author: FOLEY, Judge.

text:
    Alex ZALUCKYJ, et al., Appellants, v. RICE CREEK WATERSHED DISTRICT, Respondent, STATE of Minnesota, Department of Natural Resources, et al., Respondents, Minnesota Center for Environmental Advocacy, Respondent.
    No. C2-01-1083.
    Court of Appeals of Minnesota.
    Feb. 12, 2002.
    Review Denied April 16, 2002.

      Paul R. Haik, Krebsbach Haik, Ltd., Minneapolis, for appellants.
    Thomas M. Scott, Campbell Knutson, P.A., Eagan, for respondent Rice Creek Watershed District.

      Mike Hatch, Attorney General, Matthew B. Seltzer, Peter L. Tester, Assistant Attorneys General, St. Paul, for respondents Department of Natural Resources, et al.
    Janette Brimmer, St. Paul, MN, for Minnesota Center for Environmental Advocacy.
    Considered and decided by TOUSSAINT, Chief Judge, HALBROOKS, Judge, and FOLEY, Judge.
   OPINION

FOLEY, Judge.

Appellant landowners, who contended that their land was being flooded due to overflow from a public ditch, filed a declaratory judgment complaint and a petition for writ of mandamus in district court. They sought an order requiring, in relevant part, that the watershed district remove obstructions and repair and maintain the ditch. In the alternative, they sought a writ of mandamus ordering the watershed district to commence inverse condemnation proceedings. After a court trial, the district court ruled that appellants failed to exhaust their administrative remedies, dismissed their complaint and petition for mandamus, and denied their motion for amended findings or a new trial. The landowners contend that they were entitled to a jury trial on the exhaustion issue, that a petition for repair under Minn.Stat. 103E.715 (2000) was not an available remedy, that in any event it would be futile to petition for repair, and that they were entitled to declaratory and mandamus relief as to the applicability of certain rules and regulations regardless of the outcome of the exhaustion issue. We affirm.

FACTS

Washington County Judicial Ditch No. 2 is a 13-mile public drainage system established by district court order dated April 12, 1909. At that time, the cost of constructing the ditch was $24,618.04 and the benefit to the landowners was $34,053. The benefits have not been redetermined since the original establishment of the ditch.

Land ownership along the ditch is comprised of a mixture of private and public holdings, including public wetlands and waters. Appellants are individuals who own land on or near the ditch. The City of Hugo also owns land nearby. Respondent Rice Creek Watershed District is the drainage authority. Respondents Department of Natural Resources (DNR) and the Board of Water and Soil Resources are state agencies that administer public water and wetland protection programs. Respondent Minnesota Center for Environmental Advocacy, a nonprofit environmental group, intervened.

Appellants contend that water overflowing from the ditch flooded their land. Seeking to remedy the problem, in 1995, the city applied to the watershed district for a permit to make a profile adjustment of the ditch, to be achieved by lowering three culverts. After an initial denial, a joint study, and other proceedings, the watershed district issued a permit in 1998 allowing one of the culverts to be lowered. The city then lowered the culvert.

In November 1998, the city petitioned the watershed district for an obstruction hearing pursuant to MinmStat. 103E.075 (1998). It sought a determination that the other two culverts were obstructing the flow of the ditch and should be lowered. In April 1999, the watershed district denied the cities petition for a hearing, determining that merely lowering the culverts without making other ditch repairs would not improve the hydraulic capacity of the ditch. It determined that the culverts were part of an out-of-repair drainage system. The watershed district noted that under Minn.Stat. 103E.715 (1998), any interested party may petition the watershed district to repair the ditch, and that the proceeding could include an order requiring local road authorities to lower the culverts at their expense.

The city did not petition for repair or seek district court review of the decision on the petition. Instead, the city and appellant landowners filed a declaratory judgment complaint and a petition for a writ of mandamus in district court, seeking an order for removal of the obstructions and repair of the ditch, or, in the alternative, for inverse condemnation proceedings, as well as a determination that they were exempt from certain rules and regulations.

Before reaching the merits, the court held a trial on the preliminary issue of whether the city and landowners should have first petitioned the watershed district for repair of the ditch pursuant to section 103E.715. The court determined that appellants failed to exhaust their administrative remedies and failed to show that exhaustion would have been futile. It dismissed their complaint and petition for writ of mandamus and denied their motion for amended findings or a new trial. This appeal followed.

ISSUES

I. Were appellants entitled to a jury trial on the issue of exhaustion of administrative remedies?

II. Did appellants fail to exhaust their administrative remedies or show that exhaustion would be futile?

ANALYSIS

The district courts findings of fact will not be set aside unless clearly erroneous. Minn. R. Civ. P. 52.01. Questions of law will be reviewed de novo. In re Improvement of Murray County Ditch No. 34, 615 N.W.2d 40, 45 (Minn.2000).

I.

We must first determine whether appellants were entitled to a jury trial on the issue of exhaustion of administrative remedies. The district court ultimately ruled that the issue was for the court, not the jury, to decide.

Appellants argue that in mandamus proceedings and declaratory judgment actions, parties are entitled to have fact issues tried by a jury as in a civil action. Minn.Stat. 586.12 (mandamus), 555.09 (declaratory judgment) (2000). Because in this case the issue of exhaustion of administrative remedies involves disputed fact questions, they contend that they were entitled to a jury trial. See Alevizos v. Metro. Airports Commn, 317 N.W.2d 352, 359-60 (Minn.1982) (holding that in mandamus proceeding, jury resolves disputed factual questions on whether a taking occurred, while court rules on whether facts as found by jury constitute taking as a matter of law). Appellants also cite the district courts earlier summary judgment order stating that while exhaustion issues were usually legal ones for the court to resolve, the issue should be resolved by a jury because substantial factual disputes existed.

The question of whether a matter is to be decided by the court or a jury relates not to how a case is to be tried before the decisionmaker, but who is to be the decisionmaker. Tyroll v. Private Label Chems., Inc., 505 N.W.2d 54, 57 (Minn.1993). There may be circumstances in which an issue that is to be resolved by the court requires resolution of factual matters. See id. at 61 (holding that in determining amount of compensation benefits employer is entitled to in subrogation action brought after pre-trial Naig settlement, court rather than jury must make appropriate findings of fact and conclusions of law, although tortfeasor is entitled to jury trial); Estate of Friedman v. Pierce County, 112 Wash.2d 68, 768 P.2d 462, 466 (1989) (noting that a number of courts have held certain matters are for court to decide, even though court was required to make factual determinations).

It is undisputed that the landowners would be entitled to a jury trial on the issue of the valuation of property in a condemnation action. Alevizos, 317 N.W.2d at 359-60. In contrast, the issues of exhaustion and futility of administrative remedies are generally legal questions for the court. See Leaon v. Washington County, 397 N.W.2d 867, 874 (Minn.1986). The district court, rather than the jury, properly decided these issues after a court trial, making findings of fact and conclusions of law as necessary. See Estate of Friedman, 768 P.2d at 465-66 (holding that issue of futility of administrative remedies is question for court and not jury). The fact that the district court may have initially ruled to the contrary is not determinative, because district courts are not barred from reconsideration of their earlier decisions. See Walden Bros. Lumber, Inc. v. Wiggin, 408 N.W.2d 675, 677-78 (Minn.App.1987) (holding that neither res judicata nor law of the case doctrines prevent court from reconsidering issues decided earlier after hearing on writ of attachment), review denied (Minn. Aug. 19, 1987). The district court did not err in ruling appellants were not entitled to a jury trial on the issue of exhaustion of administrative remedies.

II.

Having concluded that the court was the proper arbiter of the exhaustion issue, we now consider whether the court correctly determined that appellants were required to first petition for relief from the watershed district. Appellants contend that they could not obtain relief under the administrative remedies for ditch repair and that it would have been futile for them to proceed in that manner. They argue, therefore, that it was necessary and appropriate to bring the judicial action to compel the watershed district to remove obstructions to the water flow in the ditch or to acquire their land by inverse condemnation.

Mandamus is available only to compel performance of a duty clearly required by law and it cannot control judicial discretion. Minn.Stat. 586.01 (2000). We must address whether appellants were required to exhaust their administrative remedies by seeking relief through a petition for repair of the ditch under Minn.Stat. 103E.715 (2000).

Generally, a party must exhaust its administrative remedies before seeking judicial relief unless the remedies are inadequate or nonexistent. Amcon Corp. v. City of Eagan, 348 N.W.2d 66, 71 (Minn.1984) (citation omitted). But administra-' tive remedies need not be pursued if it would be futile to do so. McShane v. City of Faribault, 292 N.W.2d 253, 256 (Minn.1980) (citation omitted).

There are a variety of reasons for requiring the exhaustion of administrative remedies before pursuing judicial action on drainage repair issues. First, the legislature created a specialized administrative process for addressing ditch problems. See Counties of Blue Earth v. Minn. Dept. of Labor Indus., 489 N.W.2d 265, 268 (Minn.App.1992) (discussing reasons for requiring exhaustion of administrative remedies). Requiring exhaustion both protect[s] the autonomy of administrative agencies and promot[es] judicial efficiency. Stephens v. Bd. of Regents of Univ. of Minn., 614 N.W.2d 764, 773 (Minn.App.2000) (citation omitted), revieiv denied (Minn. Sept. 26, 2000). In addition, the record produced in the administrative process facilitates judicial review and may also reduce the need to resort to judicial review. Id. at 774.

