Atlantic Mut. Ins. Companies v. Lotz, 03-C-41.
| Decision Date | 24 August 2005 |
| Docket Number | No. 03-C-41.,03-C-41. |
| Parties | ATLANTIC MUTUAL INSURANCE COMPANIES, Plaintiffs, v. Brian and Kaare LOTZ, Defendants/Counter-Plaintiffs, v. Atlantic Mutual Insurance Companies, Counter-Defendants. |
| Court | U.S. District Court — Eastern District of Wisconsin |
Bruce A. Ranta, Cunningham & Lyons, Milwaukee, WI, Dennis D. Fitzpatrick, James M. Hoey, Clausen Miller PC, Chicago, IL, for Plaintiffs.
Christopher N. Mammel, Edward Eshoo, Jr., Michael L. Childress, Childress & Zdeb Ltd., Chicago, IL, John V. McCoy, Thomas C. Hofbauer, McCoy & Hofbauer, Waukesha, WI, Defendants/Counter-Plaintiffs.
On January 15, 2003, Atlantic Mutual Insurance Companies ("Atlantic Mutual") filed a complaint against Brian and Kaare Lotz (the "Lotzs") seeking a declaration that the insurance policy it issued to the Lotzs does not cover widespread mold and rot damage discovered in their home. The Lotzs have filed a counterclaim against Atlantic Mutual alleging breach of contract, breach of implied covenant and bad faith conduct.
Atlantic has moved for summary judgment pursuant to Fed.R.Civ.P. 56(c) on the grounds there is no coverage for the loss, there was no breach of contract, and there was no breach of implied covenant or bad faith conduct. The Lotzs have moved for partial summary judgment on the limited ground that the losses to their home constituted occurrences within the policy period. The motions are fully briefed and the court now addresses them.
This case is very fact intensive. The following is only a summary of the relevant facts in the light most favorable to the non-movants. On April 29, 2002, the Lotzs purchased a two-level single family home in the Village of Whitefish Bay, Wisconsin. The home was constructed in the 1920s with a significant addition added in 1991. The original structure consisted of an entryway, a living room, a dining room, a kitchen, two bedrooms, and a main bathroom. It appears the only portions of the original structure that suffered mold and rot damage were the entryway, the kitchen, and the main bathroom. The 1991 addition included the eating area, family room, half-bath, and laundry room on the first floor, and the master bedroom and bath on the second floor. It appears each room suffered rot and mold damage to some degree.
Before the Lotzs purchased the home, they had it inspected by U.S. Inspect. U.S. Inspect issued a report citing several problems, none of which caused the Lotzs to back out of the purchase. Among the deficiencies noted in the report were that the brick walkway sloped toward the home and created a situation where water might flow toward the structure, the stone veneer on the exterior of the home was deteriorating and perhaps permitting water to seep through it, the bathroom vented to the attic rather than outside, and some of the flashing on the roof had slipped away. The report also noted that no drain was provided for the pressure release valve connected to the steam shower in the master bathroom.
The Lotzs insured the home under a policy issued by Atlantic Mutual for the period May 3, 2002, to May 3, 2003. On May 21, 2002, Brian Lotz used the steam shower in the master bath and noticed afterward water spots on the walls and ceilings in the areas below. Lotzs had Michael Hackett, President of Building & Design Specialists, look into the matter. Hackett concluded the water spotting resulted from a long-term leak caused by improper installation of the steam shower. He noted the steam shower lacked a tile flange or pan liner to redirect water leaking through openings in the caulking, and he noted the walls around the shower were constructed of drywall rather than cement board. Finally, he noted the pressure release valve did not have a drain to prevent released water from splashing on the floor. Hackett concluded the entire steam shower needed to be replaced to stop the leak.
Atlantic Mutual received notice of the steam shower incident on June 3, 2002, and Joel Hossli, an adjustor for Atlantic Mutual, had Matt Everett of Paul Davis Restoration look into the matter. After inspecting the bathroom on June 4, 2002, Everett concluded the steam shower had been leaking over a period of time. He arrived at this conclusion after observing multiple dry, circular, orange colored water stains on the walls and ceilings below the shower as well as on the timbers in the basement. He also concluded the steam shower was poorly constructed because it lacked a tile flange and a drain for the pressure release valve.
