Miller v. Nodak Ins. Co. , 2023 ND 37 ( 2023 )

FILED
IN THE OFFICE OF THE
CLERK OF SUPREME COURT
MARCH 3, 2023
STATE OF NORTH DAKOTA
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2023 ND 37John D. Miller, Jr. d/b/a John Miller Farms, Inc.
and JD Miller, Inc., Plaintiffs, Appellees, and Cross-Appellants
v.
Nodak Insurance Company, Defendant, Appellant, and Cross-Appellee
No. 20210341
Appeal from the District Court of Walsh County, Northeast Judicial District,
the Honorable Barbara L. Whelan, Judge.
REVERSED.
Opinion of the Court by Jensen, Chief Justice, in which Justices Crothers,
Tufte, and Bahr joined. District Judge El-Dweek filed a dissenting opinion.
Benjamin J. Williams (argued) and Brayden K. Harwood (appeared), Fargo,
ND, for plaintiffs, appellees, and cross-appellants.
Scott K. Porsborg (aruged) and Austin T. Lafferty (appeared), Bismarck, ND,
for defendant, appellant, and cross-appellee.
Miller v. Nodak Ins. Co.
No. 20210341
Jensen, Chief Justice.
[¶1] Nodak Insurance Company (“Nodak”) appeals, and John D. Miller, Jr.
d/b/a John Miller Farms, Inc. and JD Miller, Inc. (collectively, “Miller”) cross-
appeals from a judgment determining Miller’s insurance policy with Nodak
provided coverage and awarding Miller damages. Because we conclude a policy
exclusion applies and precludes coverage, we reverse.
I
[¶2] This insurance coverage dispute arises out of Miller’s sale of seed
potatoes to Johnson Farming Association, Inc. (“Johnson”). Miller operates a
farm in Minto, North Dakota. At the relevant time period, Miller was insured
by a Farm and Ranch policy and Excess Liability policy issued by Nodak.
[¶3] During the 2015 planting season, Miller planted seed potatoes. Miller
asserts a North Dakota State Seed Department representative inspected the
field where the seed was being grown on July 13, July 26, and September 3,
2015, which indicated no problems with the seed crop. On or about September
3, 2015, Miller “killed the vines” in anticipation of and as required to harvest
the seed crop. Miller harvested the seed crop between September 18 and
September 25, 2015, and the harvested seed crop was immediately taken from
the field to Miller’s storage facility south of Minto.
[¶4] On December 31, 2015, Miller and Johnson entered into a contract for
the sale of seed potatoes, specifically to purchase “10,400 CWT - ND
CERTIFIED BULK DARK RED NORLAND SEED POTATOES
GENERATION 3.” The contract for sale disclaimed any express or implied
warranty of merchantability or fitness for a particular purpose and contained
a limitation of consequential damages and remedies, stating in part:
The agreed EXCLUSION AND LIMITATION OF CERTAIN
WARRANTIES –
Due to the fact that seed potatoes are perishable vegetative tuber-
seeds; unstable under certain conditions; easily contaminated or
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damaged through handling, shipment, storage, cutting, treating or
planting; devitalized or weakened by mishandling or planting
during unfavorable or moisture conditions and because the
handling, use, sanitation, cropping, germination, quality after
shipping, and physical possession of the seeds are far beyond the
control of the producer, SELLER, shipper or regulatory inspectors,
including the Federal-State Inspection Service, State Seed
Certification Agency, State Department of Agriculture, the
following EXCLUDED AND LIMITED WARRANTIES ARE
OFFERED FOR THE SEED POTATOES SOLD BY THIS
AGREEMENT:
a.) The SELLER and the producer represent that the seed
potatoes sold and to be shipped by this agreement
conform to the label (seed tag) description as required
by the Seed State of Origin and/or Federal-State
Inspection Laws, and will conform to the requirements
specified by the North Dakota State Seed Department,
and
b.) THERE ARE NO WARRANTIES WHICH EXTEND
BEYOND THE DESCRIPTION ON THE FACE
HEREOF. THE SELLER AND THE PRODUCER
MAKE NO OTHER WARRANTIES, EXPRESS OR
IMPLIED, OF MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE, FREEDOM FROM ANY
LATENT POTATO DISEASE, VIRUS OR DISORDER
OF ANY NATURE, OR OTHERWISE, AND IN ANY
EVENT LIABILITY FOR BREACH OF ANY
WARRANTY OR CONTRACT WITH RESPECT TO
SUCH SEEDS IS LIMITED TO THE ACTUAL
PURCHASE PRICE.
