APPEAL FROM THE CIRCUIT COURT OF THE THIRD JUDICIAL CIRCUIT BROOKINGS COUNTY, SOUTH DAKOTA. HONORABLE DAVID R. GIENAPP Judge.
The opinion of the court was delivered by: Gilbertson, Chief Justice
CONSIDERED ON BRIEFS ON OCTOBER 5, 2009
[¶1.] Insurer, De Smet Farm Mutual (De Smet) brought a declaratory action against its insured claiming the language of the policy excluded coverage and a duty to defend the insured in an underlying action. DeSmet filed a motion for summary judgment in which it contended coverage existed under a theory of estoppel. The trial court granted the insured's motion in part. It determined that evidence developed in the declaratory action, not just the pleadings and record evidence in the underlying action, could be used to establish the duty to defend under the theory of estoppel. We affirm.
[¶2.] Sometime before October 2003, Gulbranson Development Company, Inc., (Development Company) purchased ninety acres of undeveloped land southwest of Brookings, South Dakota. Dean Gulbranson (Gulbranson) purchased the land in his capacity as an officer of Development Company to develop and subdivide the land into residential lots. In October 2003, Gulbranson asked Gary Croon, doing business as an independent insurance agent under the name of Gary Croon Insurance, to conduct a review of the property and recommend an insurance policy to cover it. Although the parties dispute for what purpose the coverage was requested, both parties agree the policy covered the ninety acres of land owned by Development Company.
[¶3.] Croon testified at deposition that Gulbranson contacted him by telephone and requested a site visit to write a policy on Gulbranson's home. Croon further testified he visited Gulbranson's home along with Mel Gross, the underwriting and marketing supervisor for De Smet. That site visit occurred sometime in October 2003. Gulbranson, Croon, and Gross discussed insuring Gulbranson's home, the ninety acres of land, another farm property in Arlington, South Dakota, and two duplexes Gulbranson had built near his home. Croon and Gross testified that although Croon was not asked to write a policy to cover the 400-acre Arlington farm at that time, Gulbranson discussed the farm and both Gross and Croon understood that it was an active farming operation, while the ninety acres southwest of Brookings was not.
[¶4.] Croon testified he observed two homes located east of and in the same development as Gulbranson's home. He also testified he saw two or three duplexes north of Gulbranson's home and that Gulbranson told Croon he planned on building another duplex. Croon further testified he observed paved roads in the area. Croon testified he assumed that Development Company sold off lots one at a time and then removed the land from its policy once the sale of the lot was completed. Croon based this assumption on a similar experience he had with another customer in Sioux Falls who sold undeveloped land for development by others.
[¶5.] Gross testified he knew the legal description for the land but was unaware of the location of the land in relation to Gulbranson's home, and did not realize at the time of the site visit that Gulbranson's home was adjacent to the ninety acres. Gross further testified that based on the information shared with him during the site visit, he recommended Gulbranson purchase a farm liability policy to cover the ninety acres. Gross also assumed that once a parcel sold, Gulbranson removed it from the policy.
[¶6.] On or about October 20, 2003, Croon returned to Gulbranson's home to have Gulbranson fill out the application for liability insurance on the ninety acres. Croon testified Gulbranson noted on the application form for the farm liability policy that the land was being developed for residential lots. He further testified he understood Gulbranson wanted property liability coverage for personal injuries such as those that might result to someone walking on Development Company's land. Despite testifying that the land in question was not being farmed at the time of the site visit, no farm machinery was stored on the property, and no farm buildings existed on the property, Croon wrote a note in Gulbranson's file: "Do we want the 90 acres liability on the farm/ranch or on the farm liability?" He explained at his deposition that the note meant he needed to ask the De Smet underwriting department whether it would be better to add the ninety acres to the farm/ranch policy covering the Arlington farm, or instead write a new farm liability policy. Croon eventually selected a farm liability policy as the appropriate type of coverage. He also testified that to his knowledge, De Smet did not sell liability coverage for development activities. Croon claimed he told Gulbranson that the policy would not cover business pursuits, but did not tell Gulbranson that he needed to look elsewhere for coverage for the development activities. He further testified he did not specifically understand that Gulbranson wanted coverage for the development activities.
[¶7.] Gulbranson testified in his deposition he had previously insured the development land and the development activities through Harleysville Insurance Company under a commercial liability policy issued by Valley Insurance in effect from August 25, 2000, through August 25, 2004. Gulbranson further testified he had told Valley Insurance he was developing the land for residential lots and understood the policy covered development activities. The annual premium for that policy was $1,094.00.
[¶8.] Gulbranson also testified he provided Croon with a copy of the Valley policy for his review at the time they met. He testified he "showed [Croon] what we currently had and this was what his recommendation was to purchase." He also testified that he relied "on my insurance agent to tell me what I needed to purchase because that's his expertise." Gulbranson further testified he could not recall if Croon specifically stated one way or the other whether the De Smet policy would cover the property development activities. However, he also explained the activities and construction that had already taken place made it more than apparent that the land was being developed as a business activity. Gulbranson further stated the application indicated it was a farm liability policy and contained the following question: "Are business pursuits being conducted at the premises?" He answered on the form "Land is being developed for buildings lots." Finally, Gulbranson admitted he did not read the policy in its entirety upon receipt and was unaware of the business exclusion it contained.
[¶9.] The policy issued with the following exclusion: "activities related to the business of the insured, except as provided for by an incidental Business Coverage." The policy defined "Business" as follows:
Business means a trade, a profession or an occupation, all whether full or part time. This includes the rental of property to others. It does not include the occasional rental for residential purposes of the part of the insured premises normally occupied solely by your household.
Business includes services regularly provided by an insured for the care of others and for which an insured is compensated. A mutual exchange of like services is not considered compensation.
Business does not include farming.
(Bolding in original). The policy further stated: "We will defend a suit seeking damages if the suit resulted from bodily injury or property damages not excluded under this coverage." (Bolding in original). The policy remained in effect until ...