Hawkeye-Security Ins. Co. v. Clifford by Clifford

Citation366 N.W.2d 489
Decision Date06 February 1985
Docket NumberNo. 14689,HAWKEYE-SECURITY,14689
PartiesINSURANCE COMPANY, Plaintiff and Appellee, v. Allen A. CLIFFORD by his Guardian Dewey J. CLIFFORD, Dakota Hospital, St. Paul Fire and Marine Insurance Co., Vermillion Clay County Ambulance Service, City of Vermillion, Western World Insurance Company, Defendants, and Clay County, Defendant and Appellant. . Considered on Briefs
CourtSupreme Court of South Dakota

Steven L. Pier of Welter & Pier, Yankton, for plaintiff and appellee.

Arthur L. Rusch of Bogue, Weeks & Rusch, Vermillion, for defendant and appellant.

FOSHEIM, Chief Justice.

Clay County appeals from a declaratory judgment granted in favor of Hawkeye-Security Insurance Co. (Hawkeye). We reverse.

The complaint of Allen A. Clifford alleged he was injured as a result of negligent care provided by the Vermillion-Clay County Ambulance Service, and Dakota Hospital. The City of Vermillion (City) filed a third party complaint against Clay County. Clay County tendered the defense to its insurer, Hawkeye. This action is brought by Hawkeye to determine its duty to defend.

The third party complaint against Clay County is ambiguous because it does not reveal whether the City alleged Clay County owed City contractual indemnity, or whether Clay County was joined in tort as a joint operator of the ambulance service, or both. 1

The issue before us is whether a trial court may resolve that ambiguity by considering depositions and other evidence outside the pleadings. Prior South Dakota decisions have not precisely addressed an insurer's duty to defend at this early stage in the litigation. Precedent involved situations where the declaratory judgment action was instituted after the insured had been sued and settled the case, or judgment had been rendered against the insured. See, Auto Owners Ins. Co. v. Transamerica Ins. Co., 357 N.W.2d 519 (S.D.1984); Wilson v. Allstate Insurance Company, 85 S.D. 553, 186 N.W.2d 879 (1971); Taylor v. Imperial Casualty & Indemnity Company, 82 S.D. 298, 144 N.W.2d 856 (1966); Black Hills Kennel Club v. Firemen's Fund Indem. Co., 77 S.D. 503, 94 N.W.2d 90 (1959) (complaint not in evidence).

In Auto Owners, supra, we rejected the argument that where there is but a single theory of recovery that falls within the policy, the insurer has a duty to defend, despite the fact that other non-covered theories of liability are alleged. Id. The argument was not accepted because the underlying action against the insured alleged four counts of negligence. We held there was actually but one theory of recovery: namely, negligence, which was not covered by the policy. Id. Auto Owners therefore does not control the issue here; where it is ambiguous whether the action against the insured is in contract (non-covered) or in tort (potentially covered), and where the trial court is asked to declare the insurer's duty to defend prior to trial on the action against the insured. We will therefore review the decisions of other jurisdictions.

The duty to defend and the duty to pay are severable and independent duties. Dochod v. Central Mut. Ins. Co., 81 Mich.App. 63, 264 N.W.2d 122 (1978); see also, Scherschligt v. Empire Fire & Marine Ins. Co., 662 F.2d 470 (8th Cir.1981) (applying Nebraska law); U.S. Fid. & Guar. Co. v. Louis A. Roser Co., 585 F.2d 932 (8th Cir.1978); Lanoue v. Firemen's Fund Am. Ins. Co., 278 N.W.2d 49 (Minn.1979); F. & M. State Bank v. St. Paul Fire & Marine, 309 Minn. 14, 242 N.W.2d 840 (1976). The duty to defend is much broader than the duty to pay a judgment rendered against the insured. Roser, supra at 936, citing Ritter v. United States Fid. & Cas. Co., 573 F.2d 539, 542 (8th Cir.1978); Carter v. Aetna Cas. & Sur. Co., 473 F.2d 1071 (8th Cir.1973).

Jurisdictions are not uniform as to the scope of matters which may be considered in determining the duty to defend. In Roser, the United States Court of Appeals for the Eighth Circuit stated:

It is the general rule that the duty of an insurance company to defend its insured is to be determined by the allegations of the complaint or petition in the action brought against the insured. An insurer must defend its insured if the pleadings in the action against the insured allege facts which, if established, would support a recovery under the policy.

