Farmland Mut. Ins. Co. v. Farmers Elevator, Inc. of Grace City

• Decision Date: 16 April 1987
• Docket Number: No. 11308,11308
• Citation: 404 N.W.2d 473
• Parties: FARMLAND MUTUAL INSURANCE COMPANY, Plaintiff and Appellee, v. FARMERS ELEVATOR, INC. OF GRACE CITY; Farmers Trucking, Inc. of Grace City; Larry O'Brien; Scanson Trucking; and Great West Casualty Company, Defendants and Appellees, and State Farm Mutual Automobile Insurance Company, Defendant and Appellant. Civ.
• Court: North Dakota Supreme Court

Page 473

404 N.W.2d 473

FARMLAND MUTUAL INSURANCE COMPANY, Plaintiff and Appellee, v. FARMERS ELEVATOR, INC. OF GRACE CITY; Farmers Trucking Inc. of Grace City; Larry O'Brien; Scanson Trucking; and Great West Casualty Company, Defendants and Appellees and State Farm Mutual Automobile Insurance Company, Defendant and Appellant.

Civ. No. 11308.

Supreme Court of North Dakota.

April 16, 1987.

Lamb, McNair, Larson & Carlson, Fargo, for plaintiff and appellee.

Pearson & Christensen, Grand Forks, for Farmers Trucking, Inc. of Grace City and Larry O'Brien; Ronald F. Fischer (argued).

Traynor, Rutten & Traynor, Devils Lake, for Scanson Trucking & Great West Cas.

Cahill & Maring, Moorhead, Minn., for defendant and appellant; Steven L. Marquart (argued).

ERICKSTAD, Chief Justice.

State Farm Mutual Automobile Insurance Company (State Farm) appeals from a summary judgment requiring it to defend and indemnify Farmers Trucking, Inc. of Grace City (Farmers Trucking) against all claims and liability arising out of an accident and requiring it to pay Farmers Trucking attorney fees pursuant to Rule 11, N.D.R.Civ.P. We affirm the judgment and remand for redetermination of the attorney fee award.

Scanson Trucking sued Farmers Elevator, Inc. of Grace City (Farmers Elevator), Farmers Trucking, and Larry O'Brien, for damages of $9,582.50 to its truck, a 1975 International Harvester Transtar Tractor. In count one of its complaint, Scanson Trucking alleged that Farmers Elevator borrowed the truck through its employee, O'Brien, who negligently damaged the truck in an accident. In count two of its complaint, Scanson Trucking alleged that Farmers Trucking borrowed the truck through its employee, O'Brien, who negligently damaged the truck in an accident. Scanson Trucking's insurer, Great West Casualty Company, paid Scanson Trucking for the loss, less a $250 deductible.

Farmland Mutual Insurance Company (Farmland), Farmers Elevator's insurer, initiated a declaratory judgment action seeking a declaration that it had no duty to defend or indemnify Farmers Elevator or Larry O'Brien and that State Farm, if anyone, had that duty.

State Farm moved for a summary judgment determining that it had no duty to defend or indemnify Farmers Trucking or Larry O'Brien. Farmers Trucking filed a cross-motion for summary judgment determining that State Farm had a duty to defend or indemnify Farmers Trucking or Larry O'Brien. Farmers Trucking also requested that State Farm be ordered to pay costs and attorney fees pursuant to Rule 11, N.D.R.Civ.P. The trial court denied State Farm's motion, granted Farmers Trucking's motion, and ordered State Farm to pay Farmers Trucking $657.25 in attorney fees. Judgment was entered accordingly and State Farm appealed.

State Farm asserts that the trial court erred in determining that it had a duty to defend and indemnify Farmers Trucking against all claims and liability arising out of the accident involving Scanson Trucking's truck and that the trial court erred in entering judgment against it for Farmers Trucking's attorney fees.

At the time of the accident, Farmers Trucking was insured under a policy issued by State Farm. The insured vehicle described on the declarations page was a 1981 Peterbuilt semi-tractor, and, through a trailer endorsement, a Merritt trailer. The insurance policy included liability coverage and collision coverage.

The policy contained the following definitions:

"Car--means a land motor vehicle with four or more wheels, which is designed for use mainly on public roads. It does not include:

* * *

* * *

"2. a truck-tractor designed to pull a trailer or semi-trailer." (Emphasis in original.)

"Temporary Substitute Car--means a car not owned by you or your spouse, if it replaces your car for a short time. Its use has to be with the consent of the owner. Your car has to be out of use due to its breakdown, repair, servicing, damage or loss. A temporary substitute car is not considered a non-owned car." (Emphasis in original.)

"You or Your--means the named insured or named insureds shown on the declarations page." (Emphasis in original.)

"Your Car--means the car or the vehicle described on the declarations page." (Emphasis in original.)

The trailer endorsement covering the Merritt trailer provides:

"The definition of Temporary Substitute Car is changed to read:

"Temporary Substitute Car --means:

"1. a car or

"2. a trailer of the same type as above not owned by you or your spouse, if it replaces your car or the described trailer for a short time. Its use has to be with the consent of the owner. Your car or trailer has to be out of use due to its breakdown, repair, servicing, damage or loss. A temporary substitute car is not considered a non-owned car." (Emphasis in original.)

