Acuity v. Terra-Tek, LLC & Waba

#30433-a-PJD
2024 S.D. 49

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

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ACUITY, a Mutual Insurance
Company, Plaintiff and Appellant,

v.

TERRA-TEK, LLC and JON WABA, Defendants and Appellees.

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APPEAL FROM THE CIRCUIT COURT OF
THE FIRST JUDICIAL CIRCUIT
BRULE COUNTY, SOUTH DAKOTA

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THE HONORABLE BRUCE V. ANDERSON
Judge

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MARK J. ARNDT
DELIA M. DRULEY of
Evans, Haigh & Arndt, LLP
Sioux Falls, South Dakota Attorneys for plaintiff and
appellant.

GREGORY G. STROMMEN of
DeMersseman Jensen Tellinghuisen
& Huffman, LLP
Rapid City, South Dakota Attorneys for defendants and
appellees.

****

CONSIDERED ON BRIEFS
APRIL 23, 2024
OPINION FILED 08/21/24
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DEVANEY, Justice

[¶1.] Acuity issued Terra-Tek, LLC a commercial auto policy, and Terra-Tek

paid a premium to list owners and employees John Waba and Sheila Foreman as

additional named insureds. After Waba sustained bodily injuries in an auto

accident with an underinsured motorist on December 30, 2019, he filed a claim for

underinsured motorist (UIM) benefits with Acuity. Acuity denied the claim because

Waba was not occupying a vehicle covered under Terra-Tek’s policy at the time of

the accident. Acuity also commenced a declaratory judgment action, seeking a

ruling that Waba is not entitled to UIM benefits. The parties filed cross-motions for

summary judgment, and after a hearing, the circuit court determined that Terra-

Tek’s UIM endorsement unambiguously provides Waba UIM coverage for the bodily

injuries he sustained from the December 2019 accident. Acuity appeals. We affirm.

Factual and Procedural Background

[¶2.] On December 30, 2019, Waba was driving a 1993 GMC Jimmy owned

by Foreman when another vehicle drove into Waba’s lane of travel and crashed into

him. Waba sustained injuries from the accident, and the other driver’s insurance

company accepted liability and tendered the driver’s policy limits, $250,000, to

Waba for the damages he sustained. Waba thereafter filed a claim for UIM benefits

with Acuity under the commercial auto policy issued to Terra-Tek. Terra-Tek is the

“FIRST NAMED INSURED,” and Waba and Foreman are “ADDITIONAL NAMED

INSUREDS.” According to Waba, Terra-Tek paid an additional premium to have

him and Foreman included as named insureds.

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[¶3.] Acuity denied Waba’s claim, informing him that because the 1993

GMC was not a “covered auto” under Terra-Tek’s policy, he was not entitled to UIM

benefits for injuries he sustained from the December 2019 accident. Acuity

thereafter commenced a declaratory judgment action against Terra-Tek and Waba,

seeking a ruling that Waba is not entitled to recover UIM benefits under Terra-

Tek’s policy. The parties filed cross-motions for summary judgment. Acuity argued

that because the introductory language “For a covered auto” in Terra-Tek’s UIM

endorsement precedes the coverage provisions under this endorsement, UIM

coverage exists only for bodily injuries a named insured sustains while occupying a

covered auto. In response, Waba argued that under the circumstances of this case,

UIM coverage exists because the endorsement covers bodily injuries an insured

sustains in an accident with a driver of an underinsured vehicle and the definition

of a named insured does not require the insured to be occupying a covered auto.

[¶4.] As it relates to Terra-Tek’s insurance contract with Acuity, the record

contains the following documents: the BUSINESS AUTO COVERAGE FORM (the

Policy), the Business Auto Amended Declarations (Declarations page), and the

South Dakota Uninsured and Underinsured Motorists Coverage (the Endorsement).

The relevant language of each is detailed below.

[¶5.] Under the Policy, an “Insured” is defined as “any person or

organization qualifying as an insured in the Who Is an Insured provision of the

applicable coverage.” The Policy also provides, under the section on COVERED

AUTOS, that:

Item Two of the Declarations shows the autos that are covered
autos for each of your coverages. The following numerical

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symbols describe the autos that may be covered autos. The
symbols entered next to a coverage on the Declarations
designate the only autos that are covered autos.

The “1” symbol means any auto, and the “7” symbol means “[o]nly those autos

described in Item Three of the Declarations for which a premium charge is shown[.]”

