Farmers Alliance Mutual Insurance Company v. Jesus Hurtado Dairy et al

Filing 40

MEMORANDUM DECISION ON CROSS-MOTIONS FOR SUMMARY JUDGMENT granting 22 Farmer's Motion for Summary Judgment; denying 26 The Reitsmas' Motion for Summary Judgment; granting 39 The Reitsmas' Motion to Supplement. Counsel for Farmer s is instructed to submit an appropriate judgment to the Court'sorders inbox, and to provide a copy to opposing counsel, within three days of the date of this Order. Signed by Judge Mikel H. Williams. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (cjm)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

FARMERS ALLIANCE MUTUAL
INSURANCE COMPANY,
Plaintiff,
v.
JESUS HURTADO DAIRY, LLC, et al,

Case No. 1:11-cv-00266-MHW
MEMORANDUM DECISION ON
CROSS-MOTIONS FOR
SUMMARY JUDGMENT

Defendants.

Pending before the Court are cross-motions for summary judgment filed by Plaintiff
Farmers Alliance Mutual Insurance Company and Defendants John and Susan Reitsma.
(Dkts. 22 & 26).1 All parties have consented to the jurisdiction of the undersigned United
States Magistrate Judge (Dkt. 36). Having reviewed the pleadings, memoranda, and affidavits
pertinent to these motions (Dkts. 22, 25, 26 & 29-33) and entertained oral argument on
November 5, 2013, the Court has concluded that the Plaintiff's motion should be granted and
summary judgment entered in its favor.
BACKGROUND
This is an insurance coverage dispute that has resulted in three separate lawsuits. The

1

Defendants Jesus Hurtado Dairy, LLC and Jesus Martinez Hurtado filed an opposition to
Plaintiff's motion for summary judgment but did not file a motion for summary judgment on
their own behalf.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 1

Plaintiff is Farmers Mutual Alliance Insurance Company (“Farmers”), an insurance company
that provided certain property and liability insurance coverage to Defendants Jesus Hurtado
and Hurtado Dairy, LLC for Jesus Hurtado's dairy operations in the vicinity of Twin Falls,
Idaho. Also named as Defendants are John and Susan Reitsma, residents of Twin Falls
County, Idaho who leased to Hurtado the particular dairy farm where the loss resulted.2
The primary issues in this case relate to interpretation of the Farmers insurance policy
so the relevant facts can be briefly stated. Jesus Hurtado is a dairyman who owns or
operates a number of farms in the vicinity of Twin Falls Idaho. (Policy, p. 4).3 One of these
was a dairy farm in Hollister, Idaho that he leased from the Reitsmas. Hurtado and Reitsma
entered into the lease agreement on December 17, 2007. (Reitsmas’ Statement of Material
Facts, ¶ 2, Dkt. 26-2, and Lease Agreement, Dkt. 26-8). Under the terms of the Lease
Agreement, Hurtado was to procure and maintain in force the following types of insurance:
public liability insurance in the minimum single limit coverage of $2,000,000, fire and
casualty insurance on his personal property brought to the leased premises, and Workers
Compensation insurance for Hurtado's employees as required by law. (Lease Agreement, p.
4, Exhibit "D" to McFeeley Aff., Dkt. 26-8). Reitsma was to insure the property "against
fire, wind, theft and other casualty in the amount of its replacement" during the term of the

2

Diversity jurisdiction is present because Farmers has its principal place of business in
Kansas and the amount in controversy exceeds $75,000.
3

All references to the policy in this opinion are to the sequentially numbered copy
attached to the McFeeley Affidavit (Dkt. 25-8).

