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Great West Casualty Company v. National Casualty Company

United States District Court, D. North Dakota, Northwestern Division

October 9, 2014

Great West Casualty Company, Plaintiff,
National Casualty Company and Steve Heinis, Defendants

For Great West Casualty Company, Plaintiff: Tamara L. Novotny, LEAD ATTORNEY, Cousineau McGuire Chartered, Minneapolis, MN.

For National Casualty Company, Defendant: Joel A. Flom, FLOM LAW OFFICE, P.A., FARGO, ND; Scott W. McMickle, PRO HAC VICE, McMickle, Kurey & Branch, LLP, Alpharetta, GA.

Steve Heinis, Defendant, Pro se, Rapid City, SD.

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Charles S. Miller, Jr., Magistrate States District Judge.

In this declaratory action initiated by plaintiff Great West Casualty Company

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(" Great West" ), the court must decide whether defendant Steve Heinis should be afforded liability coverage by Great West, by co-defendant National Casualty Company (" National" ), or by neither of said insurers, for an accident that occurred on June 18, 2011, which is the subject of a pending state court action. Before the court are cross-motions for summary judgment by Great West and National. Unless otherwise indicated, the facts are either undisputed or have been construed most favorably for National.[1]


A. Lease of equipment by Heinis to Avery Enterprises

At the time of the June 18, 2011, accident, Heinis, a South Dakota resident, was working as a trucker in the oil fields of western North Dakota and eastern Montana, including the prolific Bakken field. Heinis owned a 2007 Volvo semi-tractor and a 1977 Trailmobile tanker-trailer that he leased to Avery Enterprises, Inc. (" Avery" ), a local trucking firm headquartered in Powers Lake, North Dakota, pursuant to a written lease dated April 14, 2011. (Doc. Nos. 20-1, pp. 9-10; 20-2, pp. 4-9; 20-4).

Pursuant to the lease, Heinis had agreed to make his equipment and a driver (which in this case was himself) available to Avery for use in its business of providing trucking services to oil and gas companies operating in western North Dakota and eastern Montana. Specifically, Avery used Heinis and his equipment to haul either fresh water to drill sites for use in drilling operations or to haul contaminated " flowback" or " pit" water from the drill sites to authorized disposal facilities. (Doc. Nos. 20-1, pp. 19-20; 20-2, pp. 12, 21-22; 20-4).

The salient terms of the lease between Heinis (the " lessor" ) and Avery (the " lessee" ) were that:

& o Heinis agreed to furnish the leased equipment " in good and safe operational condition" and a qualified driver for dispatch by Avery. In addition, the parties agreed the following would constitute a default by Heinis of these obligations:
1. Failure to remain in constant contact with Lessee's dispatch personnel.
2. Failure to respond to a dispatched load within a reasonable amount of time.
3. Failure to maintain a safe working environment.
4. Failure to maintain the leased equipment in good working condition.
& o Heinis would be responsible for the cost of fuel and other consumables ( e.g., oil, lubricants, and tires) as well as all repairs and maintenance to the equipment.
& o Heinis agreed to abide by all motor carrier safety regulations set forth by the USDOT and " all safety and operating procedures" set forth by Avery.
& o For each load hauled by Heinis, Avery agreed to pay Heinis a specified percentage of the amounts invoiced to its customers, provided that Heinis supplied the information required for billing as specified in the agreement.
& o Avery agreed to obtain and maintain any licensing and registration of the equipment required by law showing

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Heinis as the legal owner of the leased equipment.
& o Avery agreed to acquire and maintain both " property and casualty insurance" and " fleet cargo and liability insurance" for the leased equipment of at least one million dollars. Heinis agreed to maintain proper and needed insurance, except for that which Avery agreed to obtain.

(Doc. No. 20-4).

Notably, the lease did not authorize Heinis to use the equipment he leased to Avery to haul loads for himself or other carriers during the term of the lease - at least not explicitly. In fact, as noted above, Heinis was obligated to remain in " constant contact" with Avery's dispatcher and respond to dispatched loads within a " reasonable" period of time. In addition, Avery's name was on the tractor during the entire time it was leased to Avery - including the day of the accident. Not surprisingly, Heinis never attempted to use the equipment to haul loads for himself or others while it was under lease to Avery. (Doc. No. 20-1, pp. 10, 18-19, 24).