[¶6.] The Declarations page provides under SCHEDULE OF COVERAGES

AND COVERED AUTOS that “[e]ach of these coverages apply only to those autos

shown as covered autos by the entry of one or more of the symbols from the Covered

Autos section of the Business Auto Coverage Form next to the name of the

coverage.” In the table detailing coverages, “Underinsured Motorists” has a “7”

symbol under the column for “Covered Auto Symbols,” and a $1,000,000 limit of

insurance for each person and $1,000,000 for each accident. There is also a list of

twelve COVERAGE FORMS AND ENDORSEMENTS APPLICABLE TO THIS

COVERAGE PART, including the Policy and the Endorsement at issue here.

[¶7.] Also within the Declarations page, the SCHEDULE OF COVERAGES

AND PREMIUM DETAIL lists specific automobiles and trailers and the coverages

applicable to them. The 1993 GMC driven by Waba on the date of the accident is

not included on this list. Finally, the Declarations page lists Terra-Tek as the first

named insured and Waba and Foreman as additional named insureds.

[¶8.] The Endorsement for uninsured and underinsured motorist coverage

provides:

This endorsement modifies insurance provided under the
following:
BUSINESS AUTO COVERAGE FORM
GARAGE COVERAGE FORM
MOTOR CARRIER COVERAGE FORM
...

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For a covered auto licensed or principally garaged in, or garage
operations conducted in, South Dakota:

1. COVERAGE
...
c. Underinsured Motorists Coverage

We will pay all sums the insured is legally entitled to recover as
compensatory damages from the owner or driver of an
underinsured motor vehicle. The damages must result from
bodily injury sustained by the insured caused by an accident.
The owner’s or driver’s liability for these damages must result
from the ownership, maintenance or use of the underinsured
motor vehicle.
...

2. WHO IS AN INSURED

If the Named Insured is designated In the Declarations as:

a. An individual, then the following are insureds:

(1) The Named Insured and any family members.

(2) Anyone else occupying a covered auto or a temporary
substitute for a covered auto. The covered auto must be
out of service because of its breakdown, repair, servicing,
loss or destruction.

(3) Anyone for damages he or she is entitled to recover
because of bodily injury sustained by another insured.

b. A partnership, limited liability company, corporation, or any
other form of organization, then the following are insureds:

(1) Anyone occupying a covered auto or a temporary
substitute for a covered auto. The covered auto must be
out of service because of its breakdown repair, servicing,
loss or destruction.

(2) Anyone for damages he or she is entitled to recover
because of bodily injury sustained by another insured.

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[¶9.] The circuit court held a hearing on the parties’ cross-motions for

summary judgment, and after considering their arguments and written

submissions, the court issued a memorandum decision. The court noted that the

case implicates a matter that this Court has not before examined and that a review

of decisions from other courts reflects a split of authority. Some courts have

concluded that the “For a covered auto” language in the UIM endorsement does not

control who is deemed an insured; instead, the language in the “Who Is an Insured”

section controls the applicable UIM coverage. These courts have held that because

the “Who Is an Insured” section in the endorsement does not condition UIM

coverage for a named insured on occupying a covered auto, the named insured is

entitled to UIM coverage under the endorsement. See, e.g., Grinnell Mut.

Reinsurance Co. v. Haight, 697 F.3d 582 (7th Cir. 2012). Other courts have held

that the “For a covered auto” language in a UIM endorsement limits UIM coverage

to insureds occupying covered autos listed in the declarations page for the

commercial auto policy. See, e.g., Lisowski v. Hastings Mut. Ins. Co., 759 N.W.2d

754 (Wis. 2009).

[¶10.] As it pertains to Terra-Tek’s insurance contract with Acuity, the circuit

court noted that the Declarations page lists Waba as a named insured and that it

was “unrefuted” that Terra-Tek paid an additional premium to have Waba included

as a named insured. The court also noted that the Endorsement lists several types

of insureds and distinguishes between individual and business entities, and as it

pertains to a named insured, like Waba, there is no requirement that the insured be

occupying a covered auto. Thus, the court concluded “that the language clearly

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indicates that Mr. Waba is insured under the UIM Endorsement for the injuries he

sustained in an accident despite the fact that those injuries occurred while driving

the GMC Jimmy owned by Shelia Foreman.”

[¶11.] Further, although the Declarations page uses a “7” to designate

covered autos, the court determined that “the UIM Endorsement clearly amends

those provisions.” In the court’s view, to conclude otherwise and read the “For a

covered auto” as Acuity contends would render “superfluous” the language defining

non-named insureds as “[a]nyone else occupying a covered auto.” The court noted

that if Acuity intended to limit UIM coverage to named insureds occupying a

covered auto, “all that would be required is a definition including ‘anyone in a

covered auto.’” Alternatively, the court held “that the terms of the contract under

these circumstances are ambiguous[,]” which requires an interpretation of the

insurance contract in favor of UIM coverage.

