Berkley Regional Specialty Insurance Co. v. Dowling Spray Service

#27020-aff in pt, rev in pt & rem-JKK

2015 S.D. 35

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

****
BERKLEY REGIONAL SPECIALTY
INSURANCE COMPANY, Plaintiff and Appellee,

v.

DOWLING SPRAY SERVICE; TROY
DOWLING; SCOTT DOWLING; KELSEY
SEED, AG SERVICE LLC, FARM BUREAU
MUTUAL INSURANCE COMPANY, Defendants,

and

GREAT WEST CASUALTY COMPANY, Defendant and Appellee,

and

JAMES SEILER and KIMBERLY SEILER, Defendants and Appellants.

****
APPEAL FROM THE CIRCUIT COURT OF
THE THIRD JUDICIAL CIRCUIT
BEADLE COUNTY, SOUTH DAKOTA

****
THE HONORABLE JON R. ERICKSON
Judge
****

MICHAEL J. SCHAFFER
PAUL H. LINDE of
Schaffer Law Office, Prof., LLC
Sioux Falls, South Dakota Attorneys for plaintiff and
appellee Berkley Regional
Specialty Insurance Company.

****
ARGUED ON MARCH 25, 2015

OPINION FILED 05/20/15
ROBERT B. ANDERSON of
May, Adam, Gerdes & Thompson
Pierre, South Dakota Attorneys for defendant and
appellee Great West Casualty
Company.

JOHN W. BURK of
Thomas, Braun, Bernard & Burke
Rapid City, South Dakota

and

MATTHEW J. KINNEY of
Kinney Law Office
Spearfish, South Dakota Attorneys for defendants
and appellants.
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KONENKAMP, Retired Justice

[¶1.] This appeal addresses the remaining insurance coverage questions

arising from the intersection collision described in Berkley Regional Specialty

Insurance Company v. Dowling Spray Service, 2015 S.D. 9, 860 N.W.2d 257. In that

case, we ruled that the policy insuring the owner of the crop sprayer provided no

coverage. Here, we determine whether coverage is afforded by either of the two

policies insuring the driver of the crop sprayer. The circuit court ruled that neither

policy created a duty to defend and indemnify the driver.

Background

[¶2.] Troy Dowling operates Dowling Spray Service, a crop-spraying

business and sole proprietorship in Beadle County, South Dakota. As part of his

business, Troy owned a JD 4830 sprayer. This sprayer is a scheduled item on his

commercial general liability insurance policy through Berkley Regional Insurance

Company. Troy also had a commercial automobile insurance policy with Great

West Casualty Company. On July 1, 2010, Troy lent his sprayer to his uncle, Scott

Dowling. In return, Troy borrowed a John Deere 4720 self-propelled sprayer

(Sprayer), owned by Scott’s business, Dowling Brothers Partnership.

[¶3.] On July 11, 2010, Troy was driving the John Deere 4720 Sprayer to

one of his customer’s fields. At the intersection of Highway 27 and 218th Street in

Beadle County, the Sprayer collided with a motorcycle driven by James Seiler.

Kimberly Seiler was a passenger. The Seilers were both seriously injured and

sought damages.

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[¶4.] In circuit court, Berkley successfully obtained summary judgment

declaring that it had no duty to defend or indemnify Troy. With regard to Great

West’s policy, the court conducted a trial. Sarah Hanson, Vice President of Great

West’s Midwestern Region Underwriting, testified that “We are not . . . in the

business of insuring agricultural farm machinery. We insure over-the-road

trucking equipment.” The court found that the Sprayer “does not meet the

definition of a ‘motor vehicle’ as defined by the policy” and neither “does it fit within

the business scheme of Great West.” Accordingly, Great West obtained a

declaratory judgment that it had no duty to defend or indemnify Troy.

[¶5.] In this appeal, the Seilers assert that the circuit court erred in

granting declaratory judgements for Berkley and Great West.

