Great West Casualty Company v. National Casualty Company

Filing 37

ORDER by Magistrate Judge Charles S. Miller, Jr granting 18 Motion for Summary Judgment; denying 22 Motion for Summary Judgment. (KT) Distributed on 10/9/2014 (jt).

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
NORTHWESTERN DIVISION
Great West Casualty Company,

)
)
Plaintiff,
)
)
ORDER RE CROSS-MOTIONS
vs.
)
FOR SUMMARY JUDGMENT
)
)
National Casualty Company
)
and Steve Heinis,
)
)
Case No.: 4:13-cv-012
Defendants.
)
______________________________________________________________________________

In this declaratory action initiated by plaintiff Great West Casualty Company (“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
I.

INTRODUCTION
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

1

Heinis has not taken a position on the coverage issues - apparently believing that either Great West or
National will be required to provide coverage.

1

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:
C

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.

2.

Failure to respond to a dispatched load within a reasonable amount
of time.

3.

Failure to maintain a safe working environment.

4.

C

Failure to remain in constant contact with Lessee’s dispatch
personnel.

Failure to maintain the leased equipment in good working
condition.

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.

2

C

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.

C

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.

C

Avery agreed to obtain and maintain any licensing and registration of the equipment
required by law showing Heinis as the legal owner of the leased equipment.

C

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

3

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; 295; 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 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,
2

The use of a tractor without a trailer is often referred to in the trucking industry as “bobtailing.” An insurance
policy providing non-trucking coverage designed to cover equipment when it is being used other than in the business
of the carrier to whom it is leased is often referred to as “bobtail insurance,” even though its coverage is not limited to
when a tractor is being operated without a trailer. See, e.g., Hartford Ins. Co. of Southeast v. Occidental Fire & Cas. Co.
of North Carolina, 908 F.2d 235, 236-37 & nn.2-3 (7th Cir. 1990); Jurey v. Kemp, 77 So.3d 83, 84-85 & n.1 (La. Ct.
App. 2011).
3

Williston is the nearest commercial hub to Powers Lake where Avery’s shop was located. Powers Lake is
a small town located approximately 53 miles northeast of Williston, North Dakota, with the driving distance being closer
to 75 miles. During the time Heinis leased his equipment to Avery, he continued to reside in South Dakota and only
occasionally would return home.

4

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

4

While not material to the court’s present decision, the facts are somewhat murky in terms of where the leak
was. Heinis testified in his deposition that the leak was in a pipe running between the pump on the trailer used for loading
and unloading and the back of the trailer. (Doc. No. 20-1, pp. 20, 25). Miller in his deposition described the leak as
being inside part of a valve. (Doc. No. 20-3, p. 9). For purposes of this case, the court will assume it was the former
since that is the position taken by National.
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The reason why the source of the combustible fumes is not disputed is undoubtedly because of the following
evidence: Miller and Heinis both stated in their depositions that the explosion took place when Miller first placed his
torch to the trailer where it was leaking. According to Kevin Avery, who rushed out into the shop immediately
afterwards, the explosion blew the manhole cover off the top of the tanker and the valve off the back (indicating the
source of the combustible material was inside the tanker-trailer) and, when Heinis pulled the trailer out of the shop after
the explosion, pit water with an oily residue leaked out onto the shop floor and left a trail all the way up the hill to a
parking area where Heinis stopped to fully clean out the tanker. (Doc. No. 20-2, pp. 14-15). In addition, Miller testified
that Heinis had told him prior to the accident that 9-10 gallons of water remained in the tanker, without specifying what
type of water. (Doc. No. 20-3, p. 8). Heinis did not dispute Miller’s account. He testified that, when he unloaded his
last load of flowback water, he pumped it out the best he could using the pump on the trailer, but that some water would
always remain using only the trailer’s pump, and he did not attempt a more thorough cleaning. Heinis suggested this
was a common practice among those who were hauling similar material. (Doc. No. 20-1, pp. 19-20).

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 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.
II.

APPLICABLE LAW
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 (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).

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III.

WHETHER NATIONAL’S POLICY AFFORDS COVERAGE
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 2½ 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).

7

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:
MOTOR CARRIER COVERAGE FORM
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.
****
SECTION II - LIABILITY COVERAGE
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.

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(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 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”:
****
****
SECTION VI - DEFINITIONS
****
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).

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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

10

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 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
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trucking context. E.g., Engle v. Zurich American Ins. Group, 549 N.W.2d 589, 591 (Mich. Ct. App.
1996); McLean Trucking Co. v. Occidental Fire & Casualty Co. of North Carolina, 324 S.E.2d 633,
636 (N.C. Ct. App. 1985); cf. Great West Cas. Co. v. Carolina Cas. Ins. Co., Nos. A05-1619, A051773, 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, 846 N.W.2d 791, 797

12

(Wis. 2014) (adopting the interpretation set forth in Hartford, stating “it presents a clear rule 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. 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, 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.

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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 in Avery’s business within the meaning
of National’s policy at the time of the accident despite it being under lease.
i.

National’s argument that the trailer was not under
dispatch

National’s primary argument for why the trailer was not being used in Avery’s business at
the time of the accident is because it was not then under dispatch - a fact which is not disputed.
National cites cases that it claims overwhelmingly establish that whether or not the lessor-trucker
is under dispatch is the decisive factor in terms of whether the equipment is being used “in the
business of” the lessee-carrier. Upon examining these cases, however, it is clear that most do not
stand for the broad proposition that National asserts. In some of the cases, there were other facts that
were controlling (e.g., the lessor-operator was using the equipment for personal travel or hauling
loads for others) or the lease agreements were different than the one at issue in this case. Also, most
of the cases did not address the specific situation presented here, where the equipment was being
repaired at the time of the accident, the repairs were required by the lease, and the repairs clearly
advanced the commercial interests of the lessee-carrier.6

6

One of the few cases that comes the closest to supporting National’s arguments is Neal v. St. Paul Fire &
Marine Ins. Co., 250 N.W. 2d 648 (Neb. 1977). However, the reported facts in that case are sparse and there is some
suggestion the lessor-operator in that case was routinely hauling commodities for more than one carrier. In any event,
as the Wisconsin Supreme Court recently pointed out in Casey v. Smith, Neal is premised upon a narrower reading of

14

In this case, it is clear from the record that Avery’s business of providing trucking service
to the oil and gas industry required not only the actual hauling of loads but also the ability to haul
loads on a timely basis. This, in turn, required having the necessary operators and equipment
available - both in the sense of being reasonably close (that is, the drivers not using the equipment
to haul loads for other companies to distant points) and the equipment being in shape to haul the
loads in a manner that would comply with any requirements of the lease agreements as well as those
imposed by law. Artificially limiting what is the business of Avery to only when the equipment was
actually under dispatch ignores not only the fact the equipment remained under lease to it and
subject to its call while not under dispatch, but more broadly the economic reality of Avery’s
business being dependent upon having operators and equipment readily available.
While there is no North Dakota case on point, the court concludes the North Dakota Supreme
Court would not apply “in the business of” or similar policy language to only when the leased
equipment was under dispatch. Rather, the North Dakota Supreme Court would conclude the trailer
was being used in the lessee-carrier’s business so long as it was under lease, except, perhaps, if it
was clearly being used for a purpose other than the lessee-carrier’s business (e.g., hauling loads for

the term “business” than that afforded by the Seventh Circuit in Hartford, which the Wisconsin Supreme Court concluded
was more compelling. The court stated:
[I]n Neal v. St. Paul Fire & Marine Ins. Co., 197 Neb. 718, 250 N.W.2d 648 (1977), the Nebraska
Supreme Court determined that bobtail coverage did not apply when the owner was getting
maintenance work done on the truck pursuant to its contractual duties. It explained:
While the carrier derived some benefit from the fact that the plaintiff attended to the
maintenance of the tractor between trips, since that was essential to the continued use of the
tractor in hauling commodities, the servicing and maintenance of the tractor was the
responsibility of the plaintiff. The maintenance of the tractor was the “business” of the
plaintiff, not that of the carrier.
Id. at 650. We find this reasoning unpersuasive as it is based on a narrower construction of the term
“in the business of” than the one we adopt from Hartford.
Casey v. Smith, 846 N.W.2d at 798 n.5.

15

another carrier or for an obviously personal purpose of the lessor), which National has failed to
demonstrate occurred here.7
But, even if there is some doubt about this as a general matter, the North Dakota Supreme
Court would conclude that the trailer was being used in Avery’s business at the time of the accident
in this case in view of the particular facts and circumstances, including:
C

The fact the trailer was under lease to Avery at the time of the accident.

C

The obligation imposed upon Heinis of keeping the equipment in “good working
condition” while it was leased to Avery (and being subject to default if he did not)
coupled with the fact the repair in question was necessary to keep the trailer in good
working condition, despite National’s argument to the contrary, as discussed in more
detail below.

C

The fact that, aside from the particular obligation of the lease of keeping the
equipment in good working condition, the repair furthered the commercial interests
of Avery in that it insured the equipment could be operated in a manner so as not to
expose Avery and its customers to potential liability for the consequences of the
trailer leaking - particularly if the leak got worse.

C

The lease requirement that Heinis remain in “constant contact” with Avery’s
dispatcher and respond to dispatched loads within a reasonable period of time, which
is more demanding than that set forth in most, if not all, of the leases in the cases
National claims are inapposite.

7

In fact, National’s policy taken as a whole suggests the same thing since, with respect to Heinis, there was
coverage at all times the trailer was connected to his leased tractor, regardless of how the equipment was being used,
and it was only when the trailer had been disconnected from the tractor that the qualification of it being used in
exclusively in Avery’s business applied.

16

C

The fact that Heinis’s tractor, which was used exclusively to pull the trailer, bore
Avery’s name throughout the term of the lease, including at the time of the accident.

C

The fact that Heinis never used the trailer for another business purpose, such as
hauling loads for himself or for other carriers - which is not surprising given the
lease requirements as outlined earlier and the lack of any specific provision
authorizing him to use the equipment under lease to Avery for anything other than
Avery’s business.

C

The fact that Avery made its shop facilities and personnel available to repair the
trailer, albeit at Heinis’s expense.