The liability (Coverage A) section of the insurance policy provides:

"We will:

"1. pay damages which an insured becomes legally liable to pay because of:

* * *

* * *

"b. damage to or destruction of property including loss of its use, caused by accident resulting from the ownership, maintenance or use of your car; and

"2. defend any suit against an insured for such damages with attorneys hired and paid by us. We will not defend any suit after we have paid the applicable limit of our liability for the accident which is the basis of the lawsuit.

* * *

* * *

"The liability coverage extends to the use, by an insured, of ... a temporary substitute car ..." (Emphasis in original.)

The liability (Coverage A) section of the insurance policy also provides:

"THERE IS NO COVERAGE:

* * *

* * *

"3. FOR ANY DAMAGES:

* * *

* * *

"b. TO PROPERTY OWNED BY, RENTED TO, IN CHARGE OF OR TRANSPORTED BY AN INSURED. But coverage applies to a rented residence or private garage damaged by a car we insure." (Emphasis in original.)

Section IV of the policy provided Farmers Trucking with collision (Coverage G) insurance. Section IV provides:

"Loss--means, when used in this section, each direct and accidental loss of or damage to:

"1. your car;

* * *

* * *

"We will pay for loss to your car caused by collision but only for the amount of each such loss in excess of the deductible amount....

"The coverages in this section you have on your car extend to a loss to ..., a temporary substitute car ...

"If There Is Other Coverage

* * *

* * *

"3. Temporary Substitute Car, ...

"If a temporary substitute car, ... has other coverage on it, this coverage is excess...." (Emphasis in original.)

This court held in Syllabus 2, Kyllo v. Northland Chemical Co., 209 N.W.2d 629, 631 (N.D.1973):

"2. A liability insurer's obligation to defend its insured is measured by the terms of the insurance policy and the pleading of the claimant who sues the insured; if the allegations in the claimant's complaint would support a recovery upon a risk covered by the insurer's policy the duty to defend is present. If there is doubt as to whether the duty to defend is present, such doubt will be resolved in favor of the insured."

State Farm first asserts that it had no duty to defend Farmers Trucking because the borrowed truck was not a temporary substitute car as defined in the insurance policy. State Farm argues that the definition of "temporary substitute car" in the trailer endorsement requires that a temporary substitute car must be a "car," which is defined in the policy to exclude "a truck-tractor designed to pull a trailer or semitrailer." Because the borrowed truck was a truck-tractor designed to pull a semitrailer, State Farm argues it was not a temporary substitute car to which the insurance applied.

The purpose of a temporary substitute vehicle provision is to extend temporary protection to an insured who is unable to use an insured vehicle because of its breakdown, repair, servicing, damage or loss. Fulton v. Woodford, 17 Ariz.App. 490, 498 P.2d 564 (1972); 6B Appleman Insurance Law and Practice § 4293.5 (Buckley Ed.1979); 12 Couch on Insurance 2d § 45:219 (1981 Rev.Ed.). "It indicates the intention of the insurer to cover only one automobile of the insured and to avoid covering more than one automobile for a single premium." 12 Couch on Insurance 2d, supra, at p. 511. "It is contemplated that the same use will be made of the substituted vehicle as would have been made of the one originally insured." 6B Appleman Insurance Law and Practice, supra, at p. 217. See also 12 Couch on Insurance 2d, supra, § 45:232.

"A substitute coverage clause is for the benefit of the insured. Accordingly, if any construction is required of a substitute clause, it should be for his benefit. At the same time, ambiguity is not to be found where none exists, and the contract must be interpreted as written, and the substitution provision is neither to be unreasonably extended to materially increase the risk contemplated by the insurer, nor is it to be narrowly applied against the insured, inasmuch as the clause is designed for his protection."

12 Couch on Insurance 2d, supra, § 45:221, at p. 513. See also State Farm Mutual Automobile Ins. Co. v. Johnston, 9 Cal.3d 270, 107 Cal.Rptr. 149, 507 P.2d 1357 (1973); Transit Casualty Co. v. Giffin 41 Cal.App.3d 489, 116 Cal.Rptr. 110 (1974); Holland America Ins. Co. v. Baker, 272 Minn. 473, 139 N.W.2d 476 (1965); Nelson v. St. Paul Mercury Ins. Co., 83 S.D. 32, 153 N.W.2d 397 (1967).

The evident purpose of securing the underlying insurance policy was to insure Farmers Trucking's 1981 Peterbuilt semi-tractor and a substitute therefore if the insured semi-tractor was out of use due to its breakdown, repair, servicing, damage or loss in order to protect Farmers Trucking from liability for bodily injury or damage to the property of others. The evident purpose of securing the trailer endorsement was to insure the Merritt trailer and a trailer substitute therefore if the insured trailer was out of use due to its breakdown, repair, servicing, damage or loss. The two definitions of temporary substitute car in the underlying policy and...