Farmers Union Mutual Insurance Co. v. Decker

MARING, Justice,

dissenting.

[¶ 23] I respectfully dissent from the majority opinion.

[¶ 24] Farmers Union issued a Farm Liability Insurance Policy to the Deckers. The term of the policy covering this accident was from November 25, 2001, to November 25, 2002. Our Court has said:

Our goal when interpreting insurance policies, as when construing other contracts, is to give effect to the mutual intention of the parties as it existed at the time of contracting. We look first to the language of the insurance contract, and if the policy language is clear on its face, there is no room for construction. “If coverage hinges on an undefined term, we apply the plain, ordinary meaning of the term in interpreting the contract.” While we regard insurance policies as adhesion contracts and resolve ambiguities in favor of the insured, we *865will not rewrite a contract to impose liability on an insurer if the policy unambiguously precludes coverage. We will not strain the definition of an undefined term to provide coverage for the insured. We construe insurance contracts as a whole to give meaning and effect to each clause, if possible. The whole of a contract is to be taken together to give effect to every part, and each clause is to help interpret the others.

Nationwide Mut. Ins. Cos. v. Lagodinski, 2004 ND 147, ¶ 8, 683 N.W.2d 903 (quoting Ziegelmann v. TMG Life Ins. Co., 2000 ND 55, ¶ 6, 607 N.W.2d 898). The Farm Liability Insurance Policy, under Coverage L — Personal Liability, provides indemnification for damages for which an insured is found hable because of bodily injury. Under the policy, “[bjodily injury” means “physical injury to a person caused by an occurrence.” The policy defines occurrence to mean “an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the 'policy period, in a. bodily injury; or b. property damage.” (Emphasis added.) “Generally, an ‘occurrence’ policy provides coverage if the event insured against takes place within the policy period, regardless of when the injured party makes a claim.” Kief Farmers Coop. Elevator Co. v. Farmland and Mut. Ins. Co., 534 N.W.2d 28, 36 (N.D.1995). The policy also contains an exclusion from Coverage L, commonly known as the “motor vehicle” exclusion. The purpose for this exclusion is also commonly known. Insurance companies issuing farm liability policies wish to avoid insuring the risks attendant to motor vehicles driven on public roads. Those are risks covered by automobile or motorcycle policies. Farmers Union in fact stated this very reason in its appellee’s brief:

The reason for the “motor vehicle” exclusion should be obvious. This is a farm liability insurance policy, it is not a motor vehicle insurance policy. Farmers Union Mutual also sells motor vehicle insurance and does not provide insurance coverage for motor vehicles in a farm liability insurance policy, except under the very limited circumstances covered in the exception to the exclusion.

[¶ 25] The exception to the motor vehicle exclusion states:

(2) ... Coverage applies on the insured location if the motor vehicle is subject to be licensed for use on public roads and it is unlicensed and it is used exclusively on the insured location, or is kept there in dead storage.

Exclusions for Coverage L 1(f)(2). The farm liability policy, therefore, does provide coverage for unlicensed motor vehicles used solely on the farm premises.

[¶ 26] The motorcycle involved in this case was never driven on public roads and from July 1999, when it came into Gerald Decker’s possession, to June 23, 2002, the date of the accident, was never registered. The owner, Gerald Decker, decided not to register this motorcycle and never intended to operate it on any public road. The motorcycle was used off the farm premises once at a campsite in the summer of 2000. That was two years before the accident on June 23, 2002, and not during the policy period covering the accident. The policy period was annual and was from November 25, 2001, to November 25, 2002. During that policy period, the motorcycle was used exclusively on the “insured location” or farm premises. The exception to the exclusion, therefore, provides coverage for this accident. This accident, which occurred on the farm premises with an unlicensed motorcycle used exclusively on the farm premises, is the very type of liability risk intended to be covered by the exception to the exclusion of this Farm Liability Insurance Policy. The coverage provided *866by the exception to the exclusion is for motor vehicles subject to be licensed, but unlicensed. It would not make any sense to exclude this motorcycle forever from coverage because of one use off-premises that occurred outside the policy period. I conclude there is coverage for the motorcycle accident and alleged bodily injury.

