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Lowery Construction & Concrete, LLC v. Owners Insurance Co.

Supreme Court of South Dakota

August 30, 2017

OWNERS INSURANCE COMPANY, Defendant and Appellee.



          HEATHER M. LAMMERS BOGARD STEPHEN C. HOFFMAN of Costello, Porter, Hill, Heisterkamp, Bushnell & Carpenter, LLP Rapid City, South Dakota Attorneys for plaintiff and appellant.

          HILARY L. WILLIAMSON MOLLY K. BECK of Fuller & Williamson, LLP Sioux Falls, South Dakota Attorneys for defendant and appellee.


         [¶1.] Lowery Construction & Concrete, LLC appeals the circuit court's determination that Owners Insurance Company did not have a duty to defend Lowery in an action filed by homeowners Tony and Stephanie Hague. The circuit court concluded that coverage was excluded because the damage to the Hagues' home was caused by Lowery's defective work. Lowery argues the policy only excludes the defective work itself, not damage to other nondefective work. We reverse.

         Facts and Procedural History

         [¶2.] Around September 28, 2012, the Hagues hired Lowery to serve as the general contractor in the construction of their new home in Piedmont, South Dakota. The ranch-style home was built with a basement, which included a walkout entrance on the north side. The basement walkout exited onto a concrete patio. Lowery installed drain tile along the perimeter of the home's foundation but not along the patio and northeast corner of the home. Lowery substantially completed construction of the home on August 13, 2013, and then the Hagues immediately occupied the home.

         [¶3.] On February 24, 2015, the Hagues sued Lowery for breach of contract, breach of implied warranty, and negligent construction. In their complaint, the Hagues alleged that prior to moving in, they noticed: cracks forming in the walls, ceilings, and windows; several doors and windows would not open, and their frames were cracked; and the basement floor heaved near the walkout entrance. The Hagues also identified that the patio's concrete slab had previously heaved and been replaced in July 2013, and ultimately, Lowery removed it in November 2013 because it again heaved.

         [¶4.] The Hagues' theory of liability centered on Lowery's failure to install drain tile at one corner of the foundation. According to the Hagues, Lowery and its subcontractor Geidel Excavation LP determined that installing the missing drain tile would prevent the patio slab from heaving again. However, once Geidel began excavating, it became concerned that the house was not level and stopped digging. The Hagues alleged that the missing drain tile permitted water to reach expanding soil beneath the home, which caused the heaving and resulting damage.

         [¶5.] Lowery was insured by Owners with commercial general liability (CGL) and inland marine coverage. In response to the Hagues' complaint, Lowery submitted a claim to Owners, which agreed to defend Lowery but reserved the right to withdraw the defense. Owners defended while Lowery and the Hagues attempted mediation, which proved unsuccessful. Owners ultimately withdrew its defense after determining that several policy exclusions applied.

         [¶6.] On December 17, 2015, Lowery filed a declaratory judgment action against Owners, seeking a declaration that Owners had a duty to defend Lowery. Lowery also requested attorney fees, [1] alleging Owners' refusal to provide coverage for Lowery's claim was vexatious and without reasonable cause. Lowery filed a motion for summary judgment, which the circuit court denied. The court determined that as a matter of law, Owners had no duty to defend Lowery from the Hagues' action. Lowery appeals.

         Standard of Review

         [¶7.] The interpretation of an insurance contract presents a question of law, which we review de novo. N. Star Mut. Ins. v. Korzan, 2015 S.D. 97, ¶ 13, 873 N.W.2d 57, 61. Likewise, we review a court's decision to grant summary judgment de novo. Highmark Fed. Credit Union v. Hunter, 2012 S.D. 37, ¶ 7, 814 N.W.2d 413, 415. "We view the evidence 'most favorably to the nonmoving party and resolve reasonable doubts against the moving party.'" Pitt-Hart v. Sanford USD Med. Ctr., 2016 S.D. 33, ¶ 6, 878 N.W.2d 406, 409 (quoting Gades v. Meyer Modernizing Co., 2015 S.D. 42, ¶ 7, 865 N.W.2d 155, 158). However, in determining whether an insurance company has a duty to defend its ...

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