The agreed LIMITATION OF CONSEQUENTIAL DAMAGES
AND REMEDIES –
ANY DAMAGES ARISING OUT OF THIS CONTRACT SHALL
BE LIMITED IN ALL EVENTS TO THE RETURN OF THE
ACTUAL PURCHASE PRICE PAID FOR SUCH SEEDS ON
THAT PORTION OF THE SEED POTATOES ON WHICH A
COMPLAINT MAY ARISE. THE SELLER OR PRODUCER
SHALL NOT BE LIABLE FOR PROSEPCTIVE PROFITS OR
SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGES. THE
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RETURN OF THE ACTUAL PURCHASE PRICE PAID FOR
SUCH SEEDS IS THE EXCLUSIVE AND SOLE REMEDY
AVAILABLE TO THE BUYER OR USER OF THESE SEED
POTATOES.
Under the contract Johnson paid $104,000 for the seed potatoes. Johnson
picked up the seed potatoes in May 2016.
[¶5] In June or July 2016, Johnson informed Miller of problems with some of
the seed potatoes he had purchased. Johnson stated an analysis definitively
showed very high levels of the herbicide glyphosate, which caused the problems
with the seed potatoes. The seed potatoes did not grow properly, and Johnson
alleged damages as a result. It is undisputed that the seed potatoes were
damaged because an employee of Miller inadvertently contaminated the seed
potatoes with glyphosate while they were growing on Miller’s Farm. Miller
asserts that the glyphosate product was applied inadvertently by Miller’s
employee, likely at the time the vines were killed and the seed harvested.
[¶6] In July 2016, Miller sought coverage for the loss from Nodak. On July
12, 2016, Nodak sent Miller a letter denying coverage and citing a policy
exclusion, which the parties herein have alternately referred to as the “seed
performance” or “failure to conform” exclusion. In October 2017, Johnson sent
Miller a written demand for losses totaling $365,593.45. Miller personally
reimbursed Johnson for this amount in full.
[¶7] In December 2018, Miller commenced this action against Nodak seeking
damages after Nodak refused to provide coverage under the insurance policies
for Miller’s claim relating to damaged seed potatoes. Miller sought damages
from Nodak in excess of $421,890.18, alleging breach of contract, negligence,
unjust enrichment, and bad faith. Nodak answered, denying Miller’s claims
and maintaining denial of coverage was proper.
[¶8] In May 2019, Nodak moved for summary judgment arguing that Nodak
properly denied coverage under an exclusion to coverage when it denied
Miller’s claim, was not negligent, and acted in good faith in denying the claim.
Miller made a cross-motion for summary judgment on its claims for breach of
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contract, negligence, unjust enrichment, and bad faith. In January 2020, the
district court denied both parties’ motions for summary judgment.
[¶9] In April 2020, Nodak moved for reconsideration and clarification. In its
December 2020 order, the district court granted summary judgment to Nodak
on Miller’s claims for negligence and unjust enrichment but held the exclusions
relied on by Nodak to preclude Miller’s claim for coverage were inapplicable.
In August 2021, the court held a bench trial at which the parties’ stipulated
exhibits were admitted into evidence and the issue of calculating damages was
taken under advisement.
[¶10] In November 2021, the district court issued its findings of fact,
conclusions of law, and order for judgment. The court found the parties had
agreed on the record that Miller was no longer pursuing the bad faith claim
originally raised in the complaint. The court held Miller’s contract with
Johnson limited damages in this matter to the stipulated contract price paid
of $104,000 and the insurance policy did not require Nodak to compensate
Miller beyond the contractual liability. The court awarded statutory pre-
judgment interest at a rate of 6 percent beginning November 1, 2017.