We next examine the administrative remedies available to appellants. The legislature enacted an extensive statutory scheme to address drainage issues in Minnesota. The drainage ditch laws are a complex matrix adopted with the intent of reclaiming agricultural land by disposing of excess water that renders the land un-tillable. Murray County Ditch, 615 N.W.2d at 45 (citation omitted). The laws seek to allocate the costs fairly among the landowners who benefit from the drainage. Id. The appellate courts will construe drainage laws liberally to promote the public health and the drainage and reclamation of wet or overflowed land. Id. (citation omitted).

Included in the drainage chapter is a section on ditch repair. Minn.Stat. 103E.701.745 (2000). Repair of a drainage system means to restore all or a part of a drainage system as nearly as practicable to the same condition as originally constructed and subsequently improved. Id. 103E.701, subd. 1. Interested or affected individuals or entities may petition for repair of a ditch. Id. 103E.715, subd. 1; see id. 103E.202 (setting out procedure for filing petition). If the drainage authority determines the system needs repair, an engineer is appointed to examine the system and report on the necessary repairs, the estimated costs, and repair plans. Id. 103E.715, subd. 2. Where culverts limit the hydraulic capacity of the ditch, the engineering report must also include a hydraulic capacity report. Id. 103E.721, subd. 1.

Upon filing of the repair report, a hearing will be scheduled. Id. 103E.715, subd. 3. A hearing may be scheduled on the hydraulic capacity report. Id. 103E.721, subd. 3. After the hearing, the drainage authority will make findings and order repairs if:

(1)the drainage authority determines from the repair report and the evidence presented that the repairs recommended are necessary for the best interests of the affected property owners; or
(2)the repair petition is signed by the owners of at least 26 percent of the property area affected by and assessed for the original construction of the drainage system, and the drainage authority determines that the drainage system is in need of repair so that it no longer serves its original purpose and the cost of the repair will not exceed the total benefits determined in the original drainage system proceeding.

Id. 103E.715, subd. 4(a) (emphasis added). The costs of repairing the system are apportioned pro rata on all properties and entities previously assessed as receiving benefits from the drainage system. Id. 103E.728, subd. 1. If the repair benefits additional properties not originally assessed, there is a procedure for identifying these properties, determining the amount that they benefit, and assessing them. Id. 103E.741. If the drainage authority determines that replacement culverts must be installed, those costs may be collected from the political subdivision. Id. 103E.721, subds. 3, 5.

Judicial review is part of the statutory ditch repair scheme. Once the drainage authority has issued a final decision, a party may challenge a decision by the drainage authority dismissing drainage proceedings or establishing or refusing to establish a drainage project. MinmStat. 103E.095, subd. 1 (2000). These issues are heard by the district court without a jury. Id., subd. 2 (2000). A party may also appeal issues regarding the amount of benefits, damages, fees, or expenses, or whether environmental and land-use requirements are met under Minn.Stat. 103E.015, subd. 1 (2000). Minn.Stat. 103E.091, subd. 1 (2000). These issues are tried before a jury. Id., subd. 4 (2000).

Besides the statutes directly addressing ditch repair, various other laws protecting wetlands and public waters may come into play. If a repair might affect public waters, the drainage authority must notify the DNR. Minn.Stat. 103E.701, subd. 2 (2000). If the DNR disagrees with the repair depth, there must be a joint determination as to the proper repair depth, with a report to the drainage authority. Id. If wetlands are drained or filled as a result of human activity, the Wetland Conservation Act generally requires they be replaced by other wetland areas. Minn. Stat. 103G.222, subd. 1(a) (2000). Exemptions for certain public drainage system projects may apply. Minn.Stat. 103G.2241, subd. 2 (2000).

Appellants contend that this ditch repair process is not available to them as a matter of law. They argue that repairs should not be made if the costs of repair exceed the total benefits determined or redetermined, citing Minn.Stat. 103E.715, subd. 4(a)(2). They contend that repair is not available as a matter of law because present-day repair costs, estimated to be $400,000 or $500,000, exceed the 1909 determination of benefits, $34,053, and no redetermination of benefits has been made. While they acknowledge that the repair might be made under this provision if the benefits were redetermined to reflect modern-day values, no redetermination of benefits under Minn.Stat. 103E.351 has yet been made.

As to the cap on the cost of the project, we note that it applies when the repair is initiated by a petition signed by owners of 26 of the property area originally affected. Minn.Stat. 103E.715, subd. 4(a)(2). An alternate provision authorizes repair if the drainage authority determines that the repairs recommended are necessary for the best interests of the affected property owners. Id., subd. 4(a)(1). Unlike subdivision 4(a)(2), subdivision 4(a)(1) does not use this cost-versus-benefits analysis. Consequently, the repair is not barred under appellants theory. As to appellants argument that a redetermination of benefits is necessary before filing a petition for repair under Minn.Stat. 103E.715, nothing in the ditch repair statute requires such action. The ditch repair process is available to appellants.

Appellants next contend that it would be futile for them to petition for repair, stating that respondents will not issue the necessary wetlands replacement and public water permits and that the watershed district has adopted a policy against redetermination of benefits. We disagree. The evidence supports the district courts determination that appellants failed to show that the agencies have made a final decision on the matter, such that using the administrative process would be futile.

Appellants also contend the district court did not apply one of its eviden-tiary rulings consistently and abused its discretion in other evidentiary rulings. Evidentiary matters are. within the trial courts discretion, and appellants must show prejudicial error before an alleged error will justify a new trial. Kroning v. State Farm Auto. Ins. Co., 567 N.W.2d 42, 45-46 (Minn.1997). Appellants have failed to demonstrate any abuse of discretion or prejudicial error in the district courts rulings.

Finally, appellants sought a determination from the district court that the ditch repair was exempt from certain wetlands replacement requirements and public waters mitigation costs, and also sought determination of the applicability of various other water-management-related laws and rules. See, e.g., Minn.Stat. 103G.2241, subd. 2 (2000) (providing exemptions for drainage projects). They contend that the district court erred in declining to address this issue. Again, we agree with the district court that these issues should be determined through the administrative process of a petition for repair.

Appellants have failed to show that the relief sought was required by law so as to make mandamus appropriate. It is essential for them to understand that they must follow the procedures set out by the legislature for resolving drainage issues. Further, the legislature has specified that those who benefit from improved drainage must share in the costs.

DECISION

The district court correctly decided that appellants have not demonstrated that they have exhausted their administrative remedies or that it would be futile to do so. Appellants may pursue their administrative remedies by petitioning for repair under Minn.Stat. 103E.715 (2000).

Affirmed.

       Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const, art. VI, § 10.

      . The City of Hugo was a plaintiff in the district court proceedings but has not filed a notice of appeal.


source: Caselaw Access Project

author: KONENKAMP, Justice.

license: Public Domain

text:
    2002 SD 9
    FIRST NATIONAL BANK IN BROOKINGS, Plaintiff and Appellant, v. Charles W. KUECHENMEISTER and Darlene M. Kuechenmeister, husband and wife, Defendants, and Norwest Mortgage, Inc., Defendant and Appellee.
    No. 21891.
    Supreme Court of South Dakota.
    Considered on Briefs Nov. 13, 2001.
    Decided Jan. 16, 2002.

      Eric N. Rasmussen of Glover, Helsper & Rasmussen, Brookings, for plaintiff and appellant.
    Gary J. Pashby and Lisa Hansen Marso of Boyce, Murphy, McDowell & Greenfield, Sioux Falls, for defendant and appellee.
   KONENKAMP, Justice.

[¶ 1.] In preparing a mortgage loan, Norwest Bank contacted First National Bank on the status of its mortgage. Over a period of months, as Norwest processed its loan, First National repeatedly represented that its loan had a zero balance and that a satisfaction of mortgage would be forthcoming. Five months after Norwest’s loan closed, First National issued its satisfaction. First National soon discovered that its loan had a substantial balance. It commenced an action to restore the priority of its mortgage lien. In denying relief, the circuit court held that although First National mistakenly satisfied its mortgage and the satisfaction was given after Nor-west closed its loan, Norwest detrimentally relied on First National’s continuous representations that its loan had been paid off. On appeal, First National contends that only the satisfaction itself could provide a legal basis for Norwest’s reliance and that, because Norwest closed its loan before First National issued its satisfaction, no justifiable reliance occurred. Because detrimental reliance may accumulate from all the circumstances, we uphold the trial court’s ruling that Norwest reasonably relied on First National’s representations.

Background

[¶ 2.] In 1994, Norwest Bank gave Charles and Darlene Kueehenmeister two loans of $24,000 and $19,670. To secure the loans, the Kuechenmeisters granted Norwest first and second mortgages on their home in Brookings. In 1996, the Kuechenmeisters gave First National a third mortgage on their home to secure a loan of $45,000 on a business venture, the Dakota Inn Café. All three mortgages were still extant in the fall of 1998, when the Kuechenmeisters applied to Norwest for a new loan. With this money, they planned to refinance their two loans with Norwest and to pay off some accumulated credit card debt from the café.

[¶ 3.] In the process of applying for the new loan in October 1998, Charles Kue-ehenmeister mentioned to Pam Peterson, a home mortgage consultant at Norwest, that he and his wife might have a mortgage with First National. The Kuechen-meisters’ credit report showed no existing obligation to First National. Peterson telephoned Cherry Tuma, a loan processor at First National, to learn whether it held a mortgage. Tuma told Peterson that First National had no record of a mortgage.

