Rolette County v. Western Cas. & Sur. Co.

• Decision Date: 13 June 1978
• Docket Number: Civ. No. A2-76-42.
• Citation: 452 F. Supp. 125
• Parties: ROLETTE COUNTY, a public body corporate and legal political subdivision and LeRoy Ouelette, Plaintiffs, v. WESTERN CASUALTY & SURETY COMPANY, Defendant.
• Court: U.S. District Court — District of South Dakota

452 F. Supp. 125

ROLETTE COUNTY, a public body corporate and legal political subdivision and LeRoy Ouelette, Plaintiffs, v. WESTERN CASUALTY & SURETY COMPANY, Defendant.

Civ. No. A2-76-42.

United States District Court, D. North Dakota, Northeastern Division.

June 13, 1978.

Kermit E. Bye, Vogel, Brantner, Kelly, Knutson, Weir & Bye, Fargo, N. D., for plaintiffs.

Patrick J. Maddock, Degnan, McElroy, Lamb, Camrud, Maddock & Olson, Grand Forks, N. D., for defendant.

MEMORANDUM OF DECISION AND ORDER

BENSON, Chief Judge.

In this declaratory judgment action plaintiffs seek to recover, on the basis of a policy of comprehensive general liability insurance issued to plaintiff Rolette County by defendant Western Casualty and Surety Company (Western), the attorney's fees and expenses incurred in defending a civil action brought against plaintiff LeRoy Ouelette¹ by Richard and Mary Ann Guzman. In addition, plaintiffs seek to recover punitive damages on the basis of Western's alleged bad faith in failing to accept the defense of the action against LeRoy Ouelette, and reasonable attorney's fees, costs and expenses in bringing the present action.

The parties have entered into a stipulation of facts and other matters, and have submitted the case for the court's decision upon the stipulation and briefs.

The issues before the court are: (1) whether Western had a duty under the terms of the liability policy to defend the Guzmans' action against LeRoy Ouelette; (2) whether the notice to Western of the claims asserted by the Guzmans against LeRoy Ouelette was unreasonably delayed and whether the delay was prejudicial to Western; (3) whether Rolette County is a proper party in this action; (4) whether plaintiffs may recover punitive damages in this action; and (5) whether plaintiffs may recover attorney's fees and expenses incurred in bringing the present action.

I. The Duty to Defend

A liability insurer's duty to defend its insured is measured by the terms of the policy and the complaint against the insured. If the claimant seeks recovery on the basis of a risk which is covered by the policy, the insurer has a duty to defend. Kyllo v. Northland Chemical Co., 209 N.W.2d 629, 634 (N.D.1973). When multiple claims are asserted in the complaint against the insured, the insurer has a duty to accept the defense of the entire lawsuit as long as one of the claims is within the policy's coverage. Babcock & Wilcox Co. v. Parsons Corp., 430 F.2d 531, 537 (8th Cir. 1970); Lee v. Aetna Casualty and Surety Co., 178 F.2d 750 (2nd Cir. 1949). If the complaint is so ambiguous that there is doubt as to whether the insurer has a duty to defend, the doubt is resolved in favor of the insured. Kyllo v. Northland Chemical Co., 209 N.W.2d at 634. See also Babcock & Wilcox Co. v. Parsons Corp., 430 F.2d at 537.

When the insured establishes that his insurer had a duty to defend the action against him, the attorney's fees incurred by the insured in defending that action may be awarded as contract damages. Western Casualty and Surety Co. v. Polar Panel Co., 457 F.2d 957, 961 (8th Cir. 1972), quoting Rent-A-Scooter v. Universal Underwriters Ins. Co., 285 Minn. 264, 173 N.W.2d 9, 11-12 (1969).

II. Terms of the Insurance Policy

Western issued a policy of general liability insurance to Rolette County, North Dakota, for the period from July 1, 1971 through July 19, 1974. Officials of the county were included as insureds under the policy.

The coverage provision of the policy states:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

A. bodily injury or

B. property damage

to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements.

"Bodily injury" is defined in the policy as "bodily injury, sickness or disease sustained by any person." "Property damage" is defined as "injury to or destruction of tangible property." "Damages" is defined as including "damages for death and for care and loss of services resulting from bodily injury and damages for loss of use of property resulting from property damage." "Occurrence" is defined as "an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured."

