Sapienza v. Liberty Mut. Fire Ins. Co.
| Decision Date | 02 June 2021 |
| Docket Number | #29000 |
| Citation | 960 N.W.2d 829 |
| Court | South Dakota Supreme Court |
| Parties | In the MATTER OF the CERTIFICATION OF a QUESTION OF LAW FROM the UNITED STATES DISTRICT COURT, DISTRICT OF SOUTH DAKOTA, CENTRAL DIVISION, Pursuant to the Provisions of SDCL 15-24A-1, and Concerning Federal Action Civ. 3:18-cv-03015-RAL, Titled as Follows: Joseph Sapienza and Sarah Jones Sapienza, M.D., Plaintiffs, v. Liberty Mutual Fire Insurance Company, Defendant. |
ANGELA BERANEK BRANDT of Larson King, LLP, Saint Paul, Minnesota, Attorneys for plaintiffs.
CHRISTIAN A. PREUS of Bassford Remele, P.A., Minneapolis, Minnesota, JACK H. HIEB of Richardson, Wyly, Wise, Sauck & Hieb, LLP, Aberdeen, South Dakota, Attorneys for defendant.
DEVANEY, Justice (on reassignment).
[¶1.] The United States District Court for the District of South Dakota filed a certified question asking this Court to interpret a liability coverage provision at issue in a pending lawsuit filed by Joseph Sapienza and Sarah Jones Sapienza, M.D., against their insurance carrier, Liberty Mutual Insurance Company. We conclude that the costs the Sapienzas incurred in complying with an injunction constitute "damages" under Liberty Mutual's policies.
Background
[¶2.] The Sapienzas purchased a home in 2014 in the McKennan Park Historic District in Sioux Falls, South Dakota. They initially planned to renovate it, but then decided to raze the existing home and construct a new one. After the Sapienzas’ proposed design plan was approved by the Sioux Falls Board of Historic Preservation, they hired a contractor who redrew the plans, submitted them to the City of Sioux Falls, and obtained a building permit. The plans indicated that the new home would comply with the maximum height and setback requirements under applicable City ordinances. Construction began in October 2014.
[¶3.] Pierce and Barbara McDowell live in and own a home next to the Sapienzas’ lot. The McDowells’ home is listed on the state and national registers of historic places and is designated as a "contributing property" due to its historical and architectural significance. As construction progressed on the Sapienzas’ home, the McDowells became concerned about the new home's proximity and size. In May 2015, the McDowells obtained an inspection of their chimney, and the fire inspector told them that they could no longer use their wood-burning fireplace. The inspector explained that a city ordinance requires a chimney to extend at least two feet above the highest point of any structure located within ten horizontal feet, and the eaves of the Sapienzas’ home stood ten feet above and were within six feet of the McDowells’ chimney.
[¶4.] After the McDowells received the inspector's report, their attorney sent the Sapienzas a letter informing them of the height and setback violations and threatened legal action if they did not cease and desist construction. The Sapienzas nevertheless continued construction, prompting the McDowells to commence a lawsuit against the Sapienzas alleging negligence and nuisance claims. The McDowells asserted that after completion, there was only seven feet of space between their home and the Sapienzas’ home, which violated applicable administrative regulations governing height, mass, and scale. The McDowells further claimed that they were prohibited from using their fireplace because of the close proximity and height of the Sapienzas’ home. The McDowells also asserted that the Sapienzas’ home detrimentally affected the historic and sentimental value of their home, blocked a substantial amount of natural sunlight from the south, and invaded the privacy of their home by having windows that overlook the McDowells’ windows (including the window into the bathroom and bedroom of their daughter). In addition to injunctive relief, the McDowells’ complaint sought "compensatory, general, special, consequential and punitive damages in an amount to be determined to compensate [the McDowells] for all injuries sustained as a result of the conduct of [the Sapienzas.]"
[¶5.] The Sapienzas’ liability insurance carrier, Liberty Mutual, agreed to defend against the McDowells’ suit under the Sapienzas’ Homeowners Policy and a Personal Liability Policy ("the policies"), which provided excess coverage. After a three-day court trial, the court issued a memorandum decision granting the McDowells a permanent injunction. On the negligence claim, the court determined that the Sapienzas had failed to comply with administrative regulations governing the height of new construction in historic districts. The court also concluded, on the nuisance claim, that the size and proximity of the Sapienzas’ home blocked the natural light to the McDowells’ home and "effectively" resulted in the McDowells having no use of their fireplace.
