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D & M Iron Horse Inn, LLC v. United Fire & Casualty Co.

United States District Court, D. South Dakota, Western Division

February 4, 2014

D & M IRON HORSE INN, LLC, Plaintiff,
v.
UNITED FIRE & CASUALTY COMPANY, Defendant.

ORDER

JEFFREY L. VIKEN, Chief District Judge.

INTRODUCTION

This case centers around a massive rain and hail storm which hit Deadwood, South Dakota, on August 3, 2010. Plaintiff D & M Iron Horse Inn, LLC, brought this breach of contract claim against its insurer United Fire & Casualty Company after the insurer refused to cover plaintiff's storm related damages.

In support of their motions, the parties submitted portions of the policy which is the subject of this litigation. The complete "Commercial Property Policy" is beneficial in analyzing the issues. (Docket 36-1). For continuity, the court will cite to the complete policy.

PENDING PRETRIAL MOTIONS

Pending before the court are a number of pretrial motions. Those motions include:

1. Plaintiff's motion for pre-trial ruling on interpretation of policy (Docket 22);
2. Plaintiff's motion in limine to exclude evidence or argument that the water exclusion applies to preclude coverage (Docket 35);
3. Plaintiff's motion regarding special interrogatories to the jury (Docket 37);
4. Defendant's motion in limine to exclude evidence or argument that section D ("additional coverage - collapse") of the policy applies (Docket 43);
5. Defendant's motion in limine to exclude as evidence plaintiff's proposed exhibits 6 (watervideo1) and 7 (watervideo2) (Docket 46); and
6. Defendant's motion in limine to exclude evidence or argument of damages and plaintiff's proposed exhibit 4 (Docket 48).

ANALYSIS

In this diversity jurisdiction case, South Dakota law governs the interpretation of the policy. Secura Ins. v. Horizon Plumbing, Inc. , 670 F.3d 857, 861 (8th Cir. 2012) ("State law governs the interpretation of insurance policies when federal jurisdiction is based on diversity of citizenship."). In South Dakota, "insurance contract interpretation is a question of law... [for which the Supreme Court of South Dakota has] developed special rules of construction....'" Cornelius v. National Casualty Co. , 813 N.W.2d 167, 169 (S.D. 2012) (internal citation omitted). "If the rules of interpretation leave a genuine uncertainty as to which of two or more meanings is correct, the policy is ambiguous. Ambiguity in an insurance policy is determined with reference to the policy as a whole and the plain meaning and effect of its words." Id . "If the provisions of an insurance policy are ambiguous [the court applies] the rule of liberal construction in favor of the insured and strictly against the insurer." Id. at 170 (internal quotation marks omitted). This approach, however, does not mean that "the court may seek out a strained or unusual meaning for the benefit of the insured." Id . (internal quotation marks and citation omitted). When, as in the present case, "an insurer invokes a contract exclusion to disallow coverage, the insurer has the burden of proving the exclusion applies." Auto-Owners Ins. Co. v. Hansen Housing, Inc. , 604 N.W.2d 504, 509 (S.D. 2000) (internal quotation marks omitted).

Each of the parties' motions will be addressed separately.

I. PLAINTIFF'S MOTION FOR PRE-TRIAL RULING ON INTERPRETATION OF POLICY

Plaintiff's motion is broken down into two parts.

1. Whether a purported modification to the policy, which specifically says it applies to modify the "Standard Form, " applies to the "Special Form" purchased by the Plaintiff.

(Docket 23 at p. 1). Plaintiff argues the "Causes of Loss - Special Form" portion of the policy provides coverage for its claim. Id. at p. 8. That provision provides:

A. Covered Causes of Loss
When Special is shown in the Declarations, Covered Causes of Loss means Risks Of Direct Physical Loss unless the loss is:
1. Excluded in Section B., Exclusions;... that follow.
B. Exclusions
1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss....
g. Water
(1) Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not....

(Dockets 36-1 at pp. 47-48) (bold in original).

Plaintiff argues "if the weight of the hail caused the window to collapse, rather than the weight of water, then the loss is covered." (Docket 23 at p. 9). Plaintiff believes "[t]he adjuster's admissions (by deposition) are an important fact for the Court to consider, because the company's own construction of the policy is given particular weight, especially if it is favorable to the insured." Id. at p. 14 (referencing Overfield v. American Underwriters Life Ins. Co. , 614 N.W.2d 814, 819 (S.D. 2000) (other references omitted).

Defendant relies on the Water Exclusion Endorsement of the policy to deny plaintiff's claim. (Docket 25). That provision provides:

THIS ENDORSEMENT CHANGES THE POLICY, PLEASE READ IT CAREFULLY WATER EXCLUSION ENDORSEMENT

This endorsement modifies insurance provided under the following:

COMMERCIAL PROPERTY COVERAGE PART STANDARD PROPERTY POLICY
A. The exclusion in Paragraph B. replaces the Water Exclusion in this Coverage Part or Policy.
B. Water
1. Flood, surface water, waves (including tidal wave and tsunami), tides, tidal water, overflow of any body of water, or spray from any of these, all whether or ...

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