Ass Kickin Ranch, LLC v. North Star Mutual Insurance Co.

#26291-a-DG

2012 S.D. 73

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

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ASS KICKIN RANCH, LLC, Plaintiff and Appellant,

v.

NORTH STAR MUTUAL
INSURANCE COMPANY, Defendant and Appellee.

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APPEAL FROM THE CIRCUIT COURT OF
THE SIXTH JUDICIAL CIRCUIT
HUGHES COUNTY, SOUTH DAKOTA

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THE HONORABLE MARK BARNETT
Judge

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LEE C. “KIT” McCAHREN of
Olinger, Lovald, McCahren
& Reimers, PC
Pierre, South Dakota Attorneys for plaintiff
and appellant.

DOUGLAS A. ABRAHAM of
May, Adam, Gerdes, Thompson, LLP
Pierre, South Dakota Attorneys for defendant
and appellee.

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CONSIDERED ON BRIEFS
ON AUGUST 27, 2012

OPINION FILED 10/17/12
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GILBERTSON, Chief Justice

[¶1.] North Star Mutual Insurance Company (North Star) denied coverage

for two unassembled wind turbines that were destroyed in a fire on Ass Kickin

Ranch’s property. North Star claimed a policy exclusion permitted it to deny

coverage for the loss. Ass Kickin Ranch (Ranch) sued North Star, asserting North

Star committed a breach of contract and acted in bad faith in denying coverage for

the unassembled wind turbines. The parties filed cross-motions for summary

judgment. The circuit court granted North Star’s motion for summary judgment,

finding the policy exclusion applied. Ranch appealed. We affirm.

FACTS

[¶2.] Ranch purchased an insurance policy from North Star in 2009. This

insurance policy included coverage for unscheduled farm personal property from

November 14, 2009, to November 14, 2010. On March 31, 2010, the shop building

on Ranch’s property burned down. The building and its contents were destroyed in

the fire. The contents of the building included the complete set of unassembled

parts for two electric generating wind turbines.

[¶3.] The unassembled wind turbines were purchased by Ranch with a

check which indicated on the memo line that the payment was for “2 windmills.”

Each of the unassembled wind turbines consisted of a tower, a generator, a

transmission, blades, and controls. The wind turbines had never been assembled or

installed on Ranch’s property prior to being destroyed. In order to complete

installation, Ranch would have needed to pour cement footings to support the

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assembled wind turbines and then connect the assembled wind turbines to a power

source.

[¶4.] Ranch made a $100,000 claim on its insurance policy to recover for its

loss of the unassembled wind turbines. However, North Star denied Ranch’s claim,

concluding coverage for the unassembled wind turbines was expressly excluded by

the policy. Under Coverage F, subparagraph 5(g), the policy excluded coverage for

“fences, windmills, windchargers, or their towers.”

[¶5.] In February 2011, Ranch sued North Star alleging breach of contract

for North Star’s failure to pay Ranch’s $100,000 claim. Further, Ranch sought an

award of punitive damages based on its allegation that North Star acted in bad

faith by failing to properly evaluate Ranch’s claim. 1 The parties filed cross-motions

for summary judgment. After a hearing, the circuit court granted North Star’s

motion for summary judgment, finding the policy exclusion applied. The circuit

court’s rationale for granting North Star’s motion was set forth in its order and

memorandum decision. Ranch appeals, arguing the circuit court erred in denying

its motion for summary judgment and in granting summary judgment in favor of

North Star.

STANDARD OF REVIEW

[¶6.] When reviewing a circuit court’s grant of summary judgment, this

Court only decides “whether genuine issues of material fact exist and whether the

1. Ranch’s allegations of bad faith and its request for punitive damages were
not addressed by Ranch in its brief. As a result, this issue is waived on
appeal.

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law was correctly applied.” Zephier v. Catholic Diocese of Sioux Falls, 2008 S.D. 56,

¶ 6, 752 N.W.2d 658, 662 (quoting Bordeaux v. Shannon Cnty. Sch., 2005 S.D. 117,

¶ 11, 707 N.W.2d 123, 126). “With the material facts undisputed, [this Court’s]

review is limited to determining whether the trial court correctly applied the law.”

De Smet Ins. Co. of S.D. v. Gibson, 1996 S.D. 102, ¶ 5, 552 N.W.2d 98, 99. If there is

any legal basis to support the circuit court’s decision, the case will be affirmed on

appeal. Bozied v. City of Brookings, 2001 S.D. 150, ¶ 8, 638 N.W.2d 264, 268.

