Foley v. Wis. Mut. Ins. Co.

Decision Date01 March 2018
Docket NumberAppeal No. 2017AP545
CourtWisconsin Court of Appeals


This opinion is subject to further editing. If published, the official version will appear in the bound volume of the Official Reports.

A party may file with the Supreme Court a petition to review an adverse decision by the Court of Appeals. See WIS. STAT. § 808.10 and RULE 809.62.

Cir. Ct. No. 2015CV2367

APPEAL from an order of the circuit court for Dane County: JUAN B. COLAS, Judge. Affirmed.

Before Sherman, Kloppenburg and Fitzpatrick, JJ. ¶1 FITZPATRICK, J. Michael and Rhonda Sue Foley hired Harry Simons, Jr. to remodel their house. Foleys allege in this lawsuit that their house was rendered uninhabitable because of Simons' negligence during the remodeling. Foleys sued their own insurer, Wisconsin Mutual Insurance Company, Simons, and Simons' insurer, Hastings Mutual Insurance Company, in the Dane County Circuit Court asserting claims of breach of contract, statutory interest for delay, bad faith, and negligence.

¶2 The circuit court ruled that the Wisconsin Mutual and Hastings Mutual policies do not afford coverage for Foleys' claims. Foleys appeal. We conclude that the plain language in exclusions in both polices preclude coverage for Foleys' claims and affirm.


¶3 The following allegations are drawn from Foleys' complaint. Foleys hired Simons to remodel their residence, including the addition of a bathroom.1 In September 2014, Foleys noticed "black mold spotting on the ceiling below" the second-story bathroom. According to Foleys, the mold grew as a result of leaking water caused by the negligent provision of construction services by Simons. The mold released the chemical trichothecene into the residence. The trichothecene contaminated the entire house, rendering it uninhabitable, and caused health problems for Foleys.

¶4 Foleys filed a claim with Wisconsin Mutual, the company that issued a farmowner's insurance policy to Foleys. Wisconsin Mutual denied the claim based on exclusions in its policy.

¶5 Following the denial of coverage, Foleys commenced this lawsuit. Foleys sued Wisconsin Mutual alleging breach of contract, statutory interest for delay, and bad faith. Foleys also sued Simons and Hastings Mutual, which insured Simons against damage claims arising out of negligent acts and omissions from his performance as a contractor, alleging negligence.

¶6 Hastings Mutual sought declaratory relief that it had no duty to defend or indemnify Simons based on the "Fungi or Bacteria Exclusion"2 and the "Total Pollution Exclusion" in its policy. Wisconsin Mutual sought summary judgment, arguing that the "Pollution" exclusion and the "Virus or Bacteria Exclusion" in its policy precluded coverage. The circuit court granted Hasting Mutual's request for declaratory relief and Wisconsin Mutual's motion for summary judgment.

¶7 We will mention other material facts and allegations relevant to particular arguments in the Discussion that follows.


¶8 Foleys appeal the circuit court's grants of declaratory relief to Hastings Mutual and summary judgment to Wisconsin Mutual. We review each in turn.

I. Foleys' Claims Against Hastings Mutual.

¶9 Hastings Mutual argues that, because of exclusions in its policy, it has no duty to defend or indemnify Simons against the negligence claim brought by Foleys. We agree and conclude that coverage is precluded based on the plain language of a Hastings Mutual exclusion.

A. Standard of Review.

¶10 Hastings Mutual's request for declaratory relief presents a question of law and turns upon interpretation of the insurance policy in light of relevant facts. Olson v. Farrar, 2012 WI 3, ¶24, 338 Wis. 2d 215, 809 N.W.2d 1 (citing Estate of Sustache v. American Family Mut. Ins. Co., 2008 WI 87, ¶18, 311 Wis. 2d 548, 751 N.W.2d 845); see also Fontana Builders, Inc. v. Assurance Co. of Am., 2016 WI 52, ¶48, 369 Wis. 2d 495, 882 N.W.2d 398. We review these questions about insurance coverage independent of the circuit court's analysis. Olson, 332 Wis. 2d 215, ¶24 (citing Bellile v. American Family Mut. Ins. Co., 2004 WI App 72, ¶6, 272 Wis. 2d 324, 679 N.W.2d 827).

B. Interpretation of Insurance Policies.

¶11 The objective in interpreting an insurance policy is to ascertain the intention of the parties. Paper Machinery Corp. v. Nelson Foundry Co., Inc., 108 Wis. 2d 614, 620, 323 N.W.2d 160 (Ct. App. 1982) (citing Herwig v. Enerson & Eggen, 98 Wis. 2d 38, 39, 295 N.W.2d 201 (Ct. App. 1980). Language in an insurance policy is given its common and ordinary meaning. Kremers-Urban Co. v. American Employers Ins. Co., 119 Wis. 2d 722, 735, 351 N.W.2d 156 (1984). Therefore, insurance policies are interpreted based on "what a reasonable person in the position of the insured would have understood the words to mean" and notby what the insurer intended. Id. Interpretations that render policy language superfluous are to be avoided when a construction exists that gives meaning to the phrase. Bulen v. West Bend Mut. Ins. Co., 125 Wis. 2d 259, 263, 371 N.W.2d 392 (Ct. App. 1985).

C. Duties to Defend and Indemnify.

¶12 Our analysis of the Hastings Mutual policy concerns whether Hastings Mutual has a duty to defend, and a duty to indemnify, Simons for his allegedly negligent construction work at the Foley residence.3 Insurance policies, such as the policy Hastings Mutual issued to Simons, are contracts that establish an insurer's "duty to indemnify the insured against damages or losses, and the duty to defend against claims for damages." Water Well Sols. Serv. Grp., Inc. v. Consolidated Ins. Co., 2016 WI 54, ¶14, 369 Wis. 2d 607, 881 N.W.2d 285 (quoting Olson, 338 Wis. 2d 215, ¶27).

¶13 The "duty to defend" is the insurer's "responsibility to defend the insured from all actions brought against the insured based on alleged facts or circumstances falling within the purview of coverage under the policy, regardless of the suit's validity or invalidity." Marks v. Houston Cas. Co., 2016 WI 53, ¶37, 69 Wis. 2d 547, 881 N.W.2d 309 (citing 14 Steven Plitt et al., Couch on Insurance § 200:1 (3d ed. 2015)). The "duty to indemnify" is the insurer's duty "to pay all covered claims and judgments against [its] insured." Id., (citing Couch on Insurance § 200:3). An insurer's duty to defend its insured is broader than its duty to indemnify. Id., ¶17. Because we conclude that Hastings Mutual has noduty to defend, we need not address the duty to indemnify. In considering whether there is a duty to defend, we are limited to comparing "the four corners of the underlying complaint to the terms of the entire insurance policy." Id., ¶15.

¶14 In determining whether an insurer has a duty to defend, courts use a three-step process. Water Well, 369 Wis. 2d 607, ¶16. First, we examine the alleged claim to determine whether the policy language makes an initial grant of coverage. Id. Second, if there is an initial grant of coverage, we examine whether any of the policy exclusions preclude coverage. Id. If any exclusion applies, we next consider whether an exception to the exclusion applies so as to restore coverage. Id.

1. Initial Grant of Coverage.

¶15 As to the first step, the parties agree that the Hastings Mutual policy contains an initial