Roser, supra, at 936. See also, Continental Casualty Co. v. Alexis I. duPont Sch. Dist., 317 A.2d 101, 103 (Del.Supr.1974); Mt. Hope Inn v. Travelers Indem. Co., 157 N.J.Super. 431, 437, 384 A.2d 1159, 1162 (1978); Foundation Reserve Ins. Co. v. Mullenix, 97 N.M. 618, 619, 642 P.2d 604, 605 (1982); Green Bus Lines v. Consolidated Mut. Ins. Co., 74 A.D.2d 136, 140-45, 426 N.Y.S.2d 981, 985-87 (1980); County of Monroe v. Travelers Ins., 100 Misc.2d 417, 421, 419 N.Y.S.2d 410, 413 (1979); Appelgren v. Milbank Mut. Ins. Co., 268 N.W.2d 114, 118 (N.D.1978); Nielsen v. St. Paul Companies, 283 Or. 277, 280, 583 P.2d 545, 547 (1978). The rule expressed in Roser finds the duty to defend from the pleadings. See also, County of Monroe, supra. The duty is imposed by many jurisdictions if it is clear, see Continental Casualty Co. v. Alexis I. duPont Sch. Dist., 317 A.2d at 103; Mt. Hope Inn v. Travelers Indem. Co., 384 A.2d at 1162; County of Monroe v. Travelers Ins., 419 N.Y.S.2d at 413; or "even arguably" appears, see Detroit Edison Co. v. Mich. Mut. Ins. Co., 102 Mich.App. 136, 142, 301 N.W.2d 832, 835 (1980), from the face of the pleadings that the alleged claim, if substantiated, falls within policy coverage. Under this position, the duty prevails notwithstanding that ambiguous language reveals other claims not covered in the policy, and even though extraneous facts indicate the claim is false, groundless, or even fraudulent. See, Mt. Hope Inn, supra.

Indiana, Minnesota, and Washington recognize that an insurer may avoid defending a complaint alleging a cause of action within policy coverage if actual facts outside the complaint would exclude coverage. See, Cincinnati Ins. Co. v. Mallon, 409 N.E.2d 1100, 1105 (Ind.App.1980); Lanoue, 278 N.W.2d at 52; Harrison Plumbing & Heating, Inc. v. N.H. Ins., 37 Wash.App. 621, 624, 681 P.2d 875, 878 (1984); R.A. Hanson Co., Inc. v. Aetna Ins. Co., 26 Wash.App. 290, 294, 612 P.2d 456, 459 (1980).

In light of our rules of civil procedure, 2 we adopt the view that if it is clear or arguably appears from the face of the pleadings in the action against the insured that the alleged claim, if true, falls within policy coverage, the insurer must defend. 3 The review then ends, even though the pleadings are ambiguous 4 or reveal other claims not covered in the policy, and notwithstanding that extraneous facts indicate the claim is false, groundless, or even fraudulent. 5 Since Hawkeye's duty to defend arguably appears from the face of the pleadings we do not reach the issue whether the trial court can resolve the ambiguity by considering depositions and other evidence outside the pleadings.

The burden of showing no duty to defend rests on the insurer. See Roser, supra at 936; Scherschlight, supra at 472; Lanoue, supra at 52. The insurer must show the claim clearly falls outside of policy coverage. Roser, supra at 936; Lanoue, supra at 52. If, after considering the complaint, and when appropriate, other record evidence, doubt exists whether the claim against the insured arguably falls within policy coverage, such doubts must be resolved in favor of the insured. See, Roser, supra; Allstate Ins. Co. v. Demps, 133 Mich.App. 168, 176, 348 N.W.2d 720, 724 (1984); Detroit Edison Co. v. Mich. Mut. Ins. Co., 102 Mich.App. 136, 142, 301 N.W.2d 832, 835 (1980); Jostens, Inc. v. CNA Ins., Continental Cas. Co., 336 N.W.2d 544, 545 (Minn.1983); Inland Const. Corp. v. Continental Cas. Co., 258 N.W.2d 881, 884 (Minn.1977); Continental Cas. Co., 317 A.2d at 105. This is especially applicable where those doubts exist pre-trial. See Inland Const. Corp., supra; F. and M. State Bank v. St. Paul Fire & Marine, 309 Minn. 14, 242 N.W.2d 840, 842 (Minn.1976).

The trial court, in its memorandum opinion stated:

The allegation in the third party complaint that Clay County should be brought in as a third party defendant since there may be joint contributors in indemnity issues involved is insufficient with respect to whether such possible contribution would lie in contract, subject to Chapter 56-3, or in tort, subject to the provisions of Chapter 15-8, but it is assumed from the relationship that it is alleged it lies in contract.

The claim that Clay County jointly operated the...

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