Fisher v. American Family Mut. Ins. Co.

• Decision Date: 04 June 1998
• Docket Number: No. 970315,970315
• Citation: 579 N.W.2d 599,1998 ND 109
• Court: North Dakota Supreme Court
• Parties: Dennis FISHER and Dorothy Fisher, as assignees of Scott Delaney, dba Delaney Construction, and Kensok's Hardwood & Seamless Floors, Plaintiffs and Appellants v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant and Appellee Civil

Page 599

579 N.W.2d 599

1998 ND 109

Dennis FISHER and Dorothy Fisher, as assignees of Scott Delaney, dba Delaney Construction, and Kensok's Hardwood & Seamless Floors, Plaintiffs and Appellants v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant and Appellee

Civil No. 970315.

Supreme Court of North Dakota.

June 4, 1998.

Bruce A. Schoenwald, Fargo, for plaintiffs and appellants.

Steven L. Marquart, of Cahill & Marquart, Moorhead, MN, for defendant and appellee.

NEUMANN, Justice.

¶1 Dennis Fisher and Dorothy Fisher appealed a judgment dismissing their complaint against American Family Mutual Insurance Company (American Family) to recover on a judgment entered pursuant to a Miller-Shugart ¹ agreement. We reverse and remand.

I

¶2 Fishers hired Delaney Construction (Delaney) of Moorhead, Minnesota, to install approximately 500 square feet of hardwood flooring in their Fargo home. The flooring was supplied to Delaney by D & J Hardwoods and Milling (D & J) of Park Rapids, Minnesota. After the flooring was installed, Fishers hired Kensok's Hardwood & Seamless Floors, Inc. (Kensok's) of West Fargo, North Dakota, to sand the flooring and apply a polyurethane finish.

¶3 Within a few months, wide gaps began to appear between sections of flooring and individual boards began splitting. Fishers sued Delaney in Minnesota district court for $7,626, alleging Delaney negligently installed the hardwood flooring. Delaney counterclaimed against Fishers and filed a third-party complaint against Kensok's and D & J. ² Kensok's submitted the pleadings to its liability insurer, American Family. In a letter of May 15, 1996, American Family denied coverage and declined to defend the claim against Kensok's, asserting the following grounds:

"As stated in Paragraph 4 of the Complaint, this case arises out of a contract between plaintiffs and Delaney Construction. The liability coverage provided by your policy with American Family has a specific exclusion for contractual liability. See Exclusion 2(b).

"The Third-Party Complaint against you by Delaney Construction alleges in Paragraph VII that the flooring was improperly prepared and/or the finishing improperly applied. Again, I would invite your attention to the Exclusions section of your liability coverage with American Family, specifically Exclusions k and l. Under these provisions, liability coverage does not apply to damage to or arising out of your product or your work. Your coverage with American Family is not intended to provide a guarantee for your work or products. Rather, it is intended to provide payment for bodily injury or property damage arising out of an occurrence. Occurrence is also specifically defined in your policy and is generally referred to as an accident. As indicated in the Complaint, this claim arises from a contract, not an accident."

Kensok's retained counsel at its own expense, answered Delaney's third-party complaint, counterclaimed against Delaney, and crossclaimed against D & J. The parties entered into an agreement under which Fishers dismissed their complaint without prejudice; Delaney dismissed its counterclaim without prejudice; Kensok's dismissed its counterclaim and crossclaim without prejudice; Delaney assigned to Fishers all its rights under the third-party complaint against Kensok's; Kensok's stipulated that judgment be entered against it on the third-party complaint for $7,626, but provided, in accordance with Miller v. Shugart, 316 N.W.2d 729 (Minn.1982) and Sellie v. North Dakota Ins. Guar. Ass'n, 494 N.W.2d 151 (N.D.1992), "said judgment may only be collected from the proceeds of any applicable insurance insuring KENSOK'S for the loss"; and Kensok's assigned to Fishers all its rights against American Family, including attorney fees it might have because of the insurer's failure to provide a defense.

¶4 Judgment was entered in Minnesota district court in accordance with the parties' agreement. Fishers then brought this suit against American Family in North Dakota district court to recover $7,626 from American Family, pursuant to the Miller-Shugart agreement. The trial court granted American Family's motion for summary judgment, concluding American Family "owes no coverage to Kensok's for all or part of the claims made against it by reason of the exclusions in the policy" and the Miller-Shugart agreement, therefore, was unenforceable. Fishers appealed to this court.