1. Berkley’s Policy

[¶6.] The circuit court ruled that Berkley had no duty to defend or

indemnify Troy for the July 11, 2010 accident because Troy’s use of the John Deere

4720 Sprayer loaned to him by Dowling Brothers Partnership fell within Berkley’s

policy definition of an “auto,” for which commercial general liability coverage is

specifically excluded. But the Seilers argue that even if the Sprayer is an “auto,”

the exception to the exclusion applies. In their view, the Sprayer would have

qualified as “mobile equipment” (which is not excluded from coverage) if the

Sprayer were not subject to a compulsory or financial responsibility law or other

motor vehicle insurance law in South Dakota.

[¶7.] In Section I – Coverages (Insuring Agreement), the policy provides that

Berkley “will pay those sums that the insured becomes legally obligated to pay as

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damages because of ‘bodily injury’ or ‘property damage’ to which this insurance

applies.” Excluded from coverage, however, is “‘[b]odily injury’ or ‘property damage’

arising out of the ownership, maintenance, use or entrustment to others of any

aircraft, ‘auto’ or watercraft owned or operated by or rented or loaned to any

insured.” Section I – Coverages (Exclusions) (emphasis added). An “auto” is

defined as

a. A land motor vehicle . . . designed for travel on public roads,
including any attached machinery or equipment; or
b. Any other land vehicle that is subject to a compulsory or
financial responsibility law or other motor vehicle insurance law
in the state where it is licensed or principally garaged.
However, “auto” does not include “mobile equipment”.

Section V – Definitions. It cannot be disputed that the Sprayer is designed for

travel on public roads. It has four wheels, is self-propelled, has headlights,

taillights, turn signals, and other components similar to road-ready vehicles.

Moreover, the circuit court found that the Sprayer is subject to a compulsory or

financial responsibility law or other motor vehicle insurance law in South Dakota.

Thus, the Sprayer meets both policy definitions of an “auto.”

[¶8.] Yet the definition of “auto” specifically excludes “mobile equipment,”

and, therefore, we must look to the definition of “mobile equipment.” “Mobile

equipment” is defined as

any of the following types of land vehicles, including any attached
machinery or equipment:
a. Bulldozers, farm machinery, forklifts and other vehicles
designed for use principally off public roads;
...
f. Vehicles not described in a., b., c. or d. above
maintained primarily for purposes other than the
transportation of persons or cargo.
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However, self-propelled vehicles with the following types of
permanently attached equipment are not “mobile equipment”
but will be considered “autos”:
...
(3) Air compressors, pumps and generators, including
spraying, welding, building cleaning, geophysical
exploration, lighting and well servicing equipment.
However, “mobile equipment” does not include any land vehicles
that are subject to a compulsory or financial responsibility law
or other motor vehicle insurance law in the state where it is
licensed or principally garaged. Land vehicles subject to a
compulsory or financial responsibility law or other motor vehicle
insurance law are considered “autos”.

Section V – Definitions.

[¶9.] The Sprayer arguably meets the definition of “mobile equipment” in

one of two ways. First, it fits within subsection a. because it is farm machinery or a

vehicle designed for use principally off public roads. Although the Sprayer can be

used on and is equipped for use on public roads, its principal use is off public roads

— spraying crops. Second, if the Sprayer does not meet subsection a., it is

nonetheless “mobile equipment” under subsection f., because it is a vehicle “not

described in a., b., c. or d. above maintained primarily for purposes other than the

transportation of persons or cargo[.]” The Sprayer is maintained for spraying crops,

which is a purpose other than the transportation of persons or cargo.

[¶10.] Our review cannot end here, however. The last paragraph of the

definition of “mobile equipment” provides that “any land vehicles that are subject to

a compulsory or financial responsibility law or other motor vehicle insurance law in

the state where it is licensed or principally garaged” will be “considered ‘autos’.”

(Emphasis added.) In the summary judgment proceeding, no one disputed that the

Sprayer is subject to a compulsory or financial responsibility law in South Dakota.

