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Last Reviewed / Modified On 12 Mar 2019.

SOUTH DAKOTA CONSTRUCTION CLAIMS RESOURCES

Construction Claims

Limitations & Repose Periods

Statutes of Limitations

Actions for personal injuries must be brought within three years. S.D.C.L. § 15-2-14. Actions upon an express or implied contract, subject to certain exceptions, must be brought within six years. S.D.C.L. § 15-2-13. Actions for fraud do not accrue until the claimant discovers, or has constructive or actual notice, of the circumstances constituting fraud. S.D.C.L. § 15-2-3. However, the Supreme Court of South Dakota has specifically rejected a generally applicable “discovery rule.” Shippen v. Parrot, 506 N.W.2d 82 (S.D. 1993); Baye v. Diocese of Rapid City, 2010 U.S. Dist. LEXIS 17611. A claim accrues when the claimant is aware of facts that would cause a reasonably prudent person to seek information about the circumstances underlying the claim. East Side Lutheran Church of Sioux Falls v. Next, Inc., 852 N.W.2d 434 (S.D. 2014).

Statute of Repose:

Claims for personal injury, or injury to real or personal property, which “arise out of a deficiency in the design, planning, supervision, inspection and observation of construction, or the construction, of an improvement to real property” are subject to a ten year statute of repose. S.D.C.L. § 15-2A-3. The statute of repose applies to claims for contribution and indemnity as well. The repose period runs from the date of substantial completion, defined as the date “when the construction is sufficiently completed so that the owner…can occupy or use the improvement for the use it was intended. Id.

Right to Repair Laws and/or Pre-Suit Statutory Procedures

S.D.C.L. §§ 21-1-15 and 21-1-16 set forth statutory prerequisites to commencing an action against a construction professional for damages or loss of use sustained by a residential home owner. The home owner must serve written notice of the defect upon the construction professional before filing a lawsuit. S.D.C.L. § 21-1-16(2). Upon service of the notice, the construction professional has thirty days inspect and provide an offer to repair or to provide monetary compensation to the owner. S.D.C.L. § 21-1-16(2). Service of statutory notice tolls the statute of limitations, and notice of additional, subsequently discovered defects is not required. “Construction defect” is defined as “a deficiency in or arising out of the supervision, construction, or remodeling of a residence” involving, broadly, defective materials, code violations, departure from contract specifications or accepted trade standards. S.D.C.L. § 21-1-15(2)(a)-(b). “Construction professional” is defined as “a builder, contractor, or subcontractor performing or furnishing the supervision of the construction or remodeling of any residence, whether operating as a sole proprietor, partnership, corporation, or other business entity[.]” S.D.C.L. § 21-1-15(3).

Indemnity and Contribution

Indemnity

South Dakota’s anti-indemnity statute prohibits provides that “[a] covenant, promise, agreement or understanding in, or in connection with or collateral to, a contract or agreement relative to the construction, alteration, repair or maintenance of a building, structure, appurtenance and appliance, including moving, demolition and excavating connected therewith, purporting to indemnify the promisee against liability for damages arising out of bodily injury to persons or damage to property caused by or resulting from the sole negligence of the promisee, his agents or employees, or indemnitee, is against the policy of the law and is void and unenforceable.” S.D.C.L. § 56-3-18. Further, South Dakota statute mandates that any construction contract, plan, or specification that includes an indemnification provision must include specific language distinguishing and limiting the liability of the contractor from certain acts of the architect, the engineer, or their respective agents. S.D.C.L. § 56-3-16. Any indemnification provision in conflict with this requirement is void. S.D.C.L. § 56-3-17; see also Henningson, Durham & Richardson, Inc. v. Swift Bros. Constr., 739 F.2d 1341, 1345 (8th Cir. 1984).

Per statute, agreements to indemnify a party against the acts of a particular person also apply to that person’s agents. S.D.C.L. § 56-3-4.

A contract to indemnify multiple persons applies to each unless a contrary intention is evidenced by the contract. S.D.C.L. § 56-3-5.

Unless a contrary intention is evident in the contract, an agreement to indemnify against claims, demands, or liability, is deemed to include the reasonable costs of defense. S.D.C.L. § 56-3-10. Whether a party may recover attorney’s fees incurred to enforce a contractual indemnity provision depends upon the intent of the parties as evidenced by their contract. Black Hills Excavating Servs. V. Retail Constr. Servs., 877 N.W.2d 318, 323-24 (S.D. 2016). A provision of statute may otherwise entitle a party to recover attorney’s fees in the absence of a provision of contract. Id.

Contribution

A right to contribution is recognized between joint tortfeasors where both of their active, affirmative negligence contributed to an injury. . S.D.C.L. § 15-8-12; Degen v. Bayman, 200 N.W.2d 134, 137 (S.D. 1972).

