Scherschlight v. Empire Fire & Marine Ins. Co.

Decision Date05 August 1980
Docket NumberCiv. 79-4124.
Citation494 F. Supp. 936
PartiesJoAnn and Lester SCHERSCHLIGHT, Plaintiffs, v. EMPIRE FIRE & MARINE INSURANCE CO., Defendant.
CourtU.S. District Court — District of South Dakota

Steven M. Johnson, of Brady, Kabeiseman, Reade, Abbott & Johnson, Yankton, S. D., for plaintiffs.

Steven W. Sanford, of Braithwaite & Cadwell, Sioux Falls, S. D., for defendant.


NICHOL, Senior District Judge.

This is a diversity action brought by JoAnn and Lester Scherschlight, citizens of South Dakota, alleging breach of an insurer's duty to defend, against Empire Fire and Marine Insurance Company, a Nebraska corporation. The Scherschlights were assigned this claim by Earl G. Hanson, the insured under Empire's policy. Both the plaintiffs and the defendant are seeking summary judgment relief.

The underlying facts of this case began when Hanson sold his 1950 Chevrolet pickup which he had been using only on his farm in Nebraska. Because the pickup was unfit to be driven on public roads, Hanson was to tow the pickup to its new purchaser in Centerville, South Dakota. On November 15, 1978, while towing the pickup on Highway 81 in South Dakota, the towing apparatus which Hanson had hitched while on his farm came loose. The pickup rolled backward, colliding head-on with plaintiff JoAnn Scherschlight's car, severely injuring her.

Hanson had two insurance policies in effect on or before November 15, 1978. One policy was an automobile liability policy with AID Insurance Services with coverage limits of $15,000 per vehicle, and the other, a farm liability policy with Empire Fire and Marine Insurance Company. AID investigated the case and acknowledged coverage. Hanson telephoned Empire's local agents and was told that since the accident happened while the insured was driving away from his farm premises, there was no coverage. An AID agent was also told by Empire that there was no coverage.

On January 18, 1979, the Scherschlights filed a suit against Hanson for $229,000. AID having acknowledged full responsibility hired Michael Pieplow to defend Hanson. Hanson also hired an attorney James Goetz to defend the excess claim over AID's policy limit of $15,000. Hanson informed his attorneys that Empire had denied coverage.

In July of 1979 there were talks of settlement between the parties. Goetz contacted Empire's claim manager about possible coverage and requested a letter denying coverage. Empire was sent a copy of the pleadings including the amended complaint alleging negligence by Hanson not only in operating his motor vehicle but also in negligently constructing a trailer hitch while on his farm. A denial letter from Empire dated July 31, 1979, was sent to Goetz in which the exclusion for "ownership, maintenance or use of automobiles while away from the premises" was stated as the reason for denial of this "tort action arising out of the use of an automobile."

On August 16, 1979, a Stipulation of Judgment against Hanson was entered in the amount of $222,500 for JoAnn Scherschlight and $1,500 for Lester Scherschlight. AID tendered its policy limit of $15,000 and was fully released by the Scherschlights. Hanson assigned all his remaining claims to the Scherschlights in this stipulation.

The present suit was filed by the Scherschlights August 22, 1979, against Empire for the entire amount of the judgment obtained against Hanson plus interest, attorneys fees, and costs. The plaintiffs have moved for summary judgment pursuant to Rule 56 and the defendant has cross-motioned for summary judgment. Oral hearing on these motions has been heard and the court has examined the depositions, affidavits, exhibits, and well-researched briefs of both counsel. The motions have raised the following issues:

(1) Whether the Scherschlights' pleadings alleged facts within the coverage of Hanson's insurance policy with Empire?
(2) Whether Empire is liable for breach of duty to defend when another insurer with the same obligation does defend? See Farmers Elevator Mutual Insurance Co. v. American Mutual Liability Insurance Co., 185 Neb. 4, 173 N.W.2d 378 (1969), ovrld. on other grounds Royal Indemnity Co. v. Aetna Casualty & Surety Co., 193 Neb. 752, 229 N.W.2d 183 (1975).
(3) Whether Empire was given proper notice of the accident and suit?
(4) Whether the Judgment against Hanson was obtained by fraud and collusion between he and the Scherschlights?
(5) Whether other policy defenses are available to Empire?

The court has also been informed that while these motions have been pending JoAnn Scherschlight has died, although the cause of her death is in controversy.

As the insurance policy between Hanson and Empire was entered into in Nebraska, this court is bound by Nebraska substantive law in determining Empire's obligations under the policy. United States Fidelity and Guaranty Co. v. Louis A. Roser Co., 585 F.2d 932 (8th Cir. 1978).

Hanson's policy with Empire provided that:

With respect to such insurance as is afforded by this policy for Coverages A and C, the company shall:
(1) defend any suit against the insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even is such suit is groundless, false, or fraudulent . .