[¶11] A final judgment was subsequently entered awarding Miller damages of
$104,000, plus pre-judgment interest of $25,216.44, for a total award of
$129,216.44.
II
[¶12] Our standard for reviewing a district court’s summary judgment decision
is well established:
In deciding whether the district court appropriately granted
summary judgment, we view the evidence in the light most
favorable to the opposing party, giving that party the benefit of all
favorable inferences which can reasonably be drawn from the
record. A party opposing a motion for summary judgment cannot
simply rely on the pleadings or on unsupported conclusory
allegations. Rather, a party opposing a summary judgment motion
must present competent admissible evidence by affidavit or other
comparable means that raises an issue of material fact and must,
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if appropriate, draw the court’s attention to relevant evidence in
the record raising an issue of material fact. When reasonable
persons can reach only one conclusion from the evidence, a
question of fact may become a matter of law for the court to decide.
A district court’s decision on summary judgment is a question of
law that we review de novo on the record.
N. Star Mut. Ins. v. Ackerman, 2020 ND 73, ¶ 6, 940 N.W.2d 857 (quoting
Dahms v. Nodak Mut. Ins. Co., 2018 ND 263, ¶ 6, 920 N.W.2d 293). The district
court also made findings of fact and conclusions of law after the August 2021
bench trial, which this Court reviews as follows:
In an appeal from a bench trial, the district court’s findings
of fact are reviewed under the clearly erroneous standard of
review, and its conclusions of law are fully reviewable. . . . In a
bench trial, the district court is the determiner of credibility issues
and we will not second-guess the district court on its credibility
determinations. Findings of the trial court are presumptively
correct.
Pavlicek v. Am. Steel Sys., Inc., 2022 ND 35, ¶ 6, 970 N.W.2d 171 (quoting
Gimbel v. Magrum, 2020 ND 181, ¶ 5, 947 N.W.2d 891 (cleaned up)).
III
[¶13] Nodak contends Miller’s damages are the result of activities excluded
from coverage under the applicable Nodak policy.
[¶14] Interpretation of an insurance policy presents a question of law, reviewed
de novo on appeal. N. Star Mut. Ins., 2020 ND 73, ¶ 7. We independently
examine the insurance contract to decide whether coverage exists, construing
policy language to give effect to the parties’ mutual intention at the time of
contracting. Borsheim Builders Supply, Inc. v. Manger Ins., Inc., 2018 ND 218,
¶ 8, 917 N.W.2d 504. In interpreting an insurance policy:
We look first to the language of the insurance contract, and if the
policy language is clear on its face, there is no room for
construction. If coverage hinges on an undefined term, we apply
the plain, ordinary meaning of the term in interpreting the
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contract. While we regard insurance policies as adhesion contracts
and resolve ambiguities in favor of the insured, we will not rewrite
a contract to impose liability on an insurer if the policy
unambiguously precludes coverage. We will not strain the
definition of an undefined term to provide coverage for the insured.
We construe insurance contracts as a whole to give meaning and
effect to each clause, if possible. The whole of a contract is to be
taken together to give effect to every part, and each clause is to
help interpret the others.
Dahms, 2018 ND 263, ¶ 8 (quoting Borsheim Builders, at ¶ 8). “Exclusions from
coverage must be clear and explicit and are strictly construed against the
insurer.” N. Star Mut. Ins., at ¶ 7. Although exclusionary clauses are strictly
construed, an insurance contract will not be rewritten to impose liability when
the policy language unambiguously precludes coverage. Borsheim Builders, at
¶ 8; Forsman v. Blues, Brews & Bar-B-Ques, Inc., 2017 ND 266, ¶ 10, 903
N.W.2d 524.
[¶15] This Court first examines a policy’s coverages before examining its
exclusions; and if a coverage provision applies to the harm at issue, we examine
the policy’s exclusions and limitations of coverage. Borsheim Builders, 2018
ND 218, ¶ 9. “While the insured bears the initial burden of demonstrating
coverage, the insurer carries the burden of establishing the applicability of
exclusions.” Id. at ¶ 10 (quoting Forsman, 2017 ND 266, ¶ 11).
