Commissioner of Insurance v. Fiber Recovery, Inc.
| Decision Date | 26 August 2004 |
| Docket Number | No. 03-3012.,03-3012. |
| Citation | 276 Wis.2d 495,2004 WI App 183,687 N.W.2d 755 |
| Parties | WISCONSIN COMMISSIONER OF INSURANCE and Manager of the Local Government Property Insurance Fund, Connie L. O'Connell, Assistant Deputy Commissioner Eileen Mallow, and Local Government Property Insurance Fund Program Officer Danford Bubolz, Petitioners-Plaintiffs-Appellants, v. FIBER RECOVERY, INC., Millwaste Recovery, Inc. and Marathon County, Respondents-Defendants-Respondents. |
| Court | Wisconsin Court of Appeals |
On behalf of the petitioners-plaintiffs-appellants, the cause was submitted on the briefs of Charlotte Gibson, asst. attorney general, and Peggy A. Lautenschlager, attorney general.
On behalf of the respondents-defendants-respondents Fiber Recovery, Inc. and Millwaste Recovery, Inc., the cause was submitted on the brief of Jon G. Furlow and John C. Scheller, Michael Best & Friedrich, LLP, Madison.
On behalf of the respondents-defendants-respondents Marathon County, the cause was submitted on the brief of Richard G. Niess, Coyne, Niess, Schultz, Becker & Bauer, S.C., Madison.
Before Deininger, P.J., Vergeront and Lundsten, JJ.
¶ 1.
This appeal concerns a dispute over whether the policy issued by the Local Government Property Fund to Marathon County covers loss resulting from a fire at a facility that had been conveyed by the County to Fiber Recovery, Inc. prior to the fire. The circuit court affirmed the decision of the administrative law judge (ALJ) that there was coverage, and the Wisconsin Commissioner of Insurance and Manager of the Fund appeals.1 The Commissioner contends that Wis. Stat. § 605.02,2 which describes the kinds of property that local governmental units may insure in the Fund, limits coverage to property the unit either owns or has in its care, custody, and control. The Commissioner also contends that the terms of the policy are consistent with this limitation, and that the facility was therefore not covered.
¶ 2. We conclude the insurance policy covers the facility—both the building and the personal property inside of it. Although we conclude that Wis. Stat. § 605.02 does not plainly preclude the Fund from providing this coverage, for the reasons explained below we do not resolve the ambiguity in the meaning of the phrase in § 605.02, "property for which [the local governmental unit] may be liable."
¶ 3. The Fund is established by statute to provide property insurance for local governments. Wis. Stat. § 605.02. "Any local government may insure in [the Fund] its property or property for which it may be liable in the event of damage or destruction." Id.
¶ 4. From at least 1989 until June 1997, Marathon County owned a refuse-derived fuel plant on its landfill property located in Ringle (the Ringle facility).3 During that time the Ringle facility was insured against a number of perils, including fire, by policies issued by the Fund and renewed annually.
¶ 5. In June 1997, the County sold the building and equipment at the Ringle facility to Fiber Recovery pursuant to the terms of an asset purchase agreement and quit claim deed. The real estate on which the facility was located was not sold to Fiber Recovery but was leased to it for a nominal amount. The terms of payment were $250,000 payable in cash at closing, plus $1,000,000 paid in installments from income generated; the County was entitled to receive a mortgage encumbering the real property assets as security for Fiber Recovery's performance. Title to the facility was to indefeasibly vest with Fiber Recovery when full payment was made. Until then, Fiber Recovery could not sell the facility to a third party without Marathon County's prior written approval, and title would automatically revert to the County if Fiber Recovery abandoned the facility, with abandonment defined to include cessation of business for more than a specified number of days.
¶ 6. Paragraph 15 of the asset purchase agreement required Fiber Recovery to maintain at its expense "casualty insurance on its personal property, equipment fixtures and leasehold improvements that comprise any part of the Assets or the Plant," but Fiber Recovery had the option of electing to have the County maintain this insurance, with Fiber Recovery reimbursing the County for the cost. The County, Fiber Recovery, and the Commissioner stipulated before the ALJ that:
¶ 7. The asset purchase agreement also provided that both Fiber Recovery and the County had to indemnify and hold the other harmless for any liabilities arising out of their breach of the agreement.