[¶ 4.] Norwest ordered title insurance. A title commitment issued in early November 1998 confirmed the existence of the first and second mortgages with Norwest, but it also showed a third mortgage with First National. Peterson again telephoned Tuma to ask whether First National indeed held this third mortgage. Tuma reaffirmed that First National had no record of that mortgage.

[¶ 5.] Norwest made a loan commitment of $64,000, the maximum allowable on the appraised value ($80,000) of the Kuechenmeisters’ property. Had Norwest known of the First National mortgage and its outstanding balance of some $30,000 on the loan, Norwest would have been unable to make the new loan to the Kuechenmeis-ters because it would have been clear that they had no available equity. Upon receipt of a copy of the loan commitment in late November, Tim Hogan, an attorney and closing agent for Norwest, contacted Tuma to inquire whether First National held a mortgage on the Kuechenmeister home. On previous occasions, both Peterson and Hogan had been directed to Tuma when inquiring of First National about the status of customer loans. Tuma again confirmed that First National held no such mortgage.

[¶ 6.] The closing of the refinanced Kuechenmeister loan with Norwest occurred on December 4, 1998. Charles Kuechenmeister again mentioned the possibility of a mortgage with First National; accordingly, Hogan again called Tuma, and she again told him that there was no mortgage. Hogan also called the Brookings County Register of Deeds to ask whether First National had filed a mortgage since the title insurance commitment had been prepared. Finding that it had not, Hogan proceeded to oversee the loan closing. During the three-day recision period after closing, and before the loan funds were disbursed, Hogan once more telephoned Tuma, who said that there was a zero balance on the bank’s records and that a satisfaction of mortgage would be provided.

[¶ 7.] Five months later, the Kuechen-meisters met with Thomas Raines, First National’s loan officer, to discuss a payment schedule on their loans. Raines informed them that First National did indeed hold an unsatisfied mortgage on their home. Charles Kuechenmeister called to tell Peterson of this fact; she in turn told Hogan.

[¶ 8.] Hogan then contacted Tuma and faxed her a copy of the title commitment. Tuma examined First National’s hard-copy records, as she had earlier examined its computerized records, and was unable to find any evidence of the mysterious third mortgage. Tuma then drafted a satisfaction of mortgage and presented it to her supervisor, Barb Adelaine, for approval. Adelaine herself then checked First National’s records for an obligation under the Kuechenmeister name, found none, and signed the satisfaction. It was then given to Hogan, who filed it with the Brookings County Register of Deeds on May 17, 1999.

[¶ 9.] Later that same day, First National personnel learned that the undiscovered third mortgage had been indexed under the business name of Dakota Inn, rather than under the name Kuechenmeis-ter. Neither Tuma nor Adelaine were aware that it had been so indexed, and each had done her previous checking under the name Kuechenmeister. Up to that point, First National had not cross-indexed its commercial and residential loans by both individual and business names.

[¶ 10.] Still later on May 17, Mike Reis-etter of Dakota Abstract and Title, upon learning that Norwest had obtained and recorded First National’s satisfaction of mortgage, informed Tuma that the First National mortgage did not have a zero balance and that she had erred in issuing the satisfaction. Tuma immediately called Hogan and asked him to retrieve the satisfaction of mortgage. He declined.

[¶ 11.] Following a trial, the circuit court ruled that Norwest closed its loan in reliance on the oral representations it received from First National that a zero balance was shown on the Kuechenmeister mortgage loan and that First National would provide a satisfaction of mortgage. On appeal, First National contends that the trial court erred in denying its request to restore its mortgage priority over that of Norwest.

Analysis and Decision

[¶ 12.] The circuit court made two key conclusions: (1) it was reasonable, under the facts, for Norwest, before it closed the December 4th loan to the Kue-chenmeisters, to have relied on First National’s oral representations “that there was a zero balance showing on its Kue-chenmeister mortgage and that a satisfaction of mortgage would be sent.” (2) “Norwest lost substantial and material rights by its detrimental rebanee on” First National’s representations. Norwest’s reliance took the form of paying off existing debts and “loaning new money in reliance upon its understanding that its mortgage dated December 4, 1998, would be first in priority.”

[¶ 13.] The question is whether the court should have applied the principles governing the equitable restoration of mortgage priority lost through mistake. We discussed this concept in Madson v. Ballou, 63 S.D. 501, 260 N.W. 831 (S.D.1935): “Where a mortgage has been released or satisfied through accident or mistake, it may be restored in equity and given its original priority as a lien in the absence of paramount equities.” Id. at 832 (citations omitted). Here, one of the trial court’s conclusions of law addressed this point: First National did make a mistake in issuing a satisfaction of mortgage, and this mistake resulted from its failure to cross-reference its commercial and residential loans by both business and individual names. Accordingly, the principle of law set forth in Madson applies. Attendant on this principle, however, is the proviso that the mistaken satisfaction has not induced other creditors to change their positions. Id. The questions of law then reduce to this: did the action of First National induce Norwest to change its position? did Norwest lose any substantial and material rights by such action? and if Norwest did change position to its detriment in relying on First National’s action, was that reliance reasonable?

[¶ 14.] First National argues that Norwest did not change its position as a result of the actual issuing of a satisfaction; Norwest changed its position on its receipt of First National’s oral representation “that there was a zero balance showing on its Kuechenmeister mortgage and that a satisfaction of mortgage would be sent.” This is accurate as far as it goes, but it is more precise to say that First National’s issuance of the satisfaction of the mortgage was merely the final step in formalizing its continuous series of oral representations that the Kuechenmeisters owed no money on a home mortgage and that, therefore, a satisfaction would be issued. These representations began with Pam Peterson’s first inquiry of Cherry Turna and arguably reached its apex of importance for Norwest with Tuma’s response to Hogan’s inquiry on the date of closing the new loan.

[¶ 15.] Just as First National’s repeated oral assurances occurred over several months, so Norwest’s change of position cannot be fixed to one instant of time. As the trial court found, reliance on such oral representations was the local practice in this industry. Accordingly, the trial court correctly concluded that Norwest changed its position as a result of First National’s actions. As to whether Nor-west lost substantial rights as a result of First National’s repeated representations, the trial court found that Norwest would not have made what amounted to an unsecured loan of substantial size had it not been for First National’s series of mistaken representations.

[¶ 16.] Finally, we consider whether Norwest’s reliance was reasonable. First National refers us to the following passage in Madson:

The question is whether, under the findings, defendant ... had notice of circumstances sufficient to put a prudent person upon inquiry. If facts are sufficient to put a purchaser of a title or lien upon inquiry of any adverse right or equity of a third party, [then] want of diligence in making such inquiry is equivalent to a want of good faith.

260 N.W. at 833. First National points out (1) that the Kuechenmeisters had told Norwest personnel on more than one occasion that they might have a mortgage with First National, and (2) that the title commitment showed the existence of such a mortgage. First National then argues that Norwest was on notice that the mortgage did exist and under the obligation to resolve the conflict between the title commitment and the oral representations. First National urges us to find on the part of Norwest a want of diligence tantamount to a want of good faith. We conclude that the trial court was correct in emphasizing Norwest’s repeated inquiries of First National. Norwest’s diligence is evident also in Hogan’s call to the Register of Deeds to learn whether there had been a recent recording of such a mortgage.

[¶ 17.] As explained in Madson, “[i]t is not enough that an intending purchaser entertain a mere suspicion of an unknown equity or interest. There must be some dear neglect to inquire after having some notice of some definite equity or interest in another.” Id. (emphasis added). The Kuechenmeisters surmised that they might have a mortgage with First National. Norwest then went to First National, the purported mortgage holder. It is true that the title commitment provided notice of some equity or interest in First National, but the record shows no clear neglect on the part of Norwest to determine whether there was a mortgage and, if so, what its outstanding balance was. To the contrary, Norwest’s repeated inquiries manifest diligence and good faith.

[¶ 18.] We affirm the trial court’s conclusion that First National was not entitled to restoration of its mortgage priority.

[¶ 19.] GILBERTSON, Chief Justice, SABERS and AMUNDSON, Justices, and GORS, Acting Supreme Court Justice, concur.

       A trial court's factual findings must be shown to be clearly erroneous before they can be overturned. Lewis v. Moorhead, 522 N.W.2d 1, 3 (S.D.1994). Conclusions of law, on the other hand, are reviewed de novo. Id. Neither side presents any material disagreements with the trial court's findings of fact. We review decisions in equity under an abuse of discretion standard. Mattson v. Rachetto, 1999 SD 51, ¶ 9, 591 N.W.2d 814, 817.


author: GORS, Acting Justice. SABERS, Justice

text:
    2002 SD 6
    Donald Duane WOEHL, Plaintiff and Appellant, v. Jacqueline Sue Frost WOEHL, Defendant and Appellee.
    No. 21869.
    Supreme Court of South Dakota.
    Considered on Briefs Oct. 2, 2001.
    Decided Jan. 16, 2002.

      H.I. King of Tonner, Tobin & King, Aberdeen, for plaintiff and appellant.
    Jacqueline Sue Frost Woehl, Aberdeen, pro se.
   GORS, Acting Justice.

[¶ 1.] Donald Duane Woehl appeals from an order of support adopting the child support referee’s report, finding of fact, conclusions of law, and recommendations which base his child support upon his income from a job he was fired from. We affirm.

