Mills v. Agrichemical Aviation, Inc.

• Court: North Dakota Supreme Court
• Writing for the Court: PEDERSON; VOGEL; ERICKSTAD
• Citation: Mills v. Agrichemical Aviation, Inc., 250 N.W.2d 663 (N.D. 1977)
• Decision Date: 20 January 1977
• Docket Number: No. 9260,9260
• Parties: Dennis MILLS and David Mills, Plaintiffs, v. AGRICHEMICAL AVIATION, INC., and Gene Engel, Defendants. Walter SMALL, Defendant, Third-Party Plaintiff and Appellee, v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Third-Party Defendant and Appellant. Civ.

Page 663

250 N.W.2d 663

Dennis MILLS and David Mills, Plaintiffs, v. AGRICHEMICAL AVIATION, INC., and Gene Engel, Defendants.

Walter SMALL, Defendant, Third-Party Plaintiff and Appellee, v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Third-Party

Defendant and Appellant.

Civ. No. 9260.

Supreme Court of North Dakota.

Jan. 20, 1977.

As Amended Jan. 27, 1977.

Syllabus by the Court

1. An insurer who selects standardized contracts and offers them to the insured on a 'take-it-or-leave-it' basis must assume responsibilities for disharmonious policy provisions.

2. It is not unreasonable for a buyer to have a reasonable expectation that when he buys and pays for 'farm liability' insurance, it will cover liability arising out of any of his normal farming operations, unless excluded operations are called to his attention.

3. The status and relationship of the parties may not only create legal obligations before an insurance contract has been entered into, but after an insurance contract has been entered into as well, even when obligations appear to be in conflict with the terms of the contract.

4. Any ambiguity or reasonable doubt as to the meaning of a policy is to be construed strictly against the insurer and in favor of the insured.

5. If language in a policy will support an interpretation which will impose liability on the insurer and language which will not, the former interpretation will be adopted.

6. The Doctrine of Reasonable Expectations has evolved as an interpretive tool to aid courts in discerning the intention of the parties bound by adhesion contracts.

7. The invocation of the Doctrine of Reasonable Expectations may not always be appropriate but is when, as here, ambiguity is created by confusingly dissimilar exclusionary language buried in the bodies of two policies ostensibly providing comprehensive farm liability coverage.

Lundberg, Conmy, Nodland, Rosenberg, Lucas & Schulz, Bismarck, for third-party defendant and appellant; argued by A. Wm. Lucas, Bismarck.

Sperry & Schultz, Bismarck, for defendant, third-party plaintiff and appellee; argued by Alfred C. Schultz, Bismarck.

PEDERSON, Justice.

This is an appeal from a judgment by the Burleigh County District Court in a case tried to the court without a jury. Rule 52(a), North Dakota Rules of Civil Procedure applies insofar as findings of fact are concerned. The appellant is the St. Paul Fire and Marine Insurance Company, a third-party defendant, and the appellee is the third-party plaintiff, Walter Small. The judgment appealed from is based upon the following findings of fact and conclusions of law:

'FINDINGS OF FACT

'I.

'That the issues between the plaintiffs David Mills and Dennis Mills and Agrichemical Aviation Inc., Gene Engel and Walter Small were submitted to a jury for trial and that the jury on January 23, 1976, returned a verdict in favor of the plaintiffs Dennis Mills and David Mills and against the defendants and each of them, for damages arising as a result of crop spraying, in the sum of $7,655.00 without interest, and that the Court thereafter issued judgment in the sum of $7,655.00, plus costs in the sum of $188.40, for a total judgment in the amount of $7,843.40, in favor of the plaintiffs and against the defendants and each of them.

'II.

'That the issues involving insurance coverage were tried to the Court on the basis of the files and records in the action, briefs of the parties, and the testimony and evidence presented on March 2, 1976.

'III.

'That Walter Small purchased insurance from Evan Lips and Byron Anderson of the Murphy Insurance Agency and that the insurance coverage was provided by St. Paul Fire & Marine Insurance Company, which provided coverage for Small under various policies for a number of years; that this insurance coverage was increased from a basic policy to a personal catastrophe policy entitled 'Top Brass'.

'IV.

'That Small did not read either of the two policies and relied upon the agent to provide coverage which would protect him from claims of third persons growing out of his farming and ranching operations.

'V.

'That the intent of the Top Brass policy was to provide Small with additional protection, but that neither Mr. Lips nor Mr. Anderson explained to Small either the inclusions or exclusions of either policy or the extended coverage policy, and that discussions related to pecuniary limits of liability under the terms of the two policies.