II

¶5 Summary judgment under Rule 56, N.D.R.Civ.P., is a procedural device for deciding an action without trial if there is no genuine dispute as to material facts or the inferences to be drawn from undisputed facts or if only a question of law is involved, Hougum v. Valley Mem'l Homes, 1998 ND 24, p 7, 574 N.W.2d 812, or if the law is such that resolution of any factual dispute will not alter the result, Littlefield v. Union State Bank, 500 N.W.2d 881, 883 (N.D.1993). This case turns on the interpretation of Kensok's commercial general liability policy issued by American Family. "Determining the legal effect of an insurance contract is generally a question of law for a court to decide." Sellie, 494 N.W.2d at 156. On appeal, we independently examine and construe the insurance policy to determine if the trial court erred in its construction. Id. The interpretation of an insurance policy, including whether it is ambiguous, is a question of law, which is fully reviewable on appeal. Johnson v. Center Mut. Ins. Co., 529 N.W.2d 568, 570 (N.D.1995). An ambiguity exists when good arguments can be made for two contrary positions about the meaning of a term in a document. Sellie, 494 N.W.2d at 156.

¶6 "[A] term in an insurance policy should be construed 'to mean what a reasonable person in the position of the insured would think it meant.' " Sellie, 494 N.W.2d at 157, quoting Haugen v. Auto-Owners Ins. Co., 191 N.W.2d 274, 279 (N.D.1971). "Limitations or exclusions from broad coverage must be clear and explicit." Emcasco Ins. Co. v. L & M Devel., Inc., 372 N.W.2d 908, 911 (N.D.1985). "[W]hen the language of an insurance policy is clear and explicit, the language should not be strained in order to impose liability on the insurer." Aid Ins. Svcs., Inc. v. Geiger, 294 N.W.2d 411, 414 (N.D.1980). However, any ambiguity or reasonable doubt as to the meaning of an insurance policy is strictly construed against the insurer and in favor of the insured. Aid Ins. Svcs., Inc., 294 N.W.2d at 414; Applegren v. Milbank Mut. Ins. Co., 268 N.W.2d 114, 118 (N.D.1978). "If the language in an insurance contract will support an interpretation which will impose liability on the insurer and one which will not, the former interpretation will be adopted." Aid Ins. Svcs., Inc., 294 N.W.2d at 414. Exclusions from broad coverage in an insurance policy are strictly construed against the insurer. Johnson, 529 N.W.2d at 570. An exception to an exclusion from broad coverage results in coverage. See Dundee Mut. Ins. Co. v. Balvitsch, 540 N.W.2d 609, 611 (N.D.1995); Emcasco Ins. Co., 372 N.W.2d at 910-11; Applegren, 268 N.W.2d at 118.

III

¶7 Kensok's American Family commercial general liability policy provides in part:

"COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY

"1. Insuring Agreement.

"a. We will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies. We will have the right and duty to defend any 'suit' seeking those damages.

* * * * * *

"2. Exclusions.

"This insurance does not apply to:

* * * * * *

"b. 'Bodily injury' or 'property damage' for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages:

"(1) Assumed in a contract or agreement that is an 'insured contract,' provided the 'bodily injury' or 'property damage' occurs subsequent to the execution of the contract or agreement; or

"(2) That the insured would have in the absence of the contract or agreement.

* * * * * *

"j. 'Property damage' to:

* * * * * *

"(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the 'property damage' arises out of those operations; or

"(6) That particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it.

* * * * * *

"Paragraph (6) of this exclusion does not apply to 'property damage' included in the 'products-completed operations hazard.'

"k. 'Property damage' to 'your product' arising out of it or any part of it.

"l. 'Property damage' to 'your work' arising out of it or any part of it and included in the 'products-completed operations hazard.'

"This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor."

¶8 Section V of the policy contains the following relevant definitions:

"11. a. 'Products-completed operations hazard' includes all 'bodily injury' and 'property damage' occurring away from premises you own or rent and arising out of 'your product' or 'your work' except:

"(1) Products that are still in your physical possession; or

"(2) Work that has not yet been completed or abandoned.

* * * * * *

"14. 'Your product' means:

"a. Any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by:

"(1) You;

"(2) Others trading under your name; or

"(3) A person or organization whose business or assets you have acquired; and

* * * * * *

"15. 'Your work' means:

"a. Work or operations performed by you or on your behalf; and

"b. Materials, parts or equipment furnished in connection with such work or operations.

" 'Your work' includes:

"a. Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of 'your work;' and

"b....