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Therefore, although the Sprayer meets the definition of “mobile equipment” under

either subsection a. or f., the Sprayer must be considered an “auto.”

[¶11.] Returning, then, to the provision that specifically excludes coverage for

damages arising out of the use of any “auto,” the Seilers contend that the exception

to the exclusion applies. The exception states,

This exclusion does not apply to:
...
(5) ‘Bodily injury’ or ‘property damage’ arising out of:
(a) The operation of machinery or equipment that is
attached to, or part of, a land vehicle that would
qualify under the definition of “mobile equipment”
if it were not subject to a compulsory or financial
responsibility law or other motor vehicle insurance
law in the state where it is licensed or principally
garaged; or
(b) the operation of any of the machinery or
equipment listed in Paragraph f.(2) or f.(3) of the
definition of “mobile equipment”.

Section I – Coverages (Exclusions). The Seilers argue that the claims against Troy

for the July 11, 2010 accident arose out of his operation of the Sprayer, which

Sprayer would qualify as “mobile equipment” if it were not subject to a compulsory

or financial responsibility law or other motor vehicle law in South Dakota. Berkley,

on the other hand, argues that the exception is not implicated because the accident

arose out of “the use of the vehicle as a vehicle” and not the operation of the

spraying machinery or equipment.

[¶12.] The policy language is unambiguous. For the exception to the

exclusion to apply, the bodily injury or damage must arise out of the operation of

the machinery or equipment that is attached to either (1) the land vehicle that

would qualify as “mobile equipment,” or (2) to a self-propelled vehicle with certain
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types of machinery or equipment listed in subsection f.(2) or f.(3) of the definition of

“mobile equipment.” Here, the accident did not arise out of Troy’s use of the

machinery or equipment attached to the Sprayer, but rather from the operation of

the land vehicle or self-propelled vehicle that would qualify as mobile equipment.

[¶13.] Berkley’s policy specifically excludes coverage for bodily injury and

damage arising out of the use of an “auto,” and the Sprayer meets the policy’s

definition of an “auto.” Because no exception to the exclusion applies, the circuit

court properly granted Berkley summary judgment declaring that it had no duty to

defend or indemnify Troy for any claims from the July 11, 2010 accident.

2. Great West’s Policy

[¶14.] The circuit court first denied Great West summary judgment, ruling

that there was a material issue of fact in dispute whether Great West had a duty to

defend and indemnify Troy for the July 11, 2010 accident. It based its decision in

part on its previous finding that the Sprayer “is required to be licensed and insured

under South Dakota law.” Yet, after trial, the court issued a finding of fact that the

Sprayer was “not subject to compulsory or financial responsibility laws or other

motor vehicle insurance laws of the State of South Dakota.” (Emphasis added.)

The court further concluded that the Sprayer was “mobile equipment” as defined in

Great West’s policy, for which commercial automobile liability coverage is

specifically excluded. Its ruling was based in part on testimony from Great West

that it insures over-the-road semi-tractor and trailer businesses, not farm

equipment, and that Great West would have declined to provide coverage for the

Sprayer had Troy sought insurance coverage.

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[¶15.] On appeal, the Seilers contend that the circuit court founded its

decision on three fundamental errors. First, the court erred when it ruled that the

Sprayer is not subject to a compulsory or financial responsibility law or other motor

vehicle insurance law in South Dakota. Second, the court erred when it went

outside the unambiguous terms of the policy and considered testimony from Great

West’s representative. Third, the court ignored the plain and ordinary policy

language when it ruled that the Sprayer is not a covered “auto.”

