D & M Iron Horse Inn, LLC v. United Fire & Casualty Company
5:11-cv-05075
D.S.D.Feb 4, 2014Background
- On August 3, 2010 a severe rain and hail storm struck Deadwood, SD; D & M Iron Horse Inn (Iron Horse) sued United Fire & Casualty (United Fire) for breach of contract after insurer denied coverage for storm-related damage.
- The dispute centers on whether the policy’s Water Exclusion Endorsement (which replaces the policy’s water exclusion) bars coverage for damage resulting from hail accumulation that allegedly broke a basement window and allowed water/hail into the building.
- Iron Horse purchased the "Causes of Loss — Special Form" (all-risk "Special Form") under the Commercial Property Coverage Part; United Fire argues the Water Exclusion Endorsement (which modifies the Commercial Property Coverage Part) applies and precludes coverage.
- Factual contention for the jury: whether the window was broken solely by hail weight (which would support coverage) or by water pressure/accumulation that then allowed hail/water in (which United Fire contends is excluded).
- Parties filed multiple pretrial motions in limine and for interpretive rulings; the court resolved which policy provisions apply and admissibility of demonstrative videos and certain damage evidence for a bifurcated trial (Phase I: liability only).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the Water Exclusion Endorsement apply to the Special Form purchased by Iron Horse? | Water endorsement modifies the Commercial Property Coverage Part but should not supersede Special Form coverage for hail-caused loss; if hail alone broke the window loss is covered. | Endorsement expressly modifies the Commercial Property Coverage Part and replaces the water exclusion, so it applies to the Special Form and can preclude coverage when water caused the damage. | Court: Endorsement applies to and replaces the water exclusion in the Special Form; whether hail alone caused the break is a factual issue for the jury (motion granted in part/denied in part). |
| If hail piled outside the building and caused a window collapse (hail entered but was not carried by water), does the water exclusion still bar coverage? | If damage was solely from hail weight (no water causation), then coverage applies. | Agrees there is an interpretation where hail-only causation yields coverage, but contends water-caused collapse is excluded. | Court: This is a factual dispute for the jury — if hail alone caused the break, the water exclusion does not apply. |
| Whether Section D (Additional Coverage — Collapse) is independent and not subject to Section B exclusions (including water) | Section D provides separate specified-peril collapse coverage and is not expressly made subject to Section B general exclusions; collapse coverage can provide independent coverage. | Section D is incorporated into Covered Causes of Loss in Section A and thus subject to Section B exclusions; water exclusion should therefore apply to collapse coverage. | Court: Section D is separate/additional coverage and the Water Exclusion Endorsement only replaced the water exclusion in Section B; plaintiff’s motion to exclude arguments that Section D is inapplicable is granted. |
| Admissibility of demonstrative videos (Exhibits 6 & 7) and current-condition video (Exhibit 4) showing stairwell/sump/potential water escape routes | Videos are demonstrative (not reenactments) to show how water could exit the stairwell and that hail accumulation — not water depth — caused window failure; audio not necessary. | Videos are not nearly identical to actual event (different water volume, set-up, allegedly open utility door) and risk confusing/misleading jury; audio should be excluded. | Court: With foundation the videos are admissible as demonstrative evidence; audio portions excluded. Exhibit 4 admissible to show nature/extent of physical damage (monetary damages excluded in Phase I). |
Key Cases Cited
- Secura Ins. v. Horizon Plumbing, Inc., 670 F.3d 857 (8th Cir. 2012) (state law governs interpretation of insurance policies in diversity cases)
- Cornelius v. National Casualty Co., 813 N.W.2d 167 (S.D. 2012) (insurance contract interpretation is a question of law; ambiguities construed for insured)
- Auto-Owners Ins. Co. v. Hansen Housing, Inc., 604 N.W.2d 504 (S.D. 2000) (insurer bears burden to prove an exclusion applies)
- Overfield v. American Underwriters Life Ins. Co., 614 N.W.2d 814 (S.D. 2000) (insurer’s construction of the policy may be given weight when favorable to insured)
- Roseth v. Roseth, 829 N.W.2d 136 (S.D. 2013) (contract not ambiguous simply because parties disagree on construction)