Summary of a Recent
Judicial Development in
Commercial Transactions

Insurance Policy Excludes Coverage for Cattle Held in Bailment

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Schultz v. Western United Mutual Insurance Association, No. A-08-941, 2009 WL 1272390 (Neb. Ct. App. May 5, 2009), the Nebraska Court of Appeals affirmed the district court's ruling that the defendant insurance company's policy excluded coverage for a bailee, and thus because the plaintiff was holding calves that were stolen from his property under a bailment arrangement, the defendant was justified in denying his insurance claim.

Background

The plaintiff entered into an agreement to raise and feed dairy calves for a local dairy farm. Id. at *1. Under the agreement, the plaintiff had the option of purchasing bull calves for a reduced price once they reached four months of age, while he continued to raise the heifer calves subject to the dairy's ownership interests. Id. Due to the dairy's financial problems, the plaintiff obtained a loan to pay for feed to keep the operation going, using his right to sell some of the cattle as collateral. Id. He later took out a blanket farm premises loss/liability policy on everything he owned in order to secure further financing. Id. Eighty-eight heifers were subsequently stolen from the plaintiff's operation, and his insurer denied his loss claim because the heifers actually belonged to the dairy and the insurance policy did not cover bailment arrangements. Id. at *2. The plaintiff then commenced this action against the insurer for breach of contract and bad faith. Id. The district court granted the insurer's motion for summary judgment after determining that the plaintiff never had title to the heifers, and the plaintiff appealed. Id.

Arguments

The plaintiff argued that the district court erred in determining that he did not have an insurable interest in the heifers, that the cattle were being raised as part of a joint venture with the dairy and not in a bailment, and that it was unclear whether the insurance policy covered livestock in his possession and control. Id.

Analysis and Holdings

The appellate court explained that it was irrelevant whether the plaintiff had an insurable interest in the heifers, because the bottom line was that the insurance policy excluded coverage for cattle held in bailment. Id. The court concluded that there was "no genuine issue of material fact that [the plaintiff] held the heifers under a bailment arrangement," so "[w]hether he also held them as part of a joint venture [was] immaterial under the insurance policy." Id. at *3. The court further held that the insurance policy was not ambiguous because it plainly stated that the policy did not "recognize any assignment or grant any coverage for the benefit of any person or organization holding, storing or transporting property for a fee regardless of any other provision of this policy." Id. Therefore, the appellate court affirmed the district court's grant of summary judgment for the defendant insurer. Id. at *6.

The case was decided on May 5, 2009.