[¶7.] “Insurance contract interpretation is a question of law, reviewable de

novo.” Gibson, 1996 S.D. 102, ¶ 5, 552 N.W.2d at 99 (citing State Farm Mut. Auto.

Ins. Co. v. Vostad, 520 N.W.2d 273, 275 (S.D. 1994)). “This includes determining

whether an insurance contract is ambiguous.” Roden v. Gen. Cas. Co. of Wis., 2003

S.D. 130, ¶ 6, 671 N.W.2d 622, 625 (quoting Nat’l Sun Indus., Inc. v. S.D. Farm

Bureau Ins. Co., 1999 S.D. 63, ¶ 7, 596 N.W.2d 45, 46).

ANALYSIS AND DECISION

[¶8.] Neither party argues there is a genuine issue of material fact. Instead,

the main issue addressed by the parties is whether the policy exclusion applies to

the circumstances of this case. The parties dispute whether the unassembled wind

turbines fit within the policy’s exclusion of coverage for “fences, windmills,

windchargers, or their towers.” This is a question of contract interpretation. As a

result, the only question before this Court on appeal is whether the circuit court

correctly applied the law.

[¶9.] “[T]he scope of coverage of an insurance policy is determined from the

contractual intent and the objectives of the parties as expressed in the contract.”

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St. Paul Fire & Marine Ins. Co. v. Schilling, 520 N.W.2d 884, 887 (S.D. 1994).

“When an insurer seeks to invoke a policy exclusion as a means of avoiding

coverage, the insurer has the burden of proving that the exclusion applies.”

Opperman v. Heritage Mut. Ins. Co., 1997 S.D. 85, ¶ 4, 566 N.W.2d 487, 489

(quoting Am. Family Mut. Ins. Co. v. Purdy, 483 N.W.2d 197, 199 (S.D. 1992)).

Where the provisions of an insurance policy are fairly
susceptible to different interpretations, the interpretation most
favorable to the insured should be adopted. [However,] [t]his
rule of liberal construction in favor of the insured and strictly
against the insurer applies only where the language of the
insurance contract is ambiguous and susceptible of more than
one interpretation. . . .

Nat’l Sun Indus., 1999 S.D. 63, ¶ 18, 596 N.W.2d at 48-49. “The fact that the

parties differ as to the contract’s interpretation does not create an ambiguity.”

Zochert v. Nat’l Farmers Union Prop. & Cas. Co., 1998 S.D. 34, ¶ 5, 576 N.W.2d 531,

532 (citing Alverson v. Nw. Nat’l Cas. Co., 1997 S.D. 9, ¶ 8, 559 N.W.2d 234, 235).

[¶10.] Further, a court may not “seek out a strained or unusual meaning for

the benefit of the insured.” Rumpza v. Donalar Enters., Inc., 1998 S.D. 79, ¶ 12, 581

N.W.2d 517, 521 (quoting Olson v. U.S. Fid. & Guar. Co., 1996 S.D. 66, ¶ 6, 549

N.W.2d 199, 200). Instead, “[a]n insurance contract’s language must be construed

according to its plain and ordinary meaning and a court cannot make a forced

construction or a new contract for the parties.” Stene v. State Farm Mut. Auto. Ins.

Co., 1998 S.D. 95, ¶ 14, 583 N.W.2d 399, 402 (alteration in original) (quoting

Schilling, 520 N.W.2d at 887). Essentially, this means that when the terms of an

insurance policy are unambiguous, these terms “cannot be enlarged or diminished

by judicial construction.” Am. Family Mut. Ins. v. Elliot, 523 N.W.2d 100, 102 (S.D.

1994) (citing O’Neill v. Blue Cross of W. Iowa & S.D., 366 N.W.2d 816, 818 (S.D.
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1985)). Finally, “insurance policies must be subject to a reasonable interpretation

and not one that amounts to an absurdity.” Prokop v. N. Star Mut. Ins. Co., 457

N.W.2d 862, 864 (S.D. 1990) (citing Helmboldt v. LeMars Mut. Ins. Co., Inc., 404

N.W.2d 55, 59 (S.D. 1987)).

