Kambeitz v. Acuity Ins. Co.

Decision Date16 September 2009
Docket NumberNo. 20090059.,20090059.
PartiesMichael KAMBEITZ and Denise Ann Dockter-Kambeitz, Plaintiffs and Appellants v. ACUITY INSURANCE COMPANY, Defendant and Appellee.
CourtNorth Dakota Supreme Court

Rodney E. Pagel, Pagel Weikum Law Firm, Bismarck, N.D., for plaintiffs and appellants.

Randall J. Bakke (argued) and Shawn A. Grinolds (on brief), Smith Bakke Porsborg & Schweigert, Bismarck, N.D., for defendant and appellee.

MARING, Justice.

[¶ 1] Michael Kambeitz and Denise Ann Dockter-Kambeitz appeal from an order granting summary judgment dismissal of their claim for payment of benefits under the underinsured motorist ("UIM") provisions of a commercial auto insurance policy issued by Acuity Insurance Company. Because fraud or misrepresentation which would relieve an insurer of liability under its insurance policy with the insured does not relieve the insurer of liability to an injured innocent third party whose protection is mandated under North Dakota law, and because there exist genuine issues of material fact whether there was fraud or misrepresentation by the insured and whether Michael Kambeitz is an innocent third party under the circumstances, we conclude the district court erred in granting Acuity's motion for summary judgment. We reverse and remand for further proceedings.

I

[¶ 2] On March 12, 2004, Michael Kambeitz was driving a 2001 Dodge Ram truck in Bismarck when the truck was rearended by another vehicle. Kambeitz was injured and received $25,000, the liability carrier's insurance limit, from the at-fault driver's insurance company. Kambeitz and his wife, Dockter-Kambeitz, then sought UIM benefits from Acuity, the insurer of the truck.

[¶ 3] The 2001 Dodge Ram truck involved in the accident was owned by Kambeitz's father, Thomas Kambeitz. Thomas Kambeitz is an owner of two Bismarck businesses: Bismarck Heating and Air, Inc. ("Bismarck Heating and Air"), and Newvision, LLC, which is operated under the trade name "New Vision Security Systems." New Vision was opened in 1996 or 1997, and Michael Kambeitz is its primary employee. The 2001 Dodge Ram truck is also the primary vehicle used for New Vision business.

[¶ 4] The 2001 Dodge Ram truck was one of seventeen vehicles insured under a commercial auto insurance policy issued by Acuity to Bismarck Heating and Air. The truck was specifically listed as a covered auto under the policy, and Michael Kambeitz was listed on Bismarck Heating and Air's schedule of drivers in the policy, along with seventeen other owners and employees of Bismarck Heating and Air. At the time of the accident, the truck was being used by Michael Kambeitz while he conducted business on behalf of New Vision. According to Michael Kambeitz, the truck was used "primarily" by New Vision, but the truck "has also been used to the benefit of [Bismarck Heating and Air] in the performance of work," because he would "occasionally run errands, pick up parts, haul parts, supplies, etc. for [Bismarck Heating and Air]."

[¶ 5] Acuity denied Kambeitz's claim, and Kambeitz and Dockter-Kambeitz brought this lawsuit to collect UIM benefits under the insurance policy issued to Bismarck Heating and Air. Shortly before the scheduled trial, Acuity moved for summary judgment dismissal of the lawsuit. Acuity argued the insurance policy "was procured by material misrepresentations of fact, fraud and/or concealment perpetrated by a named insured with the knowledge and collusion of plaintiffs," and that the "collusion constitutes a complete defense to plaintiff's claims." Affidavits from Thomas Kambeitz and Michael Kambeitz denying any fraud, misrepresentations, or collusion were submitted in response to the motion.

[¶ 6] In granting the summary judgment motion, the district court reasoned:

While Kambeitz claims the facts are in dispute, the Court finds he has not set forth a "genuine material issue of fact precluding summary judgment." Kambeitz states that Thomas Kambeitz is the owner of Bismarck Heating & Air, Inc., the entity insured by Acuity. Kambeitz also states that Thomas Kambeitz is the owner of New Vision, LLC (New Vision), and that at the time of the accident Kambeitz was employed by New Vision and using his father's vehicle in that capacity. Kambeitz asserts the Dodge Ram was listed on the policy issued by Acuity to BHAC, and that Thomas Kambeitz advised Acuity that Kambeitz would be a driver of the vehicle.

Acuity asserts this policy issued to BHAC was "procured by material misrepresentations of fact, fraud and/or concealment perpetrated by a named insured with the knowledge and collusion of the plaintiffs." While Thomas Kambeitz says he advised Acuity the Dodge Ram would be driven by Kambeitz and that he, Thomas Kambeitz, owned the Dodge Ram, he did not state that it would be primarily used by a business other than BHAC. Thomas Kambeitz does not claim New Vision is an additional business covered under the Acuity policy.