FACTS

[¶ 2.] Donald and Jacqueline divorced on February 11, 2000 after ten years of marriage and four children. Donald was ordered to pay $775 per month in child support. This amount was based upon his working 42.5 hours per week at $16 per hour and Jacqueline being at the imputed minimum wage level.

[¶ 3.] On October 13, 2000 Donald filed a petition for modification of child support. He alleged that circumstances had substantially changed because he was “fired from current position.” The separation report from his employer indicated that he had been released and discharged for insubordination and work quality.

[¶4.] Following a hearing the child support referee filed a detailed report. It reported that Donald had been separated from his position as a mechanic at a Chrysler dealer and now worked in his brother’s construction business earning $8 per hour. Donald “acknowledges that he was previously earning a higher income, although he states that he has not voluntarily reduced his income.” The report noted:

Upon Jackie’s cross examination of Donald, it was learned that the primary reason for Donald’s termination was that he apparently struck a girl friend named Chantelle, who was a co-worker at his place of employment.
[¶ 5.] The referee concluded that:
Donald Woehl’s position as a mechanic paid $2,773 per month, and has been reduced now to $1,387 per month working for his brother as a carpenter. Don’s outburst was a voluntary act, and the negative effects of that act should not be visited upon his children. His income is therefore calculated at $2,773, reduced by $314 in Circular E withholding, $212 Social Security and Medicare, and $139 in retirement at five percent, for a monthly net income of $2,108 imputed to him

The referee recommended that child support be modified to the sum of $774 effective November 1, 2000.

ISSUE

[¶ 6.] Did the trial court err in adopting the referee’s child support recommendation which calculated Donald’s income based on his income from a job he was fired from?

DISCUSSION

[¶ 7.] Donald was fired from a job as a mechanic that paid $16 per hour and provided $2773 in monthly income. He found employment at his brother’s construction firm for $8 per hour providing $1387 in monthly income. The trial court adopted the referee’s recommendation to calculate Donald’s child support obligation based upon his former, rather than current, income.

[¶ 8.] Deviation from the child support schedule is allowable based upon “[t]he voluntary act of either parent which reduces that parent’s income.” SDCL 25-7-6.10(8). Donald contends that his firing was involuntary. Consequently, he believes that his child support should have been based upon his current salary.

[¶ 9.] This Court has not addressed the issue of whether being fired from a job constitutes a voluntary act allowing deviation from the child support schedule. Other courts faced with the issue, however, have taken two differing approaches.

[¶ 10.] The Iowa Supreme Court considered the issue in In Re Marriage of Foley, 501 N.W.2d 497 (Iowa 1993). There, Kenneth, the father, had been fired for insubordination. The lower court concluded that the termination was a self-inflicted reduction in pay and used his former income to set child support. The Supreme Court noted that a party may not claim an inability to pay child support when that inability is self-inflicted or voluntary. In Kenneth’s case, however,

While Kenneth’s termination for insubordination may not be commendable, it does not qualify as a self-inflicted or voluntary reduction of income that would justify using his former salary in setting child support payments. We believe this scenario is similar to the situations in Boquette[ v. Boquette, 215 Iowa 990, 247 N.W. 255], Nicolls[ v. Nicolls, 211 Iowa 1193, 235 N.W. 288] and [In re Marriage of] Drury[, 475 N.W.2d 668]. While Kenneth was responsible for the loss of his job, we believe he did not intend to deprive the children of support or had a reckless disregard for their well-being. Rather, he acted imprudently and lost his employment but was diligent in obtaining a new job. Consequently, we conclude the trial court erred in its determination to adjust the child support payments upwards using his former salary.

Foley, 501 N.W.2d at 500. See Lee v. Lee, 459 N.W.2d 365 (Minn.App.1990)(no authority which permits equating willful misconduct with voluntary termination where there is no evidence that the misconduct was an attempt to induce termination and thereby avoid a child support obligation).

[¶ 11.] The Supreme Court of Virginia took a different approach in Edwards v. Lowry, 232 Va. 110, 348 S.E.2d 259 (1986). There, John Lowry sought to reduce his child support because he lost his job as a result of his admitted larceny from his employer, a hardware dealer. The Court noted that a party seeking a reduction in child support payments must show that his lack of ability to pay is not due to his own voluntary act or because of his neglect. The Court said that Lowry was attempting to shift to his “child the consequences of his own wrongdoing.” Edwards, 348 S.E.2d at 261.

In the case before us, it is undisputed that John Lowry’s diminution of income was the direct consequence of his voluntary, wrongful act. After receiving a direct warning from his employer following a previous theft, he was fired for stealing again. He failed to meet the burden, required by the rule in Hammers[ v. Hammers, 216 Va. 30, 216 S.E.2d 201 of showing himself free of responsibility for his change in circumstances, and was not entitled to a reduction in support based upon the diminution of income caused by the loss of his job. (footnote omitted).

Id. See, In re Marriage of Imlay, 251 Ill.App.3d 138, 190 Ill.Dec. 539, 621 N.E.2d 992 (4 Dist.1993) (holding that a father’s reduction in income due to being fired was due to his deliberate conduct and was not merely a fortuitous occurrence.)

[¶ 12.] This Court has not addressed the precise issue presented here. We have, however, stressed that a parent’s duty to support his or her children is the paramount obligation of that parent, Kost v. Kost, 515 N.W.2d 209 (S.D.1994).

This Court has a long and consistent history requiring the parents to support their children. Children are “wards of the Court.” Houghton v. Houghton, 37 S.D. 184, 188, 157 N.W, 316, 317 (1916). The courts in South Dakota are entrusted to be the guardians of the children and to protect their welfare. Jameson v. Jameson, 306 N.W.2d 240 (S.D.1981); Blare v. Blare, 302 N.W.2d 787 (S.D.1981); Houghton, supra. Parents are obligated to provide support for their children. This obligation is not only a matter of public policy, but is also statutory. SDCL 25-5-18.1; SDCL 25-7-6.1. This Court has stated that a parent’s duty to support his children is paramount and other debts of the parent are secondary. Park v. Park, 309 N.W.2d 827 (S.D.1981); Donohue v. Getman, 432 N.W.2d 281 (S.D.1988); Vander Woude v. Vander Woude, 501 N.W.2d 361 (S.D.1993). This also includes obligations resulting from remarriage. Donohue, supra; Brunick v. Brunick, 405 N.W.2d 633 (S.D.1987). Where child support is concerned, the child’s interest is the primary consideration. Regynski v. State of Ariz., 414 N.W.2d 612 (S.D.1987).

Kost, 515 N.W.2d at 214.

[¶ 13.] In Kost, a mother with the purest of motives — attending school full time to improve her income producing capabilities for the ultimate benefit of the child— was not allowed a deviation to reduce her child support obligation. We held:

How then does this paramount obligation square with the desire to improve one’s employment status? Should a parent be able to alleviate himself from his child support obligation while attending school to improve his employment status? We must answer this in the negative. This Court has consistently held that the first obligation of any parent is to provide child support, assuming he is physically and mentally capable. To hold otherwise would be to open the floodgates and allow parents who have child support obligations to circumvent these obligations under the guise of returning to school to enhance employment possibilities.

Kost, 515 N.W.2d at 214, 215. In dicta we also noted that “the trial court could have considered deviating by virtue of Karen’s voluntary act which reduced her income.” Id. 515 N.W.2d at 215.

[¶ 14.] In this case Donald was fired for insubordination and work quality. He testified that the primary reason he was fired was that he hit his girlfriend who was also a coworker. He admits that his action of hitting was a voluntary act. He claims, though, that it was not intended to result in a reduction of his income.

[¶ 15.] We reject the notion that Donald’s underlying conduct and resulting termination of employment cannot be considered voluntary because he did not provoke termination for the express purpose of avoiding child support. See Marriage of Foley, 501 N.W.2d at 500. Donald’s primary, paramount obligation is the support of his four children. Kost, 515 N.W.2d at 214. Instead of doing everything in his power to maintain his employment, Donald’s deliberate, violent acts led to his firing. His firing was neither fortuitous nor beyond his control. Now he seeks to hoist the significant economic ramifications of that on his four children. This cannot be condoned. His actions were voluntary. There was no abuse of discretion in deviating from the child support schedule by using his former income to calculate his current child support obligation.

[¶ 16.] Affirmed.

[¶ 17.] GILBERTSON, Chief Justice, and AMUNDSON and KONENKAMP, Justices, concur.

[¶ 18.] SABERS, Justice, dissents.

SABERS, Justice

(dissenting).

[¶ 19.] I respectfully dissent. Unless done with the idea of intentionally reducing one’s child support obligation, a child support obligor’s termination from employment and loss of greater income should not be viewed as a voluntary act intended to deprive one’s children of support. Rather, a child support obligation should be based on an individual’s current salary.

