American Family Mut. Ins. Co. v. Pleasant Co.

• Decision Date: 29 August 2002
• Docket Number: No. 01-1871.,01-1871.
• Citation: American Family Mut. Ins. Co. v. Pleasant Co., 2002 WI App 229, 257 Wis. 2d 771, 652 N.W.2d 123 (Wis. App. 2002)
• Parties: AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Plaintiff-Appellant-Cross-Respondent, v. The PLEASANT COMPANY, Defendant-Respondent-Cross-Appellant, The RENSCHLER COMPANY, INC., Defendant-Third-Party Plaintiff-Respondent-Cross-Appellant, v. WESTERN AMERICAN INSURANCE COMPANY, The Ohio Casualty Insurance Company, Regent Insurance Company and General Casualty Company of Wisconsin, Third-Party Defendants-Respondents-Cross-Respondents.
• Court: Wisconsin Court of Appeals

257 Wis.2d 771

2002 WI App 229

652 N.W.2d 123

AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Plaintiff-Appellant-Cross-Respondent, v. The PLEASANT COMPANY, Defendant-Respondent-Cross-Appellant,¹ The RENSCHLER COMPANY, INC., Defendant-Third-Party Plaintiff-Respondent-Cross-Appellant,¹ v. WESTERN AMERICAN INSURANCE COMPANY, The Ohio Casualty Insurance Company, Regent Insurance Company and General Casualty Company of Wisconsin, Third-Party Defendants-Respondents-Cross-Respondents.

No. 01-1871.

Court of Appeals of Wisconsin.

Submitted on briefs June 12, 2002.

Decided August 29, 2002.

On behalf of the plaintiff-appellant-cross-respondent, the cause was submitted on the briefs of Wayne M. Yankala and Michael R. Vescio of Mingo & Yankala, S.C., Milwaukee.

On behalf of the defendant-respondent-cross appellant, the cause was submitted on the briefs of Daniel W. Hildebrand and William E. McCardell of Dewitt Ross & Stevens S.C., Madison.

On behalf of the defendant-third-party plaintiff-respondent-cross-appellant, the cause was submitted on the briefs of Robert J. Kay and Robert A. Mich, Jr. of Kay & Andersen, S.C., Madison.

On behalf of the third-party defendants-respondents-cross-respondents General Casualty Company of Wisconsin and Regent Insurance Company, the cause was submitted on the brief of Robert F. Johnson and Lee Anne N. Conta of Cook & Franke S.C., Milwaukee; and on behalf of the third-party defendants-respondents-cross-respondents Western American Insurance Company and The Ohio Casualty Insurance Company, the cause was submitted on the brief of Michael D. Lawrynk of Gabert, Williams, Konz & Lawrynk, LLP, Appleton.

Before Vergeront, P.J., Dykman and Deininger, JJ.

¶ 1. VERGERONT, P.J.

The dispositive issue on this appeal and cross-appeal is whether the exclusion for "liability assumed in a contract" in policies issued to The Renschler Company precludes coverage for the claims of breach of contract and negligence asserted against Renschler by The Pleasant Company. We conclude this exclusion does preclude coverage of these claims. Accordingly, we reverse the circuit court's order granting summary judgment in favor of Pleasant and Renschler with respect to American Family Insurance Company's Comprehensive General Liability (CGL) policies issued in the years 1994-97, and we remand with instructions to enter summary judgment in favor of American Family Mutual Insurance Company on these policies. In addition, because of this exclusion, we affirm the order granting summary judgment in favor of American Family with respect to its excess liability policies for these years, and we affirm the order granting summary judgment in favor of Ohio Casualty Insurance, Western American Insurance Company, General Casualty Insurance Company, and Regent Insurance Company. Since all these policies contain the exclusion, we do not address other issues raised on the appeal and cross-appeal.

BACKGROUND

¶ 2. Pleasant entered into a contract with Renschler for the design and construction of a building. Renschler subcontracted with Clifton Lawson, a soils engineer, to analyze the soil conditions at the site. Lawson reported that the soil conditions were poor and recommended "surcharging"—preparing the site by placing heavy fill on it to compress the soil. Lawson worked with Renschler's project superintendent in carrying out the surcharging. The building was substantially completed in August 1994. Subsequently, there was significant settlement of the building, which caused serious physical damage to the building.

¶ 3. The contract between Pleasant and Renschler provided for arbitration of disputes. Accordingly, Pleasant filed a demand for arbitration asserting two claims against Renschler: breach of contract and negligence. As grounds for the contract claim, Pleasant alleged that Lawson's negligence caused excessive settlement of the building, which resulted in damage to the building, and, by reason of the excessive settlement, Renschler breached its contract with Pleasant. As grounds for the negligence claim, Pleasant alleged that Renschler had a non-delegable common law duty of care to Pleasant in performing its contract, and Renschler was liable for the negligence of Lawson, its subcontractor.

