Opinion ID: 1248328
Heading Depth: 1
Heading Rank: 7

Heading: South Dakota's Substantive Law.

Text: Under South Dakota law, the insurer's duty to defend is severable and independent of its duty to pay and the duty to defend is a broader obligation, encompassing situations in which the duty to pay may not arise. Tri-State Co. of Minnesota v. Bollinger, 476 N.W.2d 697 (S.D.1991); Hawkeye-Security Ins. Co. v. Clifford, 366 N.W.2d 489 (S.D.1985). The insurer bears the burden of proving it had no duty to defend the insured. SDCP v. Wausau Underwriters Ins. Co., 616 N.W.2d 397 (S.D.2000); State Farm Mut. Auto. Ins. Co. v. Wertz, 540 N.W.2d 636 (S.D.1995). In order to meet this burden, the insurer must show that the claim clearly falls outside of policy coverage. Hawkeye-Security Ins. Co., 366 N.W.2d at 492. Under South Dakota law, the existence of the rights and obligations of parties to an insurance contract is determined by the language of the contract, which is to be construed according to the plain and ordinary meaning of the contract terms. Biegler v. American Family Mut. Ins. Co., 621 N.W.2d 592 (S.D.2001); Elrod v. General Cas. Co. of Wisconsin, 566 N.W.2d 482 (S.D.1997); Pete Lien & Sons v. First American Title, 478 N.W.2d 824 (S.D. 1991). When the insurance policy provisions are fairly susceptible of different interpretations, the interpretation most favorable to the insured should be adopted. Friesz ex rel. Friesz v. Farm & City Ins., 619 N.W.2d 677, 679 (S.D.2000). This rule of liberal construction, however, applies only when the contract language is ambiguous and susceptible of more than one interpretation. The Supreme Court of South Dakota has stated that the rule does not mean ... that a court may seek out a strained or unusual meaning for the benefit of the insured.... `[A]n ambiguity is not of itself created simply because the parties differ as to the interpretation of the contract.' Id. at 680 (quoting Johnson v. Johnson, 291 N.W.2d 776 (S.D. 1980)). South Dakota law recognizes that [i]nsurers may assume some risks and exempt themselves from liability for others. Black Hills Kennel Club v. Fireman's Fund Indemnity Company, 77 S.D. 503, 507, 94 N.W.2d 90, 92 (1959). Appeal: Court of Appeals' Decision That Chicago Title Did Not Have Duty to Defend Kirwans. In its amended petition filed in the district court and in its assignments of error on appeal to the Court of Appeals, the Kirwans claimed that Chicago Title had a duty to defend them in the South Dakota litigation and sought reimbursement for their attorney fees incurred in the successful defense of the title claim. Both the district court and the appellate court rejected this claim. On further review, we find no error by the Court of Appeals in rejecting the Kirwans' argument on appeal and in affirming the decision of the district court in this regard. The record in this appeal conclusively establishes that the Kirwans knew of the Vanderwerfs' claim before the title insurance policy was issued, but failed to notify Chicago Title until sometime after May 16, 1996, the date they became insureds under the policy. Pursuant to the language of the title insurance policy's exclusionary provisions, subsection 3(b), the Vanderwerfs' claim is excluded from coverage under the policy. As such, Chicago Title was not obligated to pay any damages, attorney fees, or expenses that arose by reason of such a claim. Summary judgment is proper only when the pleadings, depositions, admissions, stipulations, and affidavits in the record disclose that there is no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law. Allstate Ins. Co. v. LaRandeau, 261 Neb. 242, 622 N.W.2d 646 (2001). On the record presented in this appeal, the district court correctly rejected the Kirwans' claim in their amended petition for reimbursement of attorney fees incurred in the South Dakota litigation and correctly entered summary judgment in favor of Chicago Title and against the Kirwans on this claim. On appeal, the Court of Appeals affirmed the district court's decision. On further review, we affirm the decision of the Court of Appeals as to this issue. Cross-Appeal: Court of Appeals' Decision That Chicago Title Did Not Have Duty to Defend First Trust. The Kirwans assign as error on further review the decision of