There is no genuine material issue of fact. The Dodge Ram was the business vehicle used by New Vision. There is but a minor connection with the Dodge Ram to the business of BHAC as Thomas Kambeitz states it was used to run parts. On these facts the Court finds misrepresentation to Acuity on the use of the Dodge Ram by another business entity not insured by Acuity.

The court dismissed the action, and Kambeitz and Dockter-Kambeitz (collectively "Kambeitz") appealed.

II

[¶ 7] Kambeitz contends the district court erred in granting summary judgment dismissal of the claim against Acuity.

[¶ 8] The standard for reviewing a summary judgment is well established:

Under N.D.R.Civ.P. 56, summary judgment is a procedural device for promptly resolving a controversy on the merits without a trial if there are no genuine issues of material fact or inferences that can reasonably be drawn from undisputed facts, or if the only issues to be resolved are questions of law. The party moving for summary judgment must show there are no genuine issues of material fact and the case is appropriate for judgment as a matter of law. A district court's decision on a motion for summary judgment is a question of law that we review de novo on the record. In determining whether summary judgment was appropriately granted, we view the evidence in the light most favorable to the party opposing the motion, giving that party the benefit of all favorable inferences which can reasonably be drawn from the record.

Bragg v. Burlington Res. Oil and Gas Co. LP, 2009 ND 33, ¶ 5, 763 N.W.2d 481 (quoting Erickson v. Brown, 2008 ND 57, ¶ 22, 747 N.W.2d 34 (citations omitted)).

A

[¶ 9] Kambeitz argues the district court erred in granting the motion for summary judgment because Acuity failed to plead in its answer the affirmative defense that there is no coverage under the policy based on the alleged misrepresentations, fraud, concealment, and collusion. See generally Zuraff v. Empire Fire and Marine Ins. Co., 252 N.W.2d 302, 303 (N.D.1977) (treating as affirmative defense allegation that "policy was null and void by reason of Zuraff's fraud and misrepresentation").

[¶ 10] Although the failure to plead an affirmative defense under N.D.R.Civ.P. 8(c) generally results in waiver of the defense, amendments to the pleadings under N.D.R.Civ.P. 15(a) are to be freely given when justice so requires. Hansen v. First Am. Bank & Trust, 452 N.W.2d 770, 771-72 (N.D.1990). In Leet v. City of Minot, 2006 ND 191, ¶¶ 3-4, 721 N.W.2d 398, the plaintiffs sued the City for negligence and the City, shortly before the scheduled trial, raised an affirmative defense based on the recreational use immunity statutes for the first time in a motion for summary judgment. The plaintiffs contended, in the district court and this Court, that the City was precluded from asserting the recreational use immunity defense for the first time in the motion for summary judgment. Id. at ¶ 4. This Court concluded an affirmative defense may be asserted for the first time in a motion for summary judgment "where there is no prejudice or surprise to the nonmoving party." Id. at ¶ 8. The district court had granted the motion for summary judgment on the ground of recreational use immunity, and we interpreted the court's actions as "effectively grant[ing] a motion to amend by permitting the defense to be raised." Id. Because the plaintiffs had not alleged any prejudice, had not sought a continuance, and no prejudice was apparent from the record, we concluded the district court did not abuse its discretion in permitting the City to raise the affirmative defense for the first time in its motion for summary judgment. Id. at ¶¶ 8, 10.

[¶ 11] Here, Kambeitz argued to the district court that Acuity should not be permitted to raise the affirmative defense because it was not contained in its answer. Although the district court did not address this argument in its decision, the court granted the summary judgment motion on the ground raised by the affirmative defense. As in Leet, 2006 ND 191, ¶ 8, 721 N.W.2d 398, the district court "effectively granted a motion to amend by permitting the defense to be raised." A district court's decision on a motion to amend a pleading will not be overruled on appeal unless the court has abused its discretion. Id. at ¶ 7. A district court abuses its discretion when it acts arbitrarily, unconscionably, or unreasonably, when its decision is not the product of a rational mental process leading to a reasoned determination, or when it misinterprets or misapplies the law. Id.

[¶ 12] Kambeitz did not allege in the district court or in this Court any prejudice or unfair surprise from Acuity's failure to specifically raise the affirmative defense until its motion for summary judgment, and there is no prejudice apparent from the record. We conclude the district court did not abuse its discretion in allowing the affirmative defense to be raised in this case.

B

[¶ 13] Kambeitz contends the district court erred in...

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