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 2

lease. (Id.).
After the lease went into effect, Reitsma purchased an insurance policy with
Travelers Indemnity Company insuring the Reitsmas’ interest in the property. (Reitsma Aff.
¶ 8, Dkt. 25-2). Hurtado purchased a Farmowners’ Insurance Policy from Farmers which
included Hurtado Dairy LLC and John Reitsma as “additional insureds.” (Policy, p. 25-26).
The policy included both liability and property coverages; however, it also covered a variety
of locations besides the premises leased from the Reitsmas. (Policy p. 4). The leased
premises where the accident occurred is referred to as “Location 4" in the policy. (Id.).
Location 4 included a milking parlor, upon which was located the milking carousel that was
damaged on the day of the loss. (Reitsma Aff. ¶ 8.).
At the time of the loss, two employees of Hurtado Dairy were attempting to “bump
start” the milking carousel with a front end loader or backhoe, which they had attached to the
carousel by means of a chain. (Id., ¶ 9). According to John Reitsma's affidavit, the employees
had gotten the carousel rotating when one of the employees attempted to back up the front
end loader. The other employee was unable to unhook the chain from the carousel in time
and so the backhoe pulled the carousel off its track. (Id. ¶¶ 9-10). The carousel had to be
totally replaced.
After the incident, the Reitsmas and Hurtado made claims under their respective
policies. Farmers denied coverage on the policy issued to Hurtado. (Reitsma Aff. ¶ 12, Dkt.
25-2). Travelers accepted the claim and paid the Reitsmas $977,354.77 to replace the

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 3

carousel. (Id. ¶ 12). It also filed a separate subrogation lawsuit against Hurtado Dairy in state
court in Twin Falls County, Idaho. (McFeeley Aff. Exhibit D, Dkt. 25-4). Hurtado also filed
an action in state court against Farmers and his insurance agent, Brian Petersen alleging
negligence, breach of contract, and bad faith. (Id. at Exh. C, Dkt. 25-3). However, the only
issues before the Court in this lawsuit relate to coverage under the Farmers policy issued to
Hurtado.
LEGAL STANDARDS
Motions for summary judgment are governed by Rule 56 of the Federal Rules of Civil
Procedure. Rule 56 provides, in pertinent part, that “[t]he court shall grant summary
judgment if the movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law. The court should state on the record the
reasons for granting or denying the motion.” Fed.R.Civ.P. 56(a). See also, Anderson v.
Liberty Lobby, 477 U.S. 242, 247–48, 106 S.Ct. 2505 (1986). Once the moving party has met
this initial burden, the nonmoving party has the subsequent burden of presenting evidence
to show that a genuine issue of fact remains. The party opposing the motion for summary
judgment may not rest upon the mere allegations or denials of his pleading, but must set forth
specific facts showing that there is a genuine issue for trial. Id. at 248. If the non-moving
party “fails to make a showing sufficient to establish the existence of an element essential
to that party's case, and on which that party will bear the burden of proof at trial” then
summary judgment is proper as “there can be no ‘genuine issue of material fact,’ since a

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 4

complete failure of proof concerning an essential element of the nonmoving party's case
necessarily renders all other facts immaterial.” Celotex Corp. v. Catrett, 477 U.S. 317,
322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). When applying the above standard, the
court must view all of the evidence in the light most favorable to the non-moving party.
Anderson, 477 U.S. at 255; Hughes v. United States, 953 F.2d 531, 541 (9th Cir.1992). The
standards generally applicable to motions for summary judgment do not change where the
parties file cross motions.

See, e.g. Cady v. Hartford Life & Accidental Ins. Co.,

___F.Supp.2d ____, 2013 WL 1001073 (D. Idaho 2013);Western Watersheds Project v.
Bureau of Land Management, 2010 WL 3735710 at * 3, n. 5 (D. Idaho 2010).
Finally, the Court is guided by principles of insurance policy interpretation as set forth
by the Idaho Supreme Court, as federal courts sitting in diversity apply state law to all
substantive issues in the case. See, e.g., Now Disc., Inc. v. Munn, 2010 WL 4853380 at *2
(D. Idaho 2010).
DISCUSSION
The Farmers policy at issue in this lawsuit is over a hundred pages long, and the
parties have raised numerous issues and sub-issues in their efforts to prevail on their
arguments regarding coverage. Thankfully, only certain portions of the policy are relevant.
Those portions are: 1) the declarations pages and schedules that describe what property is
insured, 2) Coverages E, F, and G (which apply to property damage), 3) Coverage L (which
applies to liability), 4) the “Additional Insured” endorsements that added Hurtado Dairy and