[¶ 20.] I submit that this Court should follow the reasoning set forth in Foley, 501 N.W.2d 497, and Lee, 459 N.W.2d 365. These cases state that “while [the obligor] was responsible for the loss of his job, we believe he did not intend to deprive the children of support or had a reckless disregard for their well-being.” Foley, 501 N.W.2d at 500. When there is no evidence that the obligor’s misconduct represents an attempt to induce termination and avoid a support obligation, a court should not be permitted to use the obligor’s former salary in determining child support. In this case, there is no evidence that Donald’s act of striking his girlfriend represented an attempt to induce his termination and avoid his child support responsibility. Accordingly, his child support obligation should be based on his current salary.


author: KONENKAMP, Justice AMUNDSON, Justice DOBBERPUHL, Circuit Judge, MILLER, Retired Chief Justice

text:
    2002 SD 8
    ST. PAUL FIRE AND MARINE INSURANCE COMPANY, a Minnesota Corporation, Plaintiff and Appellant, v. Gary ENGELMANN, Defendant, Natasha Baloun, Natalie Bertsch, Brian Bertsch, Nancy Froning, Greg Froning, Audra K. Martinmaas, Defendants and Appellees.
    No. 21357.
    Supreme Court of South Dakota.
    Argued Sept. 21, 2000.
    Reassigned March 12, 2001.
    Reassigned Oct. 9, 2001.
    Decided Jan. 16, 2002.
    Rehearing Denied Feb. 22, 2002.

      Bethany K. Kulp, David M. Wilk of Oppenheimer, Wolff & Donnelly, St. Paul, MN, Cheryle Wiedmeier Gering of Davenport, Evans, Hurwitz & Smith, Sioux Falls, for plaintiff and appellant.
    Steven J. Andreasen, N. Richard Willia of Gildemeister, Willia & Keane, Sioux City, IA, for defendant and appellee Natasha Baloun.
    A. Russell Janklow, Ronald A. Parsons, Jr. of Johnson, Heidepriem, Miner, Mar-low & Janklow, Sioux Falls, Sheila S. Woodward of Johnson, Heidepriem, Miner, Marlow & Janklow, Yankton, for defendants and appellees Natalie Bertsch, Brian Bertsch, Nancy Froning, Greg Froning, and Audra K. Martinmaas.
   KONENKAMP, Justice

(on reassignment).

[¶ 1.] In this declaratory judgment action brought to contest medical malpractice insurance coverage, the circuit court granted summary judgment against the insurer, reasoning that the general verdict in the doctor’s malpractice trial was conclusive on the coverage question. The jury in that trial heard two tort theories, one that would permit coverage and another that would not. Because the insurer reserved its right to contest coverage and a question of fact remains on what, if any, part of the damages are allocable to the covered acts of the doctor, coverage must be decided in a separate trial. We affirm in part, reverse in part, and remand for trial.

A.

Background

[¶ 2.] The events leading to this appeal began in Miller, South Dakota. Gary En-gelmann practiced medicine there at the Hand County Clinic. In July 1994, he performed a pelvic examination on Natasha Baloun. During the exam, she became suspicious of his unusual motions and his closeness to her. When she abruptly sat up, she saw his penis. She fled the room and later contacted the police. After her experience became public, other women came forward. Plaintiffs Audra Martin-maas, Natalie Bertsch, and Nancy Froning lodged similar complaints against Engel-mann. He was charged with multiple counts of raping his patients.

[¶ 3.] In an agreement with the prosecutor, Engelmann pleaded guilty to one count of second degree rape, but before sentencing, he sought to withdraw his plea. The circuit court refused his request. He appealed. In State v. Engelmann, 541 N.W.2d 96 (S.D.1995), we reversed, concluding that he had a nonfrivolous reason to withdraw his plea because at the time he entered it his thought processes were blunted by prescription medications and severe depression. He proceeded to trial. A jury acquitted him of all charges.

[¶ 4.] Plaintiffs Martinmaas, Bertsch, and Froning brought civil actions against Engelmann. After a consolidated trial, the jury awarded $450,000 damages to each plaintiff and $50,000 each to Bertsch’s and Froning’s husbands. We affirmed in Martinmaas v. Engelmann, 2000 SD 85, 612 N.W.2d 600. There, a majority of this Court held that Engelmann’s improper sexual contact constituted “malpractice” because it breached the physician’s duty to use care and skill in the practice of medicine. Id. at ¶ 31. Natasha Baloun also sued. Her case is still awaiting trial.

[¶ 5.] St. Paul Fire & Marine Insurance Company insures Engelmann and the Hand County Clinic under two different policies: a commercial general liability policy and a professional liability policy. In this declaratory judgment action, St. Paul contends that it has no duty to indemnify Engelmann for the jury verdict in the consolidated trial and no duty to defend or indemnify him in the pending Baloun case. After both sides moved for summary judgment, the circuit court agreed that rape and sexual exploitation are not covered, but held nonetheless that the insurer had not “shown that the facts found by the jury as the basis of the award [were] the alleged rape and/or sexual abuse.... ” Concluding that the tort verdict was susceptible to two different constructions, and that one was sustainable for coverage purposes, the court ruled that St. Paul failed as a matter of law in its burden of proving noncoverage and was therefore obligated to indemnify Engelmann for the entire verdict. Lastly, the court held that St. Paul must defend the pending Baloun suit against Engelmann and the Clinic, but declined to decide before the verdict in that case whether St. Paul must indemnify En-gelmann and the Clinic for any award Bal-oun may obtain.

[¶ 6.] St. Paul appeals on the following issues: (1) Are the damages awarded in the consolidated trial covered under the St. Paul policies? (2) Is St. Paul obligated to defend Engelmann against the Bal-oun action? (3) Is St. Paul obligated to defend the Clinic against the Baloun action under the professional liability policy? (4) Does public policy preclude St. Paul from defending and indemnifying Engel-mann against the Baloun action or indemnifying him against the consolidated action? We restructure these issues for better analysis, but we need not address the last question because we conclude that neither policy insures Engelmann’s intentional misdeeds.

B.

The Commercial General Policy

[¶ 7.] The commercial general policy contains several provisions applicable here. It covers “bodily injury” caused by an “event,” defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The policy specifically excludes coverage for “bodily injury or property damage ... expected or intended by any protected person.” More particularly, the policy does not insure Clinic employees, including Engelmann, for “bodily injury or personal injury that results from sexual abuse committed by that person .... ” In the policy, “sexual abuse means any physical, mental or moral harassment or assault of a sexual nature against any person.” Finally, the policy carries a “professional services” exclusion. Under related circumstances, the Louisiana Supreme Court ruled that a comprehensive business liability insurance policy excluding personal injury arising out of professional services furnished no coverage for medical malpractice. McCarthy v. Berman, 668 So.2d 721, 725 (La.1996). Likewise, we conclude that St. Paul’s commercial general liability policy provides no coverage for personal injuries from sexual assaults or from rendering or failing to render professional services. Hence, medical malpractice, in any form, is not a covered occurrence. St. Paul is under no duty to defend or indemnify Engelmann and the Clinic under this policy.

C.

The Professional Policy

[¶ 8.] Engelmann’s professional liability policy covers “damages resulting from” the “providing or withholding of professional services.” A duty to indemnify arises only on a showing that the insured contingency occurred. Headlee v. New York Life Ins. Co., 69 S.D. 499, 504, 12 N.W.2d 313, 315 (1943). The policy does not specifically define “professional services.” For guidance on this term, we look to other jurisdictions. In Marx v. Hartford Accident and Indemnity Company, the Nebraska Supreme Court ruled that to find whether an act constitutes a professional service, courts look “not to the title or character of the party performing the act, but to the act itself.” 183 Neb. 12, 157 N.W.2d 870, 872 (1968). Thus, coverage encompasses “professional” acts or services, those entailing the performance of a vocation, calling, or occupation requiring learning and intellectual skill. The professional nature of an act qualifies it as “professional service.” A physician who sexually assaults a patient on the pretense of rendering medical care performs no professional service. Many courts follow the Marx blueprint. Simply put, sexual assaults of medical patients by physicians are not covered functions contemplated within the rendering of professional services.

[¶ 9.] In contrast, a minority view persists in a few courts. The lead decision in this area is St. Paul Fire & Marine Ins. Co. v. Asbury, 149 Ariz. 565, 720 P.2d 540 (Ariz.Ct.App.1986). There, the court ruled that all tortious acts professionals commit that are intertwined and inseparable from the services provided are covered occurrences. Unlike the Marx formulation, As-bury declares that malpractice insurance covers the physician, not the conduct of the physician. In Asbury, a gynecologist improperly manipulated his patients’ clitorises during routine pelvic exams. The court found this misconduct inseparable from professional services.

[¶ 10.] Although we reject the As-bury rationale because St. Paul’s policy language speaks plainly of coverage for professional services, we believe that even Asbwry’s rule would not permit coverage here. Perhaps a doctor’s hand inappropriately touching part of a patient’s genitals may in some way be inseparable from the function of performing a pelvic examination. But a doctor’s penis in no way belongs in, much less intertwines with, a gynecological exam. All but one of the plaintiffs testified that they were raped when Engelmann inserted his penis into them. Under the professional liability policy, injury from sexual misconduct cannot be considered as having been incurred from the “providing or withholding of professional services.” See David S. Florig, Insurance Coverage for Sexual Abuse or Molestation, 30 Tort & Ins. L.J. 699, 724 (1995). St. Paul is under no obligation to indemnify Engelmann for such acts. But our analysis does not end here.

[¶ 11.] If the question were only whether Engelmann’s professional liability policy covers rapes and sexual assaults, then, as we have seen, the answer is clearly no. Rape and sexual exploitation in the course of a pelvic exam are intentional acts situated well outside the ambit of failure to use due care and skill in providing professional services. Here, however, there were two theories of recovery given to the jury in the medical malpractice trial: (1) “negligence” by “engaging in improper sexual contact with each plaintiff during her gynecological examination,” and (2) “negligence” by performing “gynecological examinations [using] improper positions, procedures and methods in conducting those examinations.” The first theory affords no legitimate basis for coverage, but what of the second theory?

