Triple U Enterprises, Inc. v. New Hampshire Ins. Co.

• Decision Date: 12 July 1985
• Docket Number: No. 84-1178,84-1178
• Citation: 766 F.2d 1278
• Parties: TRIPLE U ENTERPRISES, INC., a corporation; L.R. Houck and Jerry Houck, Appellees, v. NEW HAMPSHIRE INSURANCE COMPANY, a corporation, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1278

766 F.2d 1278

TRIPLE U ENTERPRISES, INC., a corporation; L.R. Houck and Jerry Houck, Appellees, v. NEW HAMPSHIRE INSURANCE COMPANY, a corporation, Appellant.

No. 84-1178.

United States Court of Appeals,

Eighth Circuit.

Submitted Oct. 9, 1984.

Decided July 12, 1985.

Gary R. Richards, Spearfish, S.D., for appellant.

Joseph M. Butler, Rapid City, S.D., for appellees.

Before HEANEY, Circuit Judge, HENLEY, Senior Circuit Judge, and JOHN R. GIBSON, Circuit Judge.

HENLEY, Senior Circuit Judge.

This appeal in diversity concerns the question whether, under South Dakota law, New Hampshire Insurance Company (NHIC) breached its contract of insurance with appellees (Triple U) by refusing to defend a suit against Triple U that had been brought in state court by Wade, Adolph and LaVern Hepper (Heppers). The district court, 576 F.Supp. 798 (D.S.D.1983), ¹ held that NHIC had failed to honor the insurance agreement, and awarded summary judgment for Triple U for $338,125.35, which represented the amount the Heppers had been awarded against Triple U by the South Dakota jury, plus $51,895.35 Triple U had spent in defense of the Heppers' suit. NHIC appeals, contending that (1) it had no duty to defend Triple U; and (2) the district court erred in holding it liable for the amount of the state court judgment. We affirm in part, but remand for further consideration of the amount of judgment.

The policy in question, a "Farmer's Comprehensive Personal Liability" policy, provided under "Coverage L--Personal Liability" that NHIC would pay on behalf of Triple U "all sums which the insured shall become legally obligated to pay as damages because of ... property damage to which this insurance applies, caused by an occurrence." "Occurrence" was defined as an "accident, including continuous or repeated exposure to conditions, which results in ... property damage neither expected nor intended from the standpoint of the insured." The policy defined "property damage" as "physical injury to or destruction of tangible property ... including the loss of use thereof at any time resulting therefrom." The policy excluded coverage for property damage to products sold, distributed, or handled by the insureds. Coverage L specifically stated that NHIC had the "right and duty to defend any suit against the insured seeking damages on account of such ... property damage."

Triple U, a corporation engaged in farming and ranching in South Dakota, arranged in 1978 and early 1979 to sell the Heppers a total of 650 head of buffalo. The policy was in force at the time the sales were made. The Heppers planned to breed the buffalo. Unfortunately, some, or all, of the buffalo sold were infected with brucellosis, a disease characterized by abortion, reduced fertility, and lowered milk production. The Heppers eventually sued Triple U for breach of warranty and fraudulent misrepresentation. Although Triple U requested NHIC to undertake defense of the suit, NHIC refused to involve itself, and Triple U was obliged to obtain representation on its own. Subsequently, the jury returned a general verdict in favor of the Heppers for $286,232.00 on the breach of warranty claim, and in favor of Triple U on the fraudulent misrepresentation claim. Triple U then instituted the present suit against NHIC with results hereinabove described.

1. Duty to Defend.

In analyzing the question whether NHIC had breached its duty to defend Triple U the district court noted that an insurer's duty to defend becomes operative if a complaint or petition filed against the insured states allegations which might fall within the policy's coverage. See Haugan v. Home Indemnity Co., 86 S.D. 406, 197 N.W.2d 18 (1972). The Heppers state complaint had alleged numerous types of damage, most of which the district court recognized were excluded under the NHIC policy. The court did conclude, however, that allegations in the Heppers' complaint of damage to calves later born of the buffalo had described "property damage" within the meaning of the policy. The district court also concluded that the Heppers' complaint had alleged an "occurrence":

[Triple U], as sellers, provided warranties to the buyers regarding the fitness of the buffalo for breeding. The result flowing from the sale of the allegedly diseased buffalo was an unexpected, unforeseen and fortuitous event. Moreover, if proven, the allegations in Heppers' complaint showed that the calves born were subjected to a continuous and repeated exposure to the diseased condition of the bulls and cows.

