National Farmers Union Property & Cas. Co. v. Iverson

Decision Date14 August 1972
Docket NumberNo. Civ. 72-4041.,Civ. 72-4041.
Citation346 F. Supp. 660
PartiesNATIONAL FARMERS UNION PROPERTY AND CASUALTY COMPANY, a Corporation, Plaintiff, v. Gary B. IVERSON and Glenn L. Iverson, Defendants.
CourtU.S. District Court — District of South Dakota

John S. Theeler, of Morgan & Fuller, Mitchell, S. D., appeared in behalf of the plaintiff.

Charles A. Wolsky, Vermillion, S. D., and A. D. Sommervold, of Woods, Fuller, Shultz & Smith, Sioux Falls, S. D., appeared in behalf of the defendants.


NICHOL, District Judge.

The defendants, Glenn L. and Gary B. Iverson, do business as a partnership under the name of the Iverson Brothers. They are engaged in the farming business near Vermillion, South Dakota and grow, cut and bale alfalfa hay for sale. One Donald Punt purchased hay from the Iversons on October 15, 1969, November 15, 1969, and December 9, 1969, and the same was delivered to the Punt farm in Sioux County, Iowa, to be used as cattle feed. It is alleged that subsequently Punt's dairy cattle became afflicted with what is known as "hardware disease". The disease is the result of the cow's ingesting metal objects, most commonly small bits of wire. Because of this affliction the cattle have depreciated in value. As a result of this economic loss Mr. Punt has commenced a suit for damages in this court against the Iversons, individually, for a sum in excess of $28,000.

The plaintiff in the immediate suit, National Farmers Union Property and Casualty Company (National), is a Utah corporation having its principal place of business in Colorado. National, as insurer of the defendants, brings this action under 28 U.S.C.A. Secs. 2201 and 2202 for declaratory relief. The plaintiff agrees that at all times material herein it had issued to the defendant Iverson brothers, as individuals, a Farmer's Blanket Liability Policy. Specifically, policy #39-9746 effective from June 17, 1969, to June 17, 1970, was issued to Gary B. Iverson. And policy #39-4709 effective from July 6, 1969, to July 6, 1970, was issued to Glenn L. Iverson. Neither party has sought any other legal relief or adjudication of their respective rights under said policies.

The issue presented is whether or not plaintiff, National, has a duty to defend and indemnify the Iversons, under their respective policies, in the litigation initiated by Donald Punt. The Iversons contend that coverage is afforded under the issued policies, while National prays for a declaratory determination that they are not contractually bound to defend or indemnify the policyholders under these facts and under their policies.

This court finds from its interpretation of the policy in question and from the allegations contained in Punt's complaint that:

(1) National is not under a duty to defend the Iversons in the suit initiated by Donald Punt; but

(2) National will be held responsible to the Iversons for any sum they may become obligated to pay up to the limits provided by Coverage E and its relevant Conditions.

Neither counsel for the parties nor this court discovered a case interpreting an identical policy or a case based on identical facts. Resort must then be made to general rules of contract construction. As a matter of law insurance contracts should be construed like any other contract, Bergholm v. Peoria Life Insurance Company, 284 U. S. 489, 52 S.Ct. 230, 76 L.Ed. 416 (1932), giving effect to the expressed intentions of the parties so far as that intention is legal. W. Vance, Handbook on the Law of Insurance 808 (3d ed. 1951).

The courts are fully agreed that if the contract is clear and is valid, they have no option but to enforce the contract which the parties have entered into. Stated another way, the function of the court is to construe and to enforce the contract which the parties have entered into and not to make a new contract for the parties. Vance at 809.

In Black Hills Kennel Club, Inc. v. Fireman's Fund Indemnity Co., 77 S.D. 503, 94 N.W.2d 90 (1959), this principle was applied when the South Dakota Supreme Court stated:

We are mindful of the rule of construction that where the provisions of an insurance contract are not clear and are fairly susceptible of different interpretations that one most favorable to the insured should be adopted. (Cases cited). This rule does not mean, however, that the court may seek out a strained or unusual meaning for the benefit of the insured. (Case cited). Insurers may assume some risks and exempt themselves from liability for others. 77 S.D. at 506-507, 94 N.W.2d at 92.

Our factual situation finds possible coverage under two provisions of the insurance contracts purchased by the Iversons. For the following reasons it does not fall within the first of such provisions, Coverage A.

Coverage A and its relevant Exclusion state:
Coverage A—Farm and Personal Liability: To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage.

This policy does not apply:

(h) under Coverage A, to any occurrence arising out of the handling or use of, the existence of any condition in, or a warranty of, goods or products manufactured, produced, grown, sold, handled or distributed by the insured if the occurrence arises after the insured has relinquished possession thereof to others and away from premises owned, rented or controlled by the insured.

Exclusion (h) is, as counsel for the plaintiff submits, a products liability exclusion. This exclusion carves out of the broad proclamation of coverage, provided in Coverage A, liability incurring events surrounding an insured's ". . . goods . . . produced, grown, sold, . . . by the insured if the occurrence arises after the insured has relinquished possession thereof to others and away from premises owned . . . by the insured". This language in clear and unambiguous terms excludes the risks or the events surrounding a policyholder's possible products liability. It does not, as defendants contend, have reference to coverage of damages sustained by the products themselves.

Defendants contend that it is the alleged negligence of the Iversons in bailing small bits of wire into the hay that has given rise to liability, not the subsequent occurrence of "hardware disease" away from their premises and in Donald Punt's cattle. In support of this contention defendants further submit that as between multiple-cause losses, one cause being insured and one not being insured, that the direct sustained loss will be attributed to the insured cause thus providing coverage. Defendants' contentions are not persuasive because of the broad definition of the policy term "occurrence"; because of case decisions interpreting similar language in product liability exclusions contrary to defendants' interpretation; and because the defendants have misapprehended the multiple-cause loss theory.

The defendants' acknowledged authority points out in his cited work, R. Keeton, Insurance Law-Basic Text 319 (1971):

Subject to overriding regulatory measures, explicit policy provisions regarding multiple-cause cases are ordinarily enforceable as written and may provide either for broader or for narrower coverage than would result in the absence of contractual specification. Thus, for example, the rules of insurance law applicable to what Patterson calls excluded events are quite unlike the rules of proximate cause applied in torts cases and in other insurance cases, since these rules of insurance law deny recovery for losses arising from multiple causes some of which could have been affirmative bases for coverage but for the exclusionary provision. (emphasis added).

This court interprets the explicit language of Exclusion (h) as narrowing the scope of the risks assumed and denying application of Coverage A.

The extensiveness of Exclusion (h) can only be appreciated by interpreting the term "occurrence" in relation to the term "accident". The definition of "o...

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    ...policy, along with its respective definitions and exclusions, must be read as separate and distinct. National Farmers Union Property & Gas Co. v. Iverson, 346 F.Supp. 660, 665 (D.S.D.1972). Consequently, in order to determine whether a certain risk, such as damage to a third party resulting......
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