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 5

John Reitsma as insureds to the liability portion of the policy, and 5) the “Equipment
Breakdown Coverage” endorsement.
The Court concludes that there is no coverage for this loss. First, Farmers is correct
that Jesus Hurtado never purchased property coverage for “Location 4" where the milking
barn and carousel were located. The only coverage that applies to “Location 4" is liability
coverage, not property coverage. Nor does coverage exist under the “Equipment Breakdown
Coverage” endorsement, since this coverage, like property coverages E, F, and G, is meant
to apply only to property which is specifically identified in the schedules and for which the
insured has paid a premium. The liability portion of the policy does not cover the loss
because among other reasons, it contains exclusions for damage to property that is rented,
occupied, or used by the insured. Nor do the “additional insured” endorsements for Reitsma
and Hurtado Dairy provide coverage, because these endorsements are designed to cover only
liability that the "additional insureds" incur by reason of their relationship to the named
insured, Jesus Hurtado. Each of these issues, as well as applicable sub-issues, will be
addressed in more detail below.
A.

Property Coverage (Coverages E, F, and G).
The first issue is whether the policy provides property loss coverage for the milking

barn where the carousel was located. The Court agrees with Farmers that Hurtado never
purchased this type of coverage for this location.
In analyzing this issue, it is important to keep in mind that the policy as a whole

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 6

covers several different farm locations. (Policy p. 4). “Location 4,” which is the premises
rented from the Reitsmas where the milking parlor and damaged carousel were located, was
only one of these locations. In addition to Location 4, Hurtado also owned and operated other
farms in the vicinity, and the policy doesn’t necessarily have to provide the same types of
coverage for all locations. (Id.). This makes even more sense when one remembers that Jesus
Hurtado rented some farm locations, and owned others.
The primary insuring clauses under Coverages E, F, and G, are set out at the
beginning of subsections entitled “Principal Property Coverages.” For Coverage E the
insuring clause states:
Coverage E –Farm Barns, Buildings, and Structures
“We” cover additional farm dwellings, farm barns, farm buildings, portable
buildings and structures, tenant’s improvements and betterments, and other
structures located on the “insured premises” for which a “limit” is shown in the
“declarations.”
(Policy at p. 56). “Insured premises” is defined as either: a) “the location shown on the
declarations, or b) “other land ‘you’ use for farming.” (Id.). However, that does not mean that
coverage automatically exists for any location at which the insured farms, because the
insuring clause only covers “insured premises” “for which a limit is shown in the
declarations.” (emphasis added). According to the definitions, “declarations” includes
“schedules.” (Policy, p. 56, definition 3). The schedules are an extensive list of covered real
and personal property, along with a dollar amount showing the limit of coverage for each
item. (Policy, p. 5-10). Turning to the schedules for Coverage E, it is apparent that no property

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 7

connected with “Location 4" is listed. (Id.). All the listed property relates to an entirely
different farm, described here as "Location 1." The insuring clauses for coverages F and G
(which deal with scheduled and unscheduled farm personal property) also require that a
“limit” must be shown in the declarations in order for these coverages to apply. (Policy at p.
57 & 59).
The listing of "Location 4" on page 4 of the policy along with a legal property
description does not create an ambiguity or otherwise constitute a reason for finding coverage
here. Whether or not this portion of the policy can properly be considered part of the
"declarations," the fact remains that no limit for property coverage liability is identified for
Location 4 or any structure or equipment located at Location 4. The insuring clauses of
coverages E, F, and G make it very clear that the key to triggering coverage is that a "limit"
must be shown on the declarations. (Policy, p. 56, 57, & 59). Since no limit for this kind of
coverage is shown anywhere in the policy, there is no property coverage, even though
Location 4 is generally identified in the policy's opening pages.4
For these reasons, the Court concludes that Hurtado simply never purchased property
coverage for Location 4. The same logic excludes coverage under the "Rented or Borrowed
Equipment" clause of Coverage F, because Jesus Hurtado only purchased that coverage for
equipment located at Location 1. (Policy, p. 8 & 57).

