In Ass Kickin Ranch, LLC v. North Star Mut. Ins. Co., --- N.W.2d ----, 2012 WL 4960082 (S.D. Oct. 17, 2012), the Supreme Court of South Dakota held that, as a matter of first impression, an insurance policy’s exclusion of “windmills, windchargers, or their towers” included unassembled wind turbines.
North Star Mutual Insurance Company issued an insurance policy (the North Star policy) to Ass Kickin Ranch, which included first-party coverage for unscheduled farm personal property. During the policy period, a shop building on the ranch’s property burned down, destroying the building and its contents. The building’s contents included unassembled parts for two electric generating wind turbines. The ranch had purchased the unassembled wind turbines with a check, which indicated on the memo line that the payment was for “2 windmills.” Each of the unassembled wind turbines consisted of a tower, a generator, a transmission, blades and controls. The wind turbines had never been assembled or installed on the ranch’s property before being destroyed. In order to complete installation, the ranch would have needed to pour cement footings to support the assembled wind turbines and then connect the assembled wind turbines to a power source.
The ranch tendered a claim for coverage under the North Star Policy “for [damage to] unscheduled farm personal property.” North Star denied coverage for the two unassembled wind turbines under a policy exclusion precluding coverage for “fences, windmills, windchargers, or their towers.” Subsequently, the ranch sued North Star, alleging breach of contract and bad faith for North Star’s denial of coverage for the unassembled wind turbines. The parties filed cross-motions for summary judgment. The Sixth Judicial Circuit Court, Hughes County, granted summary judgment in favor of North Star, and the ranch appealed.
On appeal, North Star argued that the policy language excluding coverage for “fences, windmills, windchargers, or their towers” encompassed all windmills and windchargers, regardless of whether they are assembled, unassembled, functional or nonfunctional. According to the ranch, a “pile of parts” that has never been assembled on the property did not constitute a windmill or a windcharger for purposes of the exclusion.
The Supreme Court of South Dakota affirmed, holding that the circuit court correctly determined that the ranch’s unassembled wind turbines were precluded from coverage, as the language of the exclusion was unambiguous and the plain and ordinary meanings of “windmill” and “windcharger” encompassed the unassembled wind turbines. The court applied what it said was the plain meaning of the insurance policy. In its view, the ranch’s unassembled wind turbines were clearly and plainly excluded “windmills” and “windchargers.” The court held that “plain and ordinary meaning of these words” included the “unassembled wind turbines” at issue and was intended to be construed broadly.
Finally, the court found that notation on the memo line of the check the ranch wrote to pay for the unassembled wind turbines was significant because it demonstrated that the ranch understood the unassembled wind turbines were windmills even though they were not yet assembled and operating. Thus, according to the court, the unassembled wind turbines were “windmills” and “windchargers” were excluded from coverage, because the ranch intended to use them to generate electricity.