[¶12.] The circuit court issued a judgment denying Acuity’s motion for

summary judgment and granting Waba’s. The court also declared that Terra-Tek’s

commercial auto policy with Acuity “provide[s] coverage for Defendant Waba for the

automobile collision on December 30, 2019.” Acuity appeals, asserting the circuit

court erred in its interpretation of Terra-Tek’s insurance contract.

Standard of Review

[¶13.] As the Court recently stated,

This Court’s standard of review on summary judgment is well-
settled. “We affirm the circuit court ‘when there are no genuine
issues of material fact and the legal questions have been
correctly decided.’” Culhane v. W. Nat’l Mut. Ins. Co., 2005 S.D.
97, ¶ 5, 704 N.W.2d 287, 289 (quoting Sanford v. Sanford, 2005
S.D. 34, ¶ 11, 694 N.W.2d 283, 287). The interpretation of an

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insurance contract is a question of law reviewed de novo with no
deference to the circuit court. N. Star Mut. Ins. v. Korzan, 2015
S.D. 97, ¶ 13, 873 N.W.2d 57, 61 (citing Ass Kickin Ranch, LLC
v. N. Star Mut. Ins. Co., 2012 S.D. 73, ¶ 7, 822 N.W.2d 724, 726).

State Farm Mut. Auto. Ins. Co. v. Grunewaldt, 2023 S.D. 61, ¶ 7, 998 N.W.2d 361,

364.

Analysis and Decision

[¶14.] Acuity argues the Declarations page clearly provides that Terra-Tek’s

UIM coverage is limited to an insured occupying a covered auto and that nothing in

the Endorsement modifies this coverage requirement. Acuity relies on the “initial

prefatory language” in the Endorsement stating that it applies “For a covered auto

licensed . . . in South Dakota[.]” Acuity also notes that Terra-Tek could have listed

the 1993 GMC as a covered auto and paid a premium for UIM coverage, but it did

not do so. Thus, Acuity contends the court erred in its determination that Waba is

entitled to UIM coverage for injuries he sustained while occupying a vehicle that

was not a covered auto under Terra-Tek’s policy.

[¶15.] We construe insurance contract language “according to its plain and

ordinary meaning[,]” and we “cannot make a forced construction or a new contract

for the parties.” W. Agric. Ins. Co. v. Arbab-Azzein, 2020 S.D. 12, ¶ 11, 940 N.W.2d

865, 868 (quoting Ass Kickin Ranch, 2012 S.D. 73, ¶ 10, 822 N.W.2d at 727).

“Essentially, this means that when the terms of an insurance policy are

unambiguous, these terms ‘cannot be enlarged or diminished by judicial

construction.’” Ass Kickin Ranch, 2012 S.D. 73, ¶ 10, 822 N.W.2d at 727 (citation

omitted). Further, “[c]ontract interpretation requires examination of the entire

contract.” Larimer v. Am. Fam. Mut. Ins. Co., 2019 S.D. 21, ¶ 8, 926 N.W.2d 472,

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475. As SDCL 58-11-39 provides, “Every insurance contract shall be construed

according to the entirety of its terms and conditions as set forth in the policy and as

amplified, extended, or modified by any rider, endorsement, or application lawfully

made a part of the policy.”

[¶16.] In support of its argument that the Declarations page controls over the

Endorsement here, Acuity directs this Court to the following language from

Peterson v. The Travelers Indemnity Co.:

Insurance companies routinely use covered auto symbols on the
declarations page to delineate coverage. See, e.g., Haberman v.
The Hartford Insurance Group, 443 F.3d 1257, 1267–68 (10th
Cir. 2006) (interpreting an insurance policy that uses a “Covered
Auto Symbol” to indicate coverage). Attached endorsements
must be read together with [the] rest of the policy. Mid-Century
Ins. Co. v. Lyon, 562 N.W.2d 888, 890 (S.D. 1997). “When the
declarations page clearly communicates the coverage provided by
the insurance contract, and the other policy provisions neither
expressly change the coverage nor reflect a different intention
than that clearly expressed on the declarations page, the
declarations page controls.” Munroe v. Cont’l W. Ins. Co., 735
F.3d 783, 787 (8th Cir. 2013) (quoting Jackson v. Gen. Accident
Ins. Co., 720 S.W.2d 428, 429 (Mo. App. 1986) (internal
quotation marks omitted)).

