Rumpza v. Donalar Enterprises, Inc.

• Decision Date: 15 July 1998
• Docket Number: No. 20133,20133
• Citation: 581 N.W.2d 517,1998 SD 79
• Parties: Eugene RUMPZA and Melinda Rumpza, Plaintiffs and Appellants, v. DONALAR ENTERPRISES, INC., Defendant and Appellant, and Stockholm Farm Mutual Insurance Company, Inc., a South Dakota Corporation, Defendant and Appellee.
• Court: South Dakota Supreme Court

Page 517

581 N.W.2d 517

1998 SD 79

Eugene RUMPZA and Melinda Rumpza, Plaintiffs and Appellants, v. DONALAR ENTERPRISES, INC., Defendant and Appellant, and Stockholm Farm Mutual Insurance Company, Inc., a South

Dakota Corporation, Defendant and Appellee.

No. 20133.

Supreme Court of South Dakota.

Argued Feb. 19, 1998.

Reassigned May 22, 1998.

Decided July 15, 1998.

Lee Schoenbeck and Jack Hieb of Schoenbeck Law Office, Webster, for plaintiffs and appellants, Rumpzas.

James E. Moore of Woods, Fuller, Shultz & Smith, Sioux Falls, for defendant and appellant, Donalar Enterprises, Inc.

George Boos and John V. Ohnstad, Jr. of Boos & Ohnstad, Milbank, for defendant and appellee.

GILBERTSON, Justice (on reassignment).

¶1 Insureds and their agent appeal from summary judgment entered in favor of insurer after the trial court concluded certain policy provisions relating to vacancy were unambiguous and insureds failed to demonstrate insurer had breached insurance contract. We affirm in part, reverse in part, and remand for proceedings consistent with this opinion.

FACTS AND PROCEDURE

¶2 We recently detailed the facts underlying this fire insurance case in Rumpza v. Larsen, 1996 SD 87, 551 N.W.2d 810, (Rumpza I ).

¶3 Eugene and Melinda Rumpza (Rumpzas) are the owners of several parcels of real estate in the northeastern section of South Dakota. Beginning July 1, 1992, Don Larsen (Larsen) commenced handling Rumpzas' insurance needs. On March 23, 1993, Rumpzas acquired the property at issue which is located near South Shore, South Dakota (South Shore). Larsen stated that prior to the March, 1993 closing on this property, Rumpzas "indicated that there was a house on [South Shore], and the people were still residing in there and would be moving out of that home, and they were going to be making some repairs ... and put it up for rent and also possibly for sale."

¶4 Rumpza contacted Larsen on April 1, 1993, to insure this property. After the parties determined that $50,000 was the proper amount of coverage, Larsen added the South Shore coverage to an existing policy issued by Stockholm Farm Mutual Insurance Company, Incorporated (Stockholm). Shortly after the policy went into effect, certain improvements to the home were undertaken, Rumpzas listed the property for sale, and secured a renter to take possession of the home effective June 26, 1993. The home on the South Shore property caught fire and was totally destroyed on June 19, 1993.

¶5 Rumpzas timely notified Stockholm of their loss. Stockholm replied by letter dated July 14, 1993, in which it granted permission for the vacancy after concluding that Larsen's limited knowledge of a potential vacancy constituted "permission" for the vacancy under the policy. Stockholm then paid Rumpzas sixty percent of their loss, less a $500 deductible, for a total of $29,500. Rumpzas informed Stockholm they were seeking the face value of the policy, $50,000. Stockholm's attorney, John Ohnstad, Jr. (Ohnstad), sent Rumpzas a letter dated August 16, 1993, in which he stated his belief that Rumpzas' home "was not vacant when it was insured by Stockholm ... and Mr. Larsen was led to believe that the house would continue to be occupied by someone."

¶6 Rumpzas filed suit on November 5, 1993, against Larsen and Stockholm claiming Larsen was negligent in failing to advise them of the terms of the vacancy endorsement. The trial court granted summary judgment in favor of Stockholm and Larsen. Rumpzas appealed the decision and we affirmed in part, reversed in part, and remanded. See Rumpza I, supra.

¶7 On remand, the parties stipulated to the substitution of Donalar Enterprises, Inc. (Donalar), owner of Dakota Agency, for Larsen. Donalar filed a cross claim against Stockholm, contending Stockholm had breached its contract with Rumpzas. Stockholm filed a cross claim against Donalar, seeking indemnity for any negligence of Larsen. The trial court granted Stockholm's motion for summary judgment based on a finding that the vacancy definition in the contract was not ambiguous and that the facts were not in dispute. Since the trial court found no breach of contract, it denied Rumpzas' motions to amend their complaint to request attorney fees under SDCL 58-12-3, assert a bad-faith claim, and remove Ohnstad as attorney for Stockholm, or strike his affidavit. Additional facts will be provided as necessary to address the following issues brought by Rumpzas:

1. Whether the circuit court erred in granting summary judgment in favor of Stockholm on the breach of contract claim.

2. Whether the circuit court erred in not allowing the Rumpzas to amend their complaint and reassert the claim for willful and vexatious refusal to pay.

