Atlas ruling sparks insurance policy reviews
Tom Griffith Journal staff
Sep 11, 2016
Nearly three years after Winter Storm Atlas blanketed western South Dakota and two months after the state Supreme Court ruled that a Quinn couple was entitled to compensation from their insurance company for nearly 100 yearling heifers that died in the blizzard, dozens of ranchers are reportedly revisiting their insurance policies to determine if they, too, are eligible for claims previously denied.
The Atlas storm killed thousands of livestock with heavy rain followed by snow from Oct. 3 to Oct. 5, 2013, in western South Dakota.
In late July, the South Dakota Supreme Court overturned an earlier decision by a lower court that ruled against Richard and Larayna Papousek, who run a crop and livestock ranch 61 miles east of Rapid City. A veterinarian who had examined some of the couple’s dead cattle attributed the cause of death to drowning.
Nonetheless, the circuit court had ruled in favor of De Smet Farm Mutual Insurance Co. of South Dakota, finding that the Papouseks’ policy, which specifically covered drowning, didn’t cover their loss because none of the 93 heifers was found in water.
But in reversing the lower court, justices noted: “Papouseks point out, however, that reasonable people understand that the hallmark of drowning is not the presence of water outside the body; rather, it is death caused by water or fluid within the body.”
That unanimous ruling by the state’s high court has sparked a wave of scrutiny from area ranchers whose claims were initially denied coverage, according to Silvia Christen, executive director of the South Dakota Stockgrowers Association, which represents about 1,000 ranchers in the state.
“I have been getting a disturbing number of calls from ranchers who had De Smet Insurance during the Atlas blizzard,” Christen said Friday. “The company has their claims adjusters calling folks and offering to revisit their cases and ‘settle’ cases that were previously declined. In other words, the insurance company is trying to buy its way out of more potentially expensive lawsuits.”
But in reviewing claims with ranchers, Christen said De Smet’s adjustors had been working to reduce the amount of monetary damages despite their policies having the same verbiage as the Papouseks’ policy.
“What I’m hearing is they had the exact claim that was decided in the Papousek case,” she said. “It seems since the Supreme Court case, the company recognizes that its definition of drowning won’t hold up in court. That would seem to be good news. But the company seems to not want to pay the full claim, or pay at the rate that was decided in the Supreme Court case.”
Christen said the Stockgrowers Association believes that is decidedly unfair.
“This isn’t about ranchers who are looking for a handout,” she said. “These are ranchers who took out insurance policies to manage their losses, and they should expect to be covered when they have a loss.”
Rapid City attorney Michael Hickey, who represented the Papouseks in their case against the insurance company, said Friday that the high court’s ruling had triggered at least a half-dozen calls from potential clients who found themselves in the same situation as the Papouseks.
“They’ve brought us copies of their insurance policies, which are virtually identical in terms of coverage as the Papouseks’, and we’ve given them some recommendations and advice,” Hickey said. “The only company that routinely denied these claims appears to be De Smet; others handled those insured fairly. It appears that now they’re saying they want to do the right thing, which they should have done three years ago.”
Calls to De Smet Insurance on Friday seeking comment were not immediately returned.
Christen and Hickey encouraged those who had been denied insurance claims tied to Winter Storm Atlas to review their policies with an attorney.
“Don’t sign anything just because the insurance company puts something in front of you,” Hickey advised. “They may not have your best interests at heart.”
Hickey, who has been practicing law for 40 years and said he gained his greatest satisfaction by helping “salt-of-the-earth people” like the Papouseks prevail in their case, said most non-ranchers had little comprehension of the destruction Storm Atlas had wrought or the strain it had placed on small family ranching operations, some of which lost scores of cattle.
“In some cases, these losses were tremendous,” he said. “Until you see the pictures and the number of cattle lost, you can’t understand the devastation. They were the future of these ranches and, in some instances, it put people out of business.”
Atlas Shrugged: The Definition Of Drowning
Posted: Wednesday, August 3, 2016 9:55 pm
By Thomas E. Simmons University of South Dakota
The blizzard of 2013 was a doozy. Over a two-day period in early October, “Winter Storm Atlas” raged. It began as rain but soon turned to snow. The snowfall reached nearly two feet. Winds topped 70 miles per hour.