IV
[¶16] The relevant Nodak Farm and Ranch policy provides, in part:
SECTION II – LIABILITY COVERAGES
A. Coverage L – Personal Liability
If a claim is made or a suit is brought against an “insured”
for damages because of “bodily injury” or “property damage”
caused by an “occurrence” to which this coverage applies,
“we” will:
1. Pay up to “our” limit of liability for the damages for
which an “insured” is legally liable; and
2. Provide a defense at “our” expense by counsel of “our”
choice, even if the suit is groundless, false or
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fraudulent. “We” may investigate and settle any claim
or suit that “we” decide is appropriate. “Our” duty to
settle or defend ends when “our limit of liability for the
“occurrence” has been exhausted by payment of a
judgment or settlement.
(Emphasis added.) The policy defines an “[o]ccurrence” as “an accident,
including continuous or repeated exposure to substantially the same general
harmful conditions, which results, during the policy period, in . . . ‘[p]roperty
damage’.” “‘Property [d]amage’ means “injury to or destruction of tangible
property including the loss of use of this property.” The policy further provides:
SECTION II – EXCLUSIONS
....
F. Coverage L – Personal Liability
Coverage L does not apply to:
....
2. “Property damage” to property owned by an “insured”.
This includes costs or expenses incurred by an
“insured” or others to repair, replace, enhance, restore
or maintain such property to prevent injury to a
person or damage to property of others, whether on or
away from an “insured location”;
....
8. Loss including consequential, incidental, or derivative
loss of any type, arising out of failure of seed sold by
an “insured” to conform to the variety or quality
specified by the “insured”, or to be suitable for the
purpose specified by the “insured”, or to be free of
disease, bacteria, fungi, or similar conditions. The
term “seed” will include seeds, bulbs, plants, roots,
tubers, cuttings, or other similar means of plant
propagation;
....
V
[¶17] On appeal, Nodak argues the district court erred in entering judgment
against Nodak in light of the insurance policy’s “failure to conform” exclusion;
in light of the policy’s “property damage” exclusion; and based on Miller’s
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gratuitous payment to Johnson, made without Nodak’s knowledge or
permission. Nodak argues the court erred in finding in favor of Miller and
awarding Miller $104,000 in damages plus pre-judgment interest. In the cross-
appeal, Miller maintains the court correctly awarded monetary damages to
Miller but erred in deciding the amount of damages are limited by the
contract’s terms to the purchase price of the seed that Miller provided to
Johnson.
A
[¶18] While the parties do not raise any separate issues as to whether coverage
under the policy was initially triggered, we nonetheless conclude the
aforementioned “seed performance” or “failure to conform” exclusion is
dispositive.
[¶19] This exclusion provides that Coverage L does not apply to:
8. Loss including consequential, incidental, or derivative loss
of any type, arising out of failure of seed sold by an “insured”
to conform to the variety or quality specified by the
“insured”, or to be suitable for the purpose specified by the
“insured”, or to be free of disease, bacteria, fungi, or similar
conditions. The term “seed” will include seeds, bulbs, plants,
roots, tubers, cuttings, or other similar means of plant
propagation[.]
[¶20] Nodak argues the district court erred in concluding Miller did not specify
the quality of seed potatoes and erred in holding that “quality” referred only to
the grade of the seed potatoes. Nodak argues that an inherent quality of seed
potatoes is the ability to successfully grow a new plant. Nodak contends that
because the seed potatoes Miller sold to Johnson did not conform to this quality,
this exclusion applies to preclude coverage.
[¶21] Nodak also argues the district court erred in holding Miller did not
specify a specific purpose for the seed potatoes under the contract. Nodak
contends that if the court is correct and Miller did not hold the seed out as
suitable for a particular purpose, then under the contract terms Miller would
have no liability to Johnson because he did not breach the contract. Miller
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would not be “legally liable” to Johnson and Nodak would have no duty to pay
his claim. Nodak further argues, however, that if the district court is wrong
and Miller did hold the seed out as suitable for a specified purpose, i.e., that
the seed would grow, coverage would be precluded under the policy’s exclusion.