[¶ 27] Because it was not specifically raised until Decker’s reply brief, the majority declines to address whether the “exclusive use” of the unregistered motor vehicle on the “insured’s location” must occur during the life of the motor vehicle or only during the policy period. “The construction of a written contract to determine its legal effect is a question of law for the court to decide and, on appeal, we independently examine and construe the contract to determine if the trial court erred in its contract interpretation.” Moen v. Meidinger, 547 N.W.2d 544, 546 (N.D.1996); State ex rel. State Fire and Tornado Fund of North Dakota Ins. Dep’t v. North Dakota State University, 2005 ND 75, ¶ 12, 694 N.W.2d 225. Section 9-07-06, N.D.C.C., requires that a contract be interpreted as a whole. The primary goal is to give effect to the mutual intent of the parties. N.D.C.C. § 9-07-03. “The parties’ intent must be ascertained from the entire instrument, and every clause, sentence, and provision should be given effect consistent with the main purpose of the contract.” U.S. Bank, Nat’l Ass’n v. Koenig, 2002 ND 137, ¶ 8, 650 N.W.2d 820. We have said: “It is an important function of the courts to ‘maintain and enforce contracts, unless it clearly appears they contravene public policy or express law.’ ” Continental Casualty Co. v. Kinsey, 499 N.W.2d 574, 580 (N.D.1993) (quoting Seher v. Woodlawn School Dist. No. 26, 79 N.D. 818, 59 N.W.2d 805, 810 (1953)). I am of the opinion that it is our Court’s responsibility to interpret the insurance contract as a whole and enforce it if there is coverage.

[¶ 28] Further, Farmers Union brought the action as one for declaratory relief under N.D.C.C. ch. 32-28, requesting that the court enter judgment “construing the provisions of the Farm Liability Insurance Policy issued by Farmers Union to Deckers and adjudging that the policy does not provide coverage.” Chapter 32-23, N.D.C.C., is a uniform law adopted in North Dakota in 1923. The following provisions of the Declaratory Judgments Act are relevant in this case:

A court of record within its jurisdiction shall have power to declare rights, status, and other legal relations whether or not further relief is or could be claimed. N.D.C.C. § 32-23-01.

Any person interested under a deed, will, written contract, or other writings constituting a contract, or whose rights, status, or other legal relations are affected by a statute, municipal ordinance, contract, or franchise, may have determined any question of construction or validity arising under the instrument, statute, ordinance, contract, or franchise and may obtain a declaration of rights, status, or other legal relations thereunder.

N.D.C.C. § 32-23-02.

This chapter is remedial. Its purpose is to settle and to afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations, and it is to be construed and administered liberally.

N.D.C.C. § 32-23-12.

[¶ 29] The dispute in this case directly involves the construction of the insurance contract and whether the insured is entitled to coverage under its terms. The purpose of the Declaratory Judgments Act is “to settle and to afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations” in an underlying justiciable controversy. *867Riverside Park Condominiums Unit Owners Ass’n v. Lucas, 2005 ND 26, ¶ 25, 691 N.W.2d 862; N.D.C.C. § 32-23-12. “Our declaratory judgment act is by its own terms remedial and is to be construed and administered liberally.” Iverson v. Tweeden, 78 N.D. 132, 48 N.W.2d 367, 371 (1951); N.D.C.C. § 32-23-12. I am of the opinion that when a court undertakes to declare the rights of parties under an insurance contract in a declaratory judgment action, it must review the contract as a whole. The court cannot ignore terms of the contract relevant to the declaration of the rights of the parties.

[¶ 30] Finally, our Court is no stranger to addressing issues on appeal that were not raised or briefed to the trial court or on appeal. See State v. Keller, 2005 ND 86, 695 N.W.2d 703; Tank v. Tank, 2004 ND 15, 673 N.W.2d 622.

[¶ 31] I also am of the opinion that Farmers Union is liable for all the attorney’s fees and costs incurred by the insured for the defense of the tort action. I dissent from that part of the majority’s opinion that concludes Farmers Union is only obligated to pay Decker’s attorney’s fees after the amended complaint.

[¶ 32] Our Court has endorsed the view that “an insured purchases liability insurance for protection from litigation expense.” State Farm Fire and Casualty Co. v. Sigman, 508 N.W.2d 323, 326 (N.D.1993). The insured has a contractual right to have the insurer defend him against actions at the insurer’s expense. The duty to defend is broader than the duty to indemnify. See Hart Constr. Co. v. American Family Mut. Ins. Co., 514 N.W.2d 384, 389 (N.D.1994). We have followed the general rule that an insurer’s duty to defend is measured by the terms of the insurance policy and the allegations of the plaintiffs complaint. Kyllo v. Northland Chemical Company, 209 N.W.2d 629, 634 (N.D.1973); Applegren v. Milbank Mutual Insurance Co., 268 N.W.2d 114, 118 (N.D.1978). Our decisions in Kyllo and Applegren, however, “require an insurer to defend actions against an insured if the allegations in the complaint against the insured give rise to potential liability or a possibility of coverage under the language in the insurance policy.” National Farmers Union Prop, and Cas. Co. v. Kovash, 452 N.W.2d 307, 309 (N.D.1990) (emphasis added). See 14 Couch on Insurance, 3d § 200:12 (1999). “Generally, where there is doubt as to whether the duty to defend exists, such doubt is resolved in favor of the insured.” Kyllo, 209 N.W.2d at 634. Our Court, in Kyllo, quoting Hartford Accident & Indemnity Co. v. Pacific Indemnity Co., 249 Cal.App.2d 432, 57 Cal.Rptr. 492 (1967), embraced the view that when there is doubt as to whether the injured party’s complaint stated facts sufficient to bring the injury within the coverage “the insurer is obligated to undertake the defense of the action and to continue such defense at least until it appears that the claim is not covered by the policy.” Id.

