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Owners Insurance Co. v. Tibke Construction, Inc.

Supreme Court of South Dakota

August 23, 2017

OWNERS INSURANCE COMPANY, Plaintiff and Appellant,
v.
TIBKE CONSTRUCTION, INC., Defendant and Appellee, and JOEY BROWN and SONYA BROWN and JERRY'S EXCAVATING, INC., Defendants. OWNERS INSURANCE COMPANY, Plaintiff and Appellee,
v.
TIBKE CONSTRUCTION, INC., Defendant and Appellant, and JOEY BROWN and SONYA BROWN, and JERRY'S EXCAVATING, INC., Defendants.

          CONSIDERED ON BRIEFS ON FEBRUARY 13, 2017

         APPEAL FROM THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT MINNEHAHA COUNTY, SOUTH DAKOTA THE HONORABLE JOHN R. PEKAS Judge

          RONALD A. PARSONS JR. of Johnson Janklow Abdallah Reiter & Parsons LLP Sioux Falls, South Dakota MARK D. O'LEARY Sioux Falls, South Dakota Attorneys for plaintiff and appellant Owners Insurance Company #27932 and plaintiff and appellee #27938.

          DANIEL R. FRITZ NICOLE O. TUPMAN of Lindquist & Vennum, PLLP Sioux Falls, South Dakota Attorneys for defendant and appellee Tibke Construction, Inc. #27932 and defendant and appellant #27938.

          KERN, Justice.

         [¶1.] Homeowners sued a general contractor and a subcontractor for damages to their home. General contractor was insured under a commercial general liability (CGL) policy and requested defense and indemnification from its insurer. Insurer disputed coverage but defended general contractor under a reservation of rights. Insurer later filed a declaratory-judgment action, seeking a judgment that the CGL policy did not provide coverage for general contractor against homeowners' allegations. The parties filed cross-motions for summary judgment. The circuit court denied the motions, finding that a genuine issue of material fact existed regarding the foreseeability of homeowners' damages. Both parties filed petitions for intermediate appeal, which we granted and consolidated. We affirm the denial of summary judgment in favor of insurer, but we reverse the denial of summary judgment in favor of general contractor and remand for entry of an order consistent with this opinion.

         BACKGROUND

         [¶2.] Joey and Sonya Brown hired Tibke Construction Inc. as a general contractor to build a new house in Brandon, South Dakota. Tibke hired Jerry's Excavating Inc. as a subcontractor to prepare the soil and perform excavation work. In October 2012, Tibke completed the project.

         [¶3.] On September 3, 2014, the Browns sued Tibke and Jerry's Excavating for negligent construction and breach of contract. The Browns alleged that Jerry's Excavating failed to conduct soil-compaction testing before construction. In their complaint, the Browns averred the home was unknowingly built upon highly expansive soils, resulting in damage to the home in the form of "excessive settlement, cracking, structural unsoundness, and other damages." The Browns submitted that the damages were caused exclusively by acts or omissions of Jerry's Excavating but that the damage existed only on portions of the home not worked on by Jerry's Excavating. The Browns did not allege that Tibke improperly constructed any portion of the home, including the foundation and walls.

         [¶4.] Owners Insurance Company insured Tibke under a CGL policy. Under the terms of the policy, Owners provided coverage for claims arising out of property damage caused by an occurrence and not subject to policy exclusions. Tibke submitted a claim to Owners for defense and indemnification from the Browns' lawsuit. Owners disputed coverage but agreed to defend Tibke in the suit under a reservation of rights.

         [¶5.] On February 3, 2016, Owners filed an action for declaratory relief against Tibke, Jerry's Excavating, and the Browns, seeking a determination of the parties' rights and obligations under the CGL policy. Owners alleged that it had no duty to defend or indemnify Tibke for the property damage because "faulty workmanship" cannot be an occurrence under the CGL policy and that two exclusions, j(7) and l, precluded coverage. Owners and Tibke filed cross-motions for summary judgment on the question of coverage in the declaratory-judgment action. The Browns and Jerry's Excavating joined Tibke's motions.

         [¶6.] On June 13, 2016, the circuit court held a hearing on the cross-motions for summary judgment. After argument, the court declined to rule on the question of whether Tibke's claim was covered by the policy. Instead, the court denied the motions, finding that there were disputed questions of material fact regarding whether there was expansive soil under the home and, if so, whether it was foreseeable.[1]

         [¶7.] Owners and Tibke filed petitions for an intermediate appeal, which we granted and consolidated. We restate the three issues raised by the parties as follows:

1. Whether the damages alleged by the Browns were caused by an occurrence as defined by the CGL policy.
2. Whether exclusion j(7) precludes coverage under the CGL policy for the Browns' alleged property damage.
3. Whether exclusion l precludes coverage under the CGL policy for the Browns' alleged property damage.

         STANDARD OF REVIEW

         [¶8.] "We review a court's denial of a motion for summary judgment under the de novo standard of review." N. Star Mut. Ins. v. Korzan, 2015 S.D. 97, ¶ 12, 873 N.W.2d 57, 61. "Summary judgment is appropriate 'if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" Id. (quoting SDCL 15-6-56(c)).

         [¶9.] "The interpretation of an insurance policy is a question of law, reviewed de novo." Swenson v. Auto-Owners Ins. Co., 2013 S.D. 38, ¶ 13, 831 N.W.2d 402, 407. "The existence of the rights and obligations of parties to an insurance contract are determined by the language of the contract, which must be construed according to the plain meaning of its terms." Id. We consider the provisions of the CGL policy as a whole. Nelson v. Farmers Mut. Ins. Co. of Neb., 2004 S.D. 86, ¶ 11, 684 N.W.2d 74, 77.

         [¶10.] "When an insurer seeks to invoke a policy exclusion as a means of avoiding coverage, the insurer has the burden of proving that the exclusion applies." Ass Kickin Ranch, LLC v. N. Star Mut. Ins. Co., 2012 S.D. 73, ¶ 9, 822 N.W.2d 724, 727. "This burden is satisfied when the insurer shows the claim 'clearly falls outside of policy coverage.'" State Farm Fire & Cas. Co. v. Harbert, 2007 S.D. 107, ¶ 18, 741 N.W.2d 228, 234 (quoting State Farm Mut. Auto. Ins. Co. v. Wertz, 540 N.W.2d 636, 638 (S.D. 1995)). When "the provisions of an insurance policy are fairly susceptible of different interpretations, the interpretation most favorable to the insured should be adopted." Culhane v. W. Nat'l Mut. Ins. Co., 2005 S.D. 97, ¶ 19, 704 N.W.2d 287, 293.

         DECISION

         [¶11.] 1. Whether the damages a leged by the Browns were caused by an occurrence as defined by the CGL policy.

         [¶12.] Tibke purchased a CGL policy, which contains an insuring clause providing a grant of coverage. The insuring clause is set forth in § I of the policy and provides:

1. Insuring Agreement
a. [Owners] will pay those sums that the insured becomes legally obligated to pay as damages because of . . . "property damage" to ...

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