[¶16.] In Section I – Covered Autos (Description of Covered Auto Designation

Symbols), Great West’s policy provides that it insures only designated autos. In

this case, the designation for hired autos is implicated. That provision states that

Great West insures “only those ‘autos’ you lease, hire, rent or borrow.” The policy

further states that “[i]f Liability Coverage is provided by this Coverage Form, the

following types of vehicles are also covered ‘autos’ for Liability Coverage: . . . 5. Any

‘auto’ that is subject to a compulsory or financial responsibility law or other motor

vehicle insurance law in the state where it is licensed or principally garaged that

would otherwise qualify as ‘mobile equipment’.” Section I – Covered Autos (Certain

Trailers, Certain Leased Autos, Mobile Equipment and Temporary Substitute

Autos).

[¶17.] Section II – Liability Coverage provides that Great West “will pay all

sums an ‘insured’ legally must pay as damages because of ‘bodily injury’ or ‘property

damage’ to which this insurance applies, caused by an ‘accident’ and resulting from

the ownership, maintenance or use of a covered ‘auto’.” An “auto” is defined as:

1. A land motor vehicle, “trailer” or semitrailer designed
for travel on a public road; or

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2. Any other land vehicle that is subject to a compulsory
or financial responsibility law or other motor vehicle
insurance law in the state where it is licensed or
principally garaged.
However, “auto” does not include “mobile equipment”.

Section VI – Definitions. The Sprayer is an “auto.” It is designed for travel on

public roads based on the fact that it has four wheels, is self-propelled, has

headlights, taillights, turn signals, and other components similar to road-ready

vehicles.

[¶18.] Yet the definition of “auto” specifically excludes “mobile equipment.”

“Mobile equipment” is defined as

any of the following types of land vehicles, including any attached
machinery or equipment:
1. Bulldozers, farm machinery, forklifts and other vehicles
designed for use principally off public roads;
...
6. Vehicles not described in Paragraph 1., 2., 3. or 4. above
maintained primarily for purposes other than the
transportation of persons or cargo. However, self-
propelled vehicles with the following types of permanently
attached equipment are not “mobile equipment” but will
be considered “autos”:
...
c. Air compressors, pumps and generators,
including spraying, welding, building cleaning,
geophysical exploration, lighting and well servicing
equipment.
However, “mobile equipment” does not include land vehicles that
are subject to a compulsory or financial responsibility law or
other motor vehicle insurance law where it is licensed or
principally garaged. Land vehicles subject to a compulsory or
financial responsibility law or other motor vehicle insurance law
are considered “autos”.

Section VI – Definitions.

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[¶19.] Although “farm machinery” is not defined in the policy, the circuit

court found as fact that the Sprayer is “farm machinery.” This finding can hardly

be disputed. But even if not farm machinery, it is nonetheless a vehicle designed for

use principally off public roads — its purpose is to spray crops. Therefore, the

Sprayer meets the policy definition of “mobile equipment.”

[¶20.] Yet the last paragraph in the definition of “mobile equipment” declares

that “mobile equipment” does not include a land vehicle subject to a compulsory or

financial responsibility law or other motor vehicle insurance law where it is licensed

or principally garaged. This language is nearly identical to the wordage in

Berkley’s policy, in which case the circuit court specifically ruled that the Sprayer is

subject to a compulsory or financial responsibility law or other motor vehicle

insurance law in South Dakota. Also, in earlier denying Great West’s motion for

summary judgment, the court again concluded that the Sprayer “is subject to South

Dakota’s financial responsibility law.” But in its findings of fact and conclusions of

law after trial, the circuit court made the opposite ruling and held that the Sprayer

is not subject to a compulsory or financial responsibility law or other motor vehicle

insurance law in South Dakota. We can find no support for the court’s divergent

conclusion.* The Sprayer is subject to South Dakota’s compulsory or financial

* See generally SDCL 32-35-2; SDCL 32-5-1,-2. The John Deere 4720 Sprayer
was owned by a commercial entity, Dowling Brothers Partnership. According
to the South Dakota Department of Transportation Commercial &
Agricultural Vehicle Handbook:
Self-propelled fertilizer or pesticide applicators, if used by a
farmer for his own farming operation, are exempt from licensing
and titling. However, if these units are used by a commercial
(continued . . .)
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responsibility laws, and, therefore, is an “auto” under the clear and unambiguous

terms of the definition of “mobile equipment.”

