Kief Farmers Co-op. Elevator Co. v. Farmland Mut. Ins. Co.

• Decision Date: 03 July 1995
• Docket Number: No. 950011,950011
• Parties: KIEF FARMERS COOPERATIVE ELEVATOR COMPANY, Plaintiff and Appellant, v. FARMLAND MUTUAL INSURANCE COMPANY, Defendant and Appellee. Civ.
• Court: North Dakota Supreme Court

Page 28

534 N.W.2d 28

KIEF FARMERS COOPERATIVE ELEVATOR COMPANY, Plaintiff and Appellant, v. FARMLAND MUTUAL INSURANCE COMPANY, Defendant and Appellee.

Civ. No. 950011.

Supreme Court of North Dakota.

July 3, 1995.

Thomas A. Wentz, Jr., of Pringle & Herigstad, PC, Minot, for plaintiff and appellant.

Bruce H. Carlson, of McNair, Larson & Carlson, Fargo, for defendant and appellee.

VANDE WALLE, Chief Justice.

Kief Farmers Cooperative Elevator Company [Kief] appealed from a summary judgment dismissing its claim that Farmland Mutual Insurance Company [Farmland] is obligated under its contract of insurance to pay for property damage and business income loss incurred by Kief. We reverse and remand for further proceedings.

In 1985, Kief erected a 100,000 bushel grain storage bin at its facility in Butte. The contractor, however, incorrectly installed the wall side discharge flume hoods. The wall side discharge flume system was used only once, on May 26, 1988, when a unit train was loaded at the Butte facility. According to Kief's professional engineer, this use immediately damaged the upper half of the wall and roof of the bin, and the "resulting damage was magnified on each load/unload cycle subsequent to the original use of the side discharge flume." The engineer said the damage to the bin "would be difficult, if not impossible, for a non-expert to observe or discover." Kief employees did not notice any damage to the bin until it was brought to their attention on May 15, 1992. Kief incurred expenses for repairing the bin and suffered a loss of business income while the bin was being repaired.

Farmland provided property, casualty and liability coverage to Kief under one-year policies which extended continuously from July 1, 1984, through August 1, 1991. Old Republic Insurance Company [Republic] provided insurance for covered losses on Kief's business property located in Butte under a policy in effect from August 1, 1991, until August 1992.

On May 6, 1994, Kief sued both Farmland and Republic, alleging that they were jointly and severally liable for the property damage to the bin and for the business income loss resulting from the period of its repair. Kief settled with Republic, and Republic was dismissed from the action.

Kief moved for summary judgment against Farmland, asserting that the loss and damage occurred during the Farmland policy periods and that the loss and damage were caused by covered perils. The property insurance section of the Farmland "CommercialGard" policy ¹ provided in part:

"h. Policy Period, Coverage Territory

"Under this coverage section:

"(1) We cover loss or damage commencing:

"(a) During the policy period shown in the declarations; ..."

[Emphasis in original]. "Loss" is defined as "direct and accidental loss or damage." [Emphasis in original]. "Accident" is defined as "a sudden unforeseen or unintended event." "Occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." [Emphasis in original]. "Property damage" is defined as "[p]hysical injury to tangible property, including all resulting loss of use of that property; or ... [l]oss of use of tangible property that is not physically injured." [Emphasis in original].

The policy further provided:

"We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your operations during the period of restoration. The suspension must be caused by direct physical loss of or damage to property covered under the Real Property and Business Personal Property and Stock coverage of this policy, caused by or resulting from any covered cause of loss."

[Emphasis in original]. The "period of restoration" is defined in part as:

"the period of time that:

"a. Begins with the date of direct physical loss or damage caused by or resulting from any Covered Cause of Loss at the described premises; and

"b. Ends on the date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality.

* * * * * *

"The expiration date of this policy will not cut short the period of restoration."

[Emphasis in original].

The trial court granted summary judgment against Kief, concluding that although some amount of the loss and damage involved would have been covered, the Farmland policy did not provide coverage "for an occurrence or accident that commences during the policy period, but that does not result in loss or damage until after coverage ends." The trial court ruled the language of the policy was "clear and unambiguous," and that:

"Unless the policy provides otherwise, where the manifestation of damages is delayed, the insurance coverage is triggered when the property damage becomes known to the victim or the property owner. In this case, the manifestation of damages was delayed until after the Farmland policy was cancelled. As a result, Farmland is not liable for the loss."