B. Purchase of insurance by Avery and Heinis

As required by the lease, Avery maintained a policy with National that included commercial liability motor carrier coverage for the equipment it leased from Heinis. And, to satisfy his obligations under the lease, Heinis obtained a " Commercial Lines Policy" from Great West that provided non-trucking liability coverage (sometimes referred to as " bobtail" insurance) for when the equipment was not being used in support of Avery's business.[2] (Doc. Nos. 20-2, p. 9; 25-4; 29-5; 29-6; 29-7).

C. The underlying accident and ensuing state court action

On June 16, 2011, Heinis was dispatched by Avery to transport a load of contaminated flowback water from a well site in North Dakota to a disposal facility in eastern Montana. Heinis started out from Williston, North Dakota, where he often stayed while awaiting his next dispatch because of its cental location to where the work was located and the fact it had supporting services, e.g., truck stops and a variety of places to eat.[3] He traveled to the well site where he loaded the flowback water and then to the disposal facility where he unloaded it. He then returned to Williston, arriving during the late evening hours of June 16 or the early morning hours of June 17, which was a Saturday. (Doc. Nos. 20-1, pp. 14-16; 20-2, p. 18-19).

Sometime prior to hauling this load, Heinis noted that there was a small leak on his tankertrailer during loading and unloading. As a temporary measure, he used a bucket to prevent the leaking material

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from spilling on the ground. On June 17, Heinis decided to get the leak fixed and called Avery's principal, Kevin Avery, about having Avery's shop fix the leak. After Avery agreed, Heinis pulled the tanker-trailer from Williston to Avery's shop at Powers Lake the same day. (Doc. Nos. 20-1, pp. 21-22; 20-2, p. 13).

There is no dispute over the fact that, when Heinis took his tanker-trailer to Avery's shop for repair, he was not under dispatch from Avery. Also, there is no dispute that the repair was Heinis's responsibility under the lease, that he was free to have the repair done elsewhere, and that the cost of having the leak repaired would ultimately be charged to his account. (Doc No. 20-1, pp. 7, 17, 22).

Avery's shop was not able to get to the repair immediately. After spending the evening, Heinis backed his tanker-trailer partway into Avery's shop on the morning of Sunday, June 18, and, an employee of Avery, Jesse Miller, undertook to make the repair. When Miller applied his lit torch to the location of the leak to begin welding, there was an immediate explosion in which Miller was injured.[4] It is undisputed that what exploded were residual petroleum fumes from the contaminated flowback water that Heinis had been hauling, presumably from his last load. (Doc. Nos. 20-1, p. 16; 20-2, pp. 14-15; 20-3, p. 6).[5]

The only factual dispute with respect to the accident, which potentially could be material for reasons discussed later, is whether Heinis had unhooked his trailer from the tractor before the repair was attempted. Heinis claimed he unhooked it because he was concerned the welding could damage the computer on the tractor and that he reconnected the tractor to the trailer following the accident to pull it out of the shop so the ambulance could get to Miller. (Doc. No. 20-1, p. 16). Kevin Avery, on the other hand, was adamant that the tractor was still hooked to the trailer when he ran into the shop following the explosion, recalling that all Heinis had to do to move the trailer was to get into the tractor and pull the trailer out of the shop. (Doc. No. 20-2, p. 15). Miller testified he too did not believe the trailer was

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unhooked, but could not be certain. (Doc. No. 20-3, pp. 6-7).

There is currently pending in state court a personal injury action brought by Miller against Heinis.


A. Summary judgment standard

The standards for addressing motions for summary judgment are well known to the court and need not be repeated here. E.g., Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Barnhardt v. Open Harvest Co-op., 742 F.3d 365, 369 (8th Cir. 2014).