867 F.3d 992, 996 (8th Cir. 2017) (emphasis added). In Peterson, the declarations

page listed optional coverages under the policy, including medical pay coverage, and

because there was no covered auto symbol next to medical pay coverage, the court

concluded that there was no medical pay coverage for the medical payments at

issue. Id. (noting that the declarations page provides that “[i]nsurance only applies

to a coverage for which a Covered Auto Symbol is shown”).

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[¶17.] Here, in contrast, Terra-Tek’s Declarations page specifically denotes

that Terra-Tek obtained UIM coverage. 1 Also, although the Declarations page

states that the coverages listed apply only to those autos shown as covered autos,

that language does not clearly communicate the full scope of UIM coverage

available to Terra-Tek under the Policy. Thus, unlike in Peterson, it cannot be said

that the Declarations page here controls all aspects of Terra-Tek’s UIM coverage.

[¶18.] In regard to Terra-Tek’s UIM coverage, under the COVERAGE section

in the Endorsement defining the scope of both uninsured and underinsured

motorists coverage, there are three subsections—one for uninsured motorists

coverage, another for uninsured motorists property damage coverage, and the third

for underinsured motorists coverage. In both the uninsured and underinsured

motorists coverage provisions, which provide coverage for bodily injury sustained by

an insured, there is no language requiring that the insured be occupying a covered

auto. However, as it relates to uninsured motorists property damage coverage, the

Endorsement specifically states that coverage exists only for property damage an

insured sustains to an auto listed in the schedule of covered autos attached to the

Declarations page showing uninsured motorists property damage coverage.

Although Acuity views the phrase “For a covered auto” in the introductory language

in the Endorsement as a limitation on everything stated thereafter, including in the

1. Terra-Tek’s Declarations page is structured differently than the one at issue
in Peterson v. The Travelers Indemnity Co., 867 F.3d 992 (8th Cir. 2017). It
does not contain language identifying the optional coverages under the policy.
Rather, it identifies the types of coverages actually obtained by Terra-Tek.
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provisions under the Coverage and Who is an Insured sections, such a reading

produces awkward syntax and sentences that make little sense.

[¶19.] For example, under the Coverage section, it does not make sense to

state, in regard to underinsured motorists coverage, that: “For a covered auto . . .

We will pay all sums the insured is legally entitled to recover as compensatory

damages . . . result[ing] from bodily injury sustained by the insured[.]” The covered

auto does not, of course, sustain the bodily injuries referenced in the insuring

clause—the insured individual does. Distilled to its essence, then, the sentence is

confounding because it seems to say that Acuity will pay bodily injury damages “For

a covered auto.” Interpreting the policy language in this way would also conflict

with SDCL 58-11-9.5, which states that a UIM carrier “agrees to pay its own

insured for uncompensated damages as its insured may recover on account of bodily

injury or death[.]” (Emphasis added.); see also De Smet Ins. Co. of S. Dakota v.

Pourier, 2011 S.D. 47, ¶ 6, 802 N.W.2d 447, 449 (“[U]nderinsured motorist coverage

is generally portable: it follows the insured rather than the vehicle.”).

[¶20.] Grafting the “For a covered auto” phrase to the Who Is an Insured

section is perhaps even more problematic. The Endorsement expressly lists

multiple classes of insureds, including named insureds and family members of

named insureds without qualification. Notably, the Endorsement also creates an

additional class of insureds who are defined as “Anyone else occupying a covered

auto[.]” Aside from the fact that it would be redundant to apply the phrase “For a

covered auto” to this latter class of insureds, if this prefatory phrase applies to all

identified insureds, it effectively dissolves the other classes of insureds by

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delineating the universe of insureds as those occupying a covered auto.

Interpreting the policy in this way would be confusing and inconsistent with the

rule that “[a]n interpretation which gives a reasonable and effective meaning to all

the terms is preferred to an interpretation which leaves a part unreasonable or of

no effect.” Nelson v. Schellpfeffer, 2003 S.D. 7, ¶ 14, 656 N.W.2d 740, 744 (citation

omitted).

[¶21.] However, this does not mean the phrase “For a covered auto” has no

meaning. Rather, the phrase makes sense when it is read in conjunction with the

provision on coverage for UIM property damage: “For a covered auto . . . We will pay

all sums in excess of any deductible shown in the Declarations that the insured is

legally entitled to recover” for “damages . . . result[ing] from property damage to an

auto specifically described in Item Three of the Declarations for which a limit is

shown for Uninsured Motorists Property Damage Coverage.”

