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De Smet Farm Mutual Insurance Company of South Dakota v. Busskohl

Supreme Court of South Dakota

July 10, 2013

DAVID BUSSKOHL, Defendant and Appellant.



LARRY M. VON WALD of Beardsley, Jensen & Von Wald, Prof., LLC Rapid City, South Dakota Attorneys for plaintiff and appellee.

JOHN K. NOONEY ROBERT J. GALBRAITH of Nooney, Solay & Van Norman, LLP Rapid City, South Dakota Attorneys for defendant and appellant.


[¶1.] De Smet Farm Mutual Insurance Company of South Dakota (De Smet) initiated this action, claiming that it lawfully rescinded an insurance contract with David Busskohl because Busskohl made a material misrepresentation on his application for homeowner's insurance. De Smet also sought recovery of all monies it paid to Busskohl. De Smet moved for summary judgment. The circuit court granted De Smet's motion, determining, as a matter of law, that Busskohl made a misrepresentation on his homeowner's insurance application and that the misrepresentation was material. Busskohl appeals. We affirm.


[¶2.] On December 21, 2004, Busskohl applied for homeowner's insurance through De Smet. On the front page of the homeowner's insurance application appears the question: "Has any insurer cancelled, refused, restricted, or declined to renew similar insurance?" Busskohl answered "No."[1] Busskohl represented on the second page of the application that all statements in the application were true and correct, and he signed the application. Delano Gross, an underwriting supervisor for De Smet, reviewed the application and approved the issuance of a homeowner's policy with policy limits of $275, 000 for Busskohl's residence, $27, 500 for related private structures, $192, 500 for personal property, and $55, 000 for additional living costs to Busskohl. On December 6, 2005, Busskohl's home was destroyed by fire. Pursuant to the homeowner's insurance policy, De Smet made payments totaling $476, 350 to Busskohl.

[¶3.] In 2007, Busskohl initiated a suit against Dixie Kirk and the Niederwerder Agency, Inc., the agent and agency through which Busskohl obtained the De Smet homeowner's insurance policy. Busskohl claimed that the coverage limits provided by the policy were inadequate and that Kirk and the Niederwerder Agency, Inc. were negligent in writing the policy. During the course of litigation, De Smet discovered that, contrary to Busskohl's representation in the insurance application, Busskohl had previously been refused homeowner's insurance by American Family Insurance Company (American Family).

[¶4.] Busskohl's alleged misrepresentation emerged through deposition testimony of Grace Busskohl, Busskohl's former wife, [2] and Mark Koch, an American Family agent in Custer, South Dakota. Grace testified that she and Busskohl went to Koch's office to obtain homeowner's insurance on a house they had recently built, [3] but were informed by Koch that American Family would not insure their new house. In his deposition, Koch confirmed that Busskohls came to his office following the 1990 fire wishing to purchase homeowner's insurance on their new house. Koch testified that he had some doubts about whether American Family would insure Busskohls' house because of the 1990 fire. As a result, Koch contacted an American Family underwriter located in Eden Prairie, Minnesota, who advised Koch that American Family would not accept the risk due to Busskohls' loss history. Koch testified that he informed Busskohls that American Family would not insure them, but he acknowledged that an application for insurance was never submitted to American Family nor was Busskohls' visit documented.

[¶5.] After discovering the misrepresentation in the application, De Smet rescinded the homeowner's insurance policy issued to Busskohl. De Smet also sent a letter, dated October 14, 2009, to Mr. John Nooney, the attorney representing Busskohl, reciting the basis for rescission. Enclosed in the October 14, 2009 letter was a check from De Smet made payable to Busskohl in the amount of $1, 066.40, which represented the premium paid by Busskohl in connection with the issuance of the policy. The letter demanded that Busskohl repay all monies paid to Busskohl under the insurance contract ($476, 350), along with interest at the statutory rate. In response, Busskohl claimed that several facts set forth and conclusions reached by De Smet were inaccurate. He also returned the $1, 066.40 check from De Smet (representing the premium paid by Busskohl), which had been marked "void."

[¶6.] In the October 14, 2009 letter addressed to Busskohl's counsel, De Smet advised Busskohl that it would not have issued a homeowner's insurance policy had he disclosed that American Family previously refused him homeowner's insurance. De Smet asserted: "Had such disclosure been made, the application further required that it be accompanied by an explanation. We have learned that the explanation for American Family's refusal of homeowners insurance was the January 31, 1990, house fire."

[¶7.] Delano Gross, the underwriting supervisor at De Smet who approved Busskohl's application, submitted an affidavit stating, in relevant part, that:

6. The question [whether any insurer "cancelled, refused, restricted or declined to renew similar insurance"] is on the application for the purpose of obtaining risk information from the applicant that is used in determining whether the risk that is represented by the policy is acceptable to the Company. If there is a disclosure on an application for insurance that another insurer has earlier cancelled, refused, restricted or declined to re-new [sic] similar insurance, it must be concluded that such insurer has available certain, significant information that provides the reason or reasons for its determination that the risk is not acceptable and it will not issue a policy. The fact of a cancellation, a refusal, a restriction or an insurer's declining to re-new [sic] similar insurance directly affects the opinion of the Company in its underwriting process given that it is far more likely than not that the Company, if it had access to all the information available to the insurer involved in the earlier cancellation, refusal, restriction or declination of a renewal, would make the same decision as the other insurer and refuse to issue a policy. This is because the existence of such information on an application for insurance indicates to the Company that there is an increased risk of loss associated with the issuance of a policy.
7. Had the application of David L. Busskohl disclosed that an insurer had refused similar insurance and had such refusal been explained as required by the application and, if the true facts had been made known to the Company, the Company, in good faith, would not have issued the policy. This is for the reason that had it been disclosed that American Family Insurance Company or any other insurer had refused homeowner's insurance on the Busskohl residence and personal property because of the January 31, 1990, fire that had destroyed the earlier residence that existed at or near the same location as the property described in the application, the Company would have made further inquiry relative to that fire. At the very least, the Company would have obtained a copy of the South Dakota Fire Marshall's Office Investigation Report[.]
8. The Report discloses that Deputy State Fire Marshal Jim Homes had investigated an earlier fire on January 26, 1983, where David Busskohl was living at the same location; that the Division of Criminal Investigation investigated the January 31, 1990, fire; and, it suggests that arson involving David Busskohl was a possible cause of the fire. As Underwriting Supervisor, I would never had approved the issuance of a homeowner's policy to David L. Busskohl under such circumstances.

[ΒΆ8.] Further, William Poppen, the general manager of De Smet, testified that "had the company been provided with the true facts as our application requires[, ] . . . we would just never, never have ...

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