B. Governing law

The court's jurisdiction in this case arises out of the diversity of citizenship of the parties. Consequently, the court looks to state law to resolve the substantive questions. E.g., George K. Baum & Co. v. Twin City Fire Ins. Co., 760 F.3d 795, 799 (8th Cir. 2014). The question of which state's law applies is resolved by applying the choice-of-law rules of the forum state. Id.; Platte Valley Bank v. Tetra Financial Group, LLC, 682 F.3d 1078, 1082-83 (8th Cir. 2012).


A. Introduction

The complete copy of National's policy contains a myriad of different coverages, endorsements, schedules, and other changes. What has been submitted to the court is more than 1150 pages long and, even when copied double-sided, is 2 1/2 inches thick. In deciding whether the policy provides coverage to Heinis, the court must necessarily limit its consideration to those portions of the policy the parties have identified as being relevant.

Also, the court will apply North Dakota law in construing National's policy given that: (1) National has not pointed to any policy provision purporting to dictate what law governs its interpretation; (2) the policy was issued to Avery as the " Named Insured" and Avery was headquartered and doing business in North Dakota; and (3) the policy is replete with special North Dakota endorsements. See Nodak Mut. Ins. Co. v. Wamsley, 2004 ND 174, ¶ 19, 687 N.W.2d 226.

The North Dakota Supreme Court has summarized the standards for construing insurance contracts under North Dakota law as follows:

Our goal when interpreting insurance policies, as when construing other contracts, is to give effect to the mutual intention of the parties as it existed at the time of contracting. 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 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.

Farmers Union Mut. Ins. Co. v. Decker, 2005 ND 173, ¶ 4, 704 N.W.2d 857 (quoting Ziegelmann v. TMG Life Ins. Co., 2000 ND 55, ¶ 6, 607 N.W.2d 898).

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B. Section II(A) of National's " Motor Carrier Coverage Form" affords coverage

1. The relevant policy language

Great West contends that National owes Heinis coverage under that portion of its policy entitled " Motor Carrier Coverage Form." The language that Great West relies upon includes:

Various provisions in this policy restrict coverage. Read the entire policy carefully to determine rights, duties and what is and is not covered.
Throughout this policy the words " you" and " your" refer the Named Insured shown in the Declarations. The words " we", " us" and " our" refer to the company providing this insurance.
* * * *


A. Coverage

We will pay all sums an " insured" legally must pay as damages because of " bodily injury" or " property damage" to which this insurance applies, caused by an " accident" and resulting from the ownership, maintenance or use of a covered " auto" .
* * * *
We will have the right and duty to defend any " insured" against a " suit" asking for such damages . . . . However, we have no duty to defend any " insured" against a " suit" seeking damages for " bodily injury" or " property damage" . . . to which this insurance does not apply . . . . Our duty to defend or settle ends when the Liability Coverage Limit of Insurance has been exhausted by payment of judgments or settlements.

1. Who Is An Insured

The following are " insureds" :
a. You for any covered " auto" .
b. Anyone else while using with your permission a covered " auto" you own, hire or borrow except:
(1) The owner, or any " employee", agent or driver of the owner, or anyone else from whom you hire or borrow a covered " auto" .
(2) Your " employee" or agent if the covered " auto" is owned by that " employee" or agent or a member of his or her household.
(3) Someone using a covered " auto" while he or she is working in a business of selling, servicing, repairing, parking or storing " autos" unless that business is yours.
(4) Anyone other than your " employees", partners (if you are a partnership), members (if you are a limited liability company), a lessee or borrower of a covered " auto" or any of their " employees", while moving property to or from a covered " auto" .
(5) A partner (if you are a partnership), or member (if you are a limited liability company) for a covered " auto" owned by him or her or a member of his or her household.
c. The owner or anyone else from whom you hire or borrow a covered " auto" that is a " trailer" while the " trailer" is connected to another covered " auto" that is a power unit, or, if not connected, is being used exclusively in your business.
d. The lessor of a " covered auto" that is not a " trailer" or any " employee", agent or driver of the lessor while the " auto" is leased to you under a written agreement if the

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written agreement between the lessor and you does not require the lessor to hold you harmless and then only when the leased " auto" is used in your business as a " motor carrier" for hire.
e. Anyone liable for the conduct of an " insured" described above but only to the extent of that liability.
However, none of the following is an " insured" :
* * * *
* * * *


* * * *

B. " Auto" means:

1. A land motor vehicle, " trailer" or semitrailer designed for travel on public roads; or ****

(Doc. No. 29-5, pp. 96-98, 107) (italics added). In addition, the only " Named Insured" in the declarations for purposes of applying the words " you" or " your" is Avery. (Doc. No. 29-5, p. 7).