The underlying complaint need not track the policy language for there to be coverage as, under the liberal rules of notice pleading, [the] complaint need only indicate the type of litigation involved so that [the] insurer would have fair notice of the claim and its defenses.

14 Couch on Insurance § 200:18 (1999); Franklin v. Western Nat. Mut. Ins. Co., 574 N.W.2d 405, 407 (Minn.1998) (holding, “the words of the complaint need not precisely match the words of the policy, they must simply put the insurance company on notice of a claim within the policy coverage”). In the present case, the injured party would have had to allege in his complaint that the motorcycle he was riding was “used exclusively” on the “insured location” for a duty to defend to arise according to the majority opinion. Yet the *868injured party who brings the action against the insured is not ordinarily drafting a pleading to address a question of coverage that may arise between the insured and insurer. An insured’s right to a defense should not be made to depend upon the precision of a third party’s pleading.

[¶ 33] In addition, North Dakota has notice pleading under which a complaint need contain only a “short and plain statement of the claim showing that the pleader is entitled to relief.” N.D.R.Civ.P. 8(a); Tibert v. Minto Grain, LLC, 2004 ND 133, ¶ 18, 682 N.W.2d 294. “North Dakota’s rules do not require plaintiffs to ‘allege every element of their claim.’ ” Id. (quoting Kaler v. Kraemer, 1998 ND 56, ¶ 7, 574 N.W.2d 588). The missing fact in the complaint in the present case is one that would likely not even be known by a plaintiff bringing the cause of action. The allegations of the complaint therefore should be reasonably interpreted in determining whether the claims are within the coverage and any doubt or ambiguity resolved in the insured’s favor.

[¶ 34] If we examine the allegations of the complaint, the only fact alleged in the amended complaint and not in the original complaint is that the motorcycle was used exclusively on the insured location. Farmers Union knew from the original complaint that an “occurrence,” an accident resulting in bodily injury, was alleged to have occurred because of the use of a trail bike on its insured’s farm premises. The missing fact that would clearly bring the claim within the coverage of the exception to the exclusion, however, can be inferred from the type of motor vehicle involved, which was an unregistered dirt bike, and from the location of the accident, which was the insured’s farm premises. Here, the allegations of the complaint give rise “to potential liability or a possibility of coverage under the insurance policy.” National Farmers Union Prop, and Cas. Co. v. Kovash, 452 N.W.2d 307, 309 (N.D.1990); see Fisher v. Am. Family Mut. Ins. Co., 1998 ND 109, ¶6, 579 N.W.2d 599.

[¶ 35] Under North Dakota law, an insurer who questions its duty to defend can very quickly obtain an answer by bringing a declaratory judgment action for a decision on its duty to defend. N.D.C.C. § 32-23-06. An insurer has a remedy to resolve issues of doubtful coverage and duty to defend. See Mobile Oil Corporation v. Maryland Cas. Co., 288 Ill.App.3d 743, 224 Ill.Dec. 237, 681 N.E.2d 552, 560 (1997) (holding that “[w]hen an underlying complaint presents an issue of potential insurance coverage, and the insurer believes that the policy does not cover the claim, the insurer may not refuse to defend the insured, but must either defend the suit under a reservation of rights or seek a declaration of no coverage”).

[¶ 36] Considering the purpose of the Farm Liability Insurance Policy, the grant of coverage under the exception to the exclusion, the inferences that can be reasonably drawn from the allegations of the complaint, and the “potential” or “possibility” of coverage for the accident, the duty to defend arose at the time of the original complaint.

[¶ 37] I would reverse the summary judgment and hold that the Farmers Union policy provides coverage, affirm the entire award of attorney’s fees for the defense of the tort action, and remand for an award of attorney’s fees for the defense of the declaratory judgment action.

[¶ 38] Mary Muehlen Maring