurance at issue in this action.

Generally, where there is no dispute of fact the interpretation and construction of an insurance policy is a matter of law for the trial court to determine. Iowa Kemper Insurance Co. v. Stone, 269 N.W.2d 885, 887 (Minn.1978); St. Paul Fire & Marine Insurance Co. v. Lenzmeier, 309 Minn. 134, 243 N.W.2d 153, 154 (1976); Midway Center Associates v. Midway Center, Inc., 306 Minn. 352, 237 N.W.2d 76, 78 (1975); Associated Independent Dealers, Inc. v. Mutual Service Insurance Companies, 304 Minn. 179, 229 N.W.2d 516, 519 (1976). However, where questions of fact remain, it is the function of the trial court to instruct the jury as to the meaning of terms in an insurance policy so the jury may make the relevant determinations of fact. Farmers Insurance Exchange v. Sipple, 255 N.W.2d 373 (Minn.1975) 1; Honeymead Products Co. v. Aetna Casualty & Surety Co., 275 Minn. 182, 146 N.W.2d 522, 529 (1966). See also Continental Western Insurance Co. v. Toal, 309 Minn. 169, 244 N.W.2d 121 (1976); Boedigheimer v. Taylor, 287 Minn. 323, 178 N.W.2d 610 (1970). Such was the procedure followed in this case. The district court instructed the jury regarding the meaning of the policy terms and then submitted to them the questions of fact. That this action is one for declaratory judgment does not affect this procedure. Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959); F.R.Civ.P., Rule 57.

I. The Instruction's Definition of "Expected"

The insurance policy between the parties specifically excluded coverage for damages which were expected or intended from the standpoint of the insured. At trial the appellant asserted that any damages suffered by claimants were expected and therefore excludable from coverage under the policy. The district court instructed the jury on the meaning of the term "expected" and then submitted that issue to the jury. 2

The appellant's first assignment of error is that the district court's instruction to the jury incorrectly defined the meaning of the term "expected" as it was used in the exclusionary clause of the policy.

Essentially, the district court instructed the jury that damages were unexpected, and thus covered by the insurance policy, even if the insured acted negligently. 3 The issue before us is how the term "expected" should have been defined.

We have neither been directed to nor independently discovered any Minnesota cases which directly control the issue presented here. The Minnesota cases which have dealt with the phrase expected or intended have concentrated on the meaning of the word intended, indicating injury is intended from the standpoint of the insured if a reason for the insured's act is to inflict injury or where the character of the act is such that an intention to inflict injury can be inferred as a matter of law. Woida v. North Star Mutual Insurance Co., 306 N.W.2d 570, 573 (Minn.1981); Continental Western Insurance Co. v. Toal, supra, 244 N.W.2d at 125; Caspersen v. Webber, 298 Minn. 93, 213 N.W.2d 327, 330 (1973); Iowa Kemper Insurance Co. v. Stone, supra, at 887. Many of these cases dealt with a factual incidence of assault and battery. None of them specifically defines the term "expected."

In arguing that the district court's definition of the term "expected" was correct, the appellee relies primarily on the three Minnesota cases of Ohio Casualty Insurance Co. v. Terrace Enterprises, Inc., 260 N.W.2d 450 (Minn.1978); Johnson v. Aid Insurance Co. 287 N.W.2d 663 (Minn.1980); and Bituminous Casualty Corp. v. Bartlett, 307 Minn. 72, 240 N.W.2d 310 (1976). All three of these cases considered an insurance policy clause excluding expected or intended damages. However, they do not provide conclusive guidance.

In Ohio Casualty Insurance Co. v. Terrace Enterprises, Inc., supra, the insured was warned that certain soil conditions might result in damage to a construction project. In light of this warning the insured took various precautions to prevent the damage. These precautions failed and the damage did indeed result. The court found that the insured's conduct in this case was perhaps negligent, but not reckless or intentional, and thus was not expected for purposes of the exclusionary clause. Id. at 452-53. The court did not go so far as to specifically hold the negligent acts of an insured cannot, as a matter of law, result in damages which are expected. It is unclear whether the court concluded that the insured acted negligently and the court did not define the meaning of the term "expected."

The cases of Johnson v. Aid Insurance Co., supra, and Bituminous Casualty Corp. v. Bartlett, supra, are clearly different from the case at bar. The Minnesota Supreme Court held in those cases that an insured's willful and knowing violations of a construction contract's specifications and expected standards of workmanship did result in damages which were expected. Both of these cases involved knowing and willful actions, issues not present in this case.

Again, although the court held the particular actions involved in those cases fell within the parameters of expected damages, no effort was made to define the parameters of the term "expected" as used in insurance policy exclusionary clauses.

Since it is not the task of this Court to "formulate the legal mind of the state, but merely to ascertain and apply it," Village of Brooten v. Cudahy Packing Co., 291 F.2d 284, 288 (8th Cir. 1961), we have the usual problem of endeavoring to determine what the Supreme Court of Minnesota would, on the facts presented to us, declare the law of the state to be.

We are guided by certain broad principles of Minnesota law which govern the construction of insurance policies. Generally, unambiguous words and terms used in insurance policies are to be given their natural and ordinary meaning taken in their popular sense, giving effect to the purposes of the document as a whole. Boedigheimer v. Taylor, 287 Minn. 323, 178 N.W.2d 610, 613 (1970). If ambiguous words or terms appear in the policy, their meaning should be resolved in favor of the insured. Bituminous Casualty Corp. v. Bartlett, supra, 240 N.W.2d at 312.

We find the district court's instruction that if the damage to the automobiles resulted from the negligence of the insured then the damages could not be expected is an incorrect definition of the term "expected."

We have considered the definition of the term "expected" under Iowa law. City of Carter Lake v. Aetna Casualty and Surety Co., 604 F.2d 1052 (8th Cir. 1979). There we rejected the argument that a result is expected...

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