Opinion ID: 511037
Heading Depth: 2
Heading Rank: 2

Heading: Coverage Scope

Text: 10 Appellants, who have acquired AAA's policy rights, sought a judgment declaring coverage against the insurance companies. Once the default judgment against Lexington was vacated, both Lexington and Angelina filed motions for summary judgment, contending that their policies do not cover the type of damage caused by AAA's breach of its contract with appellants. 3 11 The district court granted both motions, holding with respect to Lexington that the policy covered damages because of physical injury or destruction of property and that none of appellants' losses fell within the coverage. The court concluded that the damages asserted were suffered as a result of AAA's breach of contract, and constituted consequential losses, not losses due to physical impairment of property. 12 With respect to Angelina, the court determined that the policy covered two types of physical damage: (1) physical injury to or destruction of tangible property   , (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence. 4 The court concluded that none of the losses asserted, e.g., (1) excess cost for new construction; (2) additional engineering fees; (3) additional officer, director, and attorney's fees; and (4) lost profits, come within the ambit of Angelina's coverage. 13 Appellants argue that physical damage is not necessary for coverage, and that even if it is, there was physical damage in this case. They contend specifically that AAA began to remove the track and then stopped, and that this damage to the track is the source of their damages. We cannot agree with appellants' construction. The language in the policies must be construed according to its plain and ordinary meaning. Grandpre v. Northwestern National Life Insurance Co., 261 N.W.2d 804, 807 (S.D.1977). As the district court pointed out, both insurance contracts require, as a predicate for recovery, either physically injured tangible property or the loss of use of tangible property. See Triple U Enterprises, Inc. v. New Hampshire Insurance Co., 576 F.Supp. 798, 805-06 (D.S.D.1983), aff'd in relevant part, 766 F.2d 1278 (8th Cir.1985) (definition of tangible property). The district court determined, based upon Triple U, that the inclusion of the word physical negates any possibility that the policy was intended to include 'consequential or intangible damage,'   . 576 F.Supp. at 807. The losses claimed by appellants, however, are the result of excess costs, fees, and lost profits as a result of AAA's breach, as well as loss of profits due to the unavailability of the railroad lines. 14 Although we have found no other South Dakota law directly defining physical injury to tangible property, other courts have reached our conclusion. See, e.g., Liberty Mutual Insurance Co. v. Consolidated Milk Producers' Ass'n, 354 F.Supp. 879, 884 (D.N.H.1973). Accordingly, we agree with the district court that the losses claimed are not physical, tangible property damages but rather, are intangible consequential damages and thus not within the scope of coverage under the policy of either insurance company. 5