4

The reason Location 4 appears is because Jesus Hurtado clearly did purchase liability
coverage for this location, both for himself, his dairy and for John Reitsma. (Policy p. 2).

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 8

Because the Court concludes that Hurtado never purchased property coverage for
Location 4, it need not address whether there would have been coverage under any of the
insuring clauses in this portion of the policy, or whether any exclusions apply.
B.

Equipment Breakdown Coverage
Hurtado also purchased another, more specific property coverage endorsement known

as the “Equipment Breakdown Coverage” endorsement. (Policy, p. 40-45). This endorsement
provides coverage against loss caused by the accidental breakdown of "covered equipment."
The relevant portions of the policy are as follows. First, the "agreement" section
provides that:
In return for “your” payment of the required premium “we provide the coverage
described in this endorsement during the policy period. This coverage is subject
to the “terms” of this endorsement; the “declarations”; the Policy Conditions,
Additional Policy Conditions, and Property Coverage Terms; and the Farm
Coverage and Farm Income Coverage, except as provided below.

(Id. p. 40).
Next, a portion of the endorsement entitled “PERILS SECTION – COVERAGES E,
F, AND G)" states that:
"we" [that is, Farmers] insure against direct physical damage to covered
property that is the direct result of an "accident."
(Id., p. 41). The endorsement also defines "accident" as follows:
“Accident” means a fortuitous event that causes direct physical damage to
“covered equipment.” The event must be one of the following:
1) mechanical breakdown or rupturing or bursting of moving parts

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 9

of machinery caused by centrifugal force. . . .
(Id. 40). Finally, the endorsement defines "covered equipment" as follows:
“Covered equipment” means, unless otherwise specified in a Schedule for the
coverage provided by this endorsement, covered property that generates,
transmits, or utilizes energy, including electronic communications and data
processing equipment; or which, during normal usage, operates under vacuum
or pressure, other than weight of contents.
(Id. p. 40).
The Court concludes that, as with general property coverages E, F, and G, the policy
does not provide this type of coverage for equipment at Location 4, including the milking barn
and milking carousel. Defendants focus solely on the definitions of "covered equipment" and
"accident" in making their case for coverage, arguing that the milking carousel clearly
generated or used electricity and that the accident was the result of a mechanical breakdown
caused by centrifugal force. While these propositions are probably true enough,5 the definitions
in an insurance policy do not by themselves establish coverage. The perils section states that
Farmers will cover “physical damage to covered property that is the direct result of an
‘accident.'" (emphasis added). Though the policy does not define “covered property,” taken
in the context of the policy as a whole, it can only mean property that is covered under the
Farm Coverage portion of the policy. It is crucial to remember that the Equipment Breakdown

5

Mr. Reitsma’s affidavit indicates that the carousel was already moving when the
accident occurred and was only pulled off track when a Hurtado employee negligently drove the
front-loader in reverse. Assuming this version of the facts is true, the accident could have been
caused at least in part by centrifugal force, that is, by the conjunction of the centrifugal force in
the rotating carousel and the external force of the backhoe pulling it the opposite direction.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 10

