Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-03-02722/USCOURTS-ca8-03-02722-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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The Honorable Richard E. Dorr, United States District Judge for the Western

District of Missouri, sitting by designation.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 03-2722

___________

EMCASCO Insurance Company, *

*

Plaintiff-Appellee, *

* Appeal from the United States

v. * District Court for the

* District of South Dakota

Edith Diedrich, Wayne Diedrich, *

John Diedrich, *

*

Defendants, *

*

R.S. and R.S. as Guardian ad litem for *

M.S., *

*

Defendants-Appellants. *

___________

Submitted: May 13, 2004

Filed: January 19, 2005 

___________

Before LOKEN, Chief Judge, SMITH, Circuit Judge, and DORR,1

 District Judge.

___________

DORR, District Judge.

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 The Honorable Karen E. Schreier, United States District Judge for the

Southern District of South Dakota.

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Appellants appeal from the decision of the district court2

 granting summary

judgment in favor of EMCASCO and denying summary judgment for appellants on

their cross-motions for summary judgment. For the reasons stated below, we affirm

the district court.

I. Background

A. Factual Background

Edith and Wayne Diedrich (“the Diedrichs”) live in South Dakota, and, at all

times relevant, Edith operated a day care business out of her home. Plaintiff-Appellee

EMCASCO Insurance Company (“EMCASCO”) issued a homeowner’s insurance

policy to the Diedrichs (“Homeowner’s Policy”) that provided coverage for the period

from November 19, 1999, to November 19, 2000. The Diedrichs’ Homeowner’s

Policy included a Home Day Care Endorsement that provided coverage for the

operation of a day care business out of the Diedrichs’ home.

In 1997, Edith Diedrich began providing day care to a minor named M.S.

Between March 2000 and August 2000, the Diedrichs’ teenage son John was present

at the day care. It is undisputed that John sexually molested M.S., who was four years

old at the time, more than forty times in those months. John was prosecuted in the

South Dakota juvenile court system for the offenses.

In February 2002, M.S.’s natural mother (R.S.) filed suit against Edith Diedrich

in South Dakota state court on behalf of herself and as guardian ad litem for M.S.

The suit charges Edith Diedrich with negligent supervision of her son John and seeks

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compensatory and punitive damages. In May 2002, EMCASCO brought a diversity

action in federal district court, seeking a declaratory judgment that the Diedrichs’

policy did not cover the acts alleged by R.S. in state court and that, therefore,

EMCASCO had no duty to defend or indemnify Edith Diedrich or any other insured

from the claims made by R.S.

On cross-motions for summary judgment, the district court, analyzing South

Dakota law and the Homeowner’s Policy and Home Day Care Endorsement at issue,

determined that EMCASCO had no duty to defend or indemnify the Diedrichs. The

district court found that the language of the policy was not ambiguous, the

“intentional acts” exclusion in the Homeowner’s Policy precludes coverage for bodily

injury that was intended by one of the insureds, that John Diedrich was an “insured”

for purposes of the policy as a whole, and that John’s intentional acts of criminal

sexual molestation were excluded from coverage under the policy.

B. Relevant Policy Provisions

The Homeowner’s Policy lists Wayne and Edith Diedrich as insureds. It is

undisputed that their minor son John also qualifies as an “insured” within the basic

definition contained in the policy. The section titled “Coverage E” of the policy

provides coverage for an “insured’s” personal liability. This coverage entitles

insureds to both the payment of damages and a defense to the claim by counsel.

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As amended by a rider entitled “Special Provisions – South Dakota.” J.A. at

171, 174.

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The Section II — Exclusions section of the Homeowner’s Policy states, in

pertinent part as follows:

1. Coverage E – Personal Liability ... do[es] not apply to “bodily

injury” or “property damage”:

a. Which is expected or intended by one or more “insureds”;3

...

k. Arising out of sexual molestation, corporal punishment or

physical or mental abuse....

J.A. at 164-65. Any injury or damage resulting from the home day care

business conducted by Edith Diedrich would also have been excluded from coverage

under the basic Homeowner’s Policy. However, the Diedrichs had purchased a Home

Day Care Coverage Endorsement, which provides in pertinent part as follows:

Coverage E – Personal Liability ... appl[ies] to “bodily injury” and

“property damage” arising out of home day care services regularly

provided by an “insured” and for which an “insured” receives monetary

or other compensation. Section II Exclusion 1.b. [of the original policy,

excluding injury or damage arising out of a “business” engaged in by an

“insured”] does not apply to the coverage provided under this

endorsement.

However, the “bodily injury” and “property damage” coverage provided

under this endorsement does not apply:

a. To “bodily injury” or “property damage” arising out of the

maintenance, use, loading or unloading, or entrustment by the

“insured” to any person, of [animals, aircraft, motor vehicles or

watercraft] owned ... by the “insured” or

b. To “bodily injury” to any employee ....

