Benjamin v. Dohm

• Decision Date: 17 November 1994
• Docket Number: No. 93-2879,93-2879
• Citation: 189 Wis.2d 352,525 N.W.2d 371
• Parties: Ralph M. BENJAMIN, Sara June Sherkow, Dennis John Farnham, Robert L. Alexander, Kathy Alexander, Douglas B. Frakes, Barbara B. Shapiro, and Monson Construction Co., Inc., a Wisconsin Corporation, Individually and as Partners in Parkwood Village Condominiums, a Wisconsin Partnership, Plaintiffs, v. Gerard F. DOHM, Gerald J. Ring, and John W. De Beck, D/B/A DRD Partnership, and Parkwood Hills Corporation, a Wisconsin Corporation, Defendants-Third Party Plaintiffs-Appellants, d v. INSURANCE COMPANY OF NORTH AMERICA, a Foreign Insurance Carrier, and Pacific Employers Insurance Co., a Foreign Insurance Carrier, Third Party Defendants-Respondents.
• Court: Wisconsin Court of Appeals

Page 371

525 N.W.2d 371

189 Wis.2d 352

Ralph M. BENJAMIN, Sara June Sherkow, Dennis John Farnham,

Robert L. Alexander, Kathy Alexander, Douglas B. Frakes,

Barbara B. Shapiro, and Monson Construction Co., Inc., a

Wisconsin Corporation, Individually and as Partners in

Parkwood Village Condominiums, a Wisconsin Partnership, Plaintiffs, v. Gerard F. DOHM, Gerald J. Ring, and John W. De Beck, D/B/A

DRD Partnership, and Parkwood Hills Corporation, a

Wisconsin Corporation, Defendants-Third

Party Plaintiffs-Appellants, d v. INSURANCE COMPANY OF NORTH AMERICA, a Foreign Insurance

Carrier, and Pacific Employers Insurance Co., a

Foreign Insurance Carrier, Third Party

Defendants-Respondents.

No. 93-2879.

Court of Appeals of Wisconsin.

Submitted on Briefs July 14, 1994.

Opinion Released Nov. 17, 1994.

Opinion Filed Nov. 17, 1994.

For the defendants-third party plaintiffs-appellants the cause was submitted on the briefs of Henry A. Field, Jr. and Mark J. Steichen of Boardman, Suhr, Curry & Field of Madison.

For the third-party defendants-respondents the cause was submitted on the brief of Richard A. Hollern, Barbara A. Neider, and Joseph P. Wright of Stafford, Rosenbaum, Rieser & Hansen of Madison.

Before EICH, C.J., GARTZKE, P.J., and DYKMAN, J.

DYKMAN, Judge.

Gerard F. Dohm, Gerald J. Ring and John W. De Beck, d/b/a DRD Partnership, and Parkwood Hills Corporation (collectively "Dohm") appeal from an order of the trial court granting summary judgment dismissing their claim against the Insurance Company of North America and Pacific Employers Insurance Company, subsidiaries of CIGNA Property and Casualty Companies. Dohm impleaded its insurance carrier, CIGNA, to obtain coverage in an action in which Ralph M. Benjamin and other partners of Parkwood Village Condominiums (collectively "Benjamin") sued Dohm for negligent misrepresentation and strict responsibility misrepresentation.

Dohm contends that: (1) the complaint alleges causes of action that fall within the scope of coverage provided by the CIGNA policies; (2) the policy exclusions are inapplicable and do not bar coverage; (3) CIGNA waived its right to contest coverage and its duty to defend when it withdrew its defense without seeking a prior judicial determination of its coverage obligations; and (4) CIGNA is liable for attorney's fees Dohm has incurred in its action against CIGNA for coverage. We conclude that the CIGNA policies do not provide coverage for the misrepresentation actions, that CIGNA did not waive its right to contest coverage, and that CIGNA is not liable for attorney's fees incurred by Dohm in this action. ¹ Consequently, we affirm.

BACKGROUND

In 1980, Dohm sold to Benjamin and his partners, buildings and land to be converted into condominiums. Unbeknownst to Benjamin, the structures were built on a landfill, and prior to closing, the buildings had begun to settle. Several years later, Benjamin discovered the defects and sued Dohm for negligent misrepresentation and strict responsibility misrepresentation. Benjamin alleged damages in the amount of $3,050,000 including: (1) $550,000 for the loss of uninhabitable units which must be demolished; (2) $200,000 for the loss of past rental income; (3) $200,000 in costs to tear down uninhabitable units; (4) $300,000 for past carrying costs of uninhabitable units; (5) $180,000 for real estate taxes on the uninhabitable units; (6) $200,000 for lost sale proceeds; (7) $590,000 for loss of original partner capital contributions; (8) $300,000 for loss of value of the project; (9) $30,000 for past and future engineering costs; and (10) $500,000 for loss of anticipated profits on the project.