Coverage endorsement is part of the Farm Coverage portion of the policy, and that it is
“subject to . . . the Property Coverage Terms; and the Farm Coverage and Farm Income
Coverage.” (Id. p. 40). If the Court were to accept the insured’s interpretation, it would mean
that Farmers had agreed to provide an open-ended policy covering mechanical breakdown for
any equipment the insured might own, even if it was not identified in the policy, and even if
the insured had paid no premium for it. This would be completely inconsistent with the idea
that the endorsement only applies to "covered property."
The Idaho Supreme Court has repeatedly instructed that insurance policies are to be
construed as a whole, not by viewing particular words or phrases in isolation. See, e.g., Daves,
Inc. v. Linford, 153 Idaho 744 (2012); Cascade Auto Glass, Inc., v. Idaho Farm Bureau Ins.
Co., 141 Idaho 660, 663 (2005). Further, a policy can only be found ambiguous if it is
reasonably subject to differing interpretations. See, e.g. Farm Bureau Ins. Co. of Idaho v.
Kinsey, 149 Idaho 415, 419 (2010). Viewing the policy as a whole, it is apparent that the
equipment breakdown coverage endorsement is simply an addition to the general farm property
coverages, and as such, is only meant to apply to the specific property listed in the Schedules.
The only reasonable interpretation of this endorsement is that it operates to add an additional
peril (i.e. mechanical breakdowns) to the covered perils listed under the Farm Coverage portion
of the policy. It is not, as the Defendants would argue, an open-ended expansion of the classes
or types of property to which coverage applies.
C.

Farmers is Not Precluded From Relying on the Arguments Raised by its
Reinsurer.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 11

Next, the Reitsmas argue that under Idaho's Unfair Claims Settlement Practices Act,
Farmers should be precluded from raising certain arguments not identified in its original letter
denying coverage. Though the original denial letter was not made part of the record, judging
from the briefs, the arguments sought to be precluded relate to the denial of coverage under the
Equipment Breakdown endorsement and specifically to the argument that Hurtado never
purchased this coverage for the milking barn or Location 4. (Reitsma Opposition Brief at p.
6, Dkt. 25).This issue was apparently only raised by Farmers' reinsurer, the Hartford Steam
Boiler Inspection and Insurance Company ("Hartford) on July 3, 2012. This was approximately
fourteen months after the date of loss and well after the present lawsuit was filed. (Volyn Aff.
Exh. 4, Dkt. 22-9).
In arguing that this basis for denying coverage should be precluded, Defendants rely
upon I.C. § 41-1329(14), which states that insurers must "promptly provide a reasonable
explanation of the basis . . . for denial of a claim." Idaho Courts do not appear to have
addressed whether this language precludes an insurer from raising new arguments. However,
an answer is provided within the text of the Unfair Claims Settlement Practices Act itself.
Specifically, the penalty portion of that statute provides:
Unfair claims settlement practices -- Penalty. The director, if he finds after a
hearing, that an insurer has violated the provisions of section 41-1329, Idaho
Code, may, in his discretion, impose an administrative penalty not to exceed ten
thousand dollars ($10,000) to be deposited by the director as provided in section
41-406, Idaho Code, and may, in addition to the fine, or in the alternative to the
fine, refuse to continue or suspend or revoke an insurer's certificate of authority.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 12

I.C. § 41-1329A. Conspicuously absent from this description of possible remedies for violation
of the act is any mention of precluding an insurer from relying upon meritorious grounds for
denying coverage simply because they were not identified in the first instance. Courts in other
states have suggested that in the absence of a statutory bar, traditional principles of estoppel or
waiver might apply to prevent an insurer from raising a new defense to coverage. See, e.g.
Principal Life Ins. Co. v. Alvarez, 2011 WL 4102327 at * 6 (S.D.Fla. 2011); North American
Foreign Trading Corp. v. Mitsui Sumitomo Ins. USA, 499 F.Supp.2d 361 (S.D.N.Y. 2007); Gary
Day Constr. Co., v. Clarendon America Ins. Co., 459 F.Supp.2d 1039, 1050 (D. Nev. 2006);
Hayden v. Mutual of Enumclaw Ins. Co., 141 Wash.2d 55, 1 P.3d 1167 (2000); Potesta v. U.S.
Fidelity & Guar. Co., 504 S.E.2d 135 (W.Va. 1998). However, the Defendants have not pointed
to any facts that would support either theory. For all these reasons, the Court concludes that
Farmers is not precluded from relying on arguments raised by its reinsurer.
D.

