North Star Mut. Ins. Co. v. Kneen, s. 17561

• Decision Date: 03 December 1991
• Docket Number: Nos. 17561,17569,s. 17561
• Citation: 484 N.W.2d 908
• Parties: NORTH STAR MUTUAL INSURANCE COMPANY, Plaintiff and Appellant, v. Patricia E. KNEEN and Arthur E. Kneen, Defendants and Appellees. . Considered on Briefs
• Court: South Dakota Supreme Court

Page 908

484 N.W.2d 908

NORTH STAR MUTUAL INSURANCE COMPANY, Plaintiff and Appellant, v. Patricia E. KNEEN and Arthur E. Kneen, Defendants and Appellees.

Nos. 17561, 17569.

Supreme Court of South Dakota.

Considered on Briefs Dec. 3, 1991.

Decided May 6, 1992.

Michael J. Schaffer, Marie E. Hovland, Davenport, Evans, Hurwitz & Smith, Sioux Falls, for plaintiff and appellant.

Carl F. Haberstick, Fosheim & Haberstick, Huron, for defendant and appellee Patricia E. Kneen.

E. Steeves Smith, Tinan & Smith, Mitchell, for defendant and appellee Arthur E. Kneen.

HENDERSON, Justice.

PROCEDURAL HISTORY/ISSUES

North Star Mutual Insurance Company (North Star) commenced this action in the Fourth Judicial Circuit Court against Patricia Kneen (Patricia) and Arthur Kneen (Arthur), by declaratory judgment complaint. Patricia filed a motion to dismiss. Arthur filed a motion for partial summary judgment.

The trial court granted Arthur's motion for partial summary judgment, determining that North Star had a duty to defend Arthur and deferring final resolution of the coverage issues until after trial of the underlying action. Arthur filed a notice of review contesting the court's order denying his request for attorney fees and litigation expenses which were incurred in defending the declaratory judgment action.

On appeal, North Star raises the following issues:

I. Did the trial court err in holding that the insurance coverage question cannot be resolved through a declaratory judgment action, prior to trial of the underlying lawsuit? We hold that it did.

II. Did the trial court err in holding that North Star has a duty to defend Arthur Kneen in the underlying lawsuit? We hold that it did not.

III. Did the trial court err in denying Arthur Kneen's request for attorney's fees and expenses incurred in defending the declaratory judgment action? We hold that it did not.

FACTS

Patricia and Arthur Kneen are former spouses who obtained a divorce in South Dakota in 1987. The divorce decree gave joint custody of the couple's two children, although Arthur retained primary custody. By the divorce decree, Patricia exercised visitation rights for a certain number of weekends and one to two months during the summer.

On September 8, 1989, Patricia entered Arthur's property for the purpose of exercising her visitation rights. A dispute erupted between the two parties concerning Patricia's refusal to contact Arthur concerning the welfare of the children during the summer visitation. Additionally, Arthur was concerned over where the children resided during the summer visitation. Because of these concerns, Arthur refused to let Patricia take custody. A scuffle ensued when Arthur forcibly took Patricia out of her car and then removed one of the minor children. Patricia then re-entered the front driver's side of the car with the other minor child in the passenger side. At this point, the parties' assertion of the nature of the offense diverge. Admittedly, Arthur forcibly grabbed Patricia in an attempt to again remove her from the car and gain control of the child in the car. It was at this time that Patricia's arm was broken. During this whole occurrence, Patricia also suffered numerous bruises and bumps about her body.

Patricia filed a civil complaint against Arthur containing two counts. She based her claim for damages on alternative theories. Count I alleges negligence, i.e., that Arthur's negligent acts caused her injuries. Count II alleges an intentional tort, i.e., that Arthur acted intentionally to inflict injuries. These two counts trigger the dispute between North Star and Arthur.

Arthur had a policy of insurance procured from North Star. Under the "Exclusions" section of this insurance policy, the following provision is included in subsection 1.h.: "(This policy does not apply to liability) resulting from bodily injury or property damage caused intentionally by or at the direction of the insured." In addition, the policy provides coverage for liability for "bodily injury or property damage caused by an occurrence" to which the coverage of the policy applies. Occurrence is defined in the policy to mean "an accident ...."

North Star asserted in its declaratory judgment that it had no duty to defend Arthur nor provide coverage for him in the underlying action initiated by Patricia. North Star contends that Patricia's claim against Arthur arises out of an intentional act and that such claim is, therefore, excluded from coverage under the North Star policy.