At the time of the closing, Dohm owned several insurance policies issued by CIGNA. Initially, CIGNA provided a defense to Dohm under a reservation of rights. However, by letter dated May 11, 1992, CIGNA informed Dohm that it was denying coverage and intended to withdraw its defense within thirty days of receipt of the letter. But, on May 22, 1992, CIGNA informed Dohm that while it was still denying coverage, it would not withdraw its defense until the end of a hearing on its motion for summary judgment which it anticipated to be on August 1, 1992. In December 1992, the trial court denied Dohm's motion for summary judgment and in January 1993, CIGNA withdrew its defense.

Dohm obtained counsel at its own expense and filed a third-party complaint against CIGNA in February 1993 to determine coverage. Upon cross-motions for summary judgment, the trial court determined that coverage did not exist under the CIGNA policies and ordered the third-party complaint dismissed. Dohm appeals.

STANDARD OF REVIEW

An appeal from a grant of summary judgment raises an issue of law which we review de novo by applying the same standards employed by the trial court. Brownelli v. McCaughtry, 182 Wis.2d 367, 372, 514 N.W.2d 48, 49 (Ct.App.1994). We first examine the complaint to determine whether it states a claim, and then the answer to determine whether it presents a material issue of fact. Id. If they do, we then examine the moving party's affidavits to determine whether a prima facie case has been made. Id. If it has, we then look to the opposing party's affidavits to determine whether there are any material facts in dispute which would entitle the opposing party to a trial. Id. at 372-73, 514 N.W.2d at 49-50.

The interpretation of an insurance contract is a question of law which we review independently of the trial court. Katze v Randolph & Scott Mut. Fire Ins. Co., 116 Wis.2d 206, 212, 341 N.W.2d 689, 691 (1984). We determine an insurance company's duty to defend solely from the allegations contained in the complaint. Professional Office Bldgs., Inc. v. Royal Indem. Co., 145 Wis.2d 573, 581-82, 427 N.W.2d 427, 430 (Ct.App.1988). Extrinsic facts will not be considered. Id. Any doubts are resolved in favor of coverage. Sola Basic Indus., Inc. v. United States Fidelity & Guar. Co., 90 Wis.2d 641, 646-47, 280 N.W.2d 211, 214 (1979). Our objective is to further the insured's reasonable expectations of coverage while meeting the intent of both parties to the contract. Kremers-Urban Co. v. American Employers Ins. Co., 119 Wis.2d 722, 735, 351 N.W.2d 156, 163 (1984). Whether an insurance company has waived its right to contest coverage is an issue of law to which we owe no deference to the trial court. Barber v. Nylund, 158 Wis.2d 192, 195, 461 N.W.2d 809, 811 (Ct.App.1990).

POLICY COVERAGE

Dohm contends that Benjamin's complaint alleges a claim that falls within the scope of coverage provided by the CIGNA policies. According to Dohm, the misrepresentations it allegedly made with regard to the structural conditions of the property and buildings are occurrences which caused the property damage alleged by Benjamin. We disagree.

CIGNA's policies provide coverage for:

all sums which the Insured shall become legally obligated to pay as damages because of

A. bodily injury or

B. property damage

to which this insurance applies, caused by an occurrence and the Company shall have the right and duty to defend any suit against the Insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent....

The policy defines an occurrence as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the Insured." And, it defines property damage as

(1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.

The allegations in Benjamin's complaint must state a claim for a liability that Dohm has insured against. Professional Office Bldgs., 145 Wis.2d at 581-82, 427 N.W.2d at 430. Our review of the complaint shows that the causes of action are for negligent misrepresentation and strict responsibility misrepresentation which allegedly occurred during the closing. The misrepresentations concern structural defects in the buildings and property. Strict responsibility misrepresentation provides a purchaser with the measure of damages representing the difference between the fair market value of the property in the condition when purchased and the fair market value of the property as it was represented, or the benefit of the bargain. Luebke v. Miller Consulting Eng'rs, 174 Wis.2d 66, 70-71, 496 N.W.2d 753, 755 (Ct.App.1993). The measure of damages awarded to a party who successfully litigates a claim for negligent misrepresentation is the difference between the fair market value of the property at the time of the sale and the amount actually paid, or the out-of-pocket rule. Gyldenvand v. Schroeder, 90 Wis.2d 690, 697-98, 280 N.W.2d 235, 239 (1979). Thus, the damages alleged in a claim for misrepresentation are for economic loss and are "pecuniary in nature and do not constitute property damage...." Qualman v. Bruckmoser, 163 Wis.2d 361, 366, 471 N.W.2d 282, 285 (Ct.App.1991).

In Qualman, we determined that a policy defining property damage as "injury to or destruction of tangible property, including the loss of its use," did not provide coverage in a claim for breach of contract and misrepresentation resulting from a sale of structurally defective property. Id. We explained that "[s]imply because the underlying facts deal with defects in the property sold does not change the nature of the claim [breach of contract and misrepresentation] asserted by the [buyer] against the [seller]." Id. at 367, 471 N.W.2d at 285. We determined that the buyer's theories of recovery were breach of contract and misrepresentation. The pleadings did not imply property damage and a loss of use but...