987 N.W.2d 369
N.D.2023Background
- Miller operated a North Dakota farm and sold 10,400 CWT of "First Grade Blue Tag" seed potatoes to Johnson under a written contract (Dec. 31, 2015) that disclaimed warranties and limited damages to the purchase price ($104,000).
- The seed potatoes were grown and harvested on Miller’s farm in 2015; an employee inadvertently contaminated the crop with glyphosate while the seed was growing, causing the seed to fail to produce a proper crop.
- Johnson discovered the problem in mid-2016, claimed large losses, and Miller reimbursed Johnson (demand ~$365,593.45); Miller then sought coverage from Nodak, which denied the claim citing the policy’s "failure to conform" (seed performance) exclusion.
- Miller sued Nodak for breach of contract and related claims; the district court awarded Miller $104,000 plus pre-judgment interest. Nodak appealed; Miller cross-appealed the damage calculation.
- The North Dakota Supreme Court reviewed the policy language and exclusions and concluded the policy’s seed "failure to conform" exclusion precluded coverage, reversing the district court judgment.
Issues
| Issue | Miller's Argument | Nodak's Argument | Held |
|---|---|---|---|
| Whether the policy’s "failure to conform" (seed performance) exclusion applies | Seed met the contracted "First Grade Blue Tag" quality; no specified purpose or quality beyond grade, so exclusion inapplicable | "Quality" and "purpose" include a seed's ability to propagate (i.e., to grow); the seed failed that essential quality, so exclusion applies | Court held exclusion applies: seed failure to grow falls within "quality"/"purpose" language and precludes coverage |
| Whether the sales contract’s warranty disclaimers defeat the exclusion | Contract disclaimers and ND law eliminated any specified warranty or purpose, insulating Miller from exclusion | Even with disclaimers, selling seed necessarily contemplates the purpose of plant propagation; disclaimers do not nullify the policy exclusion | Court rejected Miller’s disclaimer argument and held the exclusion still applies |
| Whether Miller’s voluntary reimbursement to Johnson (without insurer consent) prevents recovery | Miller argued reimbursement was a proper indemnity of Johnson and sought coverage for amounts paid | Nodak argued Miller’s payment was gratuitous and made without notice/consent and therefore not recoverable | Court did not reach this subsidiary argument on the merits because it concluded the exclusion precluded coverage |
| Whether damages are limited to the contract purchase price | Miller argued the district court correctly limited damages to the contract remedy ($104,000) | Nodak argued any recovery was barred by the exclusion; if liability existed, contract limitation might apply | Cross-appeal moot: because coverage is precluded, the court did not decide the damages-limitation issue |
Key Cases Cited
- N. Star Mut. Ins. v. Ackerman, 940 N.W.2d 857 (N.D. 2020) (standard for reviewing summary judgment and insurance-interpretation principles)
- Dahms v. Nodak Mut. Ins. Co., 920 N.W.2d 293 (N.D. 2018) (principles for construing insurance policies and exclusions)
- Borsheim Builders Supply, Inc. v. Manger Ins., Inc., 917 N.W.2d 504 (N.D. 2018) (examine coverages before exclusions and insurer’s burden to prove exclusions)
- Bob Useldinger & Sons, Inc. v. Hangsleben, 505 N.W.2d 323 (Minn. 1993) (seed failed to meet purpose/expectation; court rejected narrow "grade-only" reading of "quality specified")
- Forsman v. Blues, Brews & Bar-B-Ques, Inc., 903 N.W.2d 524 (N.D. 2017) (insurer bears burden to prove exclusions apply)
- Martin v. Allianz Life Ins. Co., 573 N.W.2d 823 (N.D. 1998) (apply plain, ordinary meaning to undefined policy terms)