3. Whether the circuit court erred in not allowing the Rumpzas to amend their complaint and reassert the bad faith claim.

4. Whether the circuit court erred in failing to remove attorney John Ohnstad as counsel for Stockholm.

¶8 In addition to the issues raised by the Rumpzas, Donalar raises the following issue:

5. Whether the vacancy endorsement attached to the Rumpzas' policy was invalidated by SDCL 58-10-10.

STANDARD OF REVIEW

¶9 Our standard of review for summary judgment is well established: In reviewing a grant or a denial of summary judgment under SDCL 15-6-56(c), we determine whether the moving party has demonstrated the absence of

any genuine issue of material fact and showed entitlement to judgment on the merits as a matter of law. The evidence must be viewed most favorably to the nonmoving party and reasonable doubts should be resolved against the moving party. The nonmoving party, however, must present specific facts showing that a genuine, material issue for trial exists. Our task on appeal is to determine only whether a genuine issue of material fact exists and whether the law was correctly applied[.] Walz v. Fireman's Fund Ins. Co., 1996 SD 135, p 6, 556 N.W.2d 68, 70 (quoting Lamp v. First Nat'l Bank of Garretson, 496 N.W.2d 581, 583 (S.D.1993)). When reviewing a grant of summary judgment, we must undertake an independent review of the record. Id. (citation omitted). "The burden of proof is upon the movant to show clearly that there is no genuine issue of material fact and that he is entitled to judgment as a matter of law." Kern v. City of Sioux Falls, 1997 SD 19, p 4, 560 N.W.2d 236, 237 (citing State Dep't of Revenue v. Thiewes, 448 N.W.2d 1, 2 (S.D.1989)).

Bad Wound v. Lakota Community Homes, Inc., 1998 SD 25, p 11, 576 N.W.2d 229, 230-31. "The construction of a written contract is a question of law for the court to consider." Id. (citation omitted).

ANALYSIS AND DECISION

¶10 1. Whether the circuit court erred in granting summary judgment in favor of Stockholm on the breach of contract claim.

¶11 We reverse as the policy provision relating to vacancy is ambiguous as applied to the facts of this case. An insurance policy must be examined as a whole. City of Watertown v. Dakota, Minnesota, & Eastern R.R., 1996 SD 82, p 18, 551 N.W.2d 571, 575 (citation omitted). Rumpzas' policy contained the following amendatory endorsement:

AMENDATORY ENDORSEMENT

This endorsement BROADENS and in some instances RESTRICTS coverages, please read carefully

VACANT PROPERTY:

1. Insured Premises are considered vacant if the property is: ¹

a. Not lived in;

b. Void of furnishing; or

c. Furnished, but not used as a full-time primary residence.

2. Under policy conditions add number 11 as follows:

We will not pay for loss while the insured premises is vacant beyond a period of 30 days. If permission has been granted for vacancy, in lieu of increased premium, the amount of coverage will be reduced 40 percent.

In the event of a partial loss during this vacant period, no payment will be made until repairs have been completed.

¶12 Construction of a written contract is a question of law which we review de novo. Bell v. East River Elec. Power Coop., Inc., 535 N.W.2d 750, 754 (S.D.1995); American State Bank v. Adkins, 458 N.W.2d 807, 809 (S.D.1990); Dirks v. Sioux Valley Empire Elec. Ass'n, Inc., 450 N.W.2d 426, 427-28 (S.D.1990).

Where the provisions of an insurance policy are fairly susceptible of different interpretations, the interpretation most favorable to the insured should be adopted. This rule of liberal construction in favor of the insured and strictly against the insurer applies only where the language of the insurance contract is ambiguous and susceptible of more than one interpretation.... This rule does not mean, however, that the court may seek out a strained or unusual meaning for the benefit of the insured.

Olson v. U.S. Fidelity and Guar. Co., 1996 SD 66, p 6, 549 N.W.2d 199, 200 (citation and quotations omitted).

¶13 Rumpzas claim that Stockholm's "entire policy is not contained in the pages of its policy" and that there was an "unwritten term which necessarily must be included to give the contract the meaning Stockholm would assert." Rumpzas allege this "unwritten term" is how Stockholm defines and determines vacancies thus rendering the policy is ambiguous. We agree.

¶14 Nowhere in the policy can be found any reference to how Stockholm determines whether property is vacant at the inception of coverage or more importantly how an insured seeking coverage would know he is paying premiums for vacant property. The method for determining vacancy is crucial to give the provision any meaning whatsoever. President Stengel of Stockholm testified that the agent determines vacancy at the procurement stage of the policy and may bind Stockholm with that determination. "An insurer ... may be estopped in reference to the meaning of a particular term in one of its contracts by its own interpretation of that term." Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 21:8 (3d ed.1996) (collecting cases).

¶15 Stengel has admitted that the insured has no way of knowing that his property is considered vacant under the policy approved by Stockholm unless the agent notified...