'VI.

'That premiums were paid on the extended coverage policy at the time that the policy application was executed by Small, but the policy itself was not actually delivered until some time later when the company approved of the application and mailed the policy from the home office for delivery to Small.

'VII.

'That the insurance agency was unaware of the crop spraying operation on Small's land, until Small reported the plaintiffs' claim for damages.

'VIII.

'That neither Small nor the agent for the insurance company discussed the matter of crop spraying at any time.

'IX.

'That the insurer and the agency offered no form of policy or policy provisions which deals specifically with farming operations and therefore Small had no choice either as to policy or policy provisions.

'X.

'That Small believed that he was covered for all types of crop spraying, whether done by ground or aerial application and had been using aerial spraying of crops for approximately twenty years on his ranch and farm.

'XI.

'That the claims of Small with the company made through the agency in the past had been paid without difficulty.

'XII.

'That the spraying of crops is an integral part of farming operations in this day and age.

'XIII.

'That it was Small's understanding that he was purchasing a liability policy providing him with liability protection in the essential functions of his farm operations, including his spraying operations.

'XIV.

'That Small was entitled to rely upon the policy as being fit for the purposes for which he purchased it under the Doctrine of Implied Warranty of Fitness. That it is the duty of the insurer, through its agents, to make known in the application that certain essential operations of the farm industry are not covered under the policy, should that be the case.

'XV.

'That Lips and Anderson are licensed agents for the third-party defendant company, St. Paul Fire and Marine Insurance Company and that the company negotiated a sale of its policy through the agents.

'XVI.

'That Small has contracted for and paid to the St. Paul Fire and Marine Insurance Company a premium for legal defense and the cost of legal defense under the policies involved and is entitled to judgment for the cost of defending the action against him in an amount to be determined by the Court.

'CONCLUSIONS OF LAW

'I.

'That Lips and Anderson are licensed agents for the St. Paul Fire and Marine Insurance Company and that the company negotiated a sale of its policy through its agents.

'II.

'That Walter Small is entitled to rely upon the policy issued as being for the purposes for which he purchased it and is entitled to coverage for damages arising as a result of crop spraying under the Doctrine of Implied Warranty of Fitness.

'III.

'That Walter Small is entitled to coverage, which the insured reasonably expected, under the Doctrine of Reasonable Expectations.

'IV.

'That the defendant and third-party plaintiff, Walter Small, is entitled to a judgment against the third-party defendant, St. Paul Fire and Marine Insurance Company, for the sum of $7,843.40 in addition to costs of defense to be determined and taxable costs to be retaxed on due notice.'

It is not argued that any of the findings of fact are clearly erroneous; accordingly, we presume that they are all correct.

Appellant says the issues are:

1. Do the insurance policies, as written, provide coverage for liability based upon aerial spraying or use of aircraft by the insured, Walter Small?

2. Did the trial court err in creating a new contract for the parties, and in providing coverage for aerial spraying and use of aircraft, based upon the Doctrine of Reasonable Expectations and the Doctrine of Implied Warranty of Fitness?

Without comment upon appellant's statement of the issues, we conclude that the argument presented challenges the correctness of conclusions of law II and III.

In June 1971 Small employed Agrichemical Aviation, Inc., and Gene Engel, to aerial spray a portion of his crops. As a result of that operation, crops belonging to Dennis and David Mills were damaged. There are two insurance policies involved in the controversy, both written by St. Paul Fire and Marine Insurance Company and both acquired by Small through Murphy Insurance Agency. Small and his father before him have been long-time insurance clients of Murphy Insurance Agency. The basic comprehensive farm policy provided insurance protection for buildings and personal property owned by Small, and farmer's personal liability coverage up to $200,000. A second policy, entitled 'Top Brass,' was first purchased by Small in March 1971 and expanded the limits of personal liability to $1,000,000.

There is no evidence in the record that the liability coverages in either policy were discussed beyond a statement of the amount. Exclusions were not discussed at any time prior to the loss encountered in this case.

Witnesses for Murphy Insurance indicated that the basic policy is called 'Farmer's Comprehensive Insurance' and covers loss or damage to property by reason of fire, theft, windstorm, etc., plus farm and ranch liability. The 'Top Brass' policy is a personal catastrophe liability policy only.

The basic comprehensive policy, under the heading 'Insuring Agreements' and relating to the liability coverage only, contains this exclusion in subparagraph (h) of paragraph 1:

'This coverage does not apply:

'h. to property damage arising out of any substance released or discharged from any aircraft.'

We find that language to be a clear and unambiguous exclusion.

The...