2. Contentions of the parties re National's Motor Carrier Coverage Form

Great West argues that Heinis is entitled to coverage for the accident in question under the italicized language of National's Motor Carrier Coverage Form set forth above. In particular, Great West contends Heinis is an insured within the meaning of Section II(A)(1)(c) because the leased tractor was connected to the trailer at the time of the accident, but, even if not, the trailer was used exclusively in Avery's business. National's response is threefold. First, it argues that, even if the language relied upon by Great West nominally affords coverage, there are exclusions that take away that coverage, which are discussed separately below. Second, National contends that whether the trailer was connected to the tractor at the time of the accident is a disputed question of fact. Third, National argues that the trailer was not being used in Avery's business at the time of the accident, much less " exclusively" so.

The court will begin with the last of National's arguments. Before doing so, however, it is helpful first to discuss the fact that the same question of whether the trailer was being used in Avery's business at the time of the accident also arises in deciding whether Great West's policy affords coverage.

As noted above, Section II(A)(1)(c) of National's Motor Carrier Coverage Form provides coverage if the covered auto, which is a trailer, " is being used exclusively in your [ i.e., Avery's] business." And, as discussed in more detail later, Great West's policy does not extend coverage to an auto, which includes a trailer, that is " used in the business of anyone to whom the 'auto' is rented, leased or loaned." Putting aside the use of the modifier " exclusively" in National's policy, there appears to be no material difference between the " being used . . . in your business" language of National's policy and the " in the business of" language of Great West's policy in terms of the meaning of the word " business," as well as more generally, the intended application of the policy language. National's policy refers to Avery's business as a motor carrier, and Great West's policy refers to the business of anyone to whom the equipment is leased, which, in this case, would also be Avery. Hence, the operative question for both policies is whether the trailer involved in the explosion was being used in Avery's business at the time of the accident and, more particularly, " exclusively" so for National's policy.

In addressing the question of whether the trailer was being used in Avery's business at the time of the accident, the discussion

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that follows will sometimes use " in the business of" as a shorthand reference to the operative language from both policies when discussing cases applying similar policy language.

3. Whether the trailer was being used exclusively in Avery's business at the time of the accident

a. The clear and unambiguous meaning of " in the business of"

While there are a number of accepted usages of " business" (including, for example, a verbal abuse or scolding, i.e., giving someone the " business" ), the common and ordinary usage in this context is that a " business" is a commercial enterprise or activity. E.g., McGriff By and Through Norwest Capital Management & Trust Co. v. United States Fire Ins. Co., 436 N.W.2d 859, 862 (S.D. 1989) (" McGriff" ) (" Whether we go to Webster or to Black's Law Dictionary, both of which present various definitions [of 'business'], it is clear that they generally refer to a commercial enterprise or activity." ); see generally Oxford English Dictionary (Online 3d ed. entry updated March 2012); Black's Law Dictionary 211 (8th ed. 2004).

A few courts have concluded " in the business of," or comparable policy language, is ambiguous because courts have reached different conclusions about how it should be applied in the trucking context. E.g., Engle v. Zurich American Ins. Group, 216 Mich.App. 482, 549 N.W.2d 589, 591 (Mich. Ct. App. 1996); McLean Trucking Co. v. Occidental Fire & Casualty Co. of North Carolina, 72 N.C.App. 285, 324 S.E.2d 633, 636 (N.C. Ct. App. 1985); cf. Great West Cas. Co. v. Carolina Cas. Ins. Co., Nos. A05-1619, A05-1773, A05-1804, 2006 WL 1704125, at *7 (Minn. Ct. App. June 20, 2006) (unpublished opinion) (concluding there may be a latent ambiguity after the disputed facts are resolved because the phrase as applied could refer to when a load is being hauled for the lessee or more generally to any activities that benefit the lessee).