See, e.g., Empire Fire, 220 F.3d at 682 (driver while en route to pick up a load after having the
tractor serviced was “in the business of” the lessee-carrier, citing other repair and maintenance
cases); National Continental, 157 F.3d at 612-13 (driver en route to have a front end alignment on
a leased tractor between dispatches was “in the business of” the lessee-carrier because he was
fulfilling contractual duties to keep the leased equipment in compliance with all laws and
regulations); Hartford, 908 F.2d at 239-240 (driver while en route with the leased tractor to pick up
a refrigeration trailer being repaired for a freon leak was “in the business of” the lessee because the
repair furthered the lessee’s commercial interests, noting the lease requirements to keep the
equipment ready for lessee’s services and to “exercise diligent efforts to assure continuing customer
satisfaction”); Freed v. Travelers, 300 F.2d 395, 396-98 (7th Cir. 1962) (“Freed”) (repairs to back
end of trailer were “exclusively” within the business of the lessee-carrier, given the obligation under
the lease requiring the lessor to keep the equipment “in good running order and condition,” even
though the lessor was responsible for the cost of the repairs and the repairs took place after the lessor

17

had completed hauling his last load); cf. Occidental Fire & Cas. Co. of North Carolina v. Soczynski,
Civil No. 11-2412, 2013 WL 101877, at **12-15 (D. Minn. Jan. 8, 2013) (acknowledging that
repairs may be in the commercial interests of the lessee-carrier but concluding that they were not
in that case); Casey v. Smith, 846 N.W.2d 791 (Wis. 2014) (same).8
The only thing that gives the court pause is the North Dakota Supreme Court’s decision in
Zimprich v. Broekel, 519 N.W.2d 588 (N.D. 1994). In that case, the court was not called upon to
decide the meaning of the language “in the business of” a lessee-carrier within the meaning of a
commercial trucking policy. Rather, the issue in Zimprich was whether, under state law, the lessoroperator was acting as an employee of the lessee-carrier at the time he was attempting to make
repairs to the air-conditioning unit of the leased tractor that caused a fire resulting in suit against the
lessee-carrier for damage to the surrounding property. The parties in the case who argued the lessoroperator was an employee relied in part upon a federal motor carrier regulation that made an
independent contractor who “operated” a licensed motor vehicle for a lessee-carrier a “statutory
employee” of the lessee-carrier. In deciding whether or not the lessor-operator was “operating” the
equipment at the time of the repair as an “employee,” the North Dakota Supreme Court stated:
However, the “statutory employee” doctrine does not render the employer/carrier
strictly liable for all torts committed by its drivers. White v. Excalibur Insurance Co., supra,
599 F.2d at 53; C.C. v. Roadrunner Trucking, Inc., 823 F.Supp. 913, 919 (D.Utah 1993).
Rather, the federal scheme merely creates a fictional employment relationship, and liability
is then determined under applicable state law, including respondeat superior. See White v.
Excalibur Insurance Co., supra, 599 F.2d at 53; C.C. v. Roadrunner Trucking, Inc., supra,
8

In Occidental Fire & Cas. Co. of North Carolina v. Soczynski, the federal district court in Minnesota
concluded that a trip to add outriggers to a trailer was not in furtherance of the lessee-carrier’s commercial interests
because they were not required for hauling any of its loads. In reaching that conclusion, however, the court discussed
with apparent approval those cases where repairs were held to be within the business of the lessee-carrier when required
by the lease or when they otherwise furthered its commercial interests. 2013 WL 101877, at **12-15. More recently,
in Casey v. Smith, the Wisconsin Supreme Court acknowledged that there may be a number of situations where repairs
would be deemed to be “in the business of” the lessee-carrier, but concluded under the facts of that case (including
different lease requirements from the ones here) that a repair to the grille of the tractor was not one of them. 846 N.W.2d
at 797-800.

18

823 F.Supp. at 919-920; Paul v. Bogle, supra, 484 N.W.2d at 733. Liability in the present
case thus turns upon respondeat superior, and, specifically, whether Broekel was acting
within the scope of his “employment” when he performed repairs on the tractor in the
warehouse.
Much of the confusion in this case stems from the fact that Broekel, in effect, wore
two hats in his relationship with Hi-Tech. Although under federal law and the parties
agreement, Broekel was an “employee” when operating the tractor for Hi-Tech’s benefit, he
also had separate responsibilities as the lessor/owner of the tractor. Several provisions in the
parties’ agreement unambiguously specify that Broekel was solely responsible for
maintenance and repair of the tractor:
“5. Responsibility for Charges. The Contractor shall furnish and pay all costs of
operation, including, but not limited to, the following:
*****
“B. All maintenance costs and repairs.
******
“10. Insurance.
******
“B. Contractor agrees to carry bobtail and deadhead insurance coverage
with respect to public liability and property damage . . . as concerns all
equipment hereunder, when used in any way by the Contractor or his
employees for any personal use or private or unauthorized transportation
such as but not limited to . . . traveling to and from maintenance and repair
sites . . . .
******
“17. Contract-Owner. Contractor represents that he is the lawful owner or has lawful
possession of the equipment described in this Agreement, which shall at all times
during the term for this Lease, be maintained by the Contractor in good operating
condition . . . .”
Broekel’s deposition testimony also established that Hi-Tech exercised no control
over the maintenance and repair of the tractor. Broekel testified that he was not reimbursed
for maintenance time or expense; he deducted maintenance and repair costs on his tax
returns; time spent repairing the tractor was recorded as off-duty time in his log book;
Hi-Tech did not control where or by whom repairs were performed; and Broekel, in fact,
performed much of the maintenance and repair work himself. Hi-Tech’s lack of control is
further demonstrated by Broekel’s decision to proceed to Bismarck when repairs could not
be made quickly in Fargo, and then to perform the work himself in warehouse space he
leased personally for that purpose.
****
We also note that the property owners have not argued that the repairs performed
here were in the nature of emergency roadside repairs, immediately necessary to keep the
vehicle operational. Broekel was able to continue from Fargo to Bismarck without the
repairs. Once in Bismarck, he unhitched Hi-Tech’s trailer and parked the tractor in his
leased warehouse space. He then went about personal business, returning late the next day
to work on the vehicle. Under these circumstances, Broekel clearly was performing his
independent contractual duty to repair the vehicle, and was not at that time an employee
“operating” the tractor on Hi-Tech’s business.

519 N.W.2d at 591-92.
19

While there are things in the court’s discussion that both sides here could claim as supporting
their arguments, e.g., the court’s characterization of Broekel being off-duty and the repair being
Broekel’s obligation (potentially favoring National’s arguments) or the court’s caveat that the repair
was not required to keep the equipment operational in the sense of being able to carry loads for HiTech (potentially favoring Great West’s argument), the court’s discussion is too focused on the
question of whether Broekel was “operating” his equipment as an “employee” (which, in turn,
focused on whether or not he was subject to the lessee-carrier’s direction) when he attempted the
repairs to be of significant help to either side with respect to whether, in this case, the trailer was
being used “in the business of” Avery at the time of the accident in the sense of whether it advanced
Avery’s commercial interests.9 Zimprich, however, is relevant to another issue presented in this
case and will be returned to later.
ii.

National’s arguments for why the repair was not in
Avery’s business

National argues the repair was not in Avery’s business because it was not needed to keep the
equipment operating for Avery’s purposes. National points to the lack of evidence that the tanker
leaked when it was being hauled down the road, i.e., it leaked only during loading and unloading,
and that Heinis was able to capture the leaked material in a bucket. National then proceeds to take
issue with Great West’s contention that the repair was required to avoid Avery, as the federallycertificated carrier, being exposed to a violation of 49 C.F.R. 393.100(b), which is a federal motor
carrier regulation requiring that cargos be secured to prevent, among other things, spilling or

9

Obviously, an entity’s business can extend to activities beyond those carried out by its employees. In fact,
in this case, Avery conducted much of its business using independent contractors. What also distinguishes Zimprich
from this case in terms of the facts, perhaps, is the arguable lack of necessity of the repair for the lessee-carrier’s
business, i.e., the repair of the air conditioning unit being more for the personal comfort of the lessor-operator, and the
differing lease provisions.

20

leaking. National contends the regulation only applies when the cargo is being transported on public
roads and that the evidence here is that the trailer only leaked when it was being loaded or unloaded
on what National presumes to be private property.
National is probably correct about the inapplicability of 49 C.F.R. 393.100(b) to the facts of
this case. The problem with its argument more generally, however, is that Avery’s business
extended to the loading and unloading of the material to be hauled - not just its physical
transportation, and repairs that would insure that the loading and unloading were done properly
would obviously be in its commercial interest notwithstanding Heinis’s use of the band-aid of the
bucket to capture the leaking material.10 Moreover, National ignores the fact that Heinis was
obligated under the lease to do more than meet minimum federal regulatory requirements with
respect to the condition of the equipment. The lease specifically required he keep the equipment
“in good working condition,” and it is common sense that a leaking trailer would be a breach of that
obligation.11

10

If Heinis failed to capture the leaking “flowback” water in his bucket or the leak got worse and overwhelmed
his ability to do so, Avery, as well as potentially its customers who owned or controlled the property where a spillage
occurred and were responsible for operations conducted on their property, could face civil and even criminal liability
under North Dakota’s nuisance law as well as laws governing the disposal of oil field wastes. See, e.g., N.D.C.C. ch.
42-01 (North Dakota’s nuisance law which provides for both civil and criminal enforcement); N.D.C.C. §§ 38-08-16 38-08-17 (providing for civil and criminal enforcement of North Dakota Industrial Commission rules pertaining to the
improper disposal of oil field waste material); N.D. Admin. C. § 43-02-03-19.2 (an Industrial Commission regulation
requiring proper disposal of oilfield wastes including disposal of pit water only in an authorized disposal well or in
another approved manner). Further, without turning this opinion into a primer on environmental law, there would also
be potential liability if the spilled material reached nearby surface or groundwater. See N.D.C.C. § 61-28-06. In
addition, even if the trailer leaked only while loading and unloading, it may have presented a safety hazard, if there was
a nearby source of ignition, and subjected Avery to potential liability if an accident occurred.
Obviously, a repair that protects Avery and its customers from being exposed to civil and criminal liability
would further Avery’s commercial interests. Not surprisingly, Kevin Avery made clear in his deposition testimony that
he would not have permitted the trailer to be used in Avery’s operations if it was leaking, regardless of whether on the
roadway or off, because it would be both an environmental and safety hazard. (Doc. No. 20-2, pp. 22-23).
11

Any argument by National to the contrary would fail for lack of evidence that a proper design for the pipe
was that it could leak some or that the trailer came standard with a bucket.

