This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1996).




John A. Nygard, et al.,



Western National Insurance Company,


Filed January 13, 1998


Huspeni, Judge

St. Louis County District Court

File No. C696601825

David L. Weidt, Providence Bldg., P. O. Box 630, Duluth, MN 55801-0630 (for appellants)

John D. Kelly, Mark D. Pilon, Hanft, Fride, O'Brien, Harries, Swelbar & Burns, P.A., 1000 First Bank Place, 130 W. Superior St., Duluth, MN 55802 (for respondent)

Considered and decided by Klaphake, Presiding Judge, Huspeni, Judge, and Harten, Judge.



Respondent insurer was granted summary judgment on the basis that neither any ambiguity in its policy nor any reasonable expectations of its insureds increased respondent's liability beyond the stated policy limit. Because we conclude there was no error of law, we affirm.


Appellants Annette and John Nygard obtained an insurance policy from respondent Western National Insurance Company to cover the construction of their home. Under the heading "Coverages and Limits of Liability" is a section labelled "A. Dwelling"; below this the amount "$200,000.00" is filled in. An endorsement page titled "Dwelling Under Construction" reads:

Builders' Risk

The insurance applies only to the dwelling or structure under Coverage A while under construction.


The premium is based on an average amount of insurance during construction.

Amount of Insurance

The limit of liability stated in the declarations for Coverage A is provisional. The actual amount of insurance on any date while the policy is in force will be a percentage of the provisional amount. The percentage will be the proportion that the actual value of the property bears to the value at the date of completion.

Under "Conditions" the policy states:

Insurable Interest and Limit of Liability.

Even if more than one person has an insurable interest in the property covered, we will not be liable in any one loss:

* * * *

(b) for more than the applicable limit of liability.

The policy went into effect when the building materials were delivered; it was renewed a year later with the same coverage limit. Four months after the renewal, the house was destroyed by fire. It was then 95% complete, and appellants claimed to have spent $350,000 on it. Respondent paid $200,000, the policy limit. Appellants sued respondent for coverage of the entire loss. Respondent was granted summary judgment on the ground that its liability did not exceed the limit of its policy.


"Insurance coverage issues are questions of law for the court." State Farm Ins. Cos. v. Seefeld, 481 N.W.2d 62, 64 (Minn. 1992). The only issue in this case is whether the word "provisional" on an endorsement can operate to increase coverage beyond the stated policy limit. Appellants argue first that the word "provisional" is ambiguous because it is susceptible to more than one construction and, in the alternative, that they had a reasonable expectation of coverage beyond $200,000. We conclude that there is no merit in either of these theories.

The term "provisional" is used in the policy paragraph headed "Amount of Insurance"; it is followed by an explanation of how the amount is to be calculated, i.e., by using the percentage of the building's value at the time it is destroyed against the value it would have had if it had been completed. We see no ambiguity in the word "provisional" as used in this context.

Appellants also argue that the term "provisional" is ambiguous because it creates an irreconcilable conflict with the stated limit of coverage, $200,000: a limit cannot be both provisional and fixed. However, the endorsement resolves this conflict by stating how the provisional amount is related to the stated limit.

Nor are we persuaded by appellants' argument that the contra insurer rule mandates coverage. See Nordby v. Atlantic Mut. Ins. Co., 329 N.W.2d 820, 822-23 (Minn. 1983) (setting forth the rule that when a policy is ambiguous it should be construed in favor of coverage, but finding no ambiguity and therefore no coverage because "[a] careful and complete reading of the endorsement reveals a clear exclusion of coverage."). The same is true here. A careful and complete reading of the endorsement reveals an exclusion of coverage beyond that percentage of the policy limit of $200,000 which was the building's value at the time of destruction compared to its value if completed. There is no ambiguity.[1]

Finally, appellants argue that even if the policy is not ambiguous, it must be construed in favor of the insured to permit liability of over $200,000, citing the "reasonable expectations" doctrine set out in Atwater Creamery Co. v. Western National Mutual Ins. Co., 366 N.W.2d 271 (Minn. 1985).

The objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations.

Id. at 277 (citation and quotation omitted). However,

[t]he [Atwater] doctrine does not remove from the insured the responsibility to read the policy but at the same time does not hold the insured to an unreasonable level of understanding of the policy. See [Atwater], at 278. Other factors to be considered are the presence of ambiguity, language which operates as a hidden exclusion, oral communications from the insurer explaining important but obscure conditions or exclusions, and whether the provisions in a contract are known by the public generally. See id. at 277, 278. In short, the doctrine asks whether the insured's expectation of coverage is reasonable given all the facts and circumstances.

Hubred v. Control Data Corp., 442 N.W.2d 308, 311 (Minn. 1989) (denying coverage to insureds who "point to no facts or circumstances which * * * would justify a reasonable expectation of coverage in this case"). Like the insureds in Hubred, appellants point to no facts or circumstances that justify their expectation of coverage. They must be held to have understood that for the premium paid they were receiving a maximum of $200,000 coverage. We conclude that their expectation was not objectively reasonable.

We find no ambiguity in the policy to justify construing it to provide coverage beyond its stated limit and no reasonable expectation of coverage beyond that limit.


[1] Even if the term were ambiguous, and extrinsic evidence could be used in its construction, appellants offer no evidence other than the conjecture that parties to an insurance contract intend that coverage and premiums be adjusted to reflect the full amount at risk and the assertion that they intended the policy limit to be raised if construction costs exceeded the limit, just as respondent intended the limit to be lowered if the building were destroyed before completion. However, while appellants may have intended to insure the full amount at risk, there is nothing in the policy indicating that intent and there is no other evidence indicating that they ever asked for greater coverage.