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SD Supreme Court says insurance company did not violate public policy in Kimball school case

KIMBALL -- The South Dakota Supreme Court has ruled an insurance company did not violate public policy by excluding coverage of property damage to the Kimball school that happened prior to the policy's effective date.

Thomas & Sons LLC was hired in 2002 to excavate and compact soil for construction of an addition to Kimball Public School. The project was completed in 2004, and a year later, the building's floor began to shift. In 2006, walls began to crack.

The problems persisted through 2010, and reports showed the problems were a result of poor soil compaction and excavation performed by Thomas & Sons.

The school sued Thomas & Sons and other defendants that year. The company's commercial general liability insurer, Employers Mutual Casualty Company (EMC), was granted summary judgment in circuit court because its contract with the company postdated the damage to the school. EMC said it didn't have to defend Thomas & Sons or pay defense costs.

The Kimball School District won its lawsuit. Thomas & Sons' other insurer -- AMCO Insurance Company -- paid defense costs of $124,853 and compensated Thomas & Sons $342,187.50, plus prejudgment interest.

AMCO claimed EMC had the duty to pay defense costs and defend its client, stating the company's exclusion of coverage was against public policy. AMCO's cross-claim for summary judgment of half the defense costs was denied in circuit court, so AMCO appealed to the Supreme Court.

In its decision, the Supreme Court states there are no "statutes regulating commercial general liability insurance. Nor has AMCO directed us to any action by the South Dakota Division of Insurance related to commercial general liability insurance."

The justices said EMC's exclusion does not violate public policy as "general liability insurance contracts commonly limit the risks the insurer intends to indemnify."

"Because EMC's policy provision is neither 'prohibited by statute, condemned by judicial decision, nor contrary to any identifiable public morals,' we see no indication that its exclusion violates public policy," the justices wrote.