21

National also contends that the fact Heinis was obligated under the lease to pay for the
repairs made it his business and not Avery’s. The same can be said, however, for other things,
including the fuel that Heinis was obligated to pay for. And, following this logic, there would be
no coverage under National’s policy if while hauling a load for Avery, Heinis pulled his rig into a
truck stop for fuel and was involved in an accident. In short, the North Dakota Supreme Court
would likely conclude, as other courts have, that the fact Heinis was financially obligated to pay for
the repairs is insufficient to negate the fact the trailer was leased to Avery and the other factors
previously discussed. See, e.g., Freed, 300 F.2d at 398 (repair was in furtherance of the lesseecarrier’s business notwithstanding the lessor-operator being responsible for the cost of the repair);
National Continental, 157 F.3d at 612-13 (same).12
iii.

National’s argument that the repair was not “exclusively”
in Avery’s business

National argues that, even if the repair was within Avery’s business, it was not “exclusively”
so. However, there is no evidence that Heinis was using the trailer to haul loads for others while it
was under lease to Avery. Further, there is nothing to indicate he had the right (much less the
practical ability) to do so, given the facts already mentioned, i.e., the equipment was under lease to
Avery with Avery’s name affixed to the tractor, the lease did not specifically authorize Heinis to use

12

One of the few cases that comes the closest to supporting National’s arguments is Neal v. St. Paul Fire &
Marine Ins. Co., 250 N.W. 2d 648 (Neb. 1977), where the Nebraska Supreme Court held that ordinary maintenance work
done in between dispatched trips was not in the business of the lessee-carrier. The court stated:
While the carrier derived some benefit from the fact that the plaintiff attended to the maintenance of
the tractor between trips, since that was essential to the continued use of the tractor in hauling
commodities, the servicing and maintenance of the tractor was the responsibility of the plaintiff. The
maintenance of the tractor was the “business” of the plaintiff, not that of the carrier.
Id. at 650. However, the facts of that case are sparse and there is some suggestion that the lessor-operator in that case
was routinely hauling commodities for more than one carrier. In any event, Neal is premised upon a narrower application
of the “in the business of” language than that afforded by the Seventh Circuit in Hartford and the Eighth Circuit in
National Continental. See Casey v. Smith, 846 N.W.2d at 798.

22

the trailer for the business purposes of others while under lease to Avery, and the lease requirements
that Heinis remain in “constant contact” with Avery’s dispatcher and respond to dispatches within
a reasonable period of time. See Freed, 300 F.2d at 398 (repairs to back end of truck were
“exclusively” within the business of the lessee-carrier for equipment used only for the lesseecarrier’s business).
National also contends that the repair was not exclusively in Avery’s business because it also
benefitted Heinis in the sense it allowed him to continue leasing the equipment to Avery - an
argument which, by the way, acknowledges the commonsense notion that a lessee would consider
unacceptable a leaking piece of equipment. The North Dakota Supreme Court would also reject this
argument. As already noted, the relevant language making a lessor of a trailer in certain
circumstances an insured here reads:
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.

(Doc. No. 29-5, p. 98). To include the leasing business of the person from whom the trailer is hired
or borrowed as part of the determination of whether it is being used exclusively in the named
insured’s business would render the coverage a nullity since there would never be a situation where
a leased trailer would be used exclusively in the named insured’s business. Rather, the policy’s use
of the word “exclusively” was obviously intended to make clear there would be no coverage when
the trailer, even though under lease to the named insured, was being used for purposes inconsistent
with the named insured’s business, e.g., hauling loads for third parties or the lessor-operator using
it for a clearly personal purpose.

23

iv.

National’s argument based on the deposition testimony of
Heinis and Kevin Avery

Finally, National points to the fact that both Heinis and Kevin Avery testified in their
depositions that Heinis was not acting in Avery’s business at the time of the accident. To the extent
this opinion testimony of a layperson is relevant - much less entitled any weight (which the court
doubts), it is insufficient to trump the clear meaning of “in the business of” in the policies in
question, the lease requirements, and the actual conduct of the parties, either in creating a fact issue
warranting a trial or altering the court’s conclusions about the application of the policy language to
the facts. Cf. Northland Ins. Co. v. Rhodes, No. 09-cv-01691, 2010 WL 5110107, at *10 (D. Colo.
Dec. 9, 2010) (rejecting layperson opinion testimony that the truckers in the case were not
employees because they had not focused upon the correct factors and, in any event, because “neither
. . . were competent to opine as they did”).13

13

In terms of the meaning of the language “in the business of” as used in the two insurance policies, the
opinions are irrelevant for several reasons. First, neither Heinis nor Kevin Avery were asked about the meaning of the
term as used in the policy. Second, any opinion they may have expressed on that subject would be irrelevant because
of the court’s conclusion that the language in question is not ambiguous, i.e., extrinsic evidence is not required to
ascertain its meaning. Third, even if the policy language was ambiguous, there is no evidence these opinions were
conveyed to National as part of a negotiation prior to the issuance of the policy (or to Great West for its policy), and
after-the-fact opinions of contract language not contemporaneously expressed are generally not relevant under North
Dakota law for purposes of resolving an ambiguity. See National Bank of Harvey v. International Harvester Co., 421
N.W.2d 799, 804 (N.D. 1988) (“It is the outward manifestations of assent which govern, not the secret intentions of the
parties.”). Also, the testimony is irrelevant to construing the lease since the language in question is not a lease term and
no contention has been made the lease is ambiguous. Hence, the only potential relevance would be with respect to the
application of the lease requirements to the particular facts and the bearing this has on the ultimate question of whether
the trailer was being used in Avery’s business within the meaning of the National’s policy. And, as to that, there is no
guarantee Heinis and Avery considered all of the relevant factors, and, conversely, did not rely upon irrelevant ones,
when they expressed their opinions. In fact, it appears their notions of Avery’s business were too narrowly focused on
the fact Heinis earned revenue only when he was using the equipment to haul loads for Avery, which, in this case, was
merely the mechanism chosen for providing compensation for the leased equipment and is of secondary import to the
other factors discussed earlier. Unlike some trucking arrangements where lessor-operators routinely haul for multiple
carriers and essentially “trip lease” the equipment (e.g., hauling a load for one carrier and on return picking up and
hauling a load for another), Avery leased the equipment for an indefinite term and tied up the equipment for its exclusive
use by virtue of the lease provisions previously discussed.

24

4.

Conclusions re coverage under National’s Motor Carrier Coverage
Form

In summary, the court concludes that the trailer was being used exclusively in Avery’s
business at the time of the accident, with the result being that Section II of National’s Motor Carrier
Coverage Form affords coverage to Heinis for any liability he may owe Miller absent an applicable
exclusion. And, since the court has reached this conclusion, a trial is not necessary to resolve the
disputed question of whether the tractor was connected to the trailer at the time of the accident. For
if it was, it appears this would also afford coverage under National’s policy - a point that National
appears not to dispute if neither of the policy exclusions it relies upon foreclose coverage. However,
before addressing the exclusions, the court will first address Great West’s alternative argument that
National’s policy also affords Heinis coverage under a “Hired Autos Specified as Covered Autos
You Own” endorsement.
C.

“Hired Autos Specified as Covered Autos You Own” Endorsement
1.

Introduction

National’s policy contains an endorsement entitled “Hired Autos Specified as Covered Autos
You Own,” which, among other things, modifies the coverage under the Motor Carrier Coverage
Form. The endorsement reads in pertinent part as follows:
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.

HIRED AUTOS SPECIFIED AS
COVERED AUTOS YOU OWN
This endorsement modifies insurance provided under the following:
BUSINESS AUTO COVERAGE FORM
BUSINESS AUTO PHYSICAL DAMAGE COVERAGE FORM
GARAGE COVERAGE FORM
MOTOR CARRIER COVERAGE FORM
TRUCKERS COVERAGE FORM

25

With respect to coverage provided by this endorsement, the provisions of the Coverage Form apply
unless modified by the endorsement.
This endorsement changes the policy effective on the inception date of the policy unless another date
is indicated below.

Named Insured:
Endorsement Effective Date:

SCHEDULE
Description of Auto:
ND - 126 1977 Trail

VIN# S41021

Information required to complete this Schedule, if not shown above, will be shown in the Declarations
A.

Any “auto” described in the Schedule will be considered a covered “auto” you own and not
a covered “auto” you hire, borrow or lease.

B.

Changes in Liability Coverage
For an “auto” designated or described in the Schedule, Who is An Insured is changed to
include as an “insured” the owner or lessor named in the Schedule. However, the owner or
lessor is an “insured” only for “bodily injury” or “property damage” resulting from the acts
or omissions by:
1.
2.
3.

You;
Any of your “employees” or agents; or
Any person, except the owner or lessor or any “employee” or agent of the
owner or lessor, operating an “auto” with the permission of any of B.1
and/or B.2 above.

(Doc. No. 29-6, p. 167). In this case, it is undisputed that the “auto” identified in the “Schedule”
of the endorsement is the trailer involved in the accident.
2.

The likelihood that Heinis also has coverage under the “Hired Autos
Specified as Covered Autos You Own” Endorsement

Great West contends that paragraph B of the endorsement modifies the “Who is An Insured”
portion of National’s Motor Carrier Coverage Form at Section II(A)(1), such that it expands the
26

available coverage by “including” an owner or lessor named in the “schedule” as an “insured” for
coverage for acts or omissions that would include those of Avery and its employees.14 Great West
argues that the accident in this case arose, at least in part, as result of the acts of Miller, who was
Avery’s employee.
National does not dispute that the endorsement adds to those who are considered an insured
under Section II(A)(1) of the Motor Carrier Form.15 Rather, it contends that the language of the
endorsement does not apply for two reasons. First, National contends that the language of paragraph
B “Changes in Liability Coverage” does not apply because Miller cannot recover for any percentage
of fault that may be assigned to him in his suit against Heinis under North Dakota’s comparative
fault law. And, since Heinis can never be held liable to Miller for Miller’s acts or omissions, the
language relied upon by Great West does not apply, according to National.
The court disagrees. Section II of the Motor Carrier Coverage Form extends coverage for
damages that the insured is required to pay arising out of “bodily injury,” and the “bodily injury”
covered in the endorsement is that resulting from “acts or omissions” of the Named Insured or its
employees or agents. There is no mention in the language of the endorsement that the acts or
omissions must be “negligent” or “intentional.” In other words, fault is not an element. All the
language requires is a casual connection between an act or omission of the Named Insured or its
employees or agents and the resulting injury for there to be coverage. And here, since it is
14

As noted earlier, “you” or “your” under National’s policy refers to the “Named Insured,” which in this case

is Avery.
15

Great West expressed concern in its briefing that National may have taken the position in its answer that
the endorsement limited the situations in which Heinis would be an insured under the policy. However, National made
no such argument in its briefing here, either in response to Great West’s motion for summary judgment or in support of
its own motion. Consequently, any such contention has now been waived. See Robinson v. American Red Cross, 753
F.3d 749, 754 (8th Cir. 2014); Satcher v. University of Arkansas at Pine Bluff Bd. Of Trustees, 558 F.3d 731, 735 (8th
Cir. 2009). Further, it likely would be without merit in any event.

