Northwest G.F. Mut. Ins. Co. v. Norgard, 930354

• Decision Date: 15 June 1994
• Docket Number: No. 930354,930354
• Citation: 518 N.W.2d 179
• Parties: NORTHWEST G.F. MUTUAL INSURANCE COMPANY, Plaintiff and Appellant, v. Ray NORGARD, Jean Norgard, Defendants, R.A. and K.A., individually, and on behalf of L.A.A., a minor, Defendants and Appellees. Civ.
• Court: North Dakota Supreme Court

Page 179

518 N.W.2d 179

NORTHWEST G.F. MUTUAL INSURANCE COMPANY, Plaintiff and Appellant, v. Ray NORGARD, Jean Norgard, Defendants R.A. and K.A., individually, and on behalf of L.A.A., a minor, Defendants and Appellees.

Civ. No. 930354.

Supreme Court of North Dakota.

June 15, 1994.

Thomas O. Smith, of Zuger Kirmis & Smith, Bismarck, for plaintiff and appellant. Appearance by Patricia E. Garrity.

William P. Harrie of Nilles, Hansen & Davies, Ltd., Fargo, for defendants and appellees.

VANDE WALLE, Chief Justice.

Northwest G.F. Mutual Insurance Company (Northwest) appealed from a summary judgment in favor of defendants Ronald and Kimberly Anderson (pseudonyms) and Jean Norgard, requiring Northwest to defend and indemnify Jean Norgard in an underlying tort action. We reverse.

Jean Norgard operated a home day care business at the Norgard residence in Casselton, North Dakota. Jean and her husband Ray purchased homeowners insurance from Northwest. Ray is the named insured on the policy, and all relatives residing in the Norgard household are also insureds. The policy provides, in pertinent part:

"COVERAGE E--Personal Liability

If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage caused by an occurrence to which this coverage applies, we will:

1. pay up to our limit of liability for the damages for which the insured is legally liable, and

2. provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent...."

The Norgards also purchased insurance coverage for Jean's day care, at an additional premium. Under the Home Day Care Coverage Endorsement, Northwest provides coverage for "bodily injury and property damage arising out of home day care services regularly provided by an insured and for which an insured receives monetary or other compensation." Coverage under the Home Day Care Coverage Endorsement is limited, however, by the following exclusion (sexual molestation exclusion):

"[T]he bodily injury and property damage coverage provided under this endorsement does not apply:

a. to bodily injury or property damage arising out of sexual molestation, corporal punishment or physical or mental abuse inflicted upon any person by or at the direction of an insured, an insured's employee or any other person involved in any capacity in the day care enterprise...."

During the month of October 1988, Ray Norgard allegedly engaged in sexual contact with L.A.A., the Anderson's four-year-old daughter, while the child was under Jean's supervision at the day care. Ray was later convicted of gross sexual imposition, in violation of section 12.1-20-03, NDCC.

The Andersons, individually and on behalf of their daughter, brought a civil action for damages against both Ray and Jean Norgard. According to the complaint, the child and her parents have suffered permanent and severe emotional and psychological injury, requiring on-going counseling and treatment. The Andersons allege a number of grounds for relief against Ray, including sexual assault and battery and negligent and intentional infliction of emotional distress. Significantly, the Andersons further allege that Jean breached a duty to use reasonable and due care in the supervision and care of the child and that Jean negligently failed to prevent Ray's sexual contact with the child.

Northwest subsequently instituted this declaratory judgment action in district court, naming the Norgards and the Andersons defendants and seeking a determination of its obligations to the Norgards under the Norgards' homeowners policy. Northwest asserts that it owes no duty to indemnify or defend either Ray or Jean Norgard, because the injuries arose out of sexual molestation by Ray, a risk specifically excluded from coverage.

The Andersons ¹ concede that Ray Norgard is disqualified from coverage due to the sexual molestation allegations, but argue that the sexual molestation exclusion does not affect Jean Norgard's coverage. The Andersons emphasize that, under the endorsement's Severability of Insurance provision (severability clause), each insured must be regarded as having separate insurance coverage. The severability clause provides:

"Severability of Insurance. This insurance applies separately to each insured except with respect to the Limit of Liability. Therefore, this condition will not increase the Annual Aggregate Limit of Liability regardless of the number of insureds."

The Andersons assert that, due to the severability clause, the term "an insured" in the sexual molestation exclusion refers only to the person seeking coverage--in this instance, Jean. Thus, they say, when determining Jean's coverage, Ray is not "an insured" and the policy does not exclude coverage for Jean for Ray's acts. Furthermore, the Andersons argue, the claims against Jean were alleged to have "arisen out of" Jean's negligence, not sexual molestation; thus, the exclusion for injuries "arising out of sexual molestation" does not affect Jean's coverage.