Kief appealed.

Summary judgment, if appropriate, may be granted against the moving party. N.D.R.Civ.P. 56(c); Spier v. Power Concrete, Inc., 304 N.W.2d 68 (N.D.1981). Summary judgment is appropriate if, after viewing the evidence in the light most favorable to the party against whom judgment has been entered, there are no genuine issues of material fact or conflicting inferences that can reasonably be drawn from undisputed facts, or if the only issues to be resolved are questions of law. Roen Land Trust v. Frederick, 530 N.W.2d 355 (N.D.1995).

Interpretation of an insurance policy is a question of law, fully reviewable on appeal. Hart Const. Co. v. American Fam. Mut. Ins., 514 N.W.2d 384 (N.D.1994). Applying contract construction principles, we attempt to give effect to the mutual intention of the parties at the time of contracting by ascertaining that intent through the language of the contract itself, giving effect to all of its provisions if possible. Continental Cas. Co. v. Kinsey, 499 N.W.2d 574 (N.D.1993). Unambiguous language will be given its clear meaning. State Farm v. LaRoque, 486 N.W.2d 235 (N.D.1992). Ambiguity in contract language exists when the language can be reasonably construed as having at least two alternative meanings, and whether the contract is clear and unambiguous is a question of law for the court to decide. State Farm Fire and Cas. Co. v. Sigman, 508 N.W.2d 323 (N.D.1993). We consider whether a person not trained in the law or in the insurance business can clearly understand the language. Aid Ins. Services, Inc. v. Geiger, 294 N.W.2d 411 (N.D.1980). Because insurance policies are adhesion contracts, in applying the rules to resolve ambiguities, we balance the equities in favor of providing coverage to the insured. Northwest G.F. Mut. Ins. Co. v. Norgard, 518 N.W.2d 179 (N.D.1994).

Kief asserts the trial court erred in ruling that the policy provision limiting coverage to "loss or damage commencing ... [d]uring the policy period" unambiguously meant insurance coverage is triggered only when the property damage becomes known to the property owner. Kief claims the policy provision is ambiguous and that the court should have interpreted it to mean that, absent language to the contrary, loss or damage commences when the property injury or damage first began, not when it is discovered. According to Kief, because the damage began on May 26, 1988, when the unit train was loaded at the Butte facility, the Farmland policy must provide coverage.

Farmland asserts that we, like the trial court, should interpret the policy provision to mean that, in first-party progressive property-loss cases, when the loss occurs over the periods of several successive policies and is not discovered until years after the damage commences, the insurer at the time the damage becomes known is solely responsible for coverage. Because the damage was not discovered until May 15, 1992, while Kief was insured by Republic rather than Farmland, Farmland contends its policy provides no coverage.

In the typical property insurance situation, the occurrence of damage and its manifestation will be simultaneous, thus averting the interpretation problem we encounter here. However, in this situation, because the damage occurred at an earlier time, but did not manifest itself until a later date, and because Kief and Farmland each offered rational but different meanings for the policy coverage provision, we conclude that the provision is ambiguous when applied to these facts. ² See, e.g., Corwin Chrysler-Plymouth v. Westchester Fire, 279 N.W.2d 638 (N.D.1979).

In the context of third-party liability insurance, ³ courts have developed several different analytical theories for determining when loss or damage occurs, thereby triggering coverage, in cases where an injury-causing condition is known to have taken place at some previous time, but manifestation of the injury is delayed to a later date. See Annot., Event triggering liability insurance coverage as occurring within period of time covered by liability insurance policy where injury or damage is delayed--modern cases, 14 A.L.R.5th 695 (1993), and cases collected therein. Some courts have applied the "exposure" rule, holding that where manifestation of the injury is delayed, liability insurance coverage is triggered when the initial exposure to an injury-causing condition takes place. Id. at Sec. 3. Some courts have applied the "manifestation" rule, holding that where manifestation of injury is delayed, liability insurance coverage is not triggered until the personal injury or property damage becomes known to the victim or property owner. Id. at Sec. 4. Other courts have applied the "continuous exposure" rule, holding that where manifestation of injury is delayed, liability insurance coverage is triggered so that insurance policies in effect during different time periods, from exposure to harm through manifestation of injury, all impose a duty to defend or indemnify. Id. ...