Liability Coverage (Coverage “L”)
The Court will next address the liability portion of the policy found at coverage L. (Policy

at 79 - 87). It is important to keep in mind that not only Hurtado, but also Hurtado Dairy LLC
and John Reitsma, were insureds under this portion of the policy.
The following provisions are applicable to liability analysis on liability coverage. First,
the insuring clause in the “Principal Coverages” section of Coverage L provides in pertinent
part:
Coverage L – Liability – “We” pay, up to “our” “limit” all sums for which an
“insured” is liable by law because of “bodily injury” or “property damage” caused

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 13

by an “occurrence” to which this coverage applies. . . .
(P. 81). The definitions section of Coverage L defines “occurrence” as an “accident, including
repeated exposures to similar conditions, that results in ‘bodily injury’ or ‘property damage’
during the policy period.” (Id., p. 81). There is no question that the damage to the carousel
qualifies as “property damage" and Farmers has conceded that the employees did not intend to
cause a loss. Thus, the primary insuring clause of the "Principal Coverages" section of Coverage
L clearly covers the loss. There are also two "incidental coverages" that apply, namely the
incidental coverage for "motorized vehicles" and the incidental coverage for "contracts and
agreements." (Policy, p. 82-83). Whether coverage ultimately exists therefore depends upon
whether any exclusions apply.
Since Farmers has wisely foresworn reliance on the intentional acts exclusion, the primary
exclusions the Court must consider are 2c and 2d, which exclude coverage for damage to
property that is either "owned by" an insured or "rented to, occupied by, used by, or in the care
of an 'insured.'" Exclusion 2c--for damage to property "owned by" an insured, precludes
coverage for the Reitsmas, since at the time of the incident they owned the milking carousel.6
Exclusion 2d also clearly excludes coverage for the loss at issue, because Jesus Hurtado rented,
occupied, used, and was charged with the care of the milking carousel at issue. Contrary to the
argument offered by counsel for the Reitsmas at oral argument, this exclusion applies to all

6

Of course, since John Reitsma didn't have any involvement in the accident, his personal
liability is not at issue here.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 14

potentially applicable insuring clauses--both to "Coverage L," which is the principal liability
coverage, and to the "incidental coverages" for motorized vehicles and for contracts and
agreements. This is because the section for "incidental coverages" specifically provides that it
is subject to "all the terms of Coverages L and M." (Policy, p. 82). The definition of "terms"
includes "exclusions." (Id. p. 81). For these reasons, the Court concludes that exclusions 2c and
2d prevent coverage under the personal liability portion of the policy.
E.

Exclusions Under “Additional Insured” Endorsements–Reitsma and Hurtado Dairy
LLC.

However, this conclusion does not quite end the analysis because the Court must still
consider whether the"additional insured" endorsements that Jesus Hurtado purchased for
Hurtado Dairy LLC, and for John Reitsma change the result. These endorsements are important
because it was employees of Hurtado Dairy who caused the damage to the carousel, as opposed
to Jesus Hurtado himself. Farmers argues that additional exclusions found in these endorsements
provide an additional basis for denying coverage to Hurtado Dairy. Defendants, on the other
hand, have suggested that by adding these endorsements to the policy Farmers created an illusory
contract that covered no one and that therefore must be construed in their favor.
The applicable endorsements appear at pages 24 and 25 of the policy and provide in
pertinent part:
With respect to the Personal Liability Coverage (Farm) of this policy, the
definition of “insured” is extended to include the persons or organizations named
above as their interest appears.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 15

1.

Coverage applies only with respect to the premises described above and the
operations necessary and incidental to that premises. If no location is shown
above, coverage applies only to the “insured premises.”

2.

Coverage applies to the person or organization shown above, but only with respect
to their liability arising out of the maintenance, operation, or use by you of
equipment leased to you by such person(s) or organization(s), subject to the
following additional exclusions:
This insurance does not apply: . . . .
b.