27

undisputed that the explosion took place when Miller put his put his welding torch to the trailer and
ignited the residual petroleum-based fumes contained within it, a reasonable factfinder could only
conclude that the accident was in substantial part the result of an act of Miller.
National also argues that the language in paragraph B of the endorsement does not apply
because Heinis was not named in the schedule. While there is language in paragraph B which
suggests that it only applies to owners or lessors “named in the Schedule,” there is also language that
references the auto designated or described in the “Schedule,” and the box in the endorsement for
setting forth the “Schedule” could be read as requiring only a description of the auto. In addition,
Avery’s policy includes a number of items of equipment of other lessors that have been added using
the same form endorsement and in no case was the lessor identified by name. Finally, in the case
of the trailer at issue here, as well as most of the other pieces of equipment for other lessors, the
vehicle identification number (“VIN”) was listed. Given the foregoing, the court suspects that, even
if the endorsement nominally provides for the listing of the name of the owner or lessor of the auto,
it was an overlooked requirement by the person who put the policy together for National (possibly
due to the lack of clarity of the form) or that the VIN was used as a proxy for the name of the owner
or lessor. At best, National has created a fact issue with respect to whether Heinis had to specifically
be identified in the “Schedule” for paragraph B of the endorsement to apply, and Great West has
created a fact issue with respect to whether any such requirement was waived.
In summary, if the court is wrong about there being coverage under the Motor Carrier
Coverage Form of National’s policy because the trailer was being used exclusively in Avery’s
business at the time of the accident, a trial would be required to consider the disputed facts relevant
to whether the “Hired Autos Specified as Covered Autos You Own” endorsement provides coverage,

28

in addition to the disputed fact referenced earlier as to whether the trailer was connected to the
tractor at the time of the accident, so as to afford coverage under the National Carrier Coverage
Form irrespective of the endorsement.
D.

National’s claim of exclusions from coverage
1.

Relevant policy language

National claims that the “employer’s liability” and “fellow employee” exclusions set forth
in Section II(B)(4-5) of its Motor Carrier Coverage Form apply and preclude any coverage to Heinis.
The exclusions read as follows:
B.

Exclusions
This insurance does not apply to any of the following:
****
4.

Employee Indemnification And Employer’s Liability
“Bodily injury” to:
a.

An “employee” of the “insured” arising out of and in the course of:
(1)
(2)

b.

Employment by the “insured”; or
Performing the duties related to the conduct of the “insured’s”
business; or

The spouse, child, parent, brother or sister of that “employee” as a
consequence of Paragraph a. above.

This exclusion applies:
(1)

Whether the “insured” may be liable as an employer or in any
other capacity; and

(2)

To any obligation to share damages with or repay someone else
who must pay damages because of the injury.

****
5.

Fellow Employee
“Bodily injury” to:

29

a.

Any fellow “employee” of the “insured” arising out of and in the course
of the fellow “employee’s” employment or while performing duties related
to the conduct of your business; or

b.

The spouse, child, parent, brother or sister of that fellow “employee” as a
consequence of Paragraph a. above.

(Doc. No. 29-5, pp. 99-100). Also relevant to the court’s consideration of the two exclusions are
the definitions of “employee,” “insured,” and “leased worker” under Section VI of the Motor
Carrier Coverage Form, which read as follows:
SECTION VI – DEFINITIONS
****
F.

“Employee” includes a “leased worker”. “Employee” does not include a “temporary worker”.

G.

“Insured” means any person or organization qualifying as an insured in the Who is An
Insured provision of the applicable coverage. Except with respect to the Limit of Insurance,
the coverage afforded applies separately to each insured who is seeking coverage or against
whom a claim or “suit” is brought.

****
I.

“Leased worker” means a person leased to you by a labor leasing firm under an agreement
between you and the labor leasing firm to perform duties related to the conduct of your
business. “Leased worker” does not include a “temporary worker.”

(Doc. No. 29-5, p. 108).
2.

The “employer’s liability” exclusion

National argues that the “employer’s liability” exclusion set forth above (i.e., Section
II(B)(4) of the Motor Carrier Coverage Form) excludes coverage in this case because Avery is an
“insured” and the injury happened to Miller, one of its employees. Great West disagrees, arguing
that the operative language only applies to the insured against whom a claim of liability is being
made and not all insureds. Great West contends this is particularly so when the second sentence in
the definition of “insured” under Section VI(G) of the Motor Carrier Coverage Form is considered,

30

which is that coverage applies separately to each insured who is seeking coverage, which is
commonly referred to in the industry as the “severability clause.”
a.

The Eighth Circuit’s 1966 decision in Farmers Elevator Mutual

National argues this court is bound by the Eighth Circuit’s decision in Farmers Elevator Mut.
Ins. Co. v. Carl J. Austad & Sons, Inc., 366 F.2d 555 (8th Cir. 1966) (“Farmers Elevator Mutual”),
which is a case that arose out of this district. In Farmers Elevator Mutual, the injured party was a
driver employed by a trucking company that had leased its equipment to another trucking company
with an ICC permit. The trucker was injured during the process of unloading propane from his truck
into tanks at a local elevator. The trucker sued the elevator. In Farmers Elevator Mutual, which was
an action for declaratory judgment, the elevator’s insurer claimed that the insurance company for
the trucking company employing the injured trucker was obligated to provide a defense and
indemnity to the elevator by virtue of a provision of its policy that included as an insured a person
using the truck with the permission of the named insured. The elevator’s insurer claimed the
elevator was using the truck during the process of unloading. Id. at 556-57.
This court held the elevator was not an insured under the trucking company’s policy,
concluding the elevator had not used the truck since the unloading was done exclusively by the
injured trucker. This court also held that, even if the elevator was using the truck during unloading
within the meaning of the policy, coverage was excluded by an employer’s liability exclusion which
the court concluded applied since the injured trucker was an employee of the trucking company (the
named insured) even though it was the elevator (an additional insured) that was claiming coverage
and the injured party was not one of its employees. Id. at 557-59.

31

On appeal, the Eighth Circuit upheld this court’s decision that the policy language did not
extend coverage to the elevator in the first instance. Id. at 558. However, the court did not stop
there and proceeded to address this court’s alternative holding with respect to the application of the
employer’s liability exclusion. The Eighth Circuit noted that “[w]hether this exclusion applies to
suits against an omnibus insured by an employee of the named insured is a question that has
produced a wide split of opinions among the courts.” Id. at 559. The court went on to conclude that
this court had not clearly erred in holding the exclusion applied given the lack of any North Dakota
decision on point and the lack of any ambiguity in the policy. Id.
Great West argues that Farmers Elevator Mutual is not binding here because there is no
mention in the decision of there being a severability clause, much less an argument that it would
have changed the calculus with respect to application of the “employer’s liability” exclusion in that
case. Great West’s argument is well taken. However, before discussing why, it is necessary first
to consider the North Dakota Supreme Court’s decision in Northwest G.F. Mut. Ins. Co. v. Norgard,
518 N.W.2d 179 (N.D. 1994) (“Norgard”), which came after the Eighth Circuit’s decision in
Farmers Elevator Mutual.
b.

The North Dakota Supreme Court’s 1994 decision in Norgard

Apparently, the only case where the North Dakota Supreme Court has addressed the
interplay between a severability clause and a policy exclusion is its 1994 decision in Norgard. In
that case, a husband and wife had purchased a homeowner’s policy that included an endorsement
for coverage for a day care being operated out of their home by the wife. The husband was later
convicted of gross sexual imposition for having engaged in sexual contact with one of the children
attending the day care. When the parents of the child sued, the insurance carrier providing the “day

32

care” coverage brought a declaratory action against the husband and wife contending the coverage
was excluded under a sexual-molestation exclusion in the endorsement that read as follows:
[T]he bodily injury and property damage coverage provided under this endorsement does not
apply:
a.

to bodily injury or property damage arising out of sexual molestation, corporal
punishment or physical or mental abuse inflicted upon any person by or at the
direction of an insured, an insured’s employee or any other person involved in any
capacity in the day care enterprise. . . .

The wife disagreed. She argued (1) the language of the exclusion did not apply to her because,
unlike her husband who was sued for his intentional conduct, she was sued only for negligence, and
(2) she was entitled to be treated separately for coverage purposes because of the severability clause
in the policy, which read as follows:
Severability of Insurance. This insurance applies separately to each insured except with
respect to the Limit of Liability. Therefore, this condition will not increase the Annual
Aggregate Limit of Liability regardless of the number of insureds.

Norgard, 518 N.W. at 180-81.
In considering the wife’s argument, the North Dakota Supreme Court observed that “the
jurisdictions that have attempted to reconcile severability clauses and exclusionary clauses have not
done so uniformly.” Id. at 182. The court discussed the divergent views taken in several cases by
other courts and went on to conclude that the presence of the severability clause created an
ambiguity with respect to whether the exclusion applied to the wife’s claim of coverage. Id. at 18283. The court stated:
We have considered the varying views regarding the interplay of severability clauses
and exclusionary clauses, and we find them instructive. Relying on Worcester, many courts
have found severability clauses to create ambiguities and have construed the policies against
insurance companies; we believe Northwest rolls the dice by insisting that the policy is clear
on its face and by not attempting in the policy itself to more carefully reconcile the
severability clause and the exclusions.