Among the exclusions from coverage is the following:

This insurance does not apply:

* * * * * *

(h) to property damage to

* * * * * *

(3) property in the care, custody or control of the insured or as to which the insured is for any purpose exercising physical control; . . .

III. The Complaint Against LeRoy Ouelette

Richard and Mary Ann Guzman commenced an action in this court, Civil No. 4826, on May 4, 1973, against LeRoy Ouelette and others.² In their amended complaint,³ filed on October 16, 1973, the Guzmans alleged that on March 5, 1973, LeRoy Ouelette, who was at that time the Sheriff of Rolette County, seized their mobile home and automobile pursuant to a warrant of attachment obtained in a state court by one of the Guzmans' creditors.

They further alleged that the North Dakota statute allowing ex parte prejudgment attachment of a debtor's property was unconstitutional, and that the actions of the defendants in procuring the writ of attachment and in seizing the property violated their constitutional rights, constituted an abuse of legal process, and resulted in an invasion of their privacy.

The amended complaint contained the following allegations of damages:

XIII

While in the process of unlawfully seizing said property, the Defendants, acting in concert, including Bill Johnson d/b/a Bill's Mobile Home, carelessly and negligently damaged said property and Plaintiffs have been deprived of its use since March 5, 1973.⁴

XIV

That as a direct and proximate result of said acts of the Defendants and all of them, said acts being in deprivation of the constitutional rights of the Plaintiffs, the Plaintiffs were embarrassed, humiliated, suffered great mental anguish and emotional distress and suffered damage to their reputation in the community.

IV. Additional Findings of Fact; Conclusions of Law and Rationale

The court finds the liability policy in question was in effect on March 5, 1973, the date of the attachment of the Guzmans' property, and further finds that LeRoy Ouelette is an insured under the policy.

The court has jurisdiction over the subject matter and parties to this action.

Plaintiffs contend the allegations in the Guzmans' complaint support a duty to defend on the part of Western under both the property damage and bodily injury coverages of the policy. They contend Western had a duty to defend on the basis of the policy's property damage coverage arising from the allegation in the Guzmans' complaint that their property was negligently and carelessly damaged while it was being seized pursuant to the warrant of attachment.

The Guzmans' claim of damages to their property appears to fall squarely within the policy's coverage provision. However, Western argues that coverage is withheld by the policy's "care, custody and control" exclusion.

Once the insured has proved that a claim is potentially within a risk covered by the policy, the burden is on the insurer to show that coverage is excluded by the terms of the policy. See Lovas v. St. Paul Insurance Cos., 240 N.W.2d 53, 62 (N.D. 1976).

An exclusion for damage to property in the "care, custody or control" of the insured envisions possessory control over the property, not proprietary control. Ohio Casualty Ins. Co. v. Terrace Enterprises, Inc., Minn., 260 N.W.2d 450, 453 (1977). The determination whether the exclusion applies depends upon the circumstances of the particular case, and generally will turn on whether the property damaged is under the insured's supervision and is directly related to the activity in which the insured is engaged, or whether the property is only incidentally related to that activity. Id. at 453. It is usually held that the insured must have had more than "temporary access" to or "limited possession" of the damaged property, but exclusive control exercised over the property for a short period of time may be sufficient to bring the exclusion into operation. Stewart Warner Corp. v. Burns International Security Services, Inc., 527 F.2d 1025, 1029-30 (7th Cir. 1975); Monari v. Surfside Boat Club, Inc., 469 F.2d 9 (2d Cir. 1972). Further, there is "no requirement that the insured's relationship to property involve intimate physical handling of each item of such property." Stewart Warner Corp. v. Burns International Security Services, Inc., 527 F.2d at 1029.

Plaintiffs in this case argue that the Guzmans' complaint does not clearly allege that the property was seized or damaged while it was in the care, custody or control of Sheriff Ouelette, relying upon the Guzmans' allegation that "Defendants, acting in concert, including Bill Johnson, d/b/a Bill's Mobile Homes, carelessly and negligently damaged said property . . .." They argue that this allegation is ambiguous and implies that the property was under the care, custody and control of Bill Johnson while it was being seized.

Plaintiffs apparently seek by this argument to implement the rule that ambiguities in the claimant's complaint are to be resolved in favor of a duty to defend. However, the court finds the Guzmans' complaint, read as a whole, does clearly and unambiguously allege that...