Certificate of Merit – Experts

South Dakota does not require a certificate of merit for claims against construction professionals.

Economic Loss Doctrine

South Dakota has declined to apply the economic loss doctrine beyond commercial transactions governed by the Uniform Commercial Code. Kreisers Inc. v. First Dakota Title Ltd. P’ship, 852 N.W.2d 413, 421-22 (S.D. 2014), citing City of Lennox v. Mitek Industries, Inc., 519 N.W.2d 330 (S.D. 1994).

An architect or engineer can be liable for economic damages to a third party despite the lack of privity between them. Mid-Western Elec. V. DeWild Grant Reckert & Assoc. Co., 500 N.W.2d 250, 254 (S.D. 1993).

Contractor Licensing Requirement.

Electrical contractors (S.D.C.L. § 36-16-1); architects (S.D.C.L. § 36-18A-8); engineers (S.D.C.L. § 36-18A-8); and land surveyors (S.D.C.L. § 36-18A-8) are required to be licensed at the state level. Construction contractors are not licensed at the state level, but may be subject to local licensing requirements.

Common Law & Statutory Claims

Claims against construction and design professionals are derived from traditional tort and negligence principles.

An architect or engineer can owe a duty of care to a construction contractor despite the lack of privity between them. Domson, Inc. v. Kadrmas Lee & Jackson, Inc., 918 N.W.2d 396, 401 (S.D. 2018), citing Mid-Western Elec. V. DeWild Grant Reckert & Assoc. Co., 500 N.W.2d 250 (S.D. 1993).

In an action for damages arising out of a loss covered by South Dakota’s workers’ compensation law, the employer of the injured worker is immune from claims for common law contribution or indemnity. S.D.C.L. § 62-3-1 and 62-3-2. In such cases, the employer is not considered a joint tortfeasor. Hagemann v. NJS Eng’g, Inc., 632 N.W.2d 840, 843-44 (S.D. 2001).

Construction Damages

Cost of Repair

For damages based upon a construction contract, a jury may award the lesser of the cost of repairs or diminution in value, and is limited to the value of full performance under the contract. United States ex rel. Ash Equip. Co. v. Morris, Inc., 2017 U.S. Dist. 126509 *101-102; citing S.D.C.L. § 21-1-5 and Casper Lodging, LLC v. Zakco Commer. Consultants, Inc., 871 N.W.2d 477, 491 (S.D. 2015). A party need not present evidence of both repair costs and diminution in value. Id.

Diminution in Value

Diminution in value was held to be an appropriate measure of damages for property holders injured as a result of flooding caused by highway constructed with inadequate drainage. Long v. State, 904 N.W.2d 502, 520 (S.D. 2017).

Punitive Damages

Punitive damages may be awarded in actions not arising from a contract where the defendant is found to have caused injury by “oppression, fraud, or malice, actual or presumed,” in an amount determined by the jury. S.D.C.L. § 21-3-2. In actions based upon a contract, the plaintiff is generally limited to compensatory damages not exceeding the value of performance of the contract. Casper Lodging, LLC v. Zakco Commer. Consultants, Inc., 871 N.W.2d 477, 491 (S.D. 2015).

Attorney’s Fees

Attorney’s fees are recoverable in an action upon a mechanic’s lien. S.D.C.L. § 44-9-22.

Whether a party may recover attorney’s fees incurred to enforce a contractual indemnity provision depends upon the intent of the parties as evidenced by their contract. Black Hills Excavating Servs. V. Retail Constr. Servs., 877 N.W.2d 318, 323-24 (S.D. 2016). A provision of statute may otherwise entitle a party to recover attorney’s fees in the absence of a provision of contract. Id.

South Dakota’s residential construction statute, S.D.C.L. §§ 21-1-15 and 21-1-16, does not expressly authorize recovery of attorney’s fees.

Joint and Several Liability (specific to construction)

An indemnification provision applicable to an act to be performed by the indemnitee renders the indemnitor jointly liable with the indemnitee, and liable to each person injured by the act. S.D.C.L. § 56-3-6.

The liability of a joint tortfeasor found to be less than 50% responsible for an injury is capped at twice the percentage of fault attributed to that tortfeasor. S.D.C.L. § 15-8-15.1.

Cost Incurred to Access Repair Areas

Not specifically addressed in reported South Dakota cases.

Consequential Damages

Prejudgment interest may be recovered from the date of the loss for damages arising under a construction contract. Bunkers v. Jacobson, 653 N.W.2d 732, 744 (S.D. 2002).