33

Id. at 183. The court then proceeded in a footnote to reject the insurer’s argument that the
uncertainty created by the presence of the severability clause was removed by the choice of articles
used to describe the insured in the exclusion. The insurance carrier had argued that the exclusion’s
reference to “an insured” unambiguously referred to both an insured claiming coverage and all other
insureds as opposed to what would have been the case had the policy used the words “the insured,”
which the insurance carrier contended would have referred only to the insured seeking coverage.16
Id. at 183 n.2.
After concluding the presence of the severability clause created an ambiguity, the North
Dakota Supreme Court proceeded to resolve the ambiguity by applying statutory rules of contract
construction. The court stated:
However, the ambiguity here is resolved by applying the rules for interpreting
contracts, contained in NDCC Chapter 9-07. Determinative is the unique language of this
exclusion; the exclusion does not pertain only to the acts of an insured, but also to the acts
of “an insured’s employee or any other person involved in any capacity in the day care
enterprise....”
Under sections 9-07-03 and 9-07-04, NDCC, we attempt to give effect to the mutual
intention of the parties as expressed by the language of the contract. The sexual molestation
clause is clear on its face: no coverage is provided where anyone connected with the
operation of the day care commits an act of sexual molestation on one of the children. The
policy clearly and specifically reflects the parties’ intention to place these risks outside the
scope of coverage.
Section 9-07-12 directs that a contract may be explained by reference to the
circumstances under which it was made and the matter to which it relates. The
circumstances under which the policy was made is clear. The increase in legal actions
involving sexual abuse of children by adults who are not strangers to the children, i.e.,
parents, relatives or caretakers, is dramatic. The policy clearly and specifically places these
risks outside the scope of coverage.
As between the two clauses, the sexual molestation exclusion is a particularly
tailored provision that excludes any coverage for specific actions of specific individuals,
whereas the severability clause is a more general provision concerned with who is covered.
The rules of contract interpretation are akin to the rules for interpreting statutes, compare

16

Interestingly, the words “the insured” that the insurance carrier in Norgard argued would have
unambiguously referred only to the insured claiming coverage are the same words used in the “employer’s liability”
exclusion in this case, which National, by necessity, must contend unambiguously would refer to all insureds, including
the named insured.

34

NDCC Chapter 1-02 with NDCC Chapter 9-07; we conclude that a provision such as the
exclusion dealing specifically with sexual molestation of children prevails over the more
general severability clause. Moreover, “[t]he purpose of severability clauses is to spread
protection, to the limits of coverage, among all of the . . . insureds. The purpose is not to
negate bargained-for exclusions which are plainly worded.” National Ins., Etc. v. Lexington
Flying Club, 603 S.W.2d 490, 492 (Ky.App.1980).
Similarly, section 9-07-17 provides that “[r]epugnancy in a contract must be
reconciled, if possible, by such an interpretation as will give some effect to the repugnant
clause subordinate to the general intent and purposes of the whole contract.” To construe
the severability clause to provide coverage in these circumstances is repugnant to the
plainly-worded exclusion. The severability clause is subordinate to the sexual molestation
exclusion.
We conclude that the application of these rules “clearly indicate that the parties,
particularly the insured, contemplated no coverage,” Walle Mut. Ins. Co. v. Sweeney, supra
at 181 [VandeWalle, J., concurring specially], where the named insured himself, rather than
a stranger to the day care, commits an act of sexual molestation. The contract may be a
contract of adhesion, Continental Cas. Co., supra, but we will not find coverage where to do
so would be perverse to a clearly stated exclusion. Ray is not a stranger to the day care; the
day care was operated in the house in which Ray lived and was present day to day. Under
the contract, Ray’s acts of sexual molestation bar coverage for anyone, including Jean.

Id. at 183-84 (footnotes omitted).
c.

The presence of the severability clause in this case creates an
ambiguity which must be resolved against National as to the
applicability of the “employer’s liability” exclusion

This court is not bound by the Eighth Circuit’s decision in Farmers Elevator Mutual since
it did not address the applicability of a severability clause, which is material here since its presence,
when considered in relation to the “employer’s liability” exclusion, creates an ambiguity as to
whether only claims for injuries by employees of the insured seeking coverage are excluded or
whether claims for injuries by employees of all insureds, including the named insured, are excluded.
The court reaches this conclusion based on its own consideration of the policy language as well as
its belief that the North Dakota Supreme Court would reach the same conclusion for two reasons.
The first is the fact that the court in Norgard found the presence of the severability clause in that
case created an ambiguity when considered with the sexual molestation exclusion.

35

The second is the fact that the sexual molestation exclusion in Norgard, which the North
Dakota Supreme Court characterized as “unique,” is substantially different in nature from the
“employer’s liability” exclusion at issue here. The sexual molestation exclusion excluded liability
for specific types of acts and contained language that clearly suggested the exclusion would apply
regardless of who committed them. Norgard, 518 N.W.2d at 183 (“Determinative is the unique
language of this exclusion; the exclusion does not pertain only to the acts of an insured, but also to
the acts of ‘an insured’s employee or any other person involved in any capacity in the day care
enterprise . . . .’”). In contrast, the focus of the “employer’s liability” exclusion in National’s policy
is upon acts or omissions caused by persons related to the insured, so that one very plausible reading
of the policy language taken as a whole in view of the severability clause is that the “employer’s
liability” exclusion only excludes coverage for claims brought by an employee of the insured
seeking coverage. In short, if the presence of the severability clause in Norgard created an
ambiguity, it is even more true in this case.
Having concluded there is an ambiguity in National’s policy between the insuring language
of the policy (including the severability clause) and the “employer’s liability” exclusion, the court
must proceed to resolve the ambiguity. And here, National has not proffered any extrinsic evidence
that would be material to the issue. Consequently, even if it was appropriate to resolve the
ambiguity by conducting a trial - as opposed to simply imposing the tie-breaker of construing the
language against the insurer, which the case law cited earlier governing the construction of insurance
contracts seems to suggest is the required course of action, the court in this instance need only do
the latter. Further, this is what the North Dakota Supreme Court would likely decide, particularly

36

given its statement in Norgard that the insurer there could have and should “more carefully
reconcile[d] the severability clause and the exclusions.” Norgard, 518 N.W.2d at 183.
Finally, even if the North Dakota Supreme Court would not find the policy language to be
ambiguous and construe it in favor of the insured seeking coverage for that reason, the court is likely
to conclude that the exclusion, given both its purpose and its wording, does not trump the
severability clause. In other words, construing the policy as a whole, the exclusion would apply
only when the bodily injury is to an employee of the insured claiming coverage, which appears to
be the majority view. See, e.g., Penske Truck Leasing Co., Ltd. Partnership v. Republic Western
Ins. Co., 407 F. Supp. 2d 741, 744-52 (E.D.N.C. 2006) (predicting this is what the North Carolina
courts would hold and citing authority for it being the majority position).
3.

The “fellow employee” exclusion
a.

National’s argument

National also argues that its policy exclusion for injuries to “fellow employees” applies and
excludes coverage for Heinis. In advancing this argument, National makes no effort to claim Heinis
was an employee of Avery (and thereby a fellow employee of Miller) under the state law. Rather,
National relies upon the definition of “employee” set forth in the federal regulatory scheme
governing interstate motor carriers, which makes an independent contractor who operates the
equipment of a regulated carrier a “statutory employee” for some purposes.
Before turning to the specifics of this argument, it is helpful for purposes of context to first
consider the scope of the federal motor carrier regulatory scheme and the fact it does not preempt
state and common law liabilities, except to add to the liability of motor carriers in certain instances.

37

b.

Federal regulatory framework

The history of the rather complex federal regulatory scheme governing interstate motor
carriers has been detailed in a number of cases and need not be recited in detail here. See, e.g.,
Carolina Cas. Ins. Co. v. Yeates, 584 F.3d 868, 873-76 (10th Cir. 2009) (“Yeates”); Prestige
Casualty Co. v. Michigan Mutual Insurance Co., 99 F.3d 1340, 1342-43 (6th Cir. 1996); Carolina
Cas. Ins. Co. v. Insurance Co. of North America, 595 F.2d 128, 134-37 (3d Cir. 1979); Luizzi v. Pro
Transport, Inc., No. 02-cv-5388, 2013 WL 3968736, at **12-13 (E.D.N.Y. July 31, 2013); Crocker
v. Morales-Santana, 2014 ND 182, ¶¶ 14-15, __ N.W.2d __; Roberson v. Industrial Com’n (P.I. &
I. Motor Exp., Inc.), 866 N.E.2d 191, 200-02 (Ill. 2007) (“Roberson”). In a nutshell, however, the
long-standing practice of motor carriers using leased equipment supplied by independent-contractor
operators led to a number of abuses. Many of the independent contractors operated on a shoestring.
This led to the operation of poorly maintained equipment which created safety hazards for the
traveling public. It also resulted in the inability of the independent-contractor operators to satisfy
judgments for personal injuries and property damage when accidents did occur, with the more
solvent motor carriers hiding behind the independent contractor status of their operators to avoid
liability. In addition, the more unscrupulous carriers relied upon the independent contractor status
of their operators to avoid responsibility for compliance with safety regulations. See id.
The current regulatory scheme is the end product of Congress’s response over the years to
address these abuses as well as other issues. Relevant here is the fact that Congress’s response
included: (1) provisions that make an independent-contractor lessor-operator a “statutory employee”
of the motor carrier in certain situations to ensure that the lessee-carriers are responsible for
compliance with safety regulations as well as the lessor-operators; (2) provisions that have the effect

38

of making a motor carrier responsible and liable as a matter of federal law for the operation of the
leased equipment vis-a-vis the traveling public when operated on public roadways; and (3) minimum
requirements for financial responsibility to help ensure that any judgments obtained by the public
for personal injury or property damage will be collectible. See id.
What is important to understand about the federal regulatory scheme for purposes of this case
are three things. First, while it imposes additional liability upon motor carriers for the acts of its
independent contractors in some instances, it does not purport to supplant, diminish, or otherwise
provide safe harbor from existing tort liability of carriers and lessor-operators under state law.
Second, the federal regulatory scheme does not preempt the state law distinctions between an
independent contractor and an employee, except to the limited extent of making an independentcontractor operator a “statutory employee” of the lessee-carrier for purposes of enforcement of
federal safety regulations and imposing respondeat superior liability for the acts of the independent
contractor in certain instances. Third, there is nothing that purports to impose mandatory contract
terms for private insurance contracts, except to the extent that, if a lessee carrier elects to obtain a
federally-prescribed endorsement as one alternative for complying with federally-imposed minimum
requirements for financial responsibility and the insurance company agrees to provide the
endorsement, then the terms of that endorsement trump to the limited extent provided in the
endorsement.17 See, e.g., Yeates, 584 F.3d at 875-79; Carolina Cas. Ins. Co. v. Insurance Co. of
North America, 595 F.2d at 134-138; Global Hawk Ins. Co. v. Le, 170 Cal. Rptr. 3d 403, 410-16
(Cal. Ct. App. 1st Dist. 2014) (“Global Hawk”); Roberson, 866 N.E.2d at 200-05.18
17

The exception with respect to the federally-prescribed endorsement is discussed in detail later.