Richard and Lorayna Papousek ranch near Quinn, South Dakota. As the storm subsided, they discovered 93 of their yearling heifers lying dead on the prairie.
A veterinarian examined eight or so of the corpses. The heifers’ lungs were saturated with water, their airways obstructed with foam. Clear liquid filled all of the cow’s airways and it ran from their noses.
The cattle, it seemed, had inhaled first the rain and then the snow. A lack of oxygen led to cardiac arrest, followed by death. The heifers, the veterinarian concluded “absolutely died due to drowning.” The Papouseks filed a claim for their cattle losses with their insurer.
Their insurance was a Farmowner-Ranchowner Policy from De Smet Mutual Insurance Company. The policy provided coverage for cattle deaths caused by several named perils including drowning. But because the heifers had not been submerged in water, De Smet denied the claim. The Papouseks sued.
The Papouseks introduced testimony from their veterinarian. De Smet did not dispute the cause of the cattle’s deaths, but it argued that “drowning” meant death caused by immersion in liquid. Since the cattle had not been submerged in water, their loss had not been caused by drowning, De Smet reasoned.
Pennington County’s Judge Wally Eklund agreed and dismissed the Papousek’s complaint. They appealed. As the case of Papousek v. De Smet Farm Mutual Insurance Company reached the South Dakota Supreme Court, the parties repeated their arguments on the meaning of drowning.
Two of the five jurists, Justices Severson and Wilbur, concluded that drowning could mean death by immersion as well as death resulting from excessive inhalation of water. Therefore, the heifers’ death was caused by a peril for which the Papouseks had insurance. They held for the Papouseks and against De Smet.
The other three members of the South Dakota Supreme Court agreed that the Papouseks should prevail, but disagreed slightly with Justices Severson’s and Wilbur’s reasoning. Drowning, they concluded, was a term with alternate definitions — death by immersion or death by suffocation from excessive fluids. The term “drowning,” therefore, was ambiguous. It could mean death caused only by immersion. It could just as reasonably mean death from inhaling water; death that results from liquid which prevents breathing, which is what happened to the Papouseks’ cattle caught in the blizzard. Which definition applied was unclear.
The law of insurance states that when a policy term is ambiguous, it should be construed in the insured’s favor. It’s a sensible rule. It is the insurer company that drafts the policy language, defining what constitutes a named peril and what does not. When the chosen language is unclear in a given circumstance, it ought to be read so as to provide coverage.
De Smet’s policy identified drowning as a named peril. The policy itself did not define drowning. Nor did it restrict coverage to drowning under certain circumstances, or provide any exceptions to coverage for drowning losses.
The policy also included coverage for cattle deaths from windstorms, then excluded deaths caused by windstorms when resulting from running against fences, fright or suffocation. De Smet argued that the suffocation exception also applied to death by drowning.
The court dismissed that idea. The language limiting the scope of coverage from windstorm losses did not also modify the coverage for drowning. There was no scope of coverage limitation for drowning. Judgment was entered for the Papouseks.
Thomas E. Simmons is an associate professor at the University of South Dakota School of Law in Vermillion. Simmons’ views are his own and not those of USD.
South Dakota Majority Reverses No Coverage Ruling For Cattle Killed In Winter Storm(July 25, 2016, 1:24 PM ET) -- PIERRE, S.D. — A majority of the South Dakota Supreme Court on July 20 reversed a lower court’s ruling that an insurer has no duty to indemnify its insureds for their loss of 93 cattle during winter storm Atlas, finding that the insurance policy’s drowning provision is ambiguous (Richard Papousek v. De Smet Farm Mutual Insurance Company of South Dakota, No. 27658, S.D. Sup.; 2016 S.D. LEXIS 93).
(Opinion available. Document #51-160811-009Z.)
Richard and Lorayna Papousek, who own and operate a crop-and-livestock ranch, discovered that 93 of their cattle died following winter storm Atlas in October 2013.
Dr. Jim McConaghy determined that the cause of the cattle's death was drowning.
