Shepard v. Milbank Mut. Ins. Co.
| Decision Date | 03 October 1977 |
| Docket Number | No. CIV75-5070.,CIV75-5070. |
| Citation | 437 F. Supp. 744 |
| Parties | Doreen SHEPARD, Special Administrator of the Estate of Michelle Schmitz, Deceased v. MILBANK MUTUAL INSURANCE COMPANY, a corporation. |
| Court | U.S. District Court — District of South Dakota |
Lynden D. Levitt, Rapid City, S. D., for plaintiff.
Gene R. Bushnell, Rapid City, S. D., for defendant.
The present controversy comes before the Court on depositions, stipulated facts and the testimony of one witness. The controversy arose when Defendant, Milbank Mutual Insurance Company, denied liability and refused to defend a claim on behalf of its insured, Harry H. Grass. The claim grew out of an accident which occurred on March 3, 1974, and which resulted in the death of a three year old child. Defendant Milbank has urged 1) that a misrepresentation in the policy application renders the policy void and 2) that, in any case, a "business pursuits" exclusion absolves the company of any duty to defend and of any liability on the policy. This Court finds Defendant's contentions without merit.
In September of 1970, Leone Eloise Grass, the record owner of part of lot 2 and of lots 3, 4 and 5 of what is known as the Grater Addition to the City of Custer, South Dakota, applied for and was issued a comprehensive personal liability policy by Defendant, Milbank Mutual Insurance Company. The policy covered only lots 3 and 4, the premises on which Leone Grass' father, Harry Grass, maintained his residence. At the time she applied for the policy, Leone Grass answered "no" to the question, "are there any business pursuits conducted at the premises?"
In 1972, Leone Grass conveyed all of the above-described property to her father, Harry Grass, and, at his request, Defendant Milbank renewed the policy and transferred it to Grass' name. Harry Grass was not required to fill out an application form. His deposition indicates that he had no particular expertise in insurance matters; he simply paid his premiums and assumed that if an accident occurred on his property, his policy would provide coverage. He continued to live in the residence located on lots 4 and 5 and to do record keeping there for a well drilling business which he conducted off the premises. Also in 1972, Harry Grass acquired the first of three trailers, all of which he placed on lot 5 of the Grater Addition property. This lot adjoined lots 3 and 4, the insured residence premises.*
The following year, Defendant Milbank, through its local agent, renewed Harry Grass' comprehensive personal liability policy for an additional three year period ending on September 2, 1976. Milbank's local agent testified by deposition that he passed by the Grass property twenty to forty times per month, was well acquainted with its appearance, had been on the property, knew of the trailers adjoining the residence and of the fact that Mr. Grass had much old machinery lying around his yard.
On March 3, 1974 while the Milbank policy was in full force and effect, a wooden platform-like structure, part of a trailer house entryway being stored on lot 4, was blown over. Michelle Schmitz, a three year old child who was playing nearby, was struck by the platform and died as a result of the injuries sustained.
Photographs taken in 1974 show that Harry Grass' residence property was littered with old car hulks, machinery, old boards and lumber—a random assortment of items collected over the years. Among these items was the trailer entryway which had been given to Grass by his stepson. The entryway had originally been part of the stepson's own trailer. Subsequently, Harry Grass placed it on his property. Mr. Grass was not using the entryway in connection with his trailers and he had no particular future plans to do so. Plaintiff argues convincingly that Harry Grass simply collected things, items of personal property to be used, if ever, at some future time when he might want or need them.
Following the accident, Doreen Shepard, the mother of Michelle Schmitz and a resident of one of Harry Grass' rental trailers, brought a wrongful death action against Mr. Grass in state court. Mr. Grass' insurer, Milbank Mutual, denied all liability and Grass was forced to retain counsel. On three separate occasions, Mr. Grass tendered defense of the wrongful death action to Milbank and each time the company refused to defend on the grounds that the policy did not apply to business pursuits. Under these circumstances and after fully informing Milbank, Mr. Grass entered into an assignment agreement whereby Mrs. Shepard became assignee of the insured's rights against Milbank Mutual. He also entered into a judgment by consent for the sum of $15,000. As part of the assignment agreement, Mrs. Shepard agreed not to execute on any property, real or personal of Mr. Grass, her only remedy being against the insurer. On June 5, 1975, the circuit court entered an Order Approving Settlement. Mrs. Shepard, who subsequently became a citizen of the State of Montana, then brought suit in this Court to enforce her rights as assignee under the Milbank Policy.
Milbank claims that the plaintiff cannot recover under the policy and that Milbank had no duty to defend its insured because the original application, dated August 2, 1970, contained a misrepresentation within the meaning of S.D.C.L.Ann. § 58-11-44 (1967). That statute provides in part:
Defendant has argued that the presence of trailers on lot 5 of the property constituted a "business pursuit conducted at the premises" and that failure to disclose the presence of these trailers constituted a material misrepresentation. This argument fails for two reasons. First, it is apparent from the facts stipulated to by Milbank that the application was signed on August 2, 1970 and that there were no trailers on any portion of the Grass property until 1972. Secondly, the premises insured by Milbank consisted of lots 3 and 4 of the Grater Addition. The trailers were subsequently placed on lot 5—property which Milbank did not insure and in which it could properly have no interest. The mere fortuity that Grass owned the business property adjacent to his residence did not present a risk beyond that assumed by Milbank within the terms of its contract.
Defendant next contends that the record keeping which Mr. Grass and his wife did at home in connection with well-drilling operations conducted off the premises constituted a "business pursuit" within the meaning of the company's application form. Milbank argues that failure to disclose on the application that such record keeping was done at home constitutes a misrepresentation which negates its obligation under the policy. We find this argument unpersuasive.
Under South Dakota law, unless a representation made in an application is fraudulent or in some way material to the company's acceptance of the risk per se or acceptance at the premium charged, an insurer cannot avoid an otherwise valid policy. No evidence has been introduced to indicate that Leone Grass had fraudulent intent when she represented that no business pursuits were conducted at her father's home. Nor has it been shown that the Grasses' practice of doing paperwork in their home in any way altered the risk assumed by the company. For example, it was not shown that, as a result of the Grass' paperwork, business activity was generated, i. e. that customers or salespeople regularly came upon the premises thus increasing the risk. See Callahan v. American Motorist Insurance Co., 56 Misc.2d 734, 289 N.Y.S.2d 1005 (1968). Absent such a showing of materiality, this Court cannot say that Leone Grass' answer to the question on her application was of such significance that, because of it, the policy should be avoided.
In addition to its contentions regarding the application for insurance, Milbank claims that certain exclusions operate to relieve it of all liability either to defend its insured or to pay any claim against him. The applicable policy sections provide:
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