18

In Carolina Cas. Ins. Co. v. Insurance Co. of North America, the Third Circuit remarked:

(continued...)
39

Undoubtedly, it is because of the foregoing that National makes no argument that the federal
regulatory scheme requires that its “statutory employee” definition be read into its Motor Carrier
Coverage Form. Rather, National’s argument is that the “statutory employee” definition should be
read into its policy because, according to it, the policy was tailored to fit the federal regulatory
scheme. Before turning to the reasons why the federal definition should not be read into National’s
Motor Carrier Coverage Form, the court will address first why Heinis likely was not a “statutory
employee” under the federal definition at the time of the accident.
c.

Heinis likely was not a “statutory employee” of Avery under the
federal definition even if it applied

The federal regulatory definition of “employee” that National argues should be read into its
policy is set forth in 49 C.F.R. § 390.5 and reads as follows:
[A]ny individual, other than an employer, who is employed by an employer and who in the
course of his or her employment directly affects commercial motor vehicle safety. Such term
includes a driver of a commercial motor vehicle (including an independent contractor while
in the course of operating a commercial motor vehicle), a mechanic, and a freight handler.

18

(...continued)

While a lessee cannot free itself of its federally imposed duties when protection of the public is at
stake, the federal requirements are not so radically intrusive as to absolve lessors or their insurers of
otherwise existing obligations under applicable state tort law doctrines31 or under contracts allocating
financial risk among private parties.
595 F.2d at 138. Then, in an accompanying footnote, the Third Circuit further elaborated:
31. We are not concerned here with the preemption of state regulations of motor carriers engaged in
interstate commerce. See e.g., Bailey v. Bruneau’s Truck Service, Inc., 149 Conn. 46, 175 A.2d 372,
376 (1961). Whatever preemptive effect the ICC regulations may have in that limited field cannot
form a basis for arguing that federal law also displaces state law doctrines governing master-servant
relationships, Respondeat superior, contribution among tortfeasors, or even ordinary negligence. See,
e.g., Simmons v. King, 478 F.2d 857, 867 (5th Cir. 1973); Continental Casualty Co. v. American
Fidelity & Casualty Co., 275 F.2d 381, 383-84 (7th Cir. 1960); Vance Trucking Co. v. Canal
Insurance Co., 249 F.Supp. 33, 39 (D.S.C. 1966), aff’d 395 F.2d 391 (4th Cir.), cert. denied, 393 U.S.
845, 89 S.Ct. 129, 21 L.Ed.2d 116 (1968). Indeed, so massive a disruption of the tissue of state law
would be extraordinary in the American legal framework. See P. Bator, P. Mishkin, D. Shapiro & H.
Wechsler, Hart & Wechsler’s The Federal Courts and the Federal System 470-71 (2d ed. 1973).
Id. at 138 n. 31.

40

(italics added). Even if this definition could be read into National’s Motor Carrier Coverage Form,
it is unlikely that Heinis would have been a “statutory employee” of Avery at the time of the
accident within the meaning of 49 C.F.R. § 390.5. The reason why requires some explanation given
that this regulation has proved difficult to apply, in part because of the parenthetical in the second
sentence containing the language “including an independent contractor while in the course of
operating a commercial motor vehicle,” a point that will be addressed first, and the “other than an
employer” language in the first sentence, which will be addressed later.
A number of courts have read 49 C.F.R. § 390.5 to mean that an “independent contractor”
is a statutory employee only while “operating” a commercial motor vehicle. E.g., Consumers
County Mutual Ins. Co. v. P.W. & Sons Trucking, Inc., 307 F.3d 362 (5th Cir. 2002) (“Consumers
County”) (relief driver who was sleeping at time of accident was a driver “operating” a motor
vehicle and a statutory employee); Walker v. Transportation Intern. Movers, Inc., No. 06-3030, 2007
WL 4180692, at *4 (D. Or. Nov. 21, 2007) (independent contractor not a statutory employee because
not driving/operating the equipment); Pouliot v. Paul Arpin Van Lines, Inc., 292 F. Supp. 2d 374
(D. Conn. 2003) (“Pouliot”) (concluding that independent-contractor lessor-owner who was
unloading his trailer was not “operating” the motor vehicle because he was not driving and hence
was not a statutory employee).19 And, while there is a divergence of opinion in some of these cases
as to what constitutes “operating” in terms of whether it applies only while the independent
contractor is actually driving or whether it also extends to related activities, such as loading and
unloading or being a relief driver who is not actually driving but supporting the operation by being
on board, the analysis employed in these cases would likely not extend “operating” to the facts of

19

In Zimprich, this reading of the regulation was conceded, so the North Dakota Supreme Court did not discuss
its meaning further. 519 N.W.2d at 591.

41

this case where Heinis was merely standing by while the repair was being attempted on his trailer.
See id. It is this line of cases that Great West relies upon for its argument that Heinis was not a
“statutory employee” within the meaning of 49 C.F.R. § 390.5.
National responds that these cases rely upon a flawed reading of 49 C.F.R. § 390.5 and cites
to Lancer Ins. Co. v. Newman Specialized Carriers, Inc., 903 F. Supp. 2d 1272 (N.D. Ala. 2012)
(“Lancer”) as a case where the court, according to it, properly construed the definition. In Lancer,
an independent-contractor lessor-operator was injured while assisting with the unloading of his
trailer, and one of the issues was whether he was a statutory employee of the lessee-carrier at the
time. Id. at 1274. The Lancer court rejected the reasoning employed by the federal district court
in Pouliot that an independent contractor must have been driving the motor vehicle to be a statutory
employee, concluding that the unloading fell within the purview of operating the equipment. Id. at
1280. Then, after reaching this conclusion, the Lancer court offered an alternative grounds for its
conclusion that the independent contractor was a statutory employee of the lessee-carrier, which is
the one National relies upon here. The Lancer court stated it was wrong in applying § 390.5 to focus
on the parenthetical in the second sentence, which suggests that an independent contractor becomes
an employee while operating the equipment, and to ignore the “any individual . . . who in the course
of his or her employment directly affects commercial motor vehicle safety” language of the first
sentence. Id. The court then suggested, without much discussion, that any person directly affecting
motor vehicle safety is a “statutory employee” based on the first sentence of § 390.5 and that the
second sentence merely sets forth a non-exclusive list of examples. Id. In other words, under this
reading of § 390.5, an independent contractor would be considered a “statutory employee” anytime
he or she is employed by an employer and while in the course of employment “directly affects
commercial motor vehicle safety” - not just when “operating a commercial motor vehicle.” Id.
42

Applying this reading of § 390.5, National contends Heinis was a “statutory employee” of Avery
for purposes of the underlying action because he directly affected “motor vehicle safety” when he
failed to properly clean out the truck.20
While the Lancer court’s reading of the regulation is a possible one, there would be no reason
to add “while in the course of operating a commercial motor vehicle” to the parenthetical referencing
an independent contractor if the only purpose of the parenthetical was to clarify that independent
contractors are included in the definition of “employee” - a point made in several of the other cases
cited above. In addition, the Lancer court’s interpretation ignores the words “other than an
employer” in the first sentence and the significance of this will become more apparent in a moment.
There does not appear to be any Eighth Circuit case law on point, and this court believes the
Eighth Circuit would reject the Lancer court’s reading of the regulation. Like the Fifth Circuit, the
Eighth Circuit would likely look to the underlying statutory language for guidance in construing the
regulation. See, e.g., Ooida Risk Retention Group, Inc. v. Williams, 579 F.3d 469, 473-475 (5th Cir.
2009) (“Ooida”) (looking to the statutory definition to resolve the uncertainty in the meaning of
“employee” under 49 C.F.R. § 390.5).
In that regard, the statutory definition of “employee,” upon which 49 C.F.R. § 390.5 is based,
as well as the statutory definition of “employer” are as follows:
(2) “employee” means an operator of a commercial motor vehicle (including an independent
contractor when operating a commercial motor vehicle), a mechanic, a freight handler, or an
individual not an employer, who–
(A) directly affects commercial motor vehicle safety in the course of employment;
and

20

As noted earlier, National chastised Great West for failing to point to any federal safety regulation that was
violated by Heinis operating a trailer that leaked only upon loading and unloading and not while operating on a public
roadway. Here, National has failed to point to one federal motor carrier safety regulation that was implicated by Heinis
failing to properly clean out the trailer. While the court rejects the Lancer court’s reading of § 390.5 for the reasons
discussed below, even if it applied, it likely would be of no help to National here.

43

(B) is not an employee of the United States Government, a State, or a political
subdivision of a State acting in the course of the employment by the Government,
a State, or a political subdivision of a State.
(3) “employer”-(A) means a person engaged in a business affecting interstate commerce that owns
or leases a commercial motor vehicle in connection with that business, or assigns an
employee to operate it; but
(B) does not include the Government, a State, or a political subdivision of a State.

49 U.S.C. § 31132(2)-(3). The most straightforward reading of this statutory language is that an
independent-contractor lessor-operator (like Heinis) would be an “employer,” and, given that, would
not be an “individual not an employer” under the definition of “employee.” Rather, to be an
“employee,” Heinis would have to fall within one of the other three categories set forth in the
definition of “employee” preceding the disjunctive use of “or” in 49 U.S.C. § 31132(2). E.g., Ooida,
579 F.3d at 474-75. And, in this case, Heinis would arguably not be a “statutory employee” of
Avery at the time of the accident because he was neither “operating” the motor vehicle (even under
an expansive meaning of the term to include loading or unloading or acting as relief driver) nor was
he working as a “mechanic” or “freight handler.”
d.