[¶ 12.] A liability policy that provides protection for professional services contemplates coverage for “improper or incorrect medical treatment of a physical ailment by the insured doctor.” Smith v. St. Paul Fire & Marine Ins. Co., 353 N.W.2d 130, 132 (Minn.1984). The act in question must be a “medical or dental act, not an act or service that requires no professional skill.” Lindheimer v. St. Paul Fire & Marine Ins. Co., 643 So.2d 636, 638 (Fla.Dist.Ct.App.1994).

[¶ 13.] We think the second theory allows for coverage in that the medical experts for Martinmaas, Bertsch, and Fron-ing testified that Engelmann’s unorthodox methods, such as his “gauze procedure,” fell below the standard of care for physicians. His acts under the second theory, although medically unsuitable, lie within the scope of professional services and thus are covered under his professional liability policy. Yet St. Paul contends that the plaintiffs’ own renditions of fact belie the second theory, since the plaintiffs described Engelmann’s acts as intentional sexual assaults. The question is not that simple. Much of the plaintiffs’ observations were circumstantial because they could not see what Engelmann was doing. The jury may have doubted part of their testimony, but still accepted enough of it to undergird the experts’ opinions that En-gelmann’s acts fell below the standard of care. We see this as a factual issue. Supporting this conclusion is the fact that the “knee-chest” position Froning had to assume for a pelvic exam, though not medically indicated in her circumstance, involved no offensive contact. Martinmaas, 2000 SD 85, ¶ 15, 612 N.W.2d at 605. Froning never claimed that she was sexually assaulted. Martinmaas, 2000 SD 85, ¶ 31 n. 6, 612 N.W.2d at 608 n. 6.

[¶ 14.] The second theory allows for coverage, but we do not know which theory in the malpractice action the jury adopted or whether it adopted both. Although the circuit court ruled that the tort judgment did not collaterally estop St. Paul to assert noncoverage, the court nonetheless used the jury’s general verdict against the insurer as the basis for finding coverage. The court granted summary judgment against St. Paul, reckoning that the tort verdict was subject to two different constructions, and one was sustainable for coverage purposes. In our view, neither side was entitled to summary judgment on this issue. What part of the victims’ damages can be allocated to the covered second negligence theory must be litigated as a question of fact in this declaratory action.

[¶ 15.] A court faces a conceptually impossible task in ruling on a summary judgment motion based on facts decided in another case in which multiple theories were presented and only a general verdict was rendered. Here, the verdict in the liability .case is susceptible of at least two reasonable interpretations. Summary judgment can be granted only when “there is no genuine issue as to any material fact.” SDCL 15-6-56(c). Not only must the facts be not in issue, but also there must be no genuine issue on the inferences to be drawn from those facts. Wilson v. Great N. Ry. Co., 83 S.D. 207, 212, 157 N.W.2d 19, 21 (1968). That both sides move for summary judgment does not mean that there are no genuine issues, obliging a court to grant judgment for one side or the 'other. American Fidelity & Casualty Co. v. London & Edinburgh Ins. Co., 354 F.2d 214 (4thCir.1965). Both motions must be denied if the court detects genuine issues of fact or genuine issues regarding the inferences to be drawn from the facts. Hindes v. United States, 326 F.2d 150, 152 (5thCir.1964), cert. denied, 377 U.S. 908, 84 S.Ct. 1168, 12 L.Ed.2d 178; 3 Barron and Holtzoff § 1239 (Wright ed. 1958).

D.

Insurer’s Right to Litigate Coverage

[¶ 16.] Generally, an insurer who defends an insured waives the right to assert policy defenses unless it first notifies the insured that it disclaims liability under the policy. See 7 C.J. Appleman, Insurance Law & Practice § 4694 p. 336 (Bendal ed. 1979) [hereinafter Appleman]. Under South Dakota law, if an insurer has a duty to defend its insured, it is bound— absent a reservation of rights — under the doctrine of collateral estoppel by those facts decided in the action against the insured that aré essential to the judgment of liability, whether the insurer elects or refuses to defend. Ziegler v. Ryan, 66 S.D. 491, 285 N.W. 875, 880 (S.D.1939).

[¶ 17.] On the other hand, if the insurer’s interest in defending the claim while restricting its obligation to the terms of the policy creates a conflict of interest between the insured and the insurer, there can be no estoppel from litigating in a later proceeding those issues on which there was a conflict of interest. As the California Supreme Court explained, “if the insurer adequately reserves its right to assert the noncoverage defense later, it will not be bound by the judgment” against the insured. Gray v. Zurich Ins. Co., 65 Cal.2d 263, 279, 419 P.2d 168, 178, 54 Cal.Rptr. 104, 114 (1966). By reserving the noncoverage issue, a conflict of interest will be avoided and the interests of the insured and the insurer in defending against the injured claimant will be identical. Likewise, the Arizona Supreme Court, declaring it the better rule, held that “where there is a conflict of interest between an insured and [an] insurer, the parties will not be estopped [to] litigat[e] in a subsequent proceeding those issues as to which there was a conflict of interest....” Farmers Ins. Co. of Ariz. v. Vagnozzi, 138 Ariz. 443, 675 P.2d 703, 708 (1983) (faced with a potential coverage defense, the insurer properly reserved its right to later assert the policy’s intentional act exclusion); see also Restatement (Second) of Judgments § 58 (1982); St. Paul Fire & Marine Ins. Co. v. Crosetti Bros., Inc., 256 Or. 576, 475 P.2d 69, 71 (1970).

[¶ 18.] Insurers are obliged to keep separate the independent duty to defend from the obligation to indemnify their insureds. A conflict of interest “exists when the injured person’s claim against the [insured] is such that it could be sustained on different grounds, one of which is within the [insurer’s] obligation to indemnify and another of which is not.” Restatement, Judgments § 58. These principles and the problems they create are explained in the comment to the Restatement, Judgments § 58:

On the one hand, the [insurer] has a duty to defend the [insured] even if the claim advanced in the action by the injured party is outside the scope of the indemnity obligation. In carrying out this duty, the [insurer] must seek to protect the [insured] even though in doing so it must take positions on the [insured]’s behalf that are contrary to its own interest. For example, the [insured] may be charged alternatively with having acted negligently and intentionally. In such a situation, it is to the [insured]’s interest that the claim, if sustained at all, be sustained on the basis of negligence because the loss will then fall on the [insurer], but it is to the [insurer’s interest that the claim of negligent wrongdoing be resisted because liability on that basis would fall with the obligation to indemnify.
On the other hand, the [insurer] has a right to its day in court on whether the [insured]’s liability is within the scope of the indemnity obligation. A corollary of this right is that the [insurer] should not be estopped by steps or positions that the [insurer] may have taken in the course of performing its duty to defend the [insured]. Hence, the usual rule that an [insurer] is precluded by the determination of issues which he litigates on behalf of an [insured], stated in § 57, should not apply to an [insurer] who defends, under the compulsion of an independent duty to defend, an [insured] with whom he has a conflict of interest.
The only way to reconcile these duties is to recognize that an [insurer] who has an independent duty to defend the [insured] in effect has two legal capacities with regard to the [insured]. In his capacity as insurer against the [insured]’s risk of being sued on claims that “might be found to be” within the indemnity obligation, the [insurer] has a responsibility to provide counsel and supporting assistance to defend the [insured] without regard to the [insurer’s interests, essentially as a guardian for a ward. In his capacity as [insurer], he has a responsibility to indemnify for such liability as may be within the indemnity obligation. In the latter capacity, he should not be bound by determinations in an action in which he participated in the former capacity if there is conflict of interest between the two. See § 36. The [insurer] may be required to manifest this differentiation by a reservation of its right qua [insurer] when it assumes the defense of the [insured].

[¶ 19.] As Engelmann’s insurer, St. Paul defended him under a reservation of rights. A reservation of rights is a notice to the insured that the insurer will defend the insured but that the insurer is not waiving any defenses it may have under the policy. By this method, insurers can provide the insured a defense to liability and reserve for later the question whether the policy provides coverage. As in most jurisdictions, acting under a “reservation of rights” is an established procedure in South Dakota. “An insurer is not estopped notwithstanding participation in defense of an action against insured to assert noncoverage if timely notice was given to the insured that it has not waived benefit of its defense under the policy.” Connolly v. Standard Cas. Co., 76 S.D. 95, 73 N.W.2d 119, 122 (S.D.1955). See also Appleman § 4692 at 297.

[¶20.] St. Paul provided Engel-mann with a splendid defense in his malpractice trial. Indeed, the jury’s verdict is so structured as to create at least an arguable issue whether the judgment is within the scope of insurance coverage. Counsel for Engelmann could have breached the obligation of fealty to the insured if he had advocated for special interrogatories or separate verdicts on the rape and sex abuse allegations. We must reflect now, though, that the insurer’s right to challenge coverage for Engelmann’s sexual misconduct was not decided in the tort trial and could not have been decided there. St. Paul cannot be foreclosed from proceeding with its challenge to coverage in this declaratory action.

[¶ 21.] Because the insurer is entitled to contest the noncoverage question, we remand this case for the parties to litigate the factual issue of what part of the victims’ damages, if any, are allocable to the covered second negligence theory. We affirm the circuit court’s denial of the insurer’s motion for summary judgment on the issue of providing a defense to Engel-mann and the Clinic in Baloun’s malpractice suit. Correspondingly, we agree with the circuit court that a ruling on summary judgment on the indemnity issue in Bal-oun’s case is premature. As with the others, she may be able to establish a theory equivalent to the second theory offered in the earlier malpractice trial.

