Acuity, A Mut. Ins. Co. v. A Maxon Co.

1

2024 S.D. 53

ACUITY, A MUTUAL INSURANCE COMPANY, Plaintiff and Appellee, v. A MAXON COMPANY, LLC, Defendant, and GREG AND TAMMY WEATHERSPOON, Defendants and Appellants.

No. 30463-a-MES

Supreme Court of South Dakota

September 4, 2024

CONSIDERED ON BRIEFS APRIL 23, 2024

APPEAL FROM THE CIRCUIT COURT OF THE FOURTH JUDICIAL CIRCUIT CORSON COUNTY, SOUTH DAKOTA THE HONORABLE GORDON SWANSON Retired Judge

NATHAN R. CHICOINE of

DeMersseman, Jensen, Tellinghuisen & Huffman, LLP

Rapid City, South Dakota

Attorneys for defendants and appellants.

MARK J. ARNDT

TYLER A BRADLEY of

Evans Haigh & Arndt, LLP

Sioux Falls, South Dakota

Attorneys for plaintiff and appellee.

SALTER, JUSTICE

[¶1.] Following a fire that damaged a malt beverage store owned by A Maxon Company, LLC (AMC), Acuity Insurance Company brought a declaratory judgment action to determine a question of coverage under the terms of an insurance policy, which listed Greg and Tammy Weatherspoon as additional loss payees. In a counterclaim, the Weatherspoons alleged a breach of contract. At trial, the circuit court granted Acuity's motion for judgment as a matter of law with respect to the Weatherspoons' counterclaim based upon the court's determination that the terms of the insurance policy prevented the Weatherspoons from recovering damages unless AMC successfully asserted a claim for coverage. The jury ultimately determined that AMC principal, Russel Maxon, had intentionally started the fire, which, in turn, meant that coverage was excluded under AMC's policy. The Weatherspoons appeal, challenging the court's decision to grant the motion for judgment as a matter of law as well as two evidentiary rulings made during trial. We affirm.

Factual and Procedural Background

[¶2.] The Weatherspoons originally owned and operated T-Spoons, a malt beverage store in McLaughlin. In July 2017, they entered into a contract for deed to sell T-Spoons to Russel and Tracy Maxon. The Maxons purchased the property through their company, AMC, and began operating T-Spoons. Pursuant to the contract for deed, the Maxons were required to insure the property and list the Weatherspoons as loss payees. AMC purchased property coverage under a commercial general liability insurance policy issued by Acuity in August 2017.

[¶3.] The insurance contract contained a "Loss Payable Clauses" endorsement that governed Acuity's obligation to pay listed loss payees who were not insureds like the Weatherspoons, in the event of a loss. The Loss Payable Clauses endorsement delineated four individual clauses that addressed specific loss payable situations: 1) the Loss Payable Clause, 2) the Lender's Loss Payable Clause, 3) the Contract of Sale Clause, and 4) the Building Owner Loss Payable Clause. Also included was a schedule that listed the Weatherspoons as loss payees and designated their "applicable clause" as the "Loss Payable" clause, the first of the four individual clauses listed in the Loss Payable Clauses endorsement.

[¶4.] On April 15, 2018, the T-Spoons building was damaged by a fire that originated in the basement. Acuity hired Chris Rallis to investigate the fire. Rallis concluded that the fire was intentionally set and believed Russel had started it because Russel was the only person who had access to the building immediately prior to the fire. Rallis reasoned, though not noted in his investigation report, that Russel had a motive to start the fire because AMC was struggling financially. Beer distributors had stopped delivering to T-Spoons because the Maxons had written bad checks, and Russel had supplied T-Spoons with inventory by purchasing beer from a retail source. Special Agent Derek Hill of the Bureau of Alcohol, Tobacco, and Firearms (ATF) also conducted an investigation and determined the fire was intentionally started by Russel.

[¶5.] Following the fire, the Weatherspoons filed a proof of loss with Acuity in an effort to claim damages relating to the T-Spoons fire. However, Acuity denied the claim, reasoning that the Weatherspoons' ability to collect, as loss payees, was dependent on whether AMC could make a compensable claim. AMC had not made a claim initially, though it later made a claim on July 31, 2020, over two years after the fire.