[¶11.] In this case, the parties do not expressly assert the language of the

policy exclusion is ambiguous. Nevertheless, each party argues for a different

interpretation of the policy exclusion. North Star argues the policy language

excluding coverage for “fences, windmills, windchargers, or their towers”

encompasses all windmills and windchargers, regardless of whether or not they are

assembled, unassembled, functional, or nonfunctional. In contrast, Ranch argues

an unassembled wind turbine does not fit within the language of the policy

exclusion. According to Ranch, a “pile of parts” that has never been assembled on

the property does not constitute a windmill or a windcharger for purposes of the

policy exclusion. However, although North Star and Ranch interpret the policy

language differently, this does not automatically render the policy exclusion

ambiguous.

[¶12.] Because North Star’s policy did not provide definitions for the terms

within the policy exclusion, the circuit court properly relied on definitions from

Merriam-Webster’s online dictionary as the plain and ordinary meanings of the

terms. The circuit court noted that according to Merriam-Webster’s, a “windmill”

was defined as “a mill or machine operated by the wind usually acting on oblique

vanes or sails that radiate from a horizontal shaft; especially: a wind-driven water

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pump or electric generator.” Additionally, a “windcharger” was defined as “a

generator driven by a windmill and used to charge storage batteries.”

[¶13.] Ranch argues the unassembled wind turbines were not encompassed

within these definitions because the unassembled wind turbines have never been

capable of “spinning in the wind,” generating power, or charging storage batteries at

Ranch. However, the plain and ordinary meanings of “windmill” and “windcharger”

include Ranch’s unassembled wind turbines for several reasons. First, Ranch

acknowledged it purchased the wind turbines with the intent to use them to

generate electricity on the ranch. Thus, Ranch’s intended purpose for the

unassembled wind turbines fits within the plain and ordinary meanings of

“windmill” and “windcharger.” Next, the components of the unassembled wind

turbines (towers, generators, transmissions, blades, and controls) are encompassed

within the plain and ordinary meanings of “windmill” and “windcharger” because

the components were designed to function as “windmills” and “windchargers” upon

assembly.

[¶14.] Further, Ranch’s unassembled wind turbines consisted of the

components needed to create functioning “windmills” and “windchargers.” Ranch

possessed towers, generators, transmissions, blades, and controls. The only

additional elements needed to allow Ranch’s unassembled wind turbines to operate

as “windmills” and “windchargers” were cement footings and a power source. Thus,

although Ranch’s wind turbines were unassembled, they were generally

recognizable as “windmills” or “windchargers” because their components constituted

the parts required for their assembly and operation.

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[¶15.] Finally, on the memo line of the check Ranch wrote to pay for the

unassembled wind turbines, Ranch indicated the check was written to pay for “2

windmills.” This notation is significant because it demonstrates Ranch understood

the unassembled wind turbines were windmills even though they were not yet

assembled and operating. Overall, the combination of Ranch’s intended purpose for

the unassembled wind turbines, the intended function of the unassembled wind

turbine components, Ranch’s understanding that the unassembled wind turbines

were windmills, and the fact that the unassembled wind turbines consisted of the

components needed to create functioning “windmills” and “windchargers” supports

the circuit court’s determination that the unassembled wind turbines were included

within the plain and ordinary meanings of “windmill” and “windcharger.” As a

result, the circuit court did not “incorrectly apply the law” in finding that the policy

exclusion was unambiguous and that the plain and ordinary meanings of “windmill”

and “windcharger” encompassed Ranch’s unassembled wind turbines.

[¶16.] Ranch further claims North Star should have added language to the

existing policy exclusion to explicitly exclude “all parts or components” if it meant

for the policy exclusion to apply to the unassembled wind turbines. However, there

is no indication in the policy that North Star meant to exclude “fences, windmills,

windchargers, or their towers” from coverage only if they were assembled and

operating. By using the policy exclusion’s existing language without any language

of limitation, North Star demonstrated its intent for the terms used in the policy

exclusion to be construed broadly. Essentially, North Star’s use of general terms

like “windmill” without language of limitation indicated it meant for the policy

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exclusion to apply to all windmills, regardless of whether or not they were fully

assembled and operating. 2 Furthermore, as previously demonstrated above, the

plain and ordinary meanings of “windmill” and “windcharger” encompass the

unassembled wind turbines. Therefore, adding “all parts or components” language

to the existing policy exclusion was unnecessary because the terms used in the

policy exclusion already encompassed the unassembled wind turbines in this case.