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With respect to the coverage provided by this endorsement, Section II

– Conditions Items 1. - Limit of Liability and 2. - Severability of

insurance are deleted and replaced....

...

Severability of Insurance.

This insurance applies separately to each “insured” except with respect

to the Limit of Liability. ...

...

All other provisions of this policy apply.

J.A. at 178. Appellants argue that the state court action is for negligent supervision

by Edith Diedrich, not the intentional acts of her son, and that, therefore, the

exclusions do not apply. Second, appellants claim that since the exclusions stated in

the Home Day Care Endorsement’s exclusions did not include the intentional acts and

sexual molestation exclusions stated in the basic Homeowner’s Policy, the exclusions

of the basic policy were superceded and are no longer in effect. Third, appellants

claim that, pursuant to the policy’s severability clause, Edith Diedrich was the only

insured under the Home Day Care Endorsement and, therefore, her son John was not

an “insured,” and his acts would not trigger any exclusions from the Day Care

coverage. Finally, appellants claim that the policy language is ambiguous when

construing the Homeowner’s Policy in conjunction with the Home Day Care

Endorsement. Such ambiguity, they argue, should therefore be construed in favor of

the insured to include coverage.

EMCASCO argues that the policy and endorsement are not ambiguous, that

they must be read together as a whole, that the severability clause simply means that

the policy provisions apply separately to each insured, and that the exclusion from

coverage for the intentional acts of one or more insureds precludes coverage in this

case. EMCASCO also argues that coverage is precluded because of the sexual

molestation exclusion and case law holding that sexual molestation is not an

“occurrence,” within a similar policy definition.

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II. Analysis

A. Standard of Review and South Dakota Insurance Law

Summary judgment should be granted when there are no genuine issues of

material fact and the moving party is entitled to judgment as a matter of law. Fed. R.

Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). We review de

novo the district court’s interpretation of state law, its interpretation of insurance

contracts, and its ultimate decision to grant summary judgment. Transcon. Ins. Co.

v. W.G. Samuels Co., 370 F.3d 755, 757 (8th Cir. 2004).

Neither party challenges the assertion that South Dakota law applies to this

diversity action. Under South Dakota law, an insurance company’s duty to defend

its insured is “‘much broader’” than its duty to pay a judgment against its insured.

State Farm Mut. Auto. Ins. Co. v. Wertz, 540 N.W.2d 636, 638 (S.D. 1995) (quoting

Hawkeye-Security Ins. Co. v. Clifford, 366 N.W.2d 489, 490 (S.D. 1985)). The

insurer must prove that it has no duty to defend its insured by proving that the claim

“‘clearly falls outside of policy coverage.’” Wertz, 540 N.W.2d at 638 (quoting

North Star Mut. Ins. Co. v. Kneen, 484 N.W.2d 908, 912 (S.D. 1992) (emphasis in

original) (further quotations and citations omitted). If there is ambiguity in the

policy, a court should construe such ambiguities in favor of the insured and require

the insurer to defend. Lakes’ Byron Store, Inc. v. Auto-Owners Ins. Co., 589 N.W.2d

608, 609 (S.D. 1999); Wertz, 540 N.W.2d at 638 (quoting City of Fort Pierre v.

United Fire & Cas. Co., 463 N.W.2d 845, 847 (S.D. 1990)) (further citations

omitted)). However, a court should evaluate the plain language in the policy as a

whole and not attempt to seek a strained or unusual meaning of the language.

Overfield v. Am. Underwriters Life Ins. Co., 614 N.W.2d 814, 817 (S.D. 2000)

(quoting Chord v. Reynolds, 587 N.W.2d 729, 732 (S.D. 1999)) (further quotations

and citations omitted).

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B. Policy Exclusions

Neither party contests that the insurance policy would not cover (and

EMCASCO would not be required to defend) suits against one of the insureds

alleging intentional conduct by that insured, including claims of sexual molestation.

However, appellants argue that because the insured Edith Diedrich was sued in

negligence, and not vicariously for the intentional tort of her son, that the son’s acts

should be considered separate “occurrences” under the insurance policy. Because the

negligence of Edith in supervising her son is independent from John’s intentional

acts, appellants argue, the “intentional acts” and “sexual molestation” exclusions on

the policy do not apply. In other words, EMCASCO has a duty to defend the

Diedrichs because the “occurrence” being alleged in the state court suit is the failure

of the Diedrichs to supervise John, resulting in the “unexpected or unanticipated

occurrence” of John’s molestation. EMCASCO argues that the exclusion does apply.

In South Dakota, the insurer must prove that an exclusion applies. Am. Family

Mut. Ins. Co v. Purdy, 483 N.W.2d 197, 199 (S.D. 1992) (citations omitted). Such

exclusions must be explicitly set forth in the policy, with ambiguities being construed

in favor of the insured. Mid-Century Ins. Co. v. Lyon, 562 N.W.2d 888, 891 n.4 (S.D.

