The questions involved in this case are matters to be determined by South Dakota law. St. Paul Fire Marine Ins. Co. v. Northern Grain Co., 365 F.2d 361, 368 (8th Cir. 1966). The Eighth Circuit has stated clearly that it is not this Court's task to "formulate the legal mind of the state, but merely to ascertain and apply it." Id., citing, Village of Brooten v. Cudahy Packing Co., 291 F.2d 284, 288 (8th Cir. 1961).
566 F. Supp. at 552. The cases Iowa National relies upon for its proposition that diminution in value cannot constitute "property damage," St. Paul Fire and Marine Insurance Co. v. Northern Grain Co., 365 F.2d 361, 366 (8th Cir. 1966) (diminution in value of wheat crop caused by sale of wrong type of seed), and American Motorists Insurance Co. v. Trane Co., 544 F. Supp. 669, 687 (W.D.Wis. 1982) (diminished value of liquid natural gas plants, in the form of production shortfalls, caused by faulty heat exchangers), are inapposite. Here, the physical damage to tangible property, i.e., the physical deterioration of the floor, is manifest.
Courts have interpreted and applied the term "accident" as used in general liability insurance policies broadly, and have declined to limit its meaning to an event which happened suddenly and violently. St. Paul Fire and Marine Insurance Company v. Northern Grain Company, 365 F.2d 361, 365 (8th Cir. 1966). The courts are practically agreed that the word "accident" means that which happens by chance or fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen.
There the plaintiff conceded that the damage involved was embraced within the exclusionary provision but claimed that provision ambiguous in reference to the term "products hazard" and policy definition of "operations." Home Indemnity in turn relied upon another Eighth Circuit case of St. Paul Fire Marine Ins. Co. v. Northern Grain, 365 F.2d 361 (8th Cir., 1966), which dealt with the substantive law of South Dakota. In St. Paul Fire the Court allowed recovery under a products hazard policy where the insured Grain Company mistakenly sold wheat seed that was less productive than the seed ordered.
Since this is a diversity action it is the Court's duty to ascertain the law of the State of South Dakota and apply it to the facts of the case. St. Paul Fire Marine Insurance Co. v. Northern Grain Co., 365 F.2d 361, 368 (8th Cir., 1966) The applicable rule to be applied to the construction of insurance policies was set forth by the South Dakota Supreme Court in the case of Grandpre v. Northwestern National Life Insurance Company, 261 N.W.2d 804, 807 (S.D. 1977):
I agree with this formulation; further, I conclude that the complaining party is "injured" when the damage actually appears to that party. See, e.g., St. Paul Fire Marine Insurance Co. v. Northern Grain Co., 365 F.2d 361 (8th Cir. 1966) ("occurrence" determined at point when crop damage resulting from sale of improper seed appeared); Miller v. Lindgate Developers, Inc., 274 F. Supp. 980 (E.D.Mo. 1967) ("occurrence" determined at point when damage to building from improper construction appeared). I conclude that this standard is what a reasonable person in the position of the insured would have believed to be the method of determining coverage.Ehlers v. Colonial Penn Insurance Co., 81 Wis.2d 64, 259 N.W.2d 718 (1977).
In the instant case, it is clear that the alleged injury to and destruction of the claimants' potato seed pieces and potato crops constituted "injuries to or destruction of property" within the meaning of the very broad coverage afforded under Insuring Agreement II of this Blanket Liability Policy. See St. Paul Fire Marine Ins. Co. v. Northern Grain Co., 365 F.2d 361, 365-367 (8th Cir. 1966). It is further apparent that the injury to claimants' potato seed pieces and potato crops "unexpectedly and unintentionally" resulted from "a continuous or repeated exposure to conditions," thus constituting an "occurrence" within the meaning of paragraph D(c) of the policy. INA argues, however, that there was no "occurrence" because the "conditions" that caused the injury was not Stauffer's product, Captan 4 Flowable, which merely failed to prevent the "conditions" ("seed rot" and "damp off") that unexpectedly and unintentionally caused the injury. This contention must be rejected because there is nothing in the definition of the term "occurrence" nor is there language anywhere else in the policy, which prescribes what or who must cause the "conditions" which cause the injury to or destruction of property.
The type of insurance contract which we are considering here was rewritten prior to the accrual of the claim for relief herein in order to eliminate future decisions awarding coverage to insureds for products liability claims based on breach of warranty where no active malfunctioning of the product caused actual physical damage. Case holdings previous to the rewriting of this type of liability insurance policy reached conclusions contrary to the decision in the instant case. For example, in St. Paul Fire and Marine Insurance Co. v. Northern Grain Co., 365 F.2d 361 (8 Cir. 1966), the insuring clause was substantially the same as that in the instant case, but exclusions such as Exclusion (h) in the case at bar were not present in the Northern Grain case. In the Northern Grain case, some farmers bought seed wheat from Northern Grain Company, which seed wheat proved to be the wrong type.
(See Exclusions — Part I(f) (4) quoted in the majority opinion.) St. Paul Fire and Marine Ins. Co. v. Northern Grain Co., 365 F.2d 361 (8th Cir. 1966); Bowman Steel Corp. v. Lumbermens Mut. Cas. Co., 364 F.2d 246 (3d Cir. 1966); Pittsburgh Plate Glass Co. v. Fidelity and Cas. Co., 281 F.2d 538 (3d Cir. 1960); Geddes Smith, Inc. v. St. Paul Mercury Indem. Co., 63 Cal.2d 602, 47 Cal.Rptr. 564, 407 P.2d 868 (1965). Appellant contends that the general policy condition, that it "applies to occurrences which arise within the United States of America, its territories or possessions, or Canada," is controlling.
(Italics ours.) This conclusion is further supported by Labberton v. General Cas. Co. of America, 53 Wn.2d 180, 332 P.2d 250 (1958); and St. Paul Fire Marine Ins. Co. v. Northern Grain Co., 365 F.2d 361 (8th Cir. 1966). Both of these cases endorse the principle that once the injury is covered by the policy, then the resulting damage is covered.