In accordance with the general rule, Nebraska determines an insurer's duty to defend by the allegation of the pleadings in the action brought against the insured. If facts are alleged in the pleadings which, if established, would support a recovery under the policy, then the insurer has a duty to defend. National Union Fire Insurance Co. v. Bruecks, 179 Neb. 642, 139 N.W.2d 821 (1966); United States Fidelity and Guaranty Co. v. Roser Co., 585 F.2d 932, 936 (8th Cir. 1978).

When refusing to defend, the insurer carries the burden of demonstrating that all parts of the pleadings fall clearly outside the scope of coverage. Any ambiguity in the insurance contract is of course construed in favor of coverage. Furthermore, if any part of the pleadings arguably or potentially falls within the policy's coverage, the insurer should either seek a declaration of its rights in an independent action or, defend, reserving its right to contest coverage based on facts developed at a trial on the merits. Babcock & Wilcox v. Parsons Corp., 430 F.2d 531 (8th Cir. 1970); Solo Cup Co. v. Federal Insurance Co., 619 F.2d 1178, 1183 (8th Cir. 1980).

However, when there is no ambiguity in an insurance contract, the court has no alternative but to enforce the policy's terms. A strained or unreasonable construction of the policy language should not be indulged in.

Accepting the facts of the plaintiffs' complaint as true, there is no question that there is coverage under the insuring provisions of Hanson's policy:

1. Coverage A — Bodily Injury and Property Damage Liability
To pay on behalf of the insured all sums which the insured shall become obligated to pay by reason of the liability imposed upon him by law for damage, including damages for care and loss of services, because of bodily injury, sickness or disease, including death at any time resulting therefrom, sustained by any person or persons, and for damages, because of injury to or destruction of physical property, including the loss of use thereof, arising out of the hazards hereinafter defined . . . .
Definition of Hazards (Operations, Premises and Personal Activities)
1. The ownership, maintenance or use of
(a) the premises designated in Item 1 of the declarations;
2. All operations of insured which are necessary or incidental to farming including the sale of farm products from the premises;
II. Any other hazard arising out of the premises, the farming operations or the non-business activities of an insured not specifically excluded in this policy.

The basic issue as to coverage under Hanson's policy concerns the following exclusion clause:

This policy does not apply:

(d) to (1) the ownership, maintenance or use of automobiles while away from the premises or the ways immediately adjoining.

The plaintiffs contend that because the negligent act of constructing the trailer hitch which caused the accident occurred on the premises of Hanson's farm there is coverage. The defendant contends that the recovery sought against Hanson by the Scherschlights arose directly out of the use of an automobile while away from the premises, and is clearly excluded by the policy.

The court finds that the language of this Empire Farm Liability policy is clear and unambiguous. The policy does not apply when automobiles are being used away from the insured premises. Hanson was unquestionably in use of an automobile and away from his farm premises when the accident with Mrs. Scherschlight occurred. The words of the exclusion clause could not be clearer that liability resulting from such action is excluded.

Similarly in the case of Jeffries...

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4 cases
  • DeJarnette v. Federal Kemper Ins. Co., 15
    • United States
    • Maryland Court of Appeals
    • September 1, 1983
    ...terms. A strained or unreasonable construction of the policy language should not be indulged in. Scherschlight v. Empire Fire & Marine Insurance Co., 494 F.Supp. 936 (D.S.D.1980), aff'd, 662 F.2d 470 (8th Cir.1981). In interpreting the language of insurance contracts, words are to be given ......
  • DeWitt v. Nationwide Mut. Fire Ins. Co.
    • United States
    • Ohio Court of Appeals
    • March 11, 1996
    ...the negligence that caused the accident is dispositive on the applicability of the exclusion clause. In Scherschlight v. Empire Fire & Marine Ins. Co. (S.D.S.D.1980), 494 F.Supp. 936, the court rejected a similar argument as that made by appellant in the case sub judice. There, even though ......
  • Bhd. Mut. Ins. Co. v. Carter
    • United States
    • U.S. District Court — District of Maryland
    • January 26, 2012
    ...A strained or unreasonable construction of the policy language should not be indulged in.") (citing Scherschlight v. Empire Fire & Marine Ins. Co., 494 F. Supp. 936 (D.S.D. 1980), aff'd, 662 F.2d 470 (8th Cir. 1981)). Open Heart's insurance policy provides both liability insurance coverage ......
  • Donald Dewitt v. Nationwide Mutual Fire Ins. Co.
    • United States
    • Ohio Court of Appeals
    • March 8, 1996
    ... ... of the exclusion clause ... In ... Scherschlight v. Empire Fire & Marine Ins. Co ... (S.D.S.D.1980), 494 F.Supp. 936, the court rejected a ... ...

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