CONSIDERED ON BRIEFS FEBRUARY 13, 2017
FROM THE CIRCUIT COURT OF THE SEVENTH JUDICIAL CIRCUIT
PENNINGTON COUNTY, SOUTH DAKOTA THE HONORABLE WALLY EKLUND
HEATHER M. LAMMERS BOGARD STEPHEN C. HOFFMAN of Costello,
Porter, Hill, Heisterkamp, Bushnell & Carpenter, LLP
Rapid City, South Dakota Attorneys for plaintiff and
L. WILLIAMSON MOLLY K. BECK of Fuller & Williamson, LLP
Sioux Falls, South Dakota Attorneys for defendant and
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
and Procedural History
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.
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.
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.
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.
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,
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.
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