[¶6.] After Acuity denied the Weatherspoons' claim, it commenced this declaratory judgment action in December 2018, naming the Weatherspoons and AMC as defendants. The Weatherspoons filed an answer and counterclaim alleging that Acuity breached the insurance contract by not paying damages to the Weatherspoons as loss payees. AMC was initially represented by counsel, but its attorney later withdrew. AMC has been unrepresented and has not participated in the litigation since that time. See Smith v. Rustic Home Builders, LLC, 2013 S.D. 9, ¶¶ 7-8, 826 N.W.2d 357, 359-60 (holding that corporations and limited liability companies may not appear pro se without a licensed attorney); but see SDCL 15-39-47 (providing a limited exception in small claims actions).

[¶7.] The Weatherspoons filed a motion for summary judgment, arguing that "[n]o genuine issue of material fact exists that [the Weatherspoons] are Loss Payees under the insurance policy subject to this action, and the Weatherspoons are entitled to judgment declaring their right to coverage as a matter of law." They also argued the insurance contract language surrounding the different loss payable clauses was ambiguous and that two of the individual clauses under the Loss Payable Clauses endorsement were at odds. The first clause among the four, designated as the Loss Payable Clause, did not appear to allow a loss payee to seek payment for a loss, but the second individual clause, the Lender's Loss Payable Clause, did because it specifically allows loss payees to make their own claim for coverage if the insured did not.

[¶8.] In its response to the Weatherspoons' motion for summary judgment, Acuity argued that the contract language made it clear that "the Weatherspoons' rights are only equal to the rights of the policy holder, [AMC]." Acuity further argued that because AMC had not made a claim for damages, the Weatherspoons were not able to pursue loss benefits under the insurance contract. As support, Acuity cited the language of the individual Loss Payable Clause which provided that Acuity would first "adjust the loss" with AMC and then "[p]ay any claim for loss or damage jointly to [AMC] and the loss payee, as interests may appear." (Emphasis added.) Pointing to the schedule appearing after the Loss Payable Clauses endorsement, Acuity noted that the only clause listed under "Applicable Clause" was the Loss Payable Clause and not the Lender's Loss Payable Clause that the Weatherspoons hoped to invoke.

[¶9.] In addition, Acuity claimed that even if AMC had made a claim-and it eventually did-there could be no joint payment with AMC and the Weatherspoons because the claim would be denied under a "Dishonest or Criminal Act Exclusion" included within the insurance contract. Acuity argued that because Russel intentionally started the fire, coverage for the loss was excluded.

[¶10.] The circuit court denied the Weatherspoons' motion for summary judgment. The court concluded the insurance contract was unambiguous and that the Weatherspoons were not entitled to benefits under the contract because AMC had not submitted a claim for benefits.

[¶11.] Relying upon this reasoning, Acuity filed its own motion for summary judgment, asserting that coverage for the claimed losses was unavailable to both AMC and the Weatherspoons.^[1] Acuity argued that AMC was not able to recover because it did not submit a timely claim for losses and, even if it had, the claim would have been denied under the dishonest act exclusion because Acuity's investigation had determined that Russel intentionally started the fire. As to this latter argument, Acuity noted that neither AMC nor the Weatherspoons had submitted expert evidence to refute the opinions of Rallis and Special Agent Hill.

[¶12.] The circuit court denied Acuity's motion for summary judgment in a memorandum opinion filed on September 30, 2022. The court noted that, while neither AMC nor the Weatherspoons offered expert testimony to refute the determinations that the fire was set intentionally by Russel, he had denied setting the fire during a pretrial deposition. Citing this Court's decision in Johnson v. Albertson's, 2000 S.D. 47, ¶¶ 25-26, 610 N.W.2d 449, 455, the circuit court reasoned that expert testimony could assist the trier of fact, but it could not supplant it. The court ruled "the weight of any expert opinion and factual disputes should be left to a jury."

[¶13.] The circuit court did not address the timeliness issue in its September 2022 decision, and Acuity filed a renewed motion for summary judgment, specifically asking the court to consider the untimeliness of AMC's claim filed over two years after the fire occurred. Acuity argued the insurance contract required that AMC provide "a signed, sworn proof of loss containing the information" that Acuity requested in a June 2018 letter.

[¶14.] In response, the Weatherspoons argued that Acuity had timely access to the fire damage and site and therefore Acuity suffered no prejudice as a result of the late claim. Further, the Weatherspoons argued that the Maxons submitted timely homeowners' insurance claims to Allstate Insurance and that Acuity was aware of these claims.^[2] The Weatherspoons asserted that Acuity never intended to pay loss damages, regardless of whether or not they received sworn proof of loss.

[¶15.] At a June 2023 hearing, Acuity argued that "the Maxons did not complete that form simply because they were concerned that additional criminal charges could be brought"...