[¶22.] Moreover, had Acuity intended UIM coverage to apply only to

scenarios involving covered autos, it could have included limiting language similar

to that contained in the Policy language on LIABILITY COVERAGE. The Who Is

an Insured section for LIABILITY COVERAGE defines an insured as:

a. You for any covered auto.
b. Anyone else while using with your permission a
covered auto you own, hire or borrow [with exceptions].
c. Anyone liable for the conduct of an insured described
above but only to the extent of that liability.

Importantly, the Policy’s general definition of an Insured is not tethered to the

individual occupying a covered auto. Rather, whether an individual is an insured

depends on how the “Who Is an Insured provision of the applicable coverage”

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defines an insured for that particular coverage. As such, the lack of limiting

language in the first category identified under the Who Is an Insured provision in

the UIM Endorsement indicates an intent that a named insured need not be

occupying a covered auto to receive UIM benefits.

[¶23.] Acuity, however, directs this Court to the Wisconsin Supreme Court’s

decision in Lisowski, wherein the court interpreted the phrase “For a covered ‘auto’”

to modify the coverage provisions in the UIM endorsement at issue such that UIM

coverage was not implicated unless a named insured was occupying a covered auto

at the time of the accident. 759 N.W.2d at 759. In particular, Acuity notes that the

Wisconsin court found the phrase “For a covered ‘auto,’” rather than the definition

of who is an insured, to be the “key” language on the coverage question. Id. at 762.

[¶24.] In response, Waba contends that Lisowski reflects the minority view

and that this Court should follow the majority view expressed by the Seventh

Circuit Court of Appeals in Grinnell, 697 F.3d 582. 2 Waba also asserts that

Grinnell is more persuasive because it applies rules of insurance contract

interpretation similar to what this Court employs, such as construing the terms

according to their plain and ordinary meaning and ascertaining and giving effect to

the parties’ intentions as expressed in the words of the policy. See Heitmann v. Am.

Fam. Mut. Ins. Co., 2016 S.D. 51, ¶ 12, 883 N.W.2d 506, 509.

[¶25.] In Grinnell, the insurance company, like Acuity here, argued that

coverage did not exist because the “For a covered auto” phrase means an insured

2. The circuit court similarly expressed an opinion based on its extensive review
of the case law on this issue that “the Grinnell line of cases appears to be the
majority opinion.”
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must be occupying a covered auto even though the definition of an insured did not

include such language. The Seventh Circuit disagreed, concluding that Grinnell’s

reading of the endorsement “is strained both as a matter of grammar and of logic”

and would render the distinctions between types of insureds meaningless. 697 F.3d

at 588–89. The court also considered that the definition of who is an insured for

liability coverage in the policy included language that the insured must be

occupying a covered auto, thus buttressing the court’s view that an insured family

member need not be occupying a covered auto for UIM motorist coverage. Id. at

589. Finally, although the declarations page in Grinnell signified the coverages

applicable to the covered autos, the court determined that its reading of the UIM

endorsement did not render the designations of applicable coverages for covered

autos irrelevant. Rather, in the court’s view, “[w]hich autos are covered can be

relevant in determining UIM coverage, including when . . . the identity of covered

autos is necessary and relevant”; however, “when there is no reference to a ‘covered

auto,’ such as [with a named insured and family members], reference to the list of

covered autos is not necessary.” Id.

[¶26.] Although Lisowski and Grinnell examined similar policy language, the

analysis in Grinnell is more persuasive. In particular, Grinnell more thoroughly

examined the import of the phrase “For a covered auto” in light of other provisions

in the policy. Lisowski, in contrast, did not refer to other policy language that might

bear on the proper interpretation of the UIM endorsement. Importantly, here,

according to the Policy’s general definitions, whether a person qualifies as an

Insured is governed by the Who is an Insured provision of each applicable coverage.

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Also, unlike the analysis in Grinnell, the Lisowski Court did not address the syntax

issues resulting from its interpretation; rather, the Court simply declared that the

difference in language for anyone else occupying a covered auto cannot be read to

create UIM coverage for an insured family member.

[¶27.] We conclude, as the Court did in Grinnell, that based on the plain

language of the Policy, Declarations page, and Endorsement, UIM coverage applies

to a named insured for bodily injuries sustained in an accident with an

underinsured driver without a requirement that the insured be occupying a covered

auto at the time of the accident. To conclude otherwise would require this Court to,

contrary to our rules of interpretation, “make a forced construction or a new

contract for the parties.” See Arbab-Azzein, 2020 S.D. 12, ¶ 11, 940 N.W.2d at 868

(citation omitted). As such, we affirm the circuit court’s judgment in favor of Terra-

Tek and Waba.

[¶28.] Affirmed.

[¶29.] JENSEN, Chief Justice, and KERN, SALTER, and MYREN, Justices,

concur.

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