Our review considers the partial summary judgment order. South Dakota courts may grant summary judgment when, viewing the evidence in the light most favorable to the nonmoving party, the moving party clearly shows that there is not an issue of material fact present. Wilson v. Great N. Ry. Co., 83 S.D. 207, 212, 157 N.W.2d 19, 21 (1968).

DECISION

I. Did the trial court err in initially refusing to consider North Star's declaratory judgment action? We hold that it did.

North Star argues that a declaratory judgment action is the proper vehicle for determining, pre-trial, whether the claims asserted against its insured in the underlying lawsuit ¹ trigger coverage under the insurance policy. Additionally, North Star argues that a declaratory judgment action is the proper vehicle for determining generally, pre-trial, whether it has a duty to defend Arthur Kneen.

The trial court based the Order granting partial summary judgment--thereby disposing of the declaratory judgment action--on the premise that (1) the declaratory judgment action would not settle the controversy in the underlying case; (2) the obligations of North Star to Arthur cannot be determined until after trial of the underlying case; and (3) any relief granted from the declaratory judgment action would result in two trials instead of one. North Star still had the opportunity to reserve its rights to contest coverage after trial.

North Star initiated this action pursuant to South Dakota's Declaratory Judgment Act, SDCL 21-24, specifically citing SDCL 21-24-14. ² In conjunction with SDCL 21-24-14, North Star cites to SDCL 15-6-57, ³ Declaratory Judgments, as authority for the argument that it is entitled to have the coverage issues resolved by the declaratory judgment action prior to trial of the underlying lawsuit.

Unquestionably, a trial court has discretion to grant or deny a declaratory judgment action. See, Royal Indem. Co. v. Metropolitan Cas. Co. of N.Y., 80 S.D. 541, 546, 128 N.W.2d 111, 114 (1964). In this case, the trial court abused its discretion by ruling that North Star could not have the coverage question decided until the underlying action was resolved. The ruling by the trial court granting Arthur's motion for partial summary judgment in the declaratory action created a conflict of interest. North Star has an interest in establishing that Arthur's acts were beyond the scope of the policy, yet it also owes Arthur the duty to defend against Patricia's claims. This type of conflict has been dealt with previously by the Michigan courts:

In earlier cases, automobile liability insurers were denied judgments declaring their liability under policies on the ground that the question could be determined in an action against the insurer after the determination of the insured's liability.... The practical effect of denying declaratory relief was to force the liability insurer to conduct the defense on behalf of the insured when he was sued by the injured party, even though it might subsequently be determined that the insured was not covered. It is for this very reason that cases of this type have consistently been recognized as appropriate subjects for declaratory relief in other jurisdictions.

Group Ins. Co. of Mich. v. Morelli, 314 N.W.2d 672, 674-75 (Mich.App.1981) (citations omitted) (emphasis added).

This Court has, in the past, allowed a party to bring a declaratory judgment action to determine the rights and duties between insurers and insureds, pursuant to an insurance policy. Standard Casualty Co. v. Boyd, 75 S.D. 617, 71 N.W.2d 450 (1955). In Boyd, this Court determined that a declaratory judgment action may be properly utilized to resolve such a controversy between an insurer and an insured. In that case, an insurance company initiated a declaratory judgment action seeking determination of its rights and duties arising out of an insurance policy issued to its insured. The action was initiated prior to the commencement of any underlying action by those claiming to have been injured by the acts of the insured. The primary question to be resolved by the declaratory judgment was whether there was a binding insurance policy agreement existing between the parties. This issue could not have been determined in the underlying lawsuit, it could only have been resolved in a separate action, hence, the need for a declaratory judgment action. Similarly, in the present case the coverage issue will not be decided in the underlying action. North Star is not a party to this underlying action. Therefore, it will not be barred by the doctrines of res judicata or collateral estoppel from bringing a declaratory judgment action after trial. Black Hills Mfg. v. Felco Jewel Indust., 336 N.W.2d 153, 157 (S.D.1983).

We are additionally concerned that North Star may be unduly prejudiced if the coverage issue is not decided prior to trial of the underlying action. A possible scenario is that Arthur could admit liability or stipulate to negligence, leaving North Star powerless to defend its interests. Further, both Arthur and Patricia have an interest in having Arthur's conduct determined to be "negligent," rather than "intentional," because of the scope of the insurance coverage.

As we have noted, SDCL 21-24-14 provides that Chapter 21-24, South Dakota's Declaratory Judgment Act, is to be liberally construed and administered. See, Kneip v. Herseth, 87 S.D. 642, 647-48, 214 N.W.2d 93, 96 (1974). In keeping with the goals...