Consequential damages are available in breach of contract actions governed by the Uniform Commercial Code. S.D.C.L. § 57A-2-715. Consequential damages must been reasonably foreseeable to the breaching party at the time the contract was formed. Colton v. Decker, 540 N.W.2d 172, 177 (S.D. 1995).

Coverage Trigger of Coverage

Definition of an Occurrence

The Supreme Court of South Dakota has interpreted the meaning of “occurrence,” defined in terms of an “accident” within a CGL policy, to mean “an event that is undesigned, sudden, and unexpected.” Owners, Inc. Co. v. Tibke Constr., Inc., 901 N.W.2d 80, 84 (S.D. 2017). Whether the matter constituted an accident, and thus an occurrence, was determined according to the nature of the result, rather than the cause of the matter. Id. In Owners, the failure to take a soil sample before beginning construction on unfit soils constituted an occurrence despite the intentionality of whether to take samples because the resulting damages were unexpected. Id. at 85.

A subcontractor’s faulty workmanship constitutes an “occurrence” under a CGL policy. Corner Constr. Co. v. United States Fid. & Guar. Co., 638 N.W.2d 887, 895 (S.D. 2002).

Duty to Defend

A duty to defend arises where the complaint alleges facts which, if proved, would at least arguably support a recovery under the policy. Hawkeye-Security Inc. Co. v. Clifford, 366 N.W.2d. 489, 491 (S.D. 1985). The insurer has the burden of proving no duty to defend exists under the policy. De Smet Farm Mut. Ins. Co. v. Gulbranson Dev. Co., 779 N.W.2d 148, 155 (S.D. 2010).

Contractual Indemnity

The duty to indemnify is distinct from, and narrower than, the duty to defend an insured. Lowery Constr. & Concrete, LLC v. Owners, Inc. Co., 901 N.W.2d 481, 484 (S.D. 2017).

Anti-Indemnity Statutes

None specifically applicable to insurance contracts. South Dakota statute imposes limitations on indemnification provisions in construction agreements (S.D.C.L. § 56-3-18) and agreements to indemnity against future unlawful acts (S.D.C.L. § 56-3-2).

Additional Insureds

Coverage for AI’s own negligence vs. vicarious liability for Named Insured

Insurer’s respective coverage positions are determined according to general principles of construction of insurance contracts. See, e.g., Lead GHR Enters. V. Am. States Ins. Co., 2014 U.S. Dist. LEXIS 138864, *35-36 (D.S.D. 2014).

Determining Primary and Non-Contributory vs. Excess Position

Insurer’s respective coverage positions are determined according to general principles of construction of insurance contracts. See, e.g., Lead GHR Enters. V. Am. States Ins. Co., 2014 U.S. Dist. LEXIS 138864, *35-36 (D.S.D. 2014).

AI carrier’s rights to reimbursement for defense expenses from other, co-primary carriers

The Supreme Court of South Dakota has held that an excess insurer may recover costs of defending an insured from another carrier providing primary coverage on the loss. Church Mut. Ins. Co. v. Smith, 509 N.W.2d 274 (S.D. 1993).

A right of equitable subrogation/contribution exists between co-insurers to the extent of their common interest in providing coverage to the insured. Nat’l Farmers Union Prop. & Cas. Co. v. Farm & City Ins. Co., 689 N.W.2d 619, 625, FN 2 (S.D. 2004).

Insureds Right to Independent Counsel and Consequences of Rejecting a Defense

In the absence of a contrary intention in a contract providing for indemnification, the indemnitee may elect to conduct its own defense. S.D.C.L. § 56-3-5.

Coverage Defenses

Coverage defenses derive from the language of the insurance contract and traditional contract principles. See, e.g., St. Paul Fire & Marine Ins. Co. v. Schilling, 520 N.W.2d 884, 887 (S.D. 1994).

South Dakota has declined to adopt the reasonable expectations doctrine in determining the scope of insurance coverage. See Econ Premier Assur. Co. v. Gould, 2013 U.S. Dist. LEXIS 24941, *21, citing Culhane v. W. Nat’l Mut. Ins. Co., 704 N.W.2d 287 (S.D. 2005).

Choice of Law (Forum Selection Clauses)

South Dakota courts will honor the parties’ choice of forum in an insurance agreement unless it is demonstrated that doing so would be unfair or unreasonable, so as to create a genuine inconvenience or inadequacy of remedy. Klenz v. AVI Int’l, 647 N.W.2d 734, 738 (S.D. 2002).

Targeted Tenders

Targeted, or “selective” tenders, are not recognized in South Dakota.

Consent Judgments

Consent judgments are subject to challenge where facts demonstrate they were entered into fraudulently, collusively, or in bad faith. Arnold v. Mahoney, 791 N.W.2d 645, 655 (S.D. 2010).

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