To “bodily injury” or “property damage” arising out of the sole negligence
of the person or organization shown in the Schedule.

(Policy, p. 24 and 25).
The coverage provided by this endorsement is quite limited and does not extend to the
loss at issue here. Put simply, it does not appear to be a primary liability policy for Hurtado
Dairy or for Reitsma at all. Rather, in covers situations where they might become derivatively
liable for acts of Hurtado by virtue of their relationship to him. Examples might include
situations where a third party sought to hold Reitsma liable for injuries caused by his equipment
or on his property, or "veil piercing" situations where third parties sought to hold Jesus Hurtado's
LLC liable for his actions or omissions. The endorsement does not provide coverage for Reitsma
because this not a situation where he might become personally liable for the acts of Hurtado. Nor
does coverage exist for Hurtado Dairy because clause 2b of the endorsement excludes coverage
for bodily injury or property damage "arising out of the sole negligence of the person or
organization shown in the Schedule," in this case, Hurtado Dairy. This is consistent with the
insuring clause found at paragraph 2, which clearly and unambiguously provides coverage for

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 16

derivative kinds of liability only. Because it is undisputed that Hurtado Dairy employees were
responsible for damage to the milking carousel, there is no coverage for this loss.
Crucially, Defendants have not argued that there is a reasonable alternative interpretation
for the "additional insured" endorsements besides the one identified above. Rather, they have
only claimed that the addition of these endorsements to the policy rendered the policy illusory
as to liability coverage. The Court disagrees. Idaho's courts have held that an insurance policy
is illusory only if no coverage exists or if such coverage as does exist is "extremely minimal and
affords no realistic protection to any group or class of injured persons." Martinez v. Idaho
Counties Reciprocal Management Program, 999 P.2d 902, 907 (Idaho 2000). Though the
coverage provided by this endorsement is quite limited, it does provide coverage in readily
identifiable situations, namely, the type of potential derivative liability situations discussed
above. The Court cannot say that a policy is illusory where readily ascertainable examples of
coverage can be discerned. Cf., National Union Fire Ins. Co. of Pittsburgh, v. Dixon, 141 Idaho
537, 542 (2005).
In any event, the exclusions 2c and 2d in the liability portion of the policy would still
preclude coverage for this loss. Here, the endorsement states only that it is extending the
definition of "insured" to include "the persons or organizations named above." (p. 24 & 25).
Thus, the exclusions set forth in the primary portion of the liability policy would still apply,
unless they were inconsistent with the endorsement. See, e.g., Grinnell Mut. Reinsurance Co
v. Schwieger, 685 F.3d 697, 703 (8th Cir. 2012); Ferguson v. Allied Mut. Ins. Co., 512 N.W.2d

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 17

296 (Iowa 1994) (holding that endorsements do not change or limit the basic policy coverage
except as specifically set forth in the endorsement). Put simply, neither the Reitsmas nor Hurtado
Dairy LLC nor Jesus Hurtado himself can get around the fact that the policy clearly does not
provide coverage for damage to property owned, rented, or occupied by an insured.
F.

Whether Certain Letters Sent to Farmers Establish Coverage.
Defendants also argue that Farmers should be required to cover these claims because of

two letters that purportedly asked for property coverage for the milking parlor and carousel. One
of these documents is a note from Petersen Insurance Agency to Farmers dated April 29, 2008
which states: “please add location #4 for liability (leased land), 340 acres @ Sec 33, 28-12S16E, Twin Falls, Co, and add loss payee for hay, inventory, and equipment at locations # 1 &
4: Wells Fargo Bank NA, att: Records Mgmt. Loan # 3803601213” (emphasis added). ( Hurtado
depo., Exh. 12, Dkt. 26-6, p. 27). This note, however, clearly only requests liability coverage,
not property coverage, at Location 4. The note does reference "hay, inventory, and equipment"
at Location 4 as well as Location 1, but this is simply in the context of adding Wells Fargo Bank
as a loss payee. A document asking that a bank be added as a loss payee cannot be construed as
a request for a certain type of coverage. The other form is also a note from the Petersen agency
to Farmers that states: “please add milk parlor with equipment masonry – 5000 sf with Special
Form Replacement cost. Please add Special Form to $1,385,000 milk parlor.” (Hurtado depo.,
Exh. 4, Dkt. 26-6, p. 28). The affidavit of Tonya Schafer explains that the referenced 5,000
square foot milk parlor was not the milk parlor where the damaged carousel was located, but