¶ 8. On March 7, 2000, a fire occurred at the Ringle facility, causing significant damages. The policy in effect during calendar year 2000 listed the Ringle facility on the Statement of Values, with the building valued at $1,161,485 and its contents at $1,646,855. At the time of the fire there was at least $940,000 still due the County from Fiber Recovery.4
¶ 9. The County timely notified the Fund of the fire loss and provided the asset purchase agreement and the quit claim deed to the adjuster acting on behalf of the Fund. The adjuster recommended that payment be made pursuant to a partial proof of loss for $108,041.57, with portions earmarked for Fiber Recovery and its architect; the Fund issued a check to the County in that amount, and the County paid Fiber Recovery and its architect as instructed. However, after the adjuster drafted a second partial proof of loss, the Fund raised the issue of coverage. Ultimately, the Fund denied the County's claim on the ground that the fire loss involved property owned by Fiber Recovery, not by the County, and Fiber Recovery was not named as an additional insured on the policy. The Fund rejected the County's contention that, because the County was obligated under the agreement to maintain insurance once Fiber Recovery elected that option, the damaged property was "property for which [the County] may be liable in the event of damage or destruction" within the meaning of Wis. Stat. § 605.02.
¶ 10. The County requested a contested case hearing on coverage. An ALJ from the Department of Administration, Division of Hearing and Appeals was assigned the case, with the Commissioner ordering that the ALJ's decision would be the final decision in the matter. Fiber Recovery, the County, and the Commissioner all moved for summary judgment on the issue of coverage. The parties stipulated to many of the material facts and the ALJ concluded that all other material facts regarding the issue of coverage were undisputed.
¶ 11. The ALJ decided there was coverage, making the following conclusions of law: (1) Wisconsin Stat. § 605.02 plainly does not require that the local authority own the damaged or destroyed property; the phrase "may be liable" is an alternative basis for coverage and is not ambiguous; (2) even if there were an ambiguity, the legislative history relied on by the Commissioner supports the construction that ownership by the local governmental unit is not required and that private interests are protected if they are able to establish a right against the governmental unit for damages or destruction of the property; and (3) based on the undisputed facts, there were a number of grounds on which the County "may be liable" for the loss at the Ringle facility, including the County's agreement to maintain insurance at Fiber Recovery's option and the County's reversionary interest. The ALJ also concluded that the Ringle facility was plainly covered under the policy, finding that the Fund likely knew that Fiber Recovery was an additional insured under the policy, and that the County did not violate any program rule or contractual requirement by not informing the Fund in writing of the sale to Fiber Recovery.5
¶ 12. The Commissioner sought judicial review of the ALJ's decision and the circuit court affirmed.
¶ 13. On appeal, the Commissioner argues that the language in Wis. Stat. § 605.02, "property for which [the local governmental unit] may be liable in the event of damage or destruction" means property within the care, custody, and control of a local government, such as a bailment.6 According to the Commissioner, the terms of the policy must be read in conjunction with Wis. Stat. ch. 605, and the language of the policy is consistent with this statutory limitation.
¶ 14. Both Fiber Recovery and the County view the insurance policy as the starting point in the analysis, and, they assert, the policy provides coverage. Both view Wis. Stat. ch. 605 as authorizing coverage: Fiber Recovery construes the disputed statutory phrase to mean property in which the local government has an insurable interest, while the County construes it to include property a local governmental unit is contractually obligated to insure. The County also contends that the preceding phrase "its property" includes non-tangible property such as the reversionary interest the County has in the Ringle facility.
[1-3]
¶ 15. Because this action seeks judicial review of an agency decision, we review the decision of the ALJ, not that of the circuit court. Lopez v. Labor & Indus. Review Comm'n, 2002 WI App 63, ¶ 9, 252 Wis. 2d 476, 642 N.W.2d 561. The issues in dispute involve the construction of a statute, which presents a question of law, Seider v. O'Connell, 2000 WI 76, ¶ 26, 236 Wis. 2d 211, 612 N.W.2d 659, and the construction of an insurance contract, which is also a question of law....
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