CONSIDERED ON BRIEFS ON FEBRUARY 13, 2017
FROM THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT
MINNEHAHA COUNTY, SOUTH DAKOTA THE HONORABLE JOHN R. PEKAS
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
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
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
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.
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.
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.
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.
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
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.
"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
"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.
"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.
1. Whether the damages a leged by the Browns were
caused by an occurrence as defined by the
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 ...