Western National Mutual Insurance Co. v. TSP, Inc.
2017 SD 72
| S.D. | 2017Background
- BHI, general contractor on a condo project, hired LandTeam to perform land surveying; LandTeam’s error placed two completed condos inside a required 50-foot setback, preventing occupancy.
- Regency (owner) purchased a buffer strip to cure the defect for $302,208.50; TSP (architect) paid the full amount after BHI agreed to share but did not reimburse TSP.
- BHI was insured under Western National’s commercial general liability (CGL) policy (coverage period beginning Mar. 31, 2005); BHI timely notified Western National but the insurer declined coverage and refused defense.
- TSP sued BHI; BHI entered a Miller–Shugart settlement confessing judgment and assigning its insurance rights to TSP; TSP sought coverage from Western National via declaratory action after assignment.
- The circuit court granted summary judgment to TSP, found the Miller–Shugart settlement valid, and awarded TSP attorneys’ fees under SDCL 58-12-3 and SDCL 58-33-46.1; Western National appealed.
Issues
| Issue | Plaintiff's Argument (Western National) | Defendant's Argument (TSP) | Held |
|---|---|---|---|
| Whether the Designated Professional Services endorsement excludes coverage for property damage caused by LandTeam’s surveying error | The endorsement bars coverage because land surveying is a professional service and the exclusion covers property damage "due to the rendering of . . . any professional service," including subcontractors’ work | The endorsement should not reach subcontractor work for the insured; applying it here would be overly broad and exclude routine construction work | The endorsement applies: land surveying is a professional service and "any" unambiguously covers the subcontractor’s surveying, so the professional services exclusion defeats coverage (reverse summary judgment for TSP) |
| Whether the policy otherwise required an "occurrence" and property damage | Argued coverage fails because defective work that only damages the insured’s work product is not an occurrence; structures never encroached on third‑party property | TSP contended the loss resulting from the surveying error produced covered property damage and an occurrence | Court did not decide occurrence threshold because the professional services exclusion resolved coverage in insurer’s favor |
| Validity of the Miller–Shugart settlement and assignability of BHI’s rights | Western National challenged validity and binding effect of the confessed judgment/assignment absent coverage | TSP asserted the Miller–Shugart settlement was valid and permitted assignment of BHI’s rights | Court below had upheld the settlement, but on appeal the exclusion eliminated coverage such that the settlement cannot bind insurer; appellate decision reverses grant of summary judgment to TSP |
| Award of attorneys’ fees under SDCL 58-12-3 and SDCL 58-33-46.1 | SDCL 58-12-3 inapplicable to TSP (not the insured) and court erred in awarding fees; insurer admitted violation of SDCL 58-33-67(1) but challenged private recovery | TSP claimed it was a proper assignee and could recover fees; sought fees under both statutes for insurer’s unreasonable denial and unfair claim practices | SDCL 58-12-3 cannot support TSP’s fees because TSP did not obtain judgment "for plaintiff" on denial of coverage; but TSP may recover attorneys’ fees under SDCL 58-33-46.1 for insurer’s violations of SDCL 58-33-67(1). Case remanded for the trial court to parse and determine the portion of fees attributable to the Unfair Claims Practices Act violation |
Key Cases Cited
- St. Paul Fire & Marine Ins. Co. v. Engelmann, 639 N.W.2d 192 (S.D. 2002) (definition of "professional service" in CGL contexts)
- Swenson v. Auto Owners Ins. Co., 831 N.W.2d 402 (S.D. 2013) (insurance policy interpretation; give plain meaning to policy language)
- Ass Kickin Ranch, LLC v. N. Star Mut. Ins. Co., 822 N.W.2d 724 (S.D. 2012) (insurer bears burden to prove applicability of policy exclusions)
- Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982) (validity and limits of confessed-judgment settlements assigning insurance rights)
- Jackson v. Canyon Place Homeowner’s Ass’n, Inc., 731 N.W.2d 210 (S.D. 2007) (use of statutes and dictionary to determine plain meaning of undefined contract terms)
- W. Nat’l Mut. Ins. Co. v. Decker, 791 N.W.2d 799 (S.D. 2010) (avoid strained constructions; enforce plain policy language)