1997) (citations omitted). 

Section II Exclusions in the Homeowner’s Policy denies coverage for bodily

injury or property damage “[w]hich is expected or intended by one or more

‘insureds.’” This provision is contained in a rider to the policy, which modified the

original policy language. The original language denied coverage for bodily injury or

property damage “[w]hich is expected or intended by the ‘insured.’” J.A. 164

(emphasis added). The plain meaning of this modification clearly reflects a change

from an exclusion that only applies to claims against the particular insured who

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committed the intentional act to a broader exclusion that applies to all claims that

arise out of an intentional act committed by any one or more of the insureds.

Courts construing similar [intentional acts exclusionary] policy

language have concluded that, when a provision uses the article “the,”

the [exclusion] applies only to claims brought against the particular

insured named in the claim. Conversely, when the exclusionary

language refers to intentional acts of “an insured,” courts have

uniformly concluded that the exclusion applies to all claims which arise

from the intentional acts of any one insured, even though the claims are

stated against another insured.

N. Sec. Ins. Co. v. Perron, 777 A.2d 151, 163 (Vt. 2001) (citing cases applying

Alaska, California, Florida, Louisiana, Maine, New Hampshire, Tennessee, and

Washington law) (footnote omitted); accord Am. Family Mut. Ins. Co. v. Mission

Med. Group, 72 F.3d 645, 648 (8th Cir. 1995) (citing cases from California, Florida,

and Michigan law “applying the exclusion to a co-insured who has not participated

in the underlying intentional act”).

Appellants cite, as contrary authority, St. Paul Fire & Marine Ins. Co. v.

Schrum, 149 F.3d 878 (8th Cir. 1998). In Schrum, the Zottas, parents of two minor

children, sued the Shrums for negligent supervision after the Shrums’ houseguest,

Richard Lee Backes, sexually molested the Zotta children. Id. at 879. The Shrums’

insurance company then sought a declaration that the Shrums’ liability insurance did

not cover the Zottas’ claim on the basis of a sexual conduct exclusion. Id. at 879-80.

A panel of this Court determined that the sexual conduct exclusion did not apply

because the negligence cause of action contained “‘separate and non-excluded’”

claims from the molestation claim and Backes’s actions were “merely incidental” to

the negligence claim against the Zottas. Id. at 881 (quoting Centermark Props., Inc.

v. Home Indem. Co., 897 S.W.2d 98, 103 (Mo. Ct. App. 1995)) (further citations

omitted). Schrum is distinguishable in a number of ways. First, the Court in Schrum

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was analyzing and interpreting two Missouri state court cases, which are generally

inapplicable to this suit. Second, Schrum’s analysis was based on a sexual act

exclusion, rather than an intentional act exclusion. Third, there was no discussion in

Schrum as to whether Mr. Backes was an “insured” under the policy whose conduct

would have itself come under a policy exclusion. For those reasons Schrum does not

apply.

The injury that gives rise to the state court lawsuit—the sexual molestation of

M.S.—was intended by John Diedrich and clearly constitutes an intentional act within

the policy exclusion. Under the plain language of the Homeowner’s Policy, John

Diedrich was an “insured.” Thus, on its face, we find, as the district court found, that

the intentional act exclusion in the Homeowner’s Policy is applicable to their claim.

Because the intentional act exclusion applies, we need not consider whether the

sexual act exclusion applies.

C. The Home Day Care Endorsement’s Exclusions

Appellants argue, however, that the intentional act exclusion contained in the

basic Homeowner’s Policy was superceded by the Home Day Care Endorsement to

the Policy and, therefore, is no longer applicable. This argument is based on the

theory that since the Endorsement, which authorized the day care coverage, contained

its own stated exclusions and did not restate the exclusions in the basic Homeowner’s

Policy, the Homeowner’s Policy exclusions were, therefore, superceded and are no

longer applicable to coverage under the Home Day Care Endorsement. 

This argument by appellants is contrary to the policy language and wellestablished South Dakota law. 

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Endorsements or riders on a policy become a part of the policy, and

must be construed with it. Such provisions in the body of the policy are

not to be abrogated, waived, limited, or modified by the provisions of an

endorsement or rider unless expressly stated therein that such provisions

are substituted for those in the body of the policy, or unless the

provisions in the policy proper and in the rider or endorsement are

conflicting. 

Pete Lien & Sons, Inc. v. First Am. Title Ins. Co., 478 N.W.2d 824, 827 (S.D. 1991)

(quoting 13A J. Appleman, Insurance Law and Practice § 7538 (1976)).