the Court of Appeals reversing the district court's order which had denied Chicago Title's motion for summary judgment on its counterclaim in which Chicago Title had sought an order directing the Kirwans to reimburse it for attorney fees Chicago Title had incurred in defending First Trust in the South Dakota litigation. In its decision, the Court of Appeals required the Kirwans upon remand to reimburse Chicago Title for attorney fees Chicago Title had paid on behalf of First Trust. We agree with the Kirwans that the Court of Appeals erred in its decision reversing the decision of the district court on this issue. In the district court, Chicago Title counterclaimed against the Kirwans for $10,795.43 for attorney fees that Chicago Title had paid in the defense of First Trust in the South Dakota litigation. The district court denied Chicago Title's motion for summary judgment on its counterclaim seeking reimbursement for those attorney fees. Chicago Title appealed to the Court of Appeals. Relying on the mortgage between the Kirwans and First Trust, the Court of Appeals reversed the district court's order. The Court of Appeals determined that under the Kirwans' mortgage with First Trust, the Kirwans were obligated to defend an action against their title to the subject property at their own cost. Referring to the language of the mortgage, the Court of Appeals noted that First Trust, on the purchaser's behalf, `may ... take any action that [First Trust] deems appropriate' and the expenses of such action shall be paid by the purchaser. Kirwan v. Chicago Title Ins. Co., 9 Neb.App. 372, 387, 612 N.W.2d 515, 527 (2000). The Court of Appeals concluded that when Chicago Title paid First Trusts' attorney fees in the South Dakota litigation, it was doing so as a volunteer and held that under an equitable theory of subrogation, Chicago Title `step[ped] into the shoes' of First Trust in terms of the right to recover the defense costs from the Kirwans. Id. at 388, 612 N.W.2d at 528. We disagree with the Court of Appeals' conclusion in general and specifically on its reliance on the mortgage rather than the lender's title insurance policy in the resolution of this issue. Under the terms of the lender's title insurance policy issued by Chicago Title to First Trust, Chicago Title was obligated at its own cost ... [to] provide for the defense of an insured in litigation in which any third party asserts a claim adverse to the title or interest as insured... as to those stated causes of action alleging a defect, lien or encumbrance or other matter insured against by this policy. For the sake of completeness, we note that the lender's title insurance policy contains an exclusionary provision identical to subsection 3(b) contained in the Kirwans' title insurance policy and quoted above, but because there is no claim that First Trust had any prior knowledge of the Vanderwerfs' claim, the exclusionary provision is not at issue. Under the plain and ordinary meaning of the lender's title insurance policy that Chicago Title issued to First Trust, Chicago Title was obligated to pay the cost of defending First Trust, a named defendant in the South Dakota litigation, in a claim adverse to the title of the subject property. See Elrod v. General Cas. Co. of Wisconsin, 566 N.W.2d 482 (S.D.1997). Contrary to the inference from the opinion of the Court of Appeals in which it states that First Trust can participate in the South Dakota litigation, Kirwan v. Chicago Title Ins. Co., 9 Neb.App. at 388, 612 N.W.2d at 527, as a named defendant in the South Dakota litigation, First Trust's appearance was not by choice. Because Chicago Title was contractually obligated to pay the defense costs of First Trust, Chicago Title was not a volunteer. Accordingly, Chicago Title has no right to reimbursement for the attorney fees that it was contractually required to pay. The Court of Appeals erred in reversing the district court's order in this regard. Accordingly, upon further review, we reverse the Court of Appeals' decision and remand the cause to the Court of Appeals with directions to enter an order affirming the district court's denial of Chicago Title's motion for summary judgment on its counterclaim for reimbursement for those attorney fees Chicago Title paid on behalf of First Trust.