¶ 4. After Pleasant filed the demand for arbitration, American Family filed this action seeking a declaratory ruling that the CGL and excess liability policies it had issued to Renschler did not provide coverage for Pleasant's claims against Renschler, and it therefore did not have a duty to defend in the arbitration. Renschler joined four additional insurers: Ohio Casualty Insurance Company and West American Insurance Company, which issued CGL and excess liability policies respectively for March 31, 1997 through March 31, 1999, and General Casualty Insurance Company and Regent Insurance Company, which issued CGL and umbrella liability policies, respectively, thereafter. The parties, the court, and the arbitration panel agreed to stay the arbitration until the cross-motions for summary judgment on the coverage issues were resolved.

¶ 5. With respect to American Family's CGL policies for the years 1994-95, 1995-96, and 1996-97, the court concluded that none of the exclusions on which American Family relied were applicable and that coverage was not precluded under either the economic loss doctrine or the loss-in-progress doctrine (also called the known loss doctrine). However, the court concluded there was no coverage under American Family's excess policies for these years because of the professional services exclusion.² With respect to the other four insurers, the court concluded there was no coverage under their policies because of the loss-in-progress doctrine: the court decided it was undisputed that in February 1997—before any of their policies were issued—it was obvious to Renschler that the settlement problem was so serious that remediation was necessary.

DISCUSSION

[1, 2]

¶ 6. In reviewing the grant or denial of summary judgment, we apply the same methodology as the circuit court, and our review is de novo. Green Spring Farms v. Kersten, 136 Wis. 2d 304, 315, 401 N.W.2d 816 (1987). If there are no disputed issues of fact, as in this case, we decide which party is entitled to judgment as a matter of law. Id. [3-5]

¶ 7. Whether an insurer has a duty to defend is determined by comparing the allegations of the complaint—in this case, the arbitration demand—to the terms of the policy. If, assuming the allegations are proved true, the insurer would be obligated to pay the resulting judgment under the terms of the policy, then the insurer has a duty to defend the insured. Atlantic Mut. Ins. Co. v. Badger Med. Supply Co., 191 Wis. 2d 229, 236, 528 N.W.2d 486 (Ct. App. 1995). The interpretation of an insurance contract is a question of law. Id.

[6]

¶ 8. On appeal, American Family renews the arguments it made in the circuit court for no coverage and no duty to defend under its CGL policies.³ We address only the exclusion relating to the assumption of liability in a contract, because it is dispositive.

2. Exclusions

This insurance does not apply to:

. . . .

b. "Bodily injury" or "property damage" for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages:

(1) Assumed in a contract or agreement that is an "insured contract,"⁴ provided that "bodily injury" or "property damage" occurs subsequent to the execution of the contract or agreement; or

(2) That the insured would have in the absence of the contract or agreement.

(Footnote added.)

¶ 9. The circuit court concluded that this exclusion applied only to indemnity and "hold harmless" agreements, after deciding that cases from other jurisdictions to this effect were persuasive. American Family contends the circuit court erred in not applying the Wisconsin case on point, Nelson v. Motor Tech, Inc., 158 Wis. 2d 647, 462 N.W.2d 903 (Ct. App. 1990).

¶ 10. Nelson addressed an exclusion with identical language, including the second exception to the exclusion "for liability an insured would have in the absence of the contract or agreement."⁵Id. at 650. There, the insured, an auction company, was sued as a third-party defendant by the owner of an automobile who had placed the automobile with the auction company to auction for a specified reserve price. The auction company sold the automobile for significantly less due to a misreading of the reserve price by an employee, and the owner refused to deliver the automobile to the purchaser. When the purchaser sued the owner for specific performance, the owner impleaded the auction company, asserting claims of breach of contract and negligence. After setting forth the exclusion and the second exception, we stated: "The above provision clearly excludes coverage for incidents involving purely contractual liabilities. The policy covers incidents only if there is liability independent of the contract." Id.

¶ 11. We then considered whether there was a common law duty to sell a product for more than the reserve price in the absence of a duty created by a contract, and we concluded there was not. Id. at 650-51 In reaching this conclusion, we relied on the line of Wisconsin cases establishing that

in order to proceed in a tort action when the parties' relationship is defined by a contract, there must be a duty in common law independent from any duty created by the contract. In applying this test, the existence of a contract is ignored when determining whether the alleged misconduct is actionable in tort.

Id. at 653 (citation omitted). We decided that any liability the auction company had was entirely grounded in a claim for breach of contract. Id. Therefore, we held there was no coverage under the policy, and the insurer had been properly dismissed. Id. at 654.

¶ 12. Renschler argues that Nelson is distinguishable because "it...