Section II of the Home Day Care Endorsement reflects that there was no intent

to supercede all of the exclusions in the Homeowner’s Policy by specifically stating

that “Section II Exclusion 1.b. does not apply to the coverage provided under this

Endorsement.” The clear inference from this provision that singled out only one of

the several exclusions in the basic Homeowner’s Policy is that the remaining

exclusions do apply. Any doubt about this inference is resolved by the final sentence

of Section II in the Endorsement, which states: “All other provisions of this policy

apply.” Therefore we find, as did the district court, that the exclusions listed in the

Home Day Care Endorsement are in addition to and supplement the exclusions listed

in the basic Homeowner’s Policy.

D. Severability Clause

Appellants’ next argument is that the “Severability of Insurance” provision in

the Endorsement requires that each insured’s acts be viewed separately and, therefore,

John’s intentional acts should not be taken into account when considering a claim for

Edith’s negligence. In addition, appellants argue that Edith is the only insured under

the Home Day Care Endorsement because she was the only insured operating the

home day care business.

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Again, the established law and a plain reading of the Endorsement language do

not support appellants’ contentions. The pertinent provision in the Endorsement

provides as follows:

For an additional premium, we cover the home day care “business”

described below, conducted by an “insured.”

...

2. Severability of Insurance. This insurance applies separately to

each “insured” except with respect to the limit of liability. All other

provisions of this policy apply.

J.A. at 178. The South Dakota Supreme Court has previously considered a similar

argument for interpretation of a severability clause to preclude the act of one insured

from being used to support the application of an exclusion against another insured.

In Great Cent. Ins. Co. v. Roemmich, 291 N.W.2d 772 (S.D. 1980), the court

considered an exclusion in a homeowner’s policy for liability arising out of the use

of a vehicle by “any insured.” Id. at 773-74. As in the instant case, the underlying

event was against the parents for negligent supervision of their son. The insured in

Roemmich claimed that the severability clause should have been interpreted to limit

the vehicle exclusion only to the particular insured who was driving the vehicle. The

South Dakota Supreme Court stated

the definition of “insured” is readily understandable and the severability

clause does not create any ambiguity. The use of the words “any

insured” makes it clear that the policy does not cover liability arising

from motor vehicle use by any insured. The policy language is clear and

unambiguous.

Id. at 774. In the same way, the definition of an “insured” and the intentional acts

exclusion in the Diedrichs’ Homeowner’s Policy are unambiguous. The severability

clause does not create any ambiguity. Thus, we hold that the severability clause does

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not separate Edith’s claimed negligence from the exclusion for John’s intentional

acts.

We are likewise not persuaded by appellant’s contention that Edith is the only

insured under the Day Care Endorsement. It is undisputed that Edith and Wayne

Diedrich and their son John are “insureds” as defined in the Homeowner’s Policy.

Nowhere is the definition of “insured” redefined in the Home Day Care Endorsement

to exclude “insureds” as defined in the body of the Homeowner’s Policy. In general,

when a term used in the body of the policy is not redefined in an endorsement, it

retains the definition set forth in the body of the policy. 4 Eric Mills Holmes,

Appleman on Insurance § 20.1(2d ed. Supp. 2004). The policy language supports this

conclusion. In the provision that excludes home day care coverage from the

Diedrichs’ general Homeowner’s Policy, it provides “[i]f an ‘insured’ regularly

provides home day care services,” the policy does not provide liability coverage. J.A.

at 177 (emphasis added). Similarly, the Home Day Care Endorsement states that “we

cover the home day care ‘business’ described below conducted by an ‘insured’ ....”

J.A. at 178 (emphasis added). As discussed above, the use of the article “an” clearly

indicates inclusion of all those defined as “insured,” not just the particular “insured”

person conducting the business.

E. Ambiguity

Appellants have made a general argument that the pertinent policy provisions

are ambiguous. “When the Homeowner’s Policy and Home Day Care Endorsement

are placed side-by-side and analyzed together, they simply cannot be reconciled.”

Appellant’s Br. at 35. In essence, appellants repeat their argument that because the

Home Day Care Endorsement listed separate exclusions, an ambiguity was created

between the Home Day Care Endorsement exclusions and the Homeowners Policy

exclusions. We find no merit in this argument for the reasons discussed above.

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III. Conclusion

In summary, we find that the language in the intentional acts exclusion of the

policy is unambiguous and excludes claims based on the underlying intentional

conduct of any one of the “insureds.” The policy unambiguously defines John

Diedrich as an “insured.” M.S. and R.S.’s claim filed in state court directly spawns

from John’s intentional acts of sexual molestation. None of the provisions in the

Home Day Care Endorsement changes this analysis. Therefore, the plain language

of the policy relieves EMCASCO from the duty to defend Edith Diedrich in the state

court action and from any obligation to indemnify the Diedrichs as a result of that

claim. Accordingly, we affirm the well-reasoned opinion of the district court.

______________________________

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