[¶ 22.] Affirmed in part, reversed in part, and remanded for trial.

[¶ 23.] AMUNDSON, Justice, concurs in part and concurs specially in part.

[¶ 24.] DOBBERPUHL, Circuit Judge, concurs specially.

[V 25.] GILBERTSON, Chief Justice and MILLER, Retired Chief Justice, dissent.

[¶ 26.] DOBBERPUHL, Circuit Judge, sitting for SABERS, Justice, disqualified.

AMUNDSON, Justice

(concurring in part and concurring specially in part).

[¶ 27.] I join, at a minimum, the remand of this matter as provided for in Justice Konenkamp’s writing. It seems that fundamental fairness requires, in this type of a case, that the insurers be given their day in court when they did not breach their duty to defend during the underlying action.

[¶ 28.] I also concur with the special writing of Judge Dobberpuhl, which I feel is consistent with my dissent in Martin-maas v. Engelmann, 2000 SD 85, ¶¶ 79-86, 612 N.W.2d 600, 617.

DOBBERPUHL, Circuit Judge,

concurring, writing specially.

[¶ 29.] I respectfully agree with the lion’s share of the majority’s writing. For that reason I give my concurrence to the opinion. For purposes of attaining a majority decision on the crucial aspects of this case, I reluctantly give my concurrence to the decision to remand this case to the trial court. With that said, I write specially to make clear the few objections I have with the majority opinion.

The acts by Engelmann were intentional

[¶ 30.] The acts by Engelmann were intentional. The plaintiffs at trial put on a masterful display to convince the judge and jury that somehow the acts they were accusing the defendant of could be considered medical malpractice. The jury was instructed that any negligent misconduct on the part of the defendant was medical malpractice, and that sexual contact could somehow be “negligence.” See Martinmaas v. Engelmann, 612 N.W.2d 600 (S.D.2000). As the testimony of the expert doctors reveal, no medical book used in the civilized world recognizes the behavior of Engelmann as medical in nature. Of course it is malpractice, but it is also intentional malpractice that is sexual in nature. Terming these actions as medical is just as much a smokescreen now on the part of the plaintiffs, as it was on the part of the defendant when he committed these acts.

[¶ 31.] If it walks like a duck, and if it quacks like a duck, it sure isn’t a goose; and that is what the plaintiffs are claiming. They argue that this intentional sexual misconduct (termed so by their own testimony) is somehow medical enough in nature to fall under the guise of medical malpractice and is covered by the doctor’s professional insurance policy. That is plainly antithetical to South Dakota law and a long history of South Dakota jurisprudence.

[¶ 32.] South Dakota public policy does not allow insurance coverage for intentionally tortious acts. This sort of malpractice, inflicted by Engelmann, was intentional and inherently injurious. State law clearly maintains that it is against public policy in South Dakota for one to insure against an intentional act. St. Paul has appropriately relied upon that well-known axiom. South Dakota has recognized this for many years. See De Zotell v. Mutual Life Ins. Co. of New York, 60 S.D. 532, 245 N.W. 58, 59 (1932) (“The principles which forbid such unconscionable enrichment of the criminal are implicit in the ancient common-law maxim ‘Nullus commodum capere potest de injuria sua propria’ (Co Litt 148 b) anglicized as section 49 of our 1919 code providing that ‘no one can take advantage of his own wrong.’ These principles require no exposition, and are supported by an almost imperative public policy”); Zeigler v. Ryan, 63 S.D. 607, 262 N.W. 200 (1935) (an agreement to indemnify another against unlawful acts involving moral turpitude, is void if the unlawful act is known to such person at the time of its commission); Raphtis v. St. Paul Fire & Marine Ins. Co., 86 S.D. 491, 198 N.W.2d 505, 507 (1972) (“It is contra bonos mores to allow a man to insure against the consequences of his own rascality or recover for a loss resulting from his own criminal conduct.”); City of Fort Pierre v. United Fire and Cas. Co., 463 N.W.2d 845, 849 (S.D.1990) (“Were a person able to insure himself against economic consequences of his intentional wrongdoing, the deterrence attributable to financial responsibility would be missing”) (quoting Ambassador Ins. Co. v. Montes, 76 N.J. 477, 388 A.2d 603, 606 (N.J.1978)) (Henderson and Sabers, JJ., dissenting on other grounds); Klatt v. Continental Ins. Co., 409 N.W.2d 366, 372 n. 6 (S.D.1987) (“One cannot insure himself against the consequences of his willful acts, committed with the intent to inflict injury.”); State Farm Mut. Auto. Ins. Co. v. Wertz, 540 N.W.2d 636, 640 (S.D.1995) (“public policy prohibits extending insurance coverage to an individual who intentionally harms others”); 9 Couch on Insurance 2d, § 39:15 at 506-07 (1985 ed.) (“Any insurance which purports to protect the insured against any loss which he may purposely and willfully cause, or which may arise from his immoral, fraudulent, or felonious conduct, is void as against public policy.”).

[¶ 33.] This Court specified in Wertz that the “critical issue” is not whether the tortfeasor “intended to act, but whether he intended to inflict the resulting injuries.” Wertz at 639. “An insured’s act is not an accidental contributing cause of injury when the insured actually intended to cause the injury that results.... Nor can an insured’s intentional act be an accidental cause of injury when it is so inherently injurious that it cannot be performed without causing the resulting injury.” Vermont Mut. Ins. Co. v. Malcolm, 128 N.H. 521, 517 A.2d 800, 802-03 (1986). See also Providence Mut. Fire Ins. Co. v. Scanlon, 138 N.H. 301, 638 A.2d 1246, 1249 (1994), (holding that “an act is inherently injurious if it is certain to result in some injury, although not necessarily the alleged injury.” (emphasis in original)).

[¶ 34.] This Court held in American Family Mutual Ins. Co. v. Purdy, 483 N.W.2d 197 (S.D.1992), that as a matter of law, there is an inference that harm to the victim is expected or intended by the perpetrator of criminal sexual acts. “We hold these acts of criminal sexual contact are of such a nature that the intent to inflict bodily injury will be inferred as a matter of law. The exclusion for bodily injury either ‘expected or intended’ in this policy applies to these facts.” Id. at 201.

[¶ 35.] Similarly, in this present case, and in general, inappropriate sexual contact with a patient, combined with the utilization of improper examination positions, procedures and methods, which are solely for the prurient interests of the physician, are sure to result in injury to the patient.

[¶ 36.] Engelmann knew he was engaging in acts that were, at the very least, unprofessional conduct. He knew or should have known that conduct, such as he perpetrated, could result in everything from loss of licensure to criminal prosecution. These acts, although defined as malpractice, are not negligent professional conduct; these acts are intentional unprofessional conduct, of which it is against public policy to insure.

[¶ 37.] By the insurance contract definition, the conduct of Engelmann was intentional. It is against public policy to insure against intentional actions to cause harm. The purpose of the professional liability policy was to protect against negligent malpractice committed under a professional setting. The actions of En-gelmann ceased to be covered under the policy when he became engaged in inherently harmful, intentionally unprofessional conduct outside the scope of his employment.

[¶ 38.] As much as the families in this case, and the women involved, deserve our sympathy and compassion, we cannot be swayed by those emotions. The Court must look to the law to determine who is responsible for the payment of the verdict. There is ample evidence that the State of South Dakota believes the person who commits intentionally injurious acts should be required to pay, not the insurer.

[¶39.] Doctors and medical clinics as well as many other professions, insure themselves every day against the possibility that they may make a mistake. That they failed to diagnose something properly, that they gave the wrong medicine, that they gave the wrong advice. Those possibilities are foreseen and reasonably insurable. One should not be able to insure against intentional malpractice.

MILLER, Retired Chief Justice

(dissenting).

[¶ 41.] The majority ignores settled law and overrules our own recent holding in Martinmaas, supra. Therefore, I dissent.

[¶ 42.] The majority, without specifically saying so, is ignoring case precedent in this Court. In so doing, it violates the basic and honored concept of stare decisis. “Stare decisis is a ... doctrine that, when the court has laid down a principle of law as applicable to a certain state of facts, it will adhere to that principle, and apply it to all further cases where the facts are substantially the same.” State v. Means, 268 N.W.2d 802, 811 (S.D.1978) (citing Printup v. Kenner, 43 S.D. 473, 476, 180 N.W. 512, 513 (1920)). Stare decisis provides parties with a “continuity of the law, rooted in a belief of reliance on how this Court has ruled in the past.” See Phipps Bros. Inc. v. Nelson’s Oil and Gas, Inc., 508 N.W.2d 885, 891 (S.D.1993) (Henderson, J., concurring in part; dissenting in part). We have settled case law precedent before us, recently handed down by this Court, and we should abide by it. The majority (and the special writer, who obviously disagreed with our earlier holding and is using this appeal to overturn it) is compelled by this doctrine to adhere to our decision in Martinmaas. To do otherwise puts the law of this state in flux and it places the bench, bar and public in the dubious situation of not knowing from one case to the next what our law is. Our jurisprudence is not being well served.