The Papouseks filed a claim under the drowning provision of a Farmowner—Ranchowner Policy that was issued by De Smet Farm Mutual Insurance Company of South Dakota. De Smet denied coverage, contending that none of the 93 cattle was found submerged in water.
Papouseks sued the insurer in the 17th Judicial Circuit Court in Pennington County, S.D., seeking a declaration as to coverage. Judge Wally Eklund ruled in favor of the insurer, finding that the plain meaning of drowning is "the deprivation of life by immersion in water or other liquid."
The Papouseks appealed to the South Dakota Supreme Court, contending that the drowning provision is ambiguous and, as a result, should be construed in their favor.
2 Reasonable Interpretations
The majority agreed.
“‘Drowning’ is undefined in the Policy, and both De Smet and Papouseks offer reasonable interpretations of the term. De Smet points out that a common understanding of the term requires some form of submersion or immersion in water or other liquid. . . . Papouseks point out, however, that reasonable people understand that the hallmark of drowning is not the presence of water outside the body; rather, it is death caused by water or fluid within the body. . . . Because we agree with Papouseks that the undefined term is susceptible to these two reasonable interpretations, the provision indemnifying loss caused by drowning is ambiguous. We therefore construe the provision liberally in Papouseks' favor. . . . In turn, the dispositive question is whether Papouseks established that the cattle died from inhaling water.”
The majority noted that McConaghy concluded that “the cattle's lungs were saturated with water and their airways were obstructed with foam (air trapped in water).”
“In addition, Dr. McConaghy found clear liquid in all airways and running from the cattle's noses. Dr. McConaghy speculated that during the storm, the cattle inhaled large quantities of rain and then snow, resulting in a lack of oxygen and eventually cardiac arrest and death. In Dr. McConaghy's opinion, his findings indicated that the cattle ‘absolutely died due to drowning.’ De Smet neither refuted Dr. McConaghy's findings nor contradicted his opinion with competent evidence. Indeed, De Smet proffered no evidence to the contrary. Based on this record, we find Papouseks established coverage under the drowning provision.”
De Smet argued that the policy’s windstorms or hail provision provides that coverage is barred for loss "caused directly or indirectly by frost, cold weather, ice (other than hail), snow or sleet, all whether wind-driven or not;" and loss to livestock caused by or resulting from "smothering, suffocation or asphyxiation" or "freezing in blizzards or snowstorms[.]"
De Smet argued that this language applies to bar coverage because the insureds established that the cattle died in part from the inhalation of snow.
The majority noted the policy is a named-peril policy and the insureds only claimed coverage pursuant to the drowning peril.
“Importantly, the drowning provision contains no exclusions or similar explanatory language. . . . Furthermore, to the degree that De Smet believes this explanatory language also modifies the drowning provision, it is mistaken — the explanatory language of the windstorms-or-hail provision is prefaced by ‘[t]his does not cover loss’, followed by the list explaining the scope of coverage. Thus, the explanatory language limiting the scope of coverage for losses caused by windstorms or hail neither applies to this case nor modifies the other covered perils. De Smet failed to prove that an applicable policy exclusion exempted Papouseks from coverage.”
Associate Justice Janine M. Kern wrote the opinion, which was joined by Chief Justice David Gilbertson and Associate Justice Steven L. Zinter. Associate Justice Glen A. Severson filed a separate concurrence, which was joined by Associate Justice Lori S. Wilbur.
“The Policy covers named perils including drowning, and no applicable exclusions apply. The uncontested opinion of Dr. McConaghy from his postmortem examination, submitted to the court by affidavit at the summary judgment hearing, was that the cattle died from drowning. I would not find the term drowning to be ambiguous. The term only became ambiguous when the circuit court added words from dictionary definitions to a clear term in the Policy. The clear terms of the Policy do not limit drowning to submersion in water. Thus I concur in reversal and remand to the circuit court to enter summary judgment in favor of Papouseks,” Associate Justice Severson said.
Sarah Baron Houy and Michael M. Hickey of Bangs, McCullen, Butler, Foye & Simmons in Rapid City, S.D., represent the insureds. Jessica L. Larson of Beardsley, Jensen & Lee Professional in Rapid City represents De Smet.