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 18

rather, a completely different building at a completely different farm location, Location 1.
(Schafer Aff. ¶ 10, Dkt. 31-2). The Schedules bear out this interpretation. (Policy, p. 6).
G.

The Policy is Not Ambiguous Under the Standards Set Forth By the Idaho Supreme
Court.
Nor does the Court believe that the policy is ambiguous, either as to any particular

provision or overall. Admittedly, it would have been challenging for someone unfamiliar with
these types of forms to figure out how this policy works. Although some degree of complexity
is to be expected from a policy that provides as many types of coverage as this one does, the
Farmers policy was one of the more difficult policies this Court has encountered in its many
years of adjudicating cases of this nature. If the Court found the policy challenging, one can only
imagine the difficulties that someone in Mr. Hurtado's position would have faced. Nevertheless,
the Court is not prepared to say that the policy is ambiguous, especially not under the standards
articulated by the Idaho Supreme Court. The Idaho Supreme Court has instructed that courts may
only declare insurance policies ambiguous if they are "reasonably subject to differing
interpretations." See, e.g., Purvis v. Progressive Cas. Ins. Co., 142 Idaho 213, 216 (2005); Purdy
v. Farmers Ins. Co., of Idaho, 138 Idaho 443, 446 (Idaho 2003). An insurance policy is not
ambiguous "simply because it is poorly worded if the meaning is otherwise clear when read in
context. Likewise, it is not ambiguous merely because a reader may have to stop and think about
what it means." Id. Without a doubt, the Farmers policy could be better organized. However,
the law does not require that a policy be perfect, only that it be clear enough. Once one is
oriented to how this policy works, the meaning of each particular provision becomes quite clear.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 19

H.

Additional Issues
The parties devoted considerable efforts, both in briefing and at oral argument, to arguing

whether the Lease Agreement required the risk of loss for the milking carousel to be placed on
Hurtado Dairy or Reitsma. The Court will not address this issue here, as it neither within the
scope of the relief requested by the Complaint for Declaratory Judgment nor relevant to the
interpretation of the Farmers insurance policy. The Court's task, in this motion, was to review
the insurance policy and determine whether it provided coverage for the loss of the milking
carousel. The respective obligations of Hurtado and Reitsma under the Lease Agreement are
issues best left to the state court lawsuits. Accordingly, while the Court will grant the Reitsmas'
request to supplement the record regarding developments in the state court subrogation lawsuit
(Dkt. 39), it does not believe these matters are relevant to the issues to be decided herein.
Similarly, because the Court has found that coverage does not exist for the reasons outlined
above, it is not necessary to address whether additional exclusions identified by Farmers would
apply, including exclusions for wear and tear and for property in which the insured has a
lienholder's interest.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 20

ORDER
1.

For all the foregoing reasons, Farmers' Motion for Summary Judgment (Dkt. 22)
is GRANTED.

2.

The Reitsmas' Motion for Summary Judgment (Dkt. 26) is DENIED.

3.

The Reitsmas' Motion to Supplement the Record (Dkt. 39) is GRANTED.

3.

Counsel for Farmers is instructed to submit an appropriate judgment to the Court's
orders inbox, and to provide a copy to opposing counsel, within three days of the
date of this Order.
DATED: November 27, 2013.

Honorable Mikel H. Williams
United States Magistrate Judge

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT, Page 21