On June 13, 2002, Brian Lotz hired John Melvan of Inspection and Assessment Services to determine whether he had a mold problem, and if so, the extent of it. Melvan concluded there was mold in the home, and he recommended the following areas be remediated: (1) dry wall and wall coverings on the north and east walls in the half-bath, (2) a sizable portion of the kitchen ceiling, (3) a portion of the north wall in the master bathroom and a small portion of the east wall, and (4) a portion of the west wall and the flooring in the main bathroom. Melvan also concluded it was apparent the home had been subjected to water seepage for some time.
On June 19, 2002, U.S. Inspect inspected the home a second time and issue a second report. The second report noted water staining in the areas below the steam shower. The report highlighted the presence of relatively fresh paint on the stained areas and concluded the presence of this paint indicated the previous owners were aware of the water leakage and tried to conceal it before they sold the home.
Aspen Restoration performed the remediation recommended by Melvan. During the course of the remediation, mold was discovered in other areas of the home. Specifically, mold was discovered in other areas of the kitchen ceiling, almost the entire bathroom sub-floor, part of the sub-floor in the master bedroom, and the attic. Aspen remediated these areas as well. In the course of removing the steam shower, Aspen noticed there was no pan liner or tile flange underneath. Aspen guessed part of the mold in the sub-floor of the bathroom and master bedroom was due to leaking from the hydronic tubing in the floor used to heat that area of the home.
In mid-July, the Lotzs hired Stewarts Custom Cabinetry to remodel portions of the home. According to the building permit issued by the Village of Whitefish Bay, the scope of the remodeling was rather limited, but by early August, the remodeling project spanned nearly every room in the 1991 addition as well as the roof. In the course of remodeling, Stewarts found additional mold and rot. Specifically, mold and rot was found in the remainder of the floor in the master bedroom, the remainder of the ceiling in the kitchen and walls, the ceiling and floor in the half-bath and main bath, and the walls and floor of the family room. The remodeling project also disclosed several potential sources of water intrusion that led to the mold and rot: (1) rain water infiltration from windows in the master bathroom, master bedroom, and family room; (2) leakage from the steam shower as well as the toilet and shower in the main bath; (3) lack of proper flashing on portions of the roof; (4) leakage from the hydronic tubing in the floors of the 1991 addition as well as the floors in the kitchen; (5) infiltration of water at the base of the family room walls; (6) water seepage through the stone veneer; and (6) moisture accumulation from the vent into the attic.
Soon after Stewarts started uncovering mold and rot, its owner, Scott Stewart, contacted Joel Jaster, the building inspector for the Village of Whitefish Bay. Stewart wanted Jaster to take note of the sub-par work previously performed on the home (he did not want to be responsible for someone else's shoddy workmanship) as well as the widespread presence of mold and rot. Jaster visited the home on several occasions, and on September 12, 2002, he issued a letter to the Lotzs stating pursuant to public nuisance ordinances, the home had to be vacated until the mold was remediated.
On October 28, 2002, Jaster sent another letter to the Lotzs indicating nothing had been done to remediate the home. The letter stated the Village of Whitefish Bay was giving the Lotzs two additional weeks to remediate the home. After Brian Lotz received the letter, he called Jaster and told him he was not going to do any remediation work. Because the Lotzs decided not to repair or remediate the home, the Village of Whitefish Bay issued an order to demolish it. A raze order was issued November 19, 2002, and the home was demolished on December 12, 2002. After the demolition, Atlantic paid $19,608.77 to the Lotzs for what it deemed to be the damage resulting from the one-time shower leak in May 2002. The payment was made to replace the shower and toilet in the master bathroom, remediate the mold caused by the one-time leak, and to replace the wood rotted as a result of the leak.
Prior to the demolition, Atlantic Mutual had Henry Uhlig of Entek Environmental & Technological Services, Inc. ("Entek") visit the home and report on the potential causes of the mold and rot. Uhlig concluded the rot he observed would have taken more than a year to develop, and he concluded much of the water intrusion which led to the mold and rot resulted from construction defects which included the following: (1) improperly constructed front entry porch; (2) lack of counterflashing at the wall/roof intersections of the front entryway; (3) missing hip/ridge singles on the roof; (4) lack of vent openings on roof of eating area; (5) construction of base of family room below exterior grade; (6) lack of flashing to redirect moisture and water from unprotected framing of family room; (7) lack of flashing at wall/slab intersection of family room; (8) lack of weep holes in lower course near the stone veneer and concrete foundation of the family...
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