An often-cited case taking the opposite view in light of the generally understood meaning of " business" is Hartford Ins. Co. of Southeast v. Occidental Fire & Cas. Co. of North Carolina, 908 F.2d 235, 239 (7th Cir. 1990) (" Hartford" ) where the Seventh Circuit stated:

The fact that contractual language may, on occasion, pose difficult factual applications does not make that language ambiguous. [citation omitted]. The phrase " in the business of an . . . organization to whom the automobile is rented" clearly refers to occasions when the truck is being used to further the commercial interests of the lessee.

Id. at 239. The weight of authority appears to be with the Seventh Circuit both in terms of the meaning ascribed to " in the business of," or comparable language, as well as the conclusion, explicitly or implicitly, that the language is not ambiguous. See, e.g., Empire Fire and Marine Ins. Co. v. Brantley Trucking, Inc., 220 F.3d 679, 681-82 (5th Cir. 2000) (" Empire Fire" ) (quoting Hartford); National Continental Ins. Co. v. Empire Fire & Marine Ins. Co., 157 F.3d 610, 612 (8th Cir. 1998) (" National Continental" ) (relying upon the Seventh Circuit's definition in Hartford); Forkwar v. Empire Fire & Marine Ins. Co., No. WGC-09-1543, 2010 WL 3733930, at *14 (D. Md. Sept. 20, 2010) (applying Maryland law); Wenkosky v. Protective Ins. Co., 698 F.Supp. 1227, 1230-31 (M.D. Pa. 1988) (concluding that comparable language in an exclusion was clearly worded and unambiguous and citing cases from other jurisdictions); Casey v. Smith, 2014 WI 20, 353 Wis.2d 354, 846 N.W.2d 791, 797 (Wis. 2014) (adopting the interpretation set forth in Hartford, stating " it presents a clear rule

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that is consistent with the plain language of the exclusion" and citing other cases).

While there are no North Dakota cases directly on point, the North Dakota Supreme Court has stated it will give undefined terms their plain meaning and will not strain to find an ambiguity simply to find coverage. E.g., Farmers Union Mut. Ins. Co. v. Decker, 2005 ND 173 at ¶ 4, 704 N.W.2d 857. And, in at least one auto insurance case, the court has concluded that " commercial" (a synonym for " business" ) and the similarly broad term of " occupation" were not ambiguous and should be accorded their commonly understood meanings. See Bauerle v. State Farm Mutual Automobile Ins. Co. of Bloomington, Ill., 153 N.W.2d 92 (N.D. 1967). In addition, the North Dakota Supreme Court has essentially accorded the same meaning to the term " business" in other contexts. Grand Forks Herald, Inc. v. Lyons, 101 N.W.2d 543, 547 (N.D. 1960) (relying upon a Webster's dictionary definition for the term in construing a statute); Green v. Frazier, 44 N.D. 395, 176 N.W. 11, 17 (N.D. 1920) (the term " private business" is readily defined as a " business or enterprise" conducted for the purpose of private gain, enjoyment, or profit).

This court predicts that, if the North Dakota Supreme Court is called upon to decide the meaning of " in the business of," or similar language, in commercial trucking policies, it will likely follow the decisions of the Fifth, Seventh, and Eighth Circuits in Empire Fire, Hartford, and National Continental, respectively, and conclude the language means occasions when the equipment is being used to further the commercial interests of the lessee, given not only how the court has previously construed the term " business," but also because these are the more persuasive decisions.

b. National's arguments for why the trailer was not being used " in the business of Avery" at the time of the accident

In this case, Avery did more than simply contact Heinis every time it wanted a load hauled and engage him to do so. Rather, for whatever reasons, Avery leased his tractor and trailer for use in its business for an indefinite term and, when the accident giving rise to the subject suit occurred, the tractor and trailer remained under lease to Avery. In view of this, the court will address, in turn, National's arguments for why the trailer was not being used ...

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