[¶17.] Next, consideration of the implications of Ranch’s proposed

interpretation of the policy exclusion provides additional support for the circuit

court’s determination that the unassembled wind turbines were included within the

terms “windmill” and “windcharger.” Concluding that the policy exclusion for

“fences, windmills, windchargers, or their towers” is inapplicable to the

unassembled wind turbines solely because they are not fully assembled and

operating strains the meaning of the policy exclusion and diminishes the

significance of its terms. As previously discussed, an analysis of the plain and

ordinary meanings of “windmill” and “windcharger” establishes the policy exclusion

applies to the unassembled wind turbines. Therefore, finding coverage for Ranch by

limiting the policy exclusion’s application to fully assembled and operating

“windmills” and “windchargers” improperly strains the meaning of the policy

2. In this case, the unassembled wind turbines consisted of all of the parts
necessary for operation of a windmill. There may be cases where all
necessary parts are not present or where some part of the unit is non-
operational such as a car with a blown engine. Whether in those instances
the disputed item falls within a definition in an insurance policy we leave for
another day.

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exclusion and diminishes the reach of its terms because this interpretation ignores

the plain and ordinary meaning of the policy exclusion.

[¶18.] Furthermore, the implementation of Ranch’s proposed interpretation

of the policy exclusion could lead to absurd results. For example, as the circuit

court emphasized, “an insured, who is faced with an imminent destructive tornado,

could remove the steering wheel from his or her sports car and suddenly the insured

would have coverage for his or her previously excluded sports car because it was not

fully assembled at the time of its destruction.”

[¶19.] Ranch attempts to distinguish the circuit court’s hypothetical from this

case by asserting that unlike removing one part from an assembled and functioning

vehicle, the unassembled wind turbines had never been assembled or capable of

operating on Ranch’s property. However, although the circuit court’s hypothetical

presents an extreme situation, it still demonstrates how Ranch’s proposed

interpretation of the policy exclusion could lead to absurd results. Therefore, the

circuit court’s rejection of Ranch’s proposed interpretation of the policy was not an

“incorrect application of the law” because such an interpretation would have

diminished the language of the policy exclusion, strained the policy exclusion’s

meaning, and resulted in absurdity.

[¶20.] Finally, due to the absence of controlling precedent on this issue in

South Dakota, the circuit court found the Appellate Court of Connecticut’s

determination in Robertson v. Nationwide Mutual Insurance Co., 569 A.2d 565

(Conn. App. Ct. 1990), to be persuasive in its consideration of whether to grant

summary judgment in favor of North Star. In Robertson, the plaintiff sued the

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insurance company to recover benefits under his homeowner’s insurance policy for

the loss of a disassembled 1957 Gull Wing Mercedes he kept in his garage. Id. 569

A.2d at 565. The insurance company denied coverage, claiming the disassembled

car was excluded from coverage under the policy exclusion for “motorized land

vehicles . . . designed for travel on public roads as subject to motor vehicle

registration.” Id. 569 A.2d at 566.

[¶21.] The plaintiff asserted the policy exclusion did not apply to his

disassembled car. Id. The appellate court affirmed the lower court’s determination

that the policy exclusion was unambiguous, the disassembled car was a motor

vehicle, and the policy exclusion applied. Id. The court concluded the disassembled

car was designed for highway travel and would be subject to vehicle registration

upon assembly. Id. Therefore, the car met the definition of “motor vehicle” despite

being disassembled. Id.

[¶22.] Similar to the plaintiff’s assertion in Robertson that the policy

exclusion for “motor vehicles” did not encompass a disassembled car, in this case

Ranch attempts to avoid application of the policy exclusion by claiming the terms

“windmill” and “windcharger” do not include unassembled wind turbines.

Additionally, like in Robertson where the court determined a disassembled car was

still a “motor vehicle” because it was designed for and capable of highway travel

upon assembly, in this case Ranch’s unassembled wind turbines were designed to

function as “windmills” and “wind chargers” and were capable of operating as such.

As a result, the Connecticut court’s rationale in Robertson provides further support

for the circuit court’s conclusion that the unassembled wind turbines were

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“windmills” and “windchargers” subject to North Star’s policy exclusion, and that

North Star was thus excused from providing coverage for Ranch’s unassembled

wind turbines.

CONCLUSION

[¶23.] The circuit court correctly applied the law in determining Ranch’s

unassembled wind turbines were precluded from coverage under North Star’s policy

exclusion for “fences, windmills, windchargers, or their towers.” The language of

the policy exclusion was unambiguous and the plain and ordinary meanings of

“windmill” and “windcharger” encompassed the unassembled wind turbines. As a

result, the circuit court did not err in granting North Star’s motion for summary

judgment. Affirmed.

[¶24.] KONENKAMP, ZINTER, SEVERSON, and WILBUR, Justices, concur.

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