Triple U Enterprises v. New Hampshire Ins. Co., 576 F.Supp. 798, 808 (D.S.D.1983) (citations omitted). Accordingly, the district court held that the Heppers' complaint had stated allegations which might fall within Coverage L of the policy, and that NHIC therefore had had a duty to undertake defense of the suit.

On appeal, NHIC argues that the Heppers' complaint had described neither "property damage" nor an "occurrence"; that exclusion (a) of Coverage L of the policy made Coverage L inapplicable to the liability alleged in the Heppers' complaint; and that the only possibly applicable portion of the policy, Coverage N (entitled "Physical Damage to Property"), also excluded coverage. Because we agree, substantially for the reasons stated in the district court's opinion, Triple U Enterprises, 576 F.Supp. at 808, that the Heppers' complaint could reasonably be read to describe both "property damage" and an "occurrence," we forego further discussion of those issues. We do address NHIC's other arguments regarding the existence of a duty to defend. ²

Exclusion (a) of Coverage L of the policy states: "This coverage does not apply: (a) to ... property damage arising out of any act or omission in connection with premises (other than the insured premises) owned, rented, or controlled by an insured...." NHIC contends that since its policy does not specifically provide for products liability coverage, and since certain kinds of products liability insurance exclude coverage for property damage occurring off of the premises owned by the insured, this court should interpret exclusion (a) as limiting Coverage L to accidents, injuries and occurrences that take place entirely on the insured premises. NHIC contends that a narrower interpretation of exclusion (a) would be anomolous, because it would permit a policyholder who had not paid a premium for products liability insurance to obtain broader coverage than a policyholder who had paid such a premium.

Examination of so much of NHIC's policy as has been incorporated into the record does not persuade us that Coverage L is limited to events that occur entirely on insured premises. It is appropriate to give the language used in an insurance policy its ordinary meaning, and to construe exclusion clauses narrowly. Shepard v. Milbank Mutual Ins. Co., 437 F.Supp. 744, 748 (D.S.D.1977), modified, 579 F.2d 477 (8th Cir.1978); Grandpre v. Northwestern National Life Ins. Co., 261 N.W.2d 804, 807 (S.D.1977). On its face, exclusion (a) appears only to preclude coverage for property damage that is in some manner related to uninsured premises which the insured owns or controls. ³ But see National Farmers Union Property and Casualty Co. v. Western Casualty and Surety Co., 577 P.2d 961 (Utah 1978). No evidence on the present record suggests that any "act or omission" connected with either the sale of the diseased buffalo, or the subsequent infection of the buffalo calves, took place on uninsured premises owned, controlled or rented by Triple U. Nor is there evidence that Triple U declined to purchase products liability insurance, or that Triple U ought to have been aware the NHIC "comprehensive personal liability" policy would exclude coverage for property damage caused by Triple U's products. Cf. St. Paul Fire and Marine Ins. Co. v. Three "D" Sales, Inc., 518 F.Supp. 305 (D.N.D.1981) (size of premium inappropriate test for determining whether personal liability policy would cover seller's liability for property damage resulting from breach of warranty). In these circumstances, we reject NHIC's contention that exclusion (a) precludes coverage.

NHIC also contends, however, that property damage of the sort involved here should be considered in the context of Coverage N of the policy, rather than that of Coverage L. Coverage N applies to "property physically injured or destroyed during the endorsement period by any insured," and requires the insurance company to either pay the "actual cash value" of the property, or repair or replace the property. NHIC notes that Coverage N excludes any coverage for property damage arising out of "business pursuits."

This argument has no merit. Coverage L, like Coverage N, refers to "property damage." Moreover, Coverage L, unlike Coverage N, is clearly directed at liability resulting from a judicial proceeding. The policy nowhere states that recovery under Coverage N would preclude recovery under Coverage L; indeed, the policy states the contrary: "No other insurance afforded by this policy shall apply to ... property damage with respect to which insurance is afforded under Coverage L...." In the circumstances of this case we see no justification for holding that Coverage N precludes Triple U from recovering under Coverage L.

We conclude the district court did not err in holding NHIC had a duty to defend Triple U against the Heppers' state suit.

2. Damages for Breach of Duty to Defend.

More troubling is the district court's treatment of the damage issues posed. As mentioned, numerous items of damage not within the policy's coverage were submitted by the Heppers to the state jury. The district court, indicating that it was unable to determine what...