Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-04-03894/USCOURTS-ca8-04-03894-0/pdf.json

Parties Involved:
NAU Country Insurance Company
Appellant
Perle O'Daniel
Appellee

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 04-3894

___________

Perle O'Daniel, *

*

 Appellee, *

* Appeal From the United States

v. * District Court for the 

* District of South Dakota.

NAU Country Insurance Company, *

*

Appellant. *

___________

Submitted: September 21, 2005

Filed: November 1, 2005

___________

Before MURPHY, HEANEY, and MELLOY, Circuit Judges.

___________

HEANEY, Circuit Judge.

Perle O'Daniel commenced a declaratory action in district court seeking an

order declaring that his loss of cattle was covered by an insurance policy issued by

NAU Country Insurance Company. Following discovery, both parties moved for

summary judgment. The district court granted O'Daniel's motion, and the insurance

company appealed. After careful review of the briefs and the record, we conclude

that the district court erroneously granted summary judgment to O’Daniel. We

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The appellee's motion to strike certain matters contained in appellant's reply

brief is denied.

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therefore reverse and remand to the district court with directions to enter summary

judgment in favor of the insurance company.1

BACKGROUND

O'Daniel purchased an insurance policy from appellant covering various

personal and real property, including numerous calves and cows, in the amount of

$1,400,400. The premium was $6,643, and coverage became effective January 1,

2002. Coverage of the livestock was limited to the amount shown in the declarations.

The policy covered physical loss due to theft (“any act of stealing or attempt to

steal”), but was limited by several exclusions, including loss “by wrongful conversion

or embezzlement.” (Appellant’s App. at 106-07.)

In addition to the policy application, O’Daniel completed a questionnaire

detailing his livestock operation. According to the questionnaire, O’Daniel’s cattle

were located on several parcels of land that he rented or leased. These parcels were

located anywhere from 15 to 300 miles from his home. Due to drought conditions,

O’Daniel subsequently transferred the cattle, without notifying the insurance

company, to Midwest Feeders, a commercial feedlot owned by David Chavez.

Chavez was to feed, water, and care for the cattle. 

In September 2002, O’Daniel went to Midwest Feeders and discovered that

some of his cattle were missing. O’Daniel reported the loss to the South Dakota State

Brand Board, which initiated an investigation. The investigation ceased when

Chavez committed suicide on September 16, 2002. From September 25, 2002 to

September 27, 2002, O’Daniel removed his cattle from Midwest Feeders, eventually

determining that he was missing 334 cows, 369 calves, and 15 bulls. O’Daniel then

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The majority in the Dairyland Insurance Company case specifically stated that

the “reasonable expectations” doctrine of insurance contract interpretation was not

“declared law in South Dakota,” and refused to address whether it would adopt the

doctrine because the insurance contract there was unambiguous. Dairyland Ins. Co.,

474 N.W.2d at 518.

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filed a claim for the loss with the insurance company. While the insurance company

conceded that a theft had occurred, it denied coverage on February 10, 2003 under the

policy’s wrongful conversion or embezzlement exclusion.

O’Daniel commenced an action in district court. Both parties moved for

summary judgment, and the district court ruled in favor of O’Daniel, holding that the

loss was covered under the insurance contract. The district court reasoned that the

goal of contract interpretation was to carry out the mutual intent of the parties, and

stated that the terms of the contract should be interpreted on the basis of “what a

reasonable person in the position of the insured would have understood the words to

mean.” (Add. at 7 (quoting Dairyland Ins. Co. v. Wyant, 474 N.W.2d 514, 518 (S.D.

1991) (Henderson J., dissenting).2

) Finding the conversion and embezzlement

exclusion ambiguous, the district court construed the exclusion in favor of the

insured, and declared the loss recoverable. The district court then declared that “[a]

reasonable person is left confused by the use of the terms ‘theft’ and ‘wrongful

conversion.’” (Id. at 13.) This appeal followed.

ANALYSIS

We review the district court’s grant of summary judgment de novo and affirm

only where there are no genuine issues of material fact and the district court correctly

decided the legal questions. See United Tel. Co. of Missouri v. Johnson Publ’g Co.,

855 F.2d 604, 607 (8th Cir. 1988). Our interpretation of the insurance policy is

governed by South Dakota law. St. Paul Fire & Marine Ins. Co. v. Med. X-Ray Ctr.,

146 F.3d 593, 594 (8th Cir. 1998). An insurer relying on the policy exclusion has the

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burden of proving the exclusion applies, and we must resolve any ambiguity in favor

of the insured. Opperman v. Heritage Mut. Ins. Co., 566 N.W.2d 487, 489 (S.D.

1997). But where there is no ambiguity, we must resolve the insurance contract as

it is written. O’Neill v. Blue Cross of W. Iowa & South Dakota, 366 N.W.2d 816,

818 (S.D. 1985) (holding that “[t]he terms of an unambiguous insurance policy

cannot be enlarged or diminished by judicial construction.”).

Under South Dakota law, we determine, de novo, whether the insurance policy

terms are ambiguous, and look to “the policy as a whole and the plain meaning and

effect of its words.” Nat’l Sun Indus., Inc. v. South Dakota Farm Bureau Ins. Co.,

596 N.W.2d 45, 48 (S.D. 1999) (quoting Economic Aero Club v. Avemco Ins. Co.,

540 N.W.2d 644, 645 (S.D. 1995)). Ambiguity exists where the insurance policy

language “is fairly susceptible to two constructions,” and “will not be created merely

by one party offering a different interpretation of the contract language.” Am. Family

Mut. Ins. Group v. Kostaneski, 688 N.W.2d 410, 413 (S.D. 2004) (quoting Nat’l Sun

Indus., Inc. v. South Dakota Farm Bureau Ins., 596 N.W.2d 100, 102 (S.D. 1999)).

In our view, the conversion exclusion is not ambiguous. The policy covered

theft, but specifically excluded coverage when the loss has occurred by wrongful

conversion or embezzlement. “While the term ‘theft’ may, under some

circumstances, include conversion, the term must be construed in the light of the

specific exclusions contained in the insurance policy.” Roth v. Farmers Mut. Ins. Co.

of Neb., 371 N.W.2d 289, 291 (Neb. 1985). Thus, where an entity has lawful control

of the property and then converts or embezzles that property, coverage is not

provided. Id. That is precisely what happened here. The policy provided coverage

for livestock located on land leased or rented by O’Daniel. O’Daniel subsequently

gave control of his cattle to Chavez at Midwest Feeders, who wrongfully converted

the property. Accordingly the loss is not covered by the policy. 

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CONCLUSION

For the above-stated reasons, the district court’s grant of summary judgment

to O’Daniel is reversed, and the case is remanded to the district court to enter

summary judgment in favor of the insurance company.

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