Owners Insurance Co. v. Tibke Construction, Inc.
2017 SD 51
| S.D. | 2017Background
- Homeowners (the Browns) sued general contractor Tibke and subcontractor Jerry’s Excavating for construction-related property damage allegedly caused by building on expansive soil; complaint alleged Jerry’s failed to perform soil-compaction testing.
- Tibke was insured under a commercial general liability (CGL) policy issued by Owners Insurance; Owners defended under a reservation of rights and filed a declaratory-judgment action seeking to deny coverage.
- Owners argued the damage arose from faulty workmanship (not an "occurrence") and that policy exclusions j(7) and l barred coverage.
- Tibke argued the failure to test soil was an accidental occurrence triggering coverage and that neither exclusion applied.
- The circuit court denied cross-motions for summary judgment, finding factual disputes about foreseeability of expansive soils; parties obtained intermediate appeals to the South Dakota Supreme Court.
Issues
| Issue | Plaintiff's Argument (Owners) | Defendant's Argument (Tibke) | Held |
|---|---|---|---|
| Whether the Browns’ damages were caused by an "occurrence" under the CGL policy | Faulty workmanship (failure to test) is not an "accident"/occurrence; it was an intentional choice and thus not covered | Failure to test was an unplanned omission whose consequences were unexpected — qualifies as an "accident"/occurrence | Held: Failure to test soil was an "occurrence" (accident) triggering coverage |
| Whether exclusion j(7) (damage to that particular part that must be repaired because your work was incorrect) bars coverage | j(7) should exclude whole-project damage arising from defective work on part of project (per Swenson/Haugan) | j(7) only excludes damage to the specific part where the insured’s work was defective; Browns did not allege defective construction of the damaged parts | Held: j(7) inapplicable — it excludes only damage to the particular part on which faulty work was performed |
| Whether exclusion l (damage to "your work" included in products-completed operations hazard) bars coverage | Exclusion l applies to damage arising from insured’s work post-completion and excludes coverage here; absence of subcontractor exception defeats coverage | Exclusion l only applies if damage is within the products-completed operations hazard (PCOH); Owners produced no evidence damages began after completion | Held: l inapplicable — Owners failed to show damage first occurred after completion, so PCOH exclusion does not apply |
| Whether factual disputes about foreseeability defeat coverage on summary judgment | Foreseeability of expansive soils is a disputed fact and relevant to coverage determination | Foreseeability is relevant to tort liability in the underlying suit but not to the threshold coverage determination of occurrence and exclusions | Held: Foreseeability is not material to the existence of coverage; summary judgment for Tibke should have been granted on coverage |
Key Cases Cited
- Corner Constr. Co. v. U.S. Fid. & Guar. Co., 638 N.W.2d 887 (S.D. 2002) (inadvertent subcontractor faulty work can be an "occurrence")
- Swenson v. Auto-Owners Ins. Co., 831 N.W.2d 402 (S.D. 2013) (interpreting j(7) exclusion where defective materials were incorporated into the finished home)
- K&L Homes, Inc. v. Am. Family Mut. Ins. Co., 829 N.W.2d 724 (N.D. 2013) (majority view that inadvertent faulty workmanship can be an occurrence)
- Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007) (deliberate act performed negligently may still be an accident if harmful result was unintended)
- Mid-Continent Cas. Co. v. HJP Dev., Inc., 557 F.3d 207 (5th Cir. 2009) (j(6)/j(7)-style exclusion excludes only damage to parts that were the subjects of defective work)
- Ass Kickin Ranch, LLC v. N. Star Mut. Ins. Co., 822 N.W.2d 724 (S.D. 2012) (insurer bears burden to prove an exclusion applies)