Even if Heinis was a “statutory employee” within the meaning of
of 49 C.F.R. § 390.5, the North Dakota Supreme Court would not
consider him an “employee” for purposes of coverage under
National’s Motor Carrier Coverage Form

Even if the court is wrong and Heinis was a “statutory employee” within the meaning of 49
C.F.R. § 390.5 and the underlying statute, there remains the question of whether this “fictional”
statutory definition, which is contrary to ordinary state and common law distinctions between an
employee and an independent contractor, should be read into National’s Motor Carrier Coverage
Form with the result being that coverage is excluded under the “fellow employee” exclusion. Unlike
construing the federal “statutory employee” definition, this is purely a question of state law since,
as already discussed, the federal regulatory scheme has not preempted the field.
44

Before turning to the question of how the North Dakota courts are likely to read National’s
policy, it is necessary first to consider (1) the minimum requirements for financial responsibility that
are imposed by federal law upon motor carriers transporting goods interstate, including the option
of meeting those requirements by obtaining an MCS-90 endorsement, and (2) what the MCS-90
endorsement is and what it does. This is because the only thing that National points to as indicating
that its policy was tailored to meet federal regulatory requirements, and for that reason should be
read to include the federal “statutory employee” definition, is its inclusion of the MCS-90
endorsement.
i.

The federally-imposed requirements for financial
responsibility and the MCS-90 endorsement

As noted earlier, one of things that Congress did to protect the public against judgment-proof
operators was to impose minimum requirements for financial responsibility. Section 13906 of Title
49 requires that regulated motor carriers meet specified minimum requirements for financial
responsibility in one of three ways to insure that judgments against them can be collected up to the
minimum amounts. First, a carrier can obtain a federally-approved endorsement from a liability
insurance carrier that provides the necessary protection to the public. Second, a carrier can obtain
written guaranties from approved sureties that guarantee there will be a solvent party to stand
behind any judgment if it cannot be collected from the carrier. Third, a carrier with sufficient
resources and with government approval can self-insure. If a carrier chooses the option of obtaining
an endorsement for the necessary protection from a private insurance carrier, the form of the
endorsement is prescribed by 49 C.F.R. § 387.39 and is identified therein as MCS-90. See, e.g.,
Carolina Cas. Ins. Co. v. Yeates, 584 F.3d 868, 873-74 (10th Cir. 2009) (“Yeates”); Global Hawk,
170 Cal. Rptr. 3d at 410-12.

45

Even more relevant to the discussion here than the fact that not all carriers need to obtain an
MCS-90 endorsement (since they can meet the minimum financial responsibility requirements in
one of the two other ways), is what the form endorsement purports to do. The MCS-90 endorsement
in this case mirrors language prescribed by 49 C.F.R. § 387.39 and reads, in relevant part, as
follows:
In consideration of the premium stated in the policy to which this endorsement is attached, the insurer
(the company) agrees to pay, within the limits of liability described herein, any final judgment
recovered against the insured for public liability resulting from negligence in the operation,
maintenance or use of motor vehicles subject to the financial responsibility requirements of Sections
29 and 30 of the Motor Carrier Act of 1980 regardless of whether or not each motor vehicle is
specifically described in the policy and whether or not such negligence occurs on any route or in any
territory authorized to be served by the insured or elsewhere. Such insurance as is afforded, for public
liability, does not apply to injury or death of the insured’s employees while engaged in the course of
their employment, or property transported by the insured, designated as cargo. It is understood and
agreed that no condition, provision, stipulation, or limitation contained in the policy, this endorsement,
or any other endorsement thereon, or violation thereof, shall relieve the company from liability or from
the payment of any final judgment, within the limits of liability herein described, irrespective of the
financial condition, insolvency or bankruptcy of the insured. However, all terms, conditions, and
limitations in the policy to which the endorsement is attached shall remain in full force and effect as
binding between the insured and the company. The insured agrees to reimburse the company for any
payment made by the company on account of any accident, claim, or suit involving a breach of the
terms of the policy, and for any payment that the company would not have been obligated to make
under the provisions of the policy except for the agreement contained in this endorsement.

(Doc. No. 29-5, p. 131) (italics added).
As indicated by the italicized language, the MCS-90 endorsement does not purport to limit
the existing obligations between the insured and the insurance carrier. Rather, its purpose is to
guarantee up to the limits of the endorsement that there will be a financially responsible party able
to satisfy a judgment rendered against an insured “for public liability resulting from negligence in
the operation, maintenance or use of [regulated] motor vehicles[,]” notwithstanding what, in some
instances, may be limitations in the underlying policy. In fact, the endorsement is more in the nature
of a guarantee than insurance, since it obligates the insured to reimburse the insurance carrier for
any amounts it is required to pay beyond what is required by the underlying policy. See, e.g.,
Gramercy Ins. Co. v. Expeditor’s Exp., Inc., __ Fed.Appx__, No. 13-6058, 2014 WL 3843836, at
46

**2-3 (6th Cir. Aug. 5, 2014) (unpublished opinion) (“Gramercy”); Yeates, 584 F.3d at 878-89;
Canal Ins. Co. v. Distribution Services, Inc., 320 F.3d 488, 490 (4th Cir. 2003) (“Canal”); Northland
Ins. Co. v. Rhodes, No. 09-cv-01691, 2010 WL 5110107, at *7 (D. Colo. Dec. 9, 2010)
(“Northland”); Global Hawk, 170 Cal. Rptr. 3d at 410-12.
ii.

The North Dakota Supreme Court would reject National’s
argument that the federal “statutory employee” definition
applies to the “fellow employee” exclusion of its policy

National cites to cases where courts have read into a motor carrier liability policy the
federally-created “statutory employee” definition and excluded coverage under a “fellow employee”
exclusion on the theory that the policies in question were designed around the federal motor carrier
requirements. See, e.g., Consumers County, 307 F.3d at 365-67; Lancer, 903 F. Supp. 2d at 127881; United Financial Cas. Co. v. Abe Hershberger & Sons Trucking Ltd., No. 11AP-629, 2012 WL
457715 (Ohio Ct. App. Feb. 14, 2012). These cases offer little in the way of evidence of this point,
however, except, in some of the cases, to note the presence of an MCS-90 endorsement. See, e.g.,
Global Hawk, 170 Cal. Rptr. 3d at 415. Also, some give short-shrift to the actual policy language,
including whether there is anything evincing an intent to incorporate the “statutory employee”
definition.
Not surprisingly, there are a number of cases to the contrary, which National has ignored.
In these cases, the courts have expressed skepticism about importing federal requirements into
contracts tailored for the motor carrier industry, absent some expression of intent that the
requirements be incorporated, pointing to the fact that the federal motor carrier regulatory scheme
does not wholesale replace state and common law liabilities that the polices are also designed to
protect against and the fact the MCS-90 endorsement, given its limited purposes and “coverage,”
is hardly indicative of an intent to import federal requirements that would otherwise limit the
47

obligations of the insurer in the underlying policy. See, e.g., Gramercy, 2014 WL 3843836, at **
2-3; Yeates, 584 F.3d at 878-79; Canal, 320 F.3d at 492-93; Northland, 2010 WL 5110107, at *7;
Global Hawk, 170 Cal. Rptr. 3d at 415; cf. Wellman v. Liberty Mut. Ins. Co., 496 F.2d 131, 137-39
(8th Cir. 1974); Simpkins v. Protective Ins. Co., 419 N.E.2d 557, 560 (Ill. App. Ct. 1st Dist. 1981)
(“Simpkins”). This includes several cases that have expressly rejected reading into the underlying
policy the federal “statutory employee” definition and excluding coverage based on a “fellow
employee” exclusion. Gramercy, 2014 WL 3843836, at **1-3; Northland, 2010 WL 5110107, at
*7; cf. Global Hawk , 170 Cal. Rptr. 3d at 409-16 (holding inapplicable exclusions for “worker’s
compensation” and “employer’s liability” for the same reasons).21
In addition, one of the leading cases that National relies upon for support for its position that
the federal “statutory employee” definition should be read into its policy is the Fifth Circuit’s
decision in Consumers County. However, in a more recent unpublished decision, the Fifth Circuit
has suggested that Consumers County may be distinguishable on the ground that the underlying
policy in that case did not define “employee” unlike National’s policy here, which does define
“employee.” Canal Indem. Co. v. Rapid Logistics, Inc., 514 Fed.Appx. 474, 477-78 (5th Cir. 2013)
(distinguishing Consumers County but deciding the case on other grounds); see Gramercy, 2014 WL
3843836, at *3 (discussing Canal Indem. Co. and its distinguishment of Consumers County).
In terms of this case, the court predicts the North Dakota Supreme Court would find cases
such as Gramercy, Northland, and Global Hawk to be the more persuasive and would conclude that

21

National points to the fact that many of the federal motor carrier regulations have been made a part of the
North Dakota’s regulatory scheme, which regulates motor carriers operating intrastate, by reference in N.D. Admin. Code
§ 38-04-01-02. National is unable, however, to point to anything in North Dakota’s regulatory scheme which manifests
an intent that the incorporated regulations would be applied any differently under North Dakota law much less an intent
that they should be applied to alter the definition of an “employee” in a private insurance contract for coverage that is
beyond that required by the regulatory scheme.

48

the federal “statutory employee” definition should not be read into National’s Motor Carrier
Coverage Form (and thereby not bring into play the “fellow employee” exclusion) - since the
coverage arises out of the underlying policy and not the “added” coverage by the MCS-90
endorsement. The reasons why include the following:
C

First are the definitions of “employee” and “leased worker” under National’s Motor
Carrier Coverage Form as set forth earlier. The definition of “employee” specifically
states that it includes a “leased worker” (which is separately defined) with no similar
attempt being made to incorporate the “statutory employee” definition of 49 C.F.R.
§ 390.5, which is contrary to the generally accepted meaning of employee. Thus, not
only is there absent any intent to incorporate the federal “statutory employee”
definition,” the fact that a “leased worker” was included and not a “statutory
employee” suggests the intent was to the contrary. The court in Northland made this
point, stating:
[T]he parties knew how to manifest their intent to incorporate various
provisions of the federal statute and its regulations where applicable. Under
the doctrine of expressio unis est exclusio alterius, the fact that they chose
not to make specific reference to the expansive definition of “employee” set
forth in 49 C.F.R. § 390.5 strongly suggests that the definition was not
intended to be incorporated in the policy.

