Triple U Enterprises v. New Hampshire Ins. Co.

Citation576 F. Supp. 798
Decision Date11 August 1983
Docket NumberNo. CIV. 83-5070.,CIV. 83-5070.
PartiesTRIPLE U ENTERPRISES, INC., a corporation; L.R. Houck and Jerry Houck, Plaintiffs, v. NEW HAMPSHIRE INSURANCE COMPANY, a corporation, Defendant.
CourtU.S. District Court — District of South Dakota

Joseph M. Butler, Bangs, McCullen, Butler, Foye & Simmons, Rapid City, S.D., for plaintiffs.

Gary H. Richards, Richards, Hood & Brady, Spearfish, S.D., for defendant.


BOGUE, Chief Judge.

This diversity action comes before the Court on cross motions for summary judgment. Plaintiffs contend that Defendant breached its contract of insurance by refusing to defend and by refusing to provide coverage. Defendant asserts that it breached no duty to defend because Plaintiffs' claim is not covered under the insurance policy. This Court holds that Defendant breached its contract of insurance by wrongfully refusing to defend and that Plaintiffs are entitled to summary judgment on that issue.


Plaintiff, Triple U Enterprises, Inc., is a South Dakota corporation, of which Plaintiffs L.R. Houck and his son, Jerry Houck, are officers and shareholders, engaged in the farming and ranching business. The Defendant, New Hampshire Insurance Company, is a corporation organized and existing under the laws of a state other than South Dakota. The Defendant is engaged in the business of selling insurance with its principal offices located outside South Dakota.

On February 23, 1976, Plaintiffs entered into a contract of liability insurance with Defendant, entitled "Farmer's Comprehensive Personal Liability Endorsement" (Triple U policy).1 The policy was for an original term of three years from February 23, 1976, to February 23, 1979, and was renewed for an additional three-year term from February 23, 1979, to February 23, 1982.2 The policy provided in pertinent part as follows:

The company will pay on behalf of the insured 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, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such ... property damage even if any of the allegations of the suit are groundless, false or fraudulent ....
This coverage does not apply:
(f) to liability assumed by the insured under any contract or agreement not in writing or under any contract or agreement in connection with business pursuits (other than farming) or professional services of the insured or in connection with property damage included within the fire hazard; but this exclusion does not apply to a warranty of goods or products;
(m) to property damage to products manufactured, sold, handled or distributed by any insured or work performed by or for any insured, arising out of such products or work or any part thereof;
When used in reference to this insurance (including endorsements forming a part of this insurance):
"occurrence" means an accident, including continuous or repeated exposure to conditions, which results in ... property damage neither expected nor intended from the standpoint of the insured;
"property damage" means (1) physical injury to or destruction of tangible property which occurs during the endorsement period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the endorsement period; (emphasis added).

On September 12, 1978, and March 23, 1979, Plaintiff, Triple U Enterprises, Inc., (Triple U) sold 650 head of buffalo to Adolph, LaVern and Ward Hepper (Heppers) for purposes of breeding.3 It is alleged that the buffalo were infected with brucellosis and were not fit for breeding. On May 19, 1980, Heppers brought suit against Triple U, alleging damage as a result of Triple U's breach of the two sales contracts.

Specifically, the original complaint,4 which Heppers filed in the Hughes County, South Dakota, Sixth Circuit Court, alleged in paragraph 3 of the first cause of action that:

At the time of each of said contracts Defendant Triple U knew all of such buffalo were being purchased for breeding purposes and by implication and expressly warranted the same to be fit for breeding purposes. At the time of each of said sales, Defendant represented that the buffalo would yield from eighty to ninety percent calf crop generally with nearly one hundred percent from the four-year-old cows, that all of the buffalo were free of disease and that it was not necessary to vaccinate buffalo for brucellosis. ...5
Plaintiffs Heppers relied upon the implied and express warranties and the representations of Defendant. Plaintiffs' consent to the contracts was obtained through the fraudulent representations by Defendant.6
In fact, the buffalo were infected with brucellosis and contagious abortion so that less than fifty percent of the mature buffalo cows could produce calves and none were fit for breeding purposes.