[¶6.] After finding the Sapienzas liable for the harm caused to the McDowells’ property, the court then examined whether the McDowells were entitled to injunctive relief requiring the Sapienzas "to reconstruct or relocate their residence in order to satisfy their breach of law or resolve the alleged nuisance." The court concluded that without such relief, the McDowells would continue to suffer harm because "[t]heir historic property will no longer be allowed to utilize the fireplace"; "the character of their residence is devastated"; and the value of their residence had declined. In the court's view, "these facts are enough to show that the harm is irreparable and unable to be cured by monetary compensation." After considering all of the factors pertinent to a request for injunctive relief, the court granted the McDowells a permanent injunction, ordering the Sapienzas to either bring their residence into compliance with the applicable regulations or rebuild it.
[¶7.] The Sapienzas appealed, and Liberty Mutual sent the Sapienzas a letter stating it would continue to defend them through the appeal. However, Liberty Mutual stated it would not indemnify the Sapienzas for the costs they incurred in complying with the injunction because it did not believe such costs constituted covered damages under the Sapienzas’ policies.
[¶8.] In McDowell v. Sapienza , we affirmed the circuit court's determination that the Sapienzas constructed their home in violation of the administrative rules governing the height of new construction within historic districts. 2018 S.D. 1, ¶ 22, 906 N.W.2d 399, 406. We also affirmed the court's decision to grant injunctive relief. Id. ¶ 31, 906 N.W.2d at 408–09. In regard to the property damage suffered by the McDowells, we noted that the various types of harm recognized by the circuit court "are often not rectified by pecuniary compensation." Id. ¶ 24, 906 N.W.2d at 407.
[¶9.] After the case was remitted, the circuit court ordered the Sapienzas to submit an application to the Sioux Falls Board of Historic Preservation to cure and remedy the violations of the historic district regulations in accord with the court's original decision. The court's order further provided that in the event their revised application was not approved, the court would "exercise all remedies available consistent with the judgment of the court." After the Board denied the Sapienzas’ application, the circuit court issued a writ of execution ordering the Minnehaha County Sheriff to remove the Sapienzas’ home if the same was not removed within thirty days. On June 7, 2018, the Sapienzas had their home demolished and allegedly incurred $60,000 in complying with the permanent injunction.
[¶10.] In September 2018, the Sapienzas filed suit in federal district court against Liberty Mutual alleging a number of claims, including breach of contract based on Liberty Mutual's failure to provide coverage for the costs the Sapienzas incurred to tear down their newly constructed home. Liberty Mutual filed a motion to dismiss the Sapienzas’ complaint for failure to state a claim upon which relief could be granted. The federal district court granted the motion in part, dismissing several claims not implicated here, but denied the motion on the claim alleging a breach of the duty to indemnify. The court determined that there is no controlling South Dakota Supreme Court precedent on the question whether the costs the Sapienzas incurred to comply with the injunction constituted covered "damages" under their insurance policies.1 Therefore, the federal district court certified the following question to this Court:2
Do the costs incurred by the Sapienzas to comply with the injunction constitute covered "damages" under the Policies such that Liberty Mutual must indemnify the Sapienzas for these costs?
Analysis and Decision
[¶11.] In re Certification of a Question of Law from United States District Court, District of South Dakota, Southern Division , 2010 S.D. 16, ¶ 6 n.1, 779 N.W.2d 158, 161 n.1 (quoting Unruh v. Davison Cnty. , 2008 S.D. 9, ¶ 5, 744 N.W.2d 839, 841–42 ). The certified question requires us to determine the scope of coverage in the insurance policy provisions at issue. "The interpretation of a contract is a question of law." State Farm Fire & Cas. Co. v. Harbert , 2007 S.D. 107, ¶ 17, 741 N.W.2d 228, 234.
[¶12.] We begin with the relevant language of the policies at issue. The Sapienzas’ Homeowners Policy provides:
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