[¶ 43.] In Martinmaas, we upheld the jury’s verdict finding that Engelmann had committed professional negligence (medical malpractice) and awarding the Plaintiffs damages. Martinmaas, 2000 SD 85, ¶ 59, 612 N.W.2d 600. The trial was submitted to the jury based solely on negligence stemming from Engelmann’s utilization of improper medical procedures, positions, methods and his improper sexual contact. Id. ¶4. The majority in this appeal now states that Engelmann’s conduct was intentional, and thus it completely disregards the jury’s verdict and our holding in Martinmaas. Thus, in addition violating stare decisis, it also clearly ignores the doctrine of collateral estoppel.

[¶ 44.] Collateral estoppel prevents parties or their privies from re-litigating issues previously litigated and adjudicated on the merits. Shevling v. Butte County Bd. of Comm’rs, 1999 SD 88, ¶ 22, 596 N.W.2d 728, 731. The application of collateral estoppel requires the satisfaction of four factors:

(1) [t]he issue decided in the prior adjudication was identical with the one presented in the action in question;
(2) [t]here was a final judgment on the merits;
(3) [t]he party against whom the plea is asserted was a party or in privity with a party to the prior adjudication; and
(4) [t]he party against whom the plea is asserted had a full and fair opportunity to litigate the issue in the prior adjudication.

Grand State Property, Inc. v. Woods, Fuller, Shultz & Smith, 1996 SD 139, ¶ 12, 556 N.W.2d 84, 87. Collateral estoppel must be applied under appropriate circumstances to maintain “judicial orderliness, economy of judicial time, and the interest of litigants as well as the peace and order of society....” Frigaard v. Seffens, 1999 SD 123, ¶ 16, 599 N.W.2d 646, 650. Judgments on prior issues must be accorded stability. Id. “Controversies once decided on their merits should remain in repose, and inconsistent judicial decisions should not be made on the same set of facts.” Id.

[¶ 45.] Here, St. Paul brought a declaratory judgment action in an attempt to avoid indemnifying Engelmann under his medical malpractice insurance. St. Paul asserts that the conduct Plaintiffs proved in the Martinmaas trial is not covered by under either the CGL policy or the professional liability policy. It argues that En-gelmann’s conduct was not negligent but intentional. This is the exact issue that was litigated in Martinmaas. His counsel argued extensively at trial that Engel-mann’s conduct was intentional rather than negligent. The jury, deciding on the merits, obviously disagreed and found that Engelmann’s procedures and methods fell below the appropriate standard of care, constituting professional negligence. This Court affirmed. (Further, it must be remembered that Engelmann was tried and acquitted of the allegations of criminal sexual acts. Thus, it is improper to treat an acquitted person as a convict in order to justify a result-oriented decision.)

[¶ 46.] The majority also blatantly disregards this Court’s previous holding that if there are two theories for recovery and one is permissible based on the evidence and the other is not, we will give the prevailing party the benefit of the doubt and affirm based on the permissible theory. Baker v. Jewell, 77 S.D. 573, 580-81, 96 N.W.2d 299, 304 (S.D.1959); Berg v. Sukup Mfg. Co., 355 N.W.2d 833, 837 (S.D. 1984) (Henderson, J., specially concurring).

[¶47.] Here we are presented with a decision on a rule of law, not a question for the jury. Id. The jury in Martinmaas was given two theories of recovery. As the majority acknowledges, one theory was permissible — Engelmann was covered under his professional liability policy. Yet the absurd result of the majority’s decision is to send this case back to a new jury for it to determine the following: On which theory of recovery did the Martinmaas jury render its decision? Not only is this an impossible question for a new jury to answer, it is not one appropriate for them to decide.

[¶ 48.] Simply stated, St. Paul disagreed with the jury verdict in Martin-maas. It lost its appeal and is now seeking a declaratory judgment to have it reviewed again. Collateral estoppel clearly applies to prevent this type of re-ligitation. The majority should not now overturn the jury verdict we previously affirmed. The jury found that Engel-mann committed professional negligence. We affirmed and are bound by that decision. There is nothing more to litigate.

[¶ 49.] GILBERTSON, Chief Justice, joins this dissent.

      . Listed among the exclusions is the following: "We won't cover injury or damage or medical expenses that result from the perfor-manee of or failure to perform health care professional services.”

      . Hirst v. St. Paul Fire & Marine Ins. Co., 106 Idaho 792, 683 P.2d 440, 444 (1984) (intentional sexual assault not within professional services for insurance coverage purposes); St. Paul Fire & Marine Ins. v. Quintana, 165 Mich.App. 719, 419 N.W.2d 60, 63 (1988) (damages arising out of performance of professional services do not include damages for sexual assault); Niedzielski v. St. Paul Fire & Marine, 134 N.H. 141, 589 A.2d 130, 133 (1991) (sexual assault does not fall within the meaning of professional dental services); N.M. Physicians Mut. Liability v. LaMure, 116 N.M. 92, 860 P.2d 734, 739 (1993) (sexual acts committed under pretense of medical care not professional services in the context of malpractice insurance coverage); Cluett v. Med. Protective Co., 829 S.W.2d 822, 829 (Tex. App.- Dallas 1992), (writ denied) (a pediatrician's sexual relationship with a patient was not a professional service); Smith v. St. Paul Fire & Marine Ins. Co., 353 N.W.2d 130, 132 (Minn. 1984) (sexual assault by medical doctor on three minor boys during the course of treatment not covered by professional liability insurance as doctor's acts were only "for the satisfaction of [his] prurient interests” and thus "involved neither the providing nor withholding of professional services”); Washington Ins. Guar. Ass’n v. Hicks, 49 Wash.App. 623, 744 P.2d 625, 627-28 (1987) (chiropractor's sexual conduct not part of medical treatment); Standard Fire & Ins. Co. v. Blakeslee, 54 Wash.App. 1, 771 P.2d 1172, 1176-78 (1989) (dentist's act of fondling drugged patient's breasts not covered by insurance policy as sexual assault was not part of professional services).

      . Baloun testified that she saw Engelmann’s penis during the exam when she sat up. Bertsch "felt like she was having sex.” Mar-tinmaas "felt as if she was having intercourse.” Froning is the only plaintiff in the original action that did not claim Engelmann was having intercourse with her. Whether the jury believed they were raped remains unknown.

      . See also Annotation, Liability Insurance: Insurer’s Assumption of or Continuation in Defense of Action Brought Against the Assured as Waiver or Estoppel as Regards Defense of Non-coverage or Other Defense Existing at Time of Accident, 38 A.L.R.2d 1148 (1954).

      . See also Pendleton v. Pan American Fire & Casualty Co., 317 F.2d 96, 99 (10thCir.1963); Hartford Acc. and Indem. Co. v. Villasenor, 21 Ariz.App. 206, 517 P.2d 1099, 1102 (1974).

      . See also Snodgrass v. Baize, 405 N.E.2d 48 (Ind.Ct.App.1980) (insured entitled to litigate coverage in supplemental proceeding).

      . Because attorneys representing insureds on behalf of carriers owe an undeviating fealty to the insureds, attorneys act unethically if they attempt to preserve the insurer’s noncoverage claim while purporting to represent the best interests of the insureds. State Farm Mut. Auto. Ins., Co. v. Amstrong Extinguisher Serv., Inc., 791 F.Supp. 799, 802 (D.S.D.1992).

      . South Dakota’s UCC also grants recognition to reservations of rights:
      A party who, with explicit reservation of rights, performs or promises performance or assents to performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved.
      SDCL 57A-1-207.

      . In connection with alternative theories of recovery, some courts have stated that insurance defense counsel should not request that special interrogatories be propounded to the jury for the purpose of delineating which part of the verdict is covered under the policy. Gray, 65 Cal.2d at 279 n. 18, 54 Cal.Rptr. 104, 114 n. 18, 419 P.2d at 178 n. 18 ("special verdict might present a potential conflict of interest”); Cowan v. Insurance Co. of N. Am., 22 Ill.App.3d 883, 897, 318 N.E.2d 315, 326 (1974). In these circumstances, counsel hired by the insurer owes an enhanced obligation of good faith to the insured. Tank v. State Farm Fire & Casualty Co., 105 Wash.2d 381, 715 P.2d 1133, 1137 (1986).

      . The dissent mischaracterizes our ruling as a remand to decide on which theory of recovery the Martinmaas jury rendered its decision. That, of course, is absurd, as the dissent recognizes. Indeed, the dissenting Justice who authored the opinion in the malpractice appeal acknowledged there that "we do not pass judgment on whether Engelmann's actions would be indemnified under a medical malpractice insurance policy.” Martinmaas at ¶ 33. Perhaps it needs repeating that the law distinguishes between an insurer’s duties to defend and to pay. An insurer must defend claims potentially not covered, including those that are groundless, false, or fraudulent. See. Appleman § 4684, at 80-87. St. Paul fulfilled its duty to defend. It now has the right to litigate the duty to pay. The fact finder in this declaratory action will decide whether the injuries the plaintiffs suffered were the result of uncovered intentional acts or covered "negligence” by performing "gynecological examinations [using] improper positions, procedures and methods in conducting those examinations.” See Vagnozzi, 675 P.2d at 710 (trial court erred in granting summary judgment to insurer in declaratory action because whether acts that caused injury were intentional or reckless or negligent were jury questions).

      . A legislative expression of this public policy is also found in SDCL 53-9-3, which provides: “AH contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud or willful injury to the person or property of another or from violation of law whether willful or negligent, are against the policy of the law.”