Center Mut. Ins. Co. v. Thompson

• Court: North Dakota Supreme Court
• Writing for the Court: NEUMANN, Justice.
• Citation: Center Mut. Ins. Co. v. Thompson, 2000 ND 192, 618 N.W.2d 505 (N.D. 2000)
• Decision Date: 31 October 2000
• Docket Number: No. 20000118.,20000118.
• Parties: CENTER MUTUAL INSURANCE COMPANY, Plaintiff and Appellee, v. Larry THOMPSON, Defendant and Appellant.

618 N.W.2d 505

2000 ND 192

CENTER MUTUAL INSURANCE COMPANY, Plaintiff and Appellee, v. Larry THOMPSON, Defendant and Appellant.

No. 20000118.

Supreme Court of North Dakota.

October 31, 2000.

Jason R. Vendsel, McGee, Hankla, Backes & Dobrovolny, Minot, N.D., for plaintiff and appellee.

Ralph A. Vinje, Vinje Law Firm, Bismarck, N.D., for defendant and appellant.

NEUMANN, Justice.

[¶ 1] Larry Thompson appealed a declaratory judgment ruling Center Mutual Insurance Company ("Center Mutual") had no duty to defend or indemnify him in a civil action brought against him by his son, John Thompson. We affirm.

[¶ 2] On January 11, 1992, John Thompson, an eighteen-year-old high school senior, was injured when his arms became entangled in a power takeoff shaft for an auger on his family's farm, where he lived with his parents, Larry and Karen Thompson. At the time of John's injury, his parents had a farm owner's insurance policy with Center Mutual that included a Farm Employer's Liability Coverage endorsement.

[¶ 3] John Thompson sued Larry Thompson in 1997 to recover damages resulting from his 1992 injury. Center Mutual sued Larry Thompson for a declaratory judgment ruling it had no duty to defend or indemnify him in the suit brought against him by John. In its complaint, Center Mutual alleged it denied coverage because John Thompson "was a resident of the Larry Thompson household," and his claims were excluded by the following exclusion:

Coverage L¹ does not apply to:

1. bodily injury to you, and if residents of your household, your relatives, and persons under the age of 21 in your care....

In an October 22, 1997, letter to John Thompson's attorney, Center Mutual said:

As you know, Center Mutual has filed a declaratory action pertaining to Larry Thompson's insurance policy. It appears clear that his insurance policy does not provide coverage for resident relatives or employees, and as a result, there is no liability coverage for John Thompson. However, if you are aware of any facts which would affect coverage under Larry Thompson's policy, please inform us in order that we may re-evaluate our position and settlement posture.

On December 18, 1997, Larry Thompson answered Center Mutual's complaint, denying the claims were excluded from coverage, and asserting the policy was ambiguous and should be interpreted to provide coverage. Larry also counterclaimed against Center Mutual for $3,000,000, alleging he had agreed to entry of judgment against him and in favor of John Thompson for $3,000,000.²

[¶ 4] The liability coverage section of the Center Mutual farm owner's policy defines a farm employee as "an employee of aninsured whose duties are in connection with the farming operations of the insured." It provides for Coverage L—Personal Liability, and Coverage M—Medical Payments to Others. In the exclusions to coverages L & M, it provides:

This policy does not apply to 12. bodily injury to a farm employee of an insured if it occurs in the course of employment....

For Coverage L, it also excludes:

1. bodily injury to you, and if residents of your household, your relatives, and persons under the age of 21 in your care ...;

For Coverage M, it excludes bodily injury to "an insured or other person who resides on the insured premises, except a domestic employee."

[¶ 5] The Farm Employer's Liability Coverage endorsement to the farm owner's policy does not specify any number of employees to be covered and does not indicate any farm employees not to be covered in spaces provided for such disclosures. It provides coverage:

Coverage L—Personal Liability and Coverage M—Medical Payments to Others are extended to apply to bodily injury to a farm employee while performing duties in connection with the farming operations of an insured.

This coverage includes the following:

1. Coverages L and M apply to bodily injury to a person while performing duties as a farm employee if the bodily injury results;

....

b. From the ownership, maintenance, use, loading or unloading of a motorized vehicle ....

It provides the following exclusion:

4. Coverage under this endorsement does not apply to liability for bodily injury excluded under the Liability Coverage Section and not specifically covered under this endorsement.

[¶ 6] Center Mutual sought partial summary judgment that there was no coverage under the liability coverage section because John Thompson was a member of Larry Thompson's family, living on the family farm, and excluded under the household resident exclusion. Larry Thompson moved for summary judgment on the ground John was an employee under the farm employer's liability endorsement. The trial court denied both motions.