On cross-motions for summary judgment, the district court decided that the severability clause and sexual molestation exclusion, when read together, were ambiguous and that the policy could reasonably be interpreted as affecting only the coverage of the molester. Construing the ambiguity to provide Jean coverage, the court granted summary judgment in favor of the Andersons. Northwest appealed.

Our review of a summary judgment is guided by the following principles:

"Under Rule 56, N.D.R.Civ.P., a summary judgment should be granted only if it appears that there are no issues of material fact or any conflicting inferences which may be drawn from those facts. The party seeking summary judgment has the burden to clearly demonstrate that there is no genuine issue of material fact. In considering a motion for summary judgment, the court may examine the pleadings, depositions, admissions, affidavits, interrogatories, and inferences to be drawn from the evidence to determine whether summary judgment is appropriate. The court must view the evidence in a light most favorable to the party opposing the motion, and that party will be given the benefit of all favorable inferences which can reasonably be drawn from the evidence."

Hart Const. Co. v. American Family Mut. Ins., 514 N.W.2d 384, 388 (N.D.1994); Ellingson v. Knudson, 498 N.W.2d 814, 817 (N.D.1993).

The interpretation of an insurance policy is a question of law, fully reviewable on appeal. Hart Const., supra; State Farm Fire and Cas. Co. v. Sigman, 508 N.W.2d 323 (N.D.1993); Continental Cas. Co. v. Kinsey, 499 N.W.2d 574 (N.D.1993). Our goal when interpreting insurance policies, as when construing other contracts, is to give effect to the mutual intention of the parties as it existed at the time of contracting. NDCC Sec. 9-07-03; Continental Cas. Co., supra. Generally, we attempt to ascertain the intent of the parties through the language of the contract itself. NDCC Sec. 9-07-04; Continental Cas. Co., supra. To the extent practicable, we give effect to every provision of the contract. NDCC Sec. 9-07-06; Continental Cas. Co., supra. Unambiguous language will be given its clear meaning; NDCC Sec. 9-07-02; State Farm v. LaRoque, 486 N.W.2d 235 (N.D.1992); we will not rewrite a contract to impose liability on an insurer if the policy unambiguously precludes coverage. Continental Cas. Co., supra; Aid Ins. Services, Inc. v. Geiger, 294 N.W.2d 411 (N.D.1980).

We regard insurance policies as adhesion contracts, Continental Cas. Co., supra, and therefore, in applying the rules to resolve ambiguities, we balance the equities against the insurer, i.e., in favor of providing coverage to the insured. Id. Furthermore, if the rules for interpreting a written contract do not remove uncertainty, the language of the contract is to be construed most strongly against the party who drafted the contract. NDCC Sec. 9-07-19; Walle Mut. Ins. Co. v. Sweeney, 419 N.W.2d 176 (N.D.1988). The determination of whether a contract is ambiguous is a question of law. State Farm Fire and Cas. Co. v. Sigman, supra. Contract language is ambiguous if it can be reasonably construed as having at least two alternative meanings. Id. We consider whether a person not trained in the law or in the insurance business can clearly understand the language. Continental Cas. Co., supra; Aid Ins. Services, Inc. v. Geiger, supra.

Both parties agree that the severability clause creates separate and independent insurance contracts for each insured. The parties' disagreement concerns the interplay between the severability clause and the sexual molestation exclusion. We observe that the jurisdictions that have attempted to reconcile severability clauses and exclusionary clauses have not done so uniformly. See generally, Norman E. Risjord & June M. Austin, "Who Is 'The Insured' " Revisited, 28 Ins.Couns.J. 100 (1961); see also, Allan E. Korpela, Annotation, Validity, Construction, and Application of Provision in Automobile Liability Policy Excluding From Coverage Injury or Death of Employee of Insured, 48 A.L.R.3d 13.

Illustrative of the divergent views are Worcester Mut. Ins. Co. v. Marnell, 398 Mass. 240, 496 N.E.2d 158 (1986) and Chacon v. American Family Mut. Ins. Co., 788 P.2d 748 (Colo.1990). In Worcester, the Massachusetts Supreme Court determined that a homeowners policy obligated the insurance company to defend and indemnify the insureds (the Marnells) when the Marnells were sued for negligently supervising their minor son, who killed an individual while driving while intoxicated. The homeowners policy specifically excluded coverage for injuries arising out of the ownership or use of a motor vehicle owned or operated by any insured. The minor son was an insured under the policy's omnibus clause. The company argued that, because the Marnells' son was an insured, the motor vehicle exclusion was applicable and the company had incurred no...