Further, in paragraph 3 of the second cause of action, it was alleged that:

As a direct result of the breaches of implied and express warranties and the fraudulent misrepresentations by Defendant and as a consequence of such buffalo not meeting the general and particular breeding requirements of which Defendant had knowledge at the time of contracting, Plaintiffs lost 180 calves that should have been produced in 1979, suffered damage in the difference in value of the buffalo for breeding and slaughter, difference in value of the calves that were dropped because of being unfit for breeding, similar losses for the 1980 season and risk of infection of other stock of Plaintiffs and others and Plaintiffs have also incurred incidental damages in the inspection, transportation and care and custody of the buffalo in the total sum of Four Hundred Thousand and no/100 Dollars ($400,000.00).7 (Emphasis added.)

Finally, Plaintiffs demanded judgment of Defendant as follows:

1. That the contracts be declared cancelled, that Defendant be required to take redelivery of the buffalo the subject of said contracts and that Plaintiffs have a security interest in such buffalo for the amounts paid by them, interest and their expenses;
2. That Plaintiffs have judgment against Defendant for actual damages in the sum of Four Hundred Thousand and no/100 Dollars ($400,000.00) ....8

Upon receipt of the complaint, Triple U, through L.R. Houck, tendered the defense to Defendant. The Defendant refused to defend, claiming there was no coverage under the insurance policy for the allegations contained in Heppers' complaint.9 It is not disputed that the insurance policy was in full force and effect at the time of the two sales transactions.10

At the trial, which began on April 11, 1983, Heppers presented the following itemization of their damages for each of the two sales transactions.

                                             Ward Hepper Herd
                                             9-12-78 Purchase
                                             Dewey County Ranch
                                   TOTAL DAMAGE
                  Cost of Original Herd             $284,900
                  Three years expected calf
                   crop                              466,787
                     Total Value and Income                      $751,687
                  Less Net Sale Proceeds            $ 83,343
                  Less Unpaid Portion of Purchase
                   Contract                           93,333
                   Total Loss                                   $575,011
                                                    Adolph Hepper Herd
                                                    3-23-79 Purchase
                                                    Corson County Ranch
                                   TOTAL DAMAGE
                     Value of herd if disease
                       free                         $349,050
                     Value of diseased herd        (156,179)
                Loss of Value                                   $212,871
                Loss on meat sold and on storage                 128,507
                Loss profits - lost calf crop                     69,948
                    Incidental Expenses                           46,170
                    Less unpaid portion of purchase
                     contract                                   (108,733)
                       TOTAL DAMAGES                            $347,763

The jury returned a general verdict for Heppers on their claim against Triple U for breach of warranty in the amount of $286,232. Additionally, the jury found that L.R. Houck and Jerry Houck were not liable for deceitful misrepresentations. Subsequently, Plaintiffs requested that Defendant provide insurance coverage and pay the judgment entered against them in state court. Defendant again refused to provide coverage.


Plaintiffs, Triple U, L.R. Houck and Jerry Houck, brought the action at bar, alleging that Defendant breached its duty under the insurance contract by wrongfully refusing to defend the state court suit brought by Heppers, and by wrongfully denying coverage for that portion of the state court complaint relating to breach of express and implied warranties. Plaintiffs assert that that portion of the state court complaint seeking damages to property other than the buffalo that were sold, fall within the Triple U policy coverage provisions. Further Plaintiffs maintain that as a proximate result of Defendant's breach of the insurance contract, Plaintiffs suffered $286,732 damages, the amount of the jury verdict, plus costs and expenses incurred in connection with the defense of the state court suit in the amount of $55,000. Finally, Plaintiffs contend that Defendant's refusal to defend and to provide coverage is vexatious and without reasonable cause, entitling Plaintiffs to...

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