[¶ 7] After a trial, the trial court found John Thompson "was a `family member' and a `resident relative' of Larry and Karen Thompson's as those words were used for the Center Mutual Farm Owner's Policy in effect," and "for purposes of coverage under the Farm Employer's Liability Coverage of that Farm Owner's Insurance Policy, John Thompson was not a farm employee on the date of his suffering the severe injuries on January 11, 1992." The court concluded John Thompson was not an employee:

While he did work on the farm as a member of the family and did work that would be constituting farm work, he was not a farm employee nor was he an independent contractor. Rather, he was merely doing what his father expected him to do which was do certain responsibilities as a member of the family growing up on the farm.

The court ordered a declaratory judgment ruling Center Mutual had no duty to defend or indemnify Larry Thompson, "since John Thompson was not a farm employee and was a `resident relative' and `family member' of Larry and Karen Thompson." Larry Thompson appealed the judgment entered on April 10, 2000.

I

[¶ 8] Relying on General Accident Ins. Group v. Cirucci, 46 N.Y.2d 862, 414 N.Y.S.2d 512, 387 N.E.2d 223, 225 (1979), and D.E.M. v. Allickson, 555 N.W.2d 596 (N.D.1996), Larry Thompson contends Center Mutual waived "its right to challenge liability on the grounds that the endorsement does not apply," because it initially denied coverage on the ground John Thompson was a resident relative of the Larry Thompson household.

[¶ 9] Generally, an insurer denying liability on specified grounds may not subsequently attempt to deny liability on different grounds. Allickson, 555 N.W.2d at 599. As we noted in Allickson, 555 N.W.2d at 600,Cirucci, 414 N.Y.S.2d 512, 387 N.E.2d at 225, explained the rationale for the rule:

Although an insurer may disclaim coverage for a valid reason ... the notice of disclaimer must promptly apprise the claimant with a high degree of specificity of the ground or grounds on which the disclaimer is predicated. Absent such specific notice, a claimant might have difficulty assessing whether the insurer will be able to disclaim successfully. This uncertainty could prejudice the claimant's ability to ultimately obtain recovery. In addition, the [insurer's] responsibility to furnish notice of the specified ground on which the disclaimer is based is not unduly burdensome, the insurer being highly experienced and sophisticated in such matters.

In Allickson, 555 N.W.2d at 601, this Court held an insurer that failed to apprise its insured of its reliance upon a bodily injury provision when the insured was in a position to cure an alleged lack of notice, was estopped to raise the alleged lack of notice of a bodily injury claim as a defense.

[¶ 10] Larry Thompson argues "[i]t appears that under the holding in D.E.M. v. Allickson, Id., that Center Mutual cannot be allowed to argue that the endorsement does not apply to John." However, that case was decided on the basis of estoppel. "The crucial elements of estoppel in this context are the insurer's stated reliance upon one ground for denying liability without stating additional known grounds, and resulting prejudice to the claimant." Allickson, 555 N.W.2d at 601. Larry Thompson has not shown he was prejudiced by Center Mutual's initial disclaimer of coverage under the resident relative exclusion and its later, additional, argument John Thompson was not an employee covered by the endorsement. We conclude Center Mutual was not estopped from asserting there was no coverage because John Thompson was not an employee of Larry Thompson.

II

[¶ 11] Larry Thompson asserts the Center Mutual insurance policy should be construed to provide coverage in accordance with his reasonable expectations. He argues "a policy holder's reasonable expectations regarding the nature, scope and terms of his insurance coverage should be honored by the Courts even though a careful review of the policy language reveals a particular limitation or exclusion." He asserts "[t]he Reasonable Expectations Doctrine has been adopted by the North Dakota Supreme Court," and he contends "[i]t certainly is not unreasonable for Larry Thompson to expect that a farm employee's liability endorsement would apply when his only farm employee was his son John."

[¶ 12] In affirming a judgment against an insurer, two justices in Mills v. Agrichemical Aviation, Inc., 250 N.W.2d 663 (N.D.1977), relied, in part, on the doctrine of reasonable expectations. Three justices concurred specially, reaching the same result without relying on the doctrine of reasonable expectations. As we said in RLI Ins. Co. v. Heling, 520 N.W.2d 849, 854-55 (N.D.1994), "[t]he doctrine of reasonable expectations [] is an interpretive tool in the construction of contracts," which "has yet to be accepted by a majority of this court." Furthermore, Larry Thompson's testimony showed he did not expect coverage of his children when he bought the insurance. We conclude the trial court properly determined "[t]he Reasonable Expectations Doctrine set forth by [Larry Thompson] in his brief is inapplicable in this case."

III

[¶ 13] Larry Thompson contends the trial court was legally incorrect in concluding John Thompson was...