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Larimer v. American Family Mutual Insurance Company

Supreme Court of South Dakota

April 10, 2019

KAYNE R. LARIMER, as Special Administrator of the Estate of Nehemiah J. Larimer, Deceased, Plaintiff and Appellee,
v.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant and Appellant.

          CONSIDERED ON BRIEFS ON JANUARY 7, 2019

          APPEAL FROM THE CIRCUIT COURT OF THE SEVENTH JUDICIAL CIRCUIT PENNINGTON COUNTY, SOUTH DAKOTA THE HONORABLE HEIDI L. LINNGREN Judge

          JACK H. HIEB ZACHARY W. PETERSON of Richardson, Wyly, Wise, Sauck & Hieb, LLP Aberdeen, South Dakota Attorneys for defendant and appellant.

          REXFORD A. HAGG of Whiting, Hagg, Hagg, Dorsey & Hagg, LLP Rapid City, South Dakota Attorneys for plaintiff and appellee.

          KERN, JUSTICE.

         [¶1.] Kayne Larimer, as Special Administrator of the Estate of Nehemiah Larimer, brought an action for declaratory judgment seeking underinsured motorist benefits under two insurance policies with American Family Mutual Insurance Co. (American Family) following Nehemiah's death in an accident. Pursuant to an "owned but not insured" exclusion in the Larimers' underinsured motorist benefits endorsement, American Family denied coverage. The parties filed cross-motions for summary judgment. The circuit court, finding the policy language ambiguous, held in favor of Kayne. American Family appeals. Kayne filed a notice of review contending the terms of the owned but not insured exclusion violate public policy. We affirm.

         Facts and Procedural History

         [¶2.] On March 27, 2015, eighteen-year-old Nehemiah collided with an automobile while driving his 49cc moped in Rapid City. Nehemiah suffered fatal injuries and passed away the following day. The at-fault automobile driver was insured by American Family under his family's policy. The policy paid Nehemiah's estate up to its $100, 000 coverage policy limits.

         [¶3.] Nehemiah was also insured under his parents' policies with American Family, including a South Dakota Family Car Policy (Car policy) and a Personal Liability Umbrella Policy (Umbrella policy). Under the Car policy, the Larimers insured five automobiles, but Nehemiah's moped was not listed as one of the insured vehicles. Mopeds are exempt from registration and title requirements; however, owners may license or title a moped if they wish. SDCL 32-5-1.2; SDCL 32-3-2.3. The Larimers also purchased an Underinsured Motorists Coverage Endorsement (Endorsement) for the Car policy. The Endorsement provided "compensatory damages for bodily injury which an insured person is legally entitled to recover from the owner or operator of an underinsured motor vehicle. The bodily injury must be sustained by an insured person and must be caused by accident and arise out of the use of the underinsured motor vehicle." The Umbrella policy also contained a provision for uninsured and underinsured motorist claims. The coverage applied to "damages in excess of the primary limit[, ]" and was "no broader than the underlying insurance."

         [¶4.] On August 18, 2015, the Larimers made an underinsured motorist claim under their Car and Umbrella policies. On September 17, American Family denied the claim pursuant to an exclusion contained in the Endorsement providing that underinsured motorist coverage did not apply to bodily injury suffered "[w]hile occupying, or when struck by, a motor vehicle that is not insured under this policy, if it is owned by you or any resident of your household." This provision is commonly known as an "owned but not insured" exclusion. American Family, relying on the definition of motor vehicle contained in the Endorsement, determined that "Nehemiah was riding a moped at the time of the accident, so is considered to have been occupying a motor vehicle that was not insured under this policy. Therefore, the Exclusion . . . would apply and there would be no Underinsured Motorist Coverage." American Family also denied coverage under the Umbrella policy because that policy was "no broader than the underlying insurance."

         [¶5.] Kayne brought an action for declaratory judgment on May 19, 2016, seeking, in part, a declaration "[t]hat the underinsured coverage of Defendant's policies is portable and followed the insured at all times pertinent hereto so as to provide coverage for the acts of underinsured motorists[, ]" and "[t]hat the clear underinsured coverage is not negated by any exclusion[.]" Kayne sought relief "based on the contracts of insurance, with coverage up to the umbrella underinsured limits of $1, 000, 000." Kayne moved for summary judgment and American Family made a cross-motion for summary judgment. After a hearing, the circuit court, finding the language of the policy ambiguous, issued a memorandum decision granting Kayne's motion for summary judgment and denying American Family's motion. American Family appeals, raising one issue for our review:

1. Whether the language of the underinsured motorist endorsement is ambiguous.

         By notice of review, Kayne raises one issue:

2. Whether the owned but not insured exclusion from the underinsured motorist coverage is void as ...

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