ELR Citation: ELR 20810
No(s). s. 16907, 16936 (S.D. Dec 5, 1990)

The court holds that an insurer had no duty under a public officials errors and omissions policy to defend an insured against suit by the federal government for allegedly filling a wetland without a Federal Water Pollution Control Act (FWPCA) §404 permit. The Corps of Engineers issued a cease and desist order to an insured municipality to construct a roadway across a slough before receiving an FWPCA §404 permit. The federal government brought suit against the insured for intentional FWPCA violations, but the insurer was not notified of the federal suit until after the insured had begun defending itself. The federal district court decision that the insured had violated the FWPCA was reversed on appeal, and the insured brought suit against the insurer to recover legal fees involved in defending against the federal lawsuit.

The court holds that the insurer had no duty to defend the insured under the policy since the insured made a knowing, conscious decision to construct the roadway while fully aware that the federal government would require a permit application for the proposed roadway construction. The federal lawsuit against the insured arose exclusively because the insured decided to ignore the government's permit requirements. This conduct is not negligent or an error or omission for which the insured's policy provides coverage. Moreover, the court holds that because the civil penalties prayed for were essentially punitive, it would violate public policy to allow the insured wrongdoer to shift the burden of payment to its insurer with impunity.

Counsel for Appellant
David A. Gerdes
May, Adam, Gerdes & Thompson
503 S. Pierre St., P.O. Box 160, Pierre SD 57501-0160
(605) 224-8803

Counsel for Appellee
Laurence J. Zastrow
207 E. Capitol, P.O. Box 1005, Pierre SD 57501-1005
(605) 224-7456