[¶21.] We return, then, to the provision defining the scope of coverage, which

specifically provides coverage for an “auto.” Great West argues that even if the

Sprayer is considered an “auto” because it is subject to a compulsory or financial

responsibility law or other motor vehicle insurance law in South Dakota, the policy

exclusion provision applies. The Exclusion to the Liability Coverage section

provides that

[t]his insurance does not apply to any of the following:
...
9. OPERATIONS
“Bodily injury”, “property damage” . . . arising out of the
operation of:
...
b. Air compressors, pumps and welding, including
spraying . . . servicing equipment; or
c. Machinery or equipment that is on, attached to,
or part of, a land vehicle that would qualify under
the definition of ‘mobile equipment’ if it were not
subject to a compulsory or financial responsibility
law or other motor vehicle insurance law where it is
licensed or principally garaged.

Great West focuses on subsection c., specifically on the fact that the Sprayer “would

qualify under the definition of ‘mobile equipment’ if it were not subject to a

compulsory or financial responsibility law or other motor vehicle insurance law

where it is licensed or principally garaged.”

__________________
(. . . continued)
entity, they must be titled and licensed under the
noncommercial vehicle fee schedule listed in Table 4.

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[¶22.] As we stated in Ass Kickin Ranch, LLC v. North Star Mutual

Insurance Company, “‘[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.’” 2012 S.D. 73, ¶ 9, 822 N.W.2d 724, 727 (quoting St. Paul Fire & Marine

Ins. Co. v. Schilling, 520 N.W.2d 884, 887 (S.D. 1994)) (alteration in original). We

interpret contract language according to its plain and ordinary meaning and will

not “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 (quoting St. Paul

Fire & Marine Ins. Co., 520 N.W.2d at 887) (internal quotation mark omitted).

Moreover, “‘[w]hen 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)).

[¶23.] Here, the plain and ordinary meaning of the policy exclusion is that

the accident must arise out of the operation of the machinery or equipment and not

merely the operation of the land vehicle itself. The exclusion, read as a whole,

provides that “[t]his insurance does not apply to . . . ‘Bodily injury’, ‘property

damage’ . . . arising out of the operation of: . . . Machinery or equipment that is on,

attached to, or part of, a land vehicle that would qualify under the definition of

‘mobile equipment’ . . . .” The accident on July 11, 2010 arose, not out of the

operation of the machinery or equipment attached to the Sprayer, but from the

operation of the land vehicle — the Sprayer. The circuit court was wrong to

conclude otherwise. Moreover, the court erred when it relied on testimony from a

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Great West employee to declare the intent of the Great West’s insurance coverage

under the policy. Extrinsic evidence must not be considered when the language of a

contract is unambiguous. Vander Heide v. Boke Ranch, Inc., 2007 S.D. 69, ¶ 37, 736

N.W.2d 824, 835. No one contends this policy is ambiguous.

[¶24.] Great West’s policy plainly states that it will pay damages for bodily

injury and property damage arising out of the use of a covered auto. A covered auto

includes an auto Troy borrows. Coverage applies to a vehicle subject to a

compulsory or financial responsibility law or other motor vehicle insurance law in

the state where the land vehicle is licensed or principally garaged when that land

vehicle would otherwise qualify as “mobile equipment.” Because a covered auto is

unambiguously defined to include the Sprayer as it was used at the time of the

collision, and Great West has failed to prove that a policy exclusion applies, Great

West has the duty to defend and indemnify Troy for claims related to the July 11,

2010 accident.

[¶25.] We affirm the judgment for Berkley Regional Insurance Company and

reverse and remand the judgment for Great West Casualty Company.

[¶26.] GILBERTSON, Chief Justice, and ZINTER, SEVERSON, and KERN,

Justices, concur.

[¶27.] WILBUR, Justice, deeming herself disqualified, did not participate.

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