Northland, 2010 WL 5110107, at *7.
C

Second, just because National’s policy has been tailored for the motor carrier
industry where leased equipment and independent contractors are frequently used
does not mean the parties necessarily intended to incorporate the federal “statutory
employee” definition, which, as already discussed, was enacted for a limited purpose
and does not always apply. In fact, as this case and Zimprich illustrate, Heinis and

49

Avery’s other independent contractors are exposed to liability for acts that arise apart
from operating the leased equipment on a public roadway. In obvious recognition
of this fact, National’s Motor Carrier Coverage Form is not limited to extending
coverage for only when there may be an act for which imposition of the federal
regulatory definitions might give rise to liability, but rather purports to provide what
in substance is general liability coverage to Heinis as an added insured, so long as
the leased equipment is being used in a manner that satisfies the other requirements
of the Coverage Form. And, consistent with the policy providing general liability
coverage, the “fellow employee” exclusion in National’s Motor Carrier Coverage
Form is a generic one and does include language limiting its application in the
manner now suggested by National. See, e.g., Gear Automotive v. Acceptance
Indem. Ins. Co., 709 F.3d 1259, 1262 (8th Cir. 2013); 46 C.J.S. Insurance § 1370
(database updated June 2014). Under these circumstances, to impose the fictional
federal “statutory employee” definition to National’s policy, with the result being it
would apply in those instances where traditional law distinctions between
independent contractors and employees are still applicable and have the effect of
reducing the scope of National’s coverage, would upset the expectations of the
parties and truly be the “tail wagging the dog.”22

22

National contends that it is typical for operators such as Heinis to obtain “bobtail” insurance to cover the
risks excluded by its policy. In making its argument for application of the “fellow employee” exclusion, National softpedals the fact that Great West’s policy also contains a “fellow employee” exclusion, which is set forth in the next
section and on its face would appear to foreclose coverage if the “statutory employee” definition was similarly read into
its policy. (Doc. No. 25-4, p. 31). And, if the definition was read into both policies, Heinis would be without coverage
for any liability arising out of Miller’s action against him if the state court concluded Heinis was not a co-employee of
Miller for purposes of that case, which this court views as the likely result. But, if the court is wrong and the state court
does apply the “statutory employee” definition and bars the action against Heinis based on the immunity provided by

(continued...)
50

C

Third, the MCS-90 endorsement does not evince an intent that the federal “statutory
employee” definition be read into the underlying policy. As already explained, its
purpose is limited to expanding the insurance carrier’s obligations in certain
instances to protect the public, and it expressly states it does not otherwise modify
the underlying policy. As the Sixth Circuit succinctly observed in Gramercy:
But the relevant language of the endorsement—“amend[s the
contract] to assure compliance”—does not incorporate the Act’s definition
of employee into the contract. The endorsement instead acts as a form of
extra insurance for the insurance contract. If the contract covers less than
the Act requires, the endorsement amends the contract to comply with the
Act. Yet here the contract covers more than the Act requires. The
insurance contract uses a narrower definition of employee than the Act
permits, so the contract covers more people (or excludes fewer people from
coverage, take your pick). Nothing in the language of the endorsement
suggests it operates to amend the more generous coverage in the insurance
contract down to the minimum requirements of the Act.

2014 WL 3843836, at *2 (italics omitted); see also Yeates, 584 F.3d at 878-79 (“the
MCS-90 endorsement operates only to protect the public and does not alter the
relationship between the insured and the insurer as otherwise provided in the policy”)
(internal quotation marks and citing authority omitted).
C

Fourth, are North Dakota’s rules of construction of insurance policies. In addition
to those set forth earlier, the North Dakota Supreme Court has stated:
Exclusions from coverage in an insurance contract must be clear and
explicit and are strictly construed against the insurer. [citations and
quotation marks omitted]. Although a policy’s exclusionary clauses are
strictly construed, this Court will not rewrite a contract to impose liability
on the insurer when the policy unambiguously precludes coverage.
[citations omitted]

22

(...continued)

North Dakota’s workers’s compensation law (i.e., N.D.C.C. § 65-01-08), then neither National nor Great West will have
to provide indemnity.

51

K & L Homes, Inc. v. American Family Mut. Ins. Co., 2013 ND 57, ¶ 8, 829 N.W.2d
724. In this case, there is nothing in National’s Motor Carrier Coverage Form which
suggests that the term “employee” means anything more than how the term is
commonly and typically understood and applied, much less an express incorporation
of the fictional “statutory employee” definition. That being the case, the North
Dakota Supreme Court would likely construe the “fellow employee” exclusion
against National and conclude it does not apply without considering anything more
than the plain language of the policy. See, e.g., Northland, 2010 WL 5110107, at *7;
Global Hawk, 170 Cal. Rptr. 3d at 415; cf. Simpkins, 419 N.E.2d at 560 (“an
insurance contract should not be interpreted with reference to ICC regulations, unless
that contract so provides”).
IV.

WHETHER GREAT WEST’S POLICY AFFORDS COVERAGE
A.

The policy language

The operative language from Great West’s policy is the following:
SECTION II – LIABILITY COVERAGE
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” only while:
1.
A covered “auto” is not used to carry property in any business; and
2.
A covered “auto” is not used in the business of anyone to whom the “auto” is
rented, leased or loaned.
****
We 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. * * * *
****

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B.

EXCLUSIONS
This insurance does not apply to any of the following:
5.

FELLOW EMPLOYEE
“Bodily injury” to any fellow “employee” of the “insured” arising out of and in the
course of the fellow “employee’s” employment or while performing duties related
to the conduct of your business.

****
15.

TRUCKING OPERATIONS
This insurance does not apply to:
a.
A covered “auto” while used to carry property in any business; or
b.
A covered “auto” while used in the business of anyone to whom the
“auto” is rented, leased or loaned.

(Doc. No. 25-4, pp. 29-33).
B.

Discussion
1.

What law applies

National takes the position that South Dakota law applies to the interpretation of Great
West’s policy because Heinis is a South Dakota resident and the policy was issued there. While that
would likely be the result of the application of North Dakota’s choice-of-law provisions in most
cases construing contract language, see, e.g., Schleuter v. Northern Plains Ins. Co., Inc., 2009 ND
171, ¶¶ 11-14, 772 N.W.2d 879 (“Schleuter”), the court is not certain in this case given that almost
all of the significant contacts are in North Dakota and the policies were obviously intended to
provide complementary coverage. However, the point need not be decided because the result would
be the same regardless of whether North Dakota or South Dakota law is applied.23

23

Under North Dakota law, the court would be required to consider all significant contacts in light of the five
“Leflar” choice-influencing factors. E.g., Daley v. American States Preferred Ins. Co., 1998 ND 225, ¶¶ 6-17, 587
N.W.2d 159 (describing in detail the test and its history). What is somewhat unique about this case is that the lease
agreement between Heinis and Avery required Avery to carry liability insurance covering the leased equipment and
Heinis to obtain coverage for when the equipment would not be covered by the insurance procured by Avery with the
expectation of the parties being that, for most cases of liability, at least one of the two insurances would provide
coverage. Further, National and Great West would have been aware of these expectations as a general matter since it
is common in the industry for the lessee-carrier to carry general liability insurance tailored for the trucking industry, such

(continued...)
53

2.

There is no coverage under Great West’s policy

The court’s earlier conclusion that the trailer was being used in Avery’s business at the time
of the accident necessarily leads to the conclusion there is no coverage under Great West’s policy
since it does not cover an “auto” (which includes by definition a trailer) when the covered auto is
“used in the business of” anyone to whom it is “rented, leased, or loaned.” That is, unless the South
Dakota courts would apply the “in the business of” language to the particular facts of this case
differently. National claims that they would based on the arguments it made earlier, but has not
cited to any South Dakota cases deciding the issue, and, apparently, there are none.
In the alternative, National also argues that, regardless of how other courts have decided
whether the “in the business of” language in Great West’s policy is ambiguous, the South Dakota
courts would (1) conclude the language is ambiguous, (2) resolve the ambiguity in favor of the
insured, and (3) conclude Heinis has coverage under Great West’s policy. National then goes on
to argue that Great West’s coverage would be primary to any coverage of National that may be
found by the court.
The court rejects these arguments. First, there is nothing about the general rules that South
Dakota applies to the construction of insurance polices which would suggest its courts would take
a fundamentally different approach to deciding whether the language in question is ambiguous than
the courts which have concluded that it is not. See, e.g., Schleuter, 2009 ND 171 at ¶¶ 9-10

23

(...continued)

as provided by National, and for the lessor-operator to obtain “bobtail” coverage, such as provided by Great West. Since
it does not make a difference in this case, the court need not decide whether these points, when combined with the lease
being subject to North Dakota law, National’s policy being governed by North Dakota law, the accident occurring in
North Dakota, and Great West’s policy contemplating that any accident resulting in liability could easily occur outside
South Dakota, given the transitory nature of the insured equipment, would be enough for a North Dakota court to simply
resolve the disputes involving complementary coverages by looking only to North Dakota law.

54

(discussing the South Dakota cases); State Farm Fire & Cas. Co. v. Harbert, 2007 SD 107, ¶ 17, 741
N.W.2d 228 (“The existence of the rights and obligations of parties to an insurance contract are
determined by the language of the contract, which must be construed according to the plain meaning
of its terms.”) (citation and quotation omitted). Second, while there appears to be no South Dakota
cases on point, what the South Dakota Supreme Court has said in analogous cases suggests it would
construe the “in business of” language the same way as this court has predicted the North Dakota
Supreme Court would and also conclude the language is not ambiguous. Cf. McGriff, 436 N.W.2d
at 861-63 (S.D. 1989) (concluding that the word “business” in a policy exclusion for “a person or
organization engaged in the business of manufacturing, distributing, selling or serving alcoholic
beverages” was not ambiguous because it clearly refers to a commercial enterprise or activity and
that the court would not strain to find an ambiguity when none existed); Sunshine Mut. Ins. Co. v.
Addy, 38 N.W.2d 406 (S.D. 1949) (concluding without any concern about ambiguity that the insured
was operating his truck while engaged in the business of a commercial trucker under the particular
facts of the case). Third, the court believes the South Dakota courts would find more persuasive the
cases the court has relied upon in deciding how the North Dakota Supreme Court would decide the
meaning of the “in the business of” language and the issue of ambiguity.
Consequently, the court concludes that Great West’s policy does not extend coverage to
Heinis for the underlying action brought against him by Avery’s employee, Miller.
V.

ORDER FOR JUDGMENT
Based on the foregoing, the court GRANTS Great West’s motion for summary judgment

(Doc. No. 18) and DENIES National’s motion for summary judgment (Doc. No. 22). The court
further DECLARES and ADJUDGES that defendant Heinis has coverage under National’s policy

55

up to its limits for any liability arising out of the accident on June 18, 2011, which caused injury to
Avery’s employee, Miller, and does not have coverage under Great West’s policy.
IT IS SO ORDERED.
Dated this 9th day of October, 2014.
/s/ Charles S. Miller, Jr.
Charles S. Miller, Jr., Magistrate Judge
United States District Court

56