Swenson v. Auto-Owners Insurance Co.
2013 SD 38
S.D.2013Background
- Swenson and Stewart contracted with DJ Construction to build a home; DJ Construction was insured by Auto-Owners (policy: $1M per occurrence, terms include defense and indemnity duties).
- Construction materials were exposed to weather during a long suspension; materials left at site were damaged by rain/snow.
- Home was later damaged by water/mold; FBS concluded damage was caused by DJ Construction’s failure to protect materials and basement.
- DJ Construction made a defense/indemnity claim to Owners; Owners denied coverage after investigation.
- Swenson/Stewart settled with DJ Construction for a confessed judgment, assigning rights to Swenson/Stewart; Swenson/Stewart sued Owners for breach of contract and bad faith.
- Circuit court granted summary judgment for Owners, finding multiple policy exclusions applicable; Swenson/Stewart appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do Exclusions j(5), j(6), j(7) bar coverage? | Swenson argues exclusions are misapplied. | Owners contends exclusions clearly apply. | Exclusions apply; no coverage. |
| Did Owners have a duty to defend/indemnify under the policy given the exclusions? | DJ Construction’s acts caused damage; coverage should exist. | Exclusions remove duty to defend/indemnify. | No duty to defend/indemnify. |
| Was there bad-faith denial of benefits? | Denial lacked reasonable basis. | There was a reasonable basis due to exclusions. | No bad faith; reasonable basis shown. |
Key Cases Cited
- Demaray v. De Smet Farm Mut. Ins. Co., 2011 S.D. 39 (S.D. 2011) (insurance policy interpretation; duty to defend Plaintiff-friendly standard)
- State Farm Mut. Auto. Ins. Co. v. Wertz, 540 N.W.2d 636 (S.D. 1995) (insurer bears burden to show no duty to defend)
- Culhane v. W. Nat’l Mut. Ins. Co., 704 N.W.2d 287 (S.D. 2005) (policy exclusions construed; court rejects rewrite of contract)
- Alverson v. Nw. Nat’l Cas. Co., 559 N.W.2d 234 (S.D. 1997) (ambiguous exclusions; first-party vs third-party context distinctions)
- Haugan v. Home Indem. Co., 197 N.W.2d 18 (S.D. 1972) (early exclusion interpretation guidance)
- Am. Family Mut. Ins. Co. v. Elliot, 523 N.W.2d 100 (S.D. 1994) (policy language construed in favor of insured if ambiguous)