[¶22] Miller responds that the seed Miller sold to Johnson conformed to the
variety and quality specified by Miller, in that the seed in question met “First
Grade Blue Tag” seed in all respects, which is what Johnson contracted for.
Miller asserts the North Dakota State Seed Department’s repeated inspections
and certification verify this and Miller made no other specification, warranty,
or promise to Johnson regarding the variety or quality of seed. Miller contends
all such matters were specifically disclaimed by the seed potato contract’s
terms and by operation of North Dakota law. Miller asserts no specification,
warranty, or promise regarding suitability or purpose of the seed was made;
and the contract did not state that the seed potatoes were suitable for a
particular purpose, other than they were First Grade Blue Tag seed potatoes.
[¶23] Here, in denying summary judgment, the district court held this
exclusion did not apply because there was “no allegation that the seed potato
was not of the variety specified by Miller” and because “[t]he contract between
Miller and Johnson specifically indicated Miller did not hold the seed out as
suitable for a particular purpose.” In its subsequent order on reconsideration
and clarification, the court again held this exclusion did not apply. The court
agreed with Miller that the lack of specific warranty did not necessarily
insulate Miller from all claims, even if it likely precluded a claim for breach of
warranty. The court held the contract between Miller and Johnson contained
express disclaimers and the language in Nodak’s policy did not just require a
failure to meet a purpose, but a failure to meet a “purpose specified.”
[¶24] In reaching its conclusion, the district court also relied on a case from
the Minnesota Court of Appeals, which held that “quality specified” in an
exclusion meant the “certified seed potato grade specified in a sale transaction”
or, at the very least, was an ambiguous term to be strictly construed against
the insurer. Bob Useldinger & Sons, Inc. v. Hangsleben, 483 N.W.2d 495, 499
(Minn. Ct. App. 1992), rev’d, 505 N.W.2d 323 (Minn. 1993). While
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acknowledging the case had been reversed on appeal, the district court found
the court of appeals’ rationale more persuasive.
[¶25] In Bob Useldinger & Sons, Inc. v. Hangsleben, 505 N.W.2d 323, 327
(Minn. 1993), however, the Minnesota Supreme Court rejected the lower court’s
narrow interpretation of “quality specified” to only the seed grade. The court
concluded, “The potatoes were to be grown to the specifications of a potato chip
producer, and the seed did not fulfill this purpose or expectation. Therefore,
the seed failed to conform to the ‘quality specified.’” Id. We similarly reject the
district court’s narrow construction in this case of the terms “quality specified”
and “purpose specified,” as they are used in the exclusion here.
[¶26] On our review of the policy language, we conclude this exclusion applies
and precludes coverage under the facts established in this case, because the
claimed losses arise directly from failure of the seed potatoes sold by Miller,
i.e., Miller’s sale of defective seed. We disagree with Miller’s assertion that the
sale contract between Miller and Johnson applies to disclaim any specified
quality or suitability of purpose of the seed potatoes sold to Johnson and thus
operates to defeat the exclusion.
[¶27] In construing this exclusion as a whole, we first observe the exclusion’s
language defining “loss” to include “consequential, incidental, or derivative loss
of any type.” (Emphasis added.) We next note the exclusion’s language defining
“seed” to include “seeds, bulbs, plants, roots, tubers, cuttings, or other similar
means of plant propagation.” (Emphasis added.) The exclusion’s use of the word
“seed” at its core contemplates “plant propagation.” We therefore reject Miller’s
contention that the exclusion’s use of the terms “quality specified” only refers
to the seed grade. We further reject Miller’s contention that the seed potato
contract’s broad warranty disclaimers operate to nullify the exclusion’s use of
the language “purpose specified,” because Miller sold Johnson seed potatoes
for the minimal purpose of plant propagation.
[¶28] It is undisputed here that the seed potatoes did not grow properly, that
the claimed losses were to Johnson’s crop yield, and that Miller’s payment to
Johnson included losses beyond the seed purchase price. The underlying losses
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at issue, as Miller paid to Johnson, included both the expectation of growth
from the seed potatoes and profits from the sale of fully-grown potatoes. The
undisputed defective condition of the seed potatoes at the time of Miller’s sale
to Johnson goes both to the specified “quality” and “purpose” of the seed as a
viable seed capable of plant propagation. Based on this exclusion’s plain
language, we conclude Nodak’s policy did not provide coverage for the claimed
losses arising out of the failure of the defective seed potatoes sold by Miller to
Johnson.
[¶29] Applying this exclusion, therefore, we conclude coverage under the policy
is precluded for Johnson’s claims against Miller. We hold the district court
erred in finding coverage and reverse the judgment.
B
[¶30] In the cross-appeal, Miller argues the district court erred in calculating
damages. Miller contends the court incorrectly held Miller’s damages are
limited by the seed contract’s terms to the purchase price of the seed provided
by Miller to Johnson. Because we conclude coverage is precluded under the
relevant policy’s exclusion, Miller’s cross-appeal is moot.
VI
[¶31] We have considered the parties’ remaining arguments and deem them
either without merit or unnecessary to our decision. The judgment is reversed.
[¶32] Jon J. Jensen, C.J.
Daniel J. Crothers
Jerod E. Tufte
Douglas A. Bahr
[¶33] The Honorable Daniel S. El-Dweek, D.J., sitting in place of McEvers, J.,
disqualified.
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El-Dweek, District Judge, dissenting.
[¶34] I believe the exclusion does not apply; therefore, I would affirm the
district court and respectfully dissent from the majority opinion.
[¶35] The majority aptly points out that “[e]xclusions from coverage must be
clear and explicit and are strictly construed against the insurer.” Majority, at
¶ 14 (quoting N. Star Mut. Ins., 2020 ND 73, ¶ 7). The policy exclusion in
question is reproduced. Majority, at ¶ 16. This exclusion is neither clear nor
explicit with respect to the denial of coverage in this case. There is nothing that
clearly or explicitly denies coverage due to the accidental exposure of seeds to
glyphosate. The majority has shoehorned this clearly and indisputably
accidental occurrence into the term “quality” contained in this exclusion.
Accordingly, the majority’s opinion belies this Court’s prior decisions requiring
exclusions to be strictly construed against the insurer. Instead, it finds a
meaning of the word “quality” that is beyond its plain and ordinary
meaning. “If coverage hinges on an undefined term, we apply the plain,
ordinary meaning of the term in interpreting the contract.” Martin v. Allianz
Life Ins. Co., 1998 ND 8, ¶ 9, 573 N.W.2d 823 (citing Sellie v. N.D. Ins. Guar.
Ass’n, 494 N.W.2d 151, 156-57 (N.D. 1992)).
[¶36] The North Dakota Supreme Court has not previously discussed the issue
of quality as it relates to this case. However, other states have specifically
discussed seed quality. It is my opinion quality more accurately relates to grade
than to condition. In Moorer v. Hartz Seed Co., 120 F. Supp. 2d. 1283, 1287
(M.D. Ala. 2000), seed is referred to as “certified quality or better.” (Emphasis
added.) The court in Moorer recognized that quality related to the certified
nature of the seed, and not to its condition due to accidental herbicide spray.
In Anderson v. Thomas, 336 P.2d 821 (Kan. 1959), quality is referred to as
grade of seed. The question in Anderson is whether “Blue Tag Quality” seeds
were delivered to the purchaser. Once again, quality of seed refers to the grade,
and not the condition, of a seed after it has been accidentally sprayed with
glyphosate.
[¶37] Given these examples of cases where quality meant grade of seed, as well
as our developed case law that exclusions are to be strictly construed against
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the insurer, this Court ought to strictly construe the term “quality” to mean
grade of seed. Given this construction, the term “quality” should not provide
the basis for denial of coverage because seeds were accidentally sprayed with
glyphosate. What is clear is this policy exclusion is meant to exclude coverage
against a claim of an injured party receiving an inferior grade of seed than
contracted, and not due to damage caused by the accidental exposure of these
seeds to glyphosate. To hold differently requires a strained reading of the word
“quality.”
[¶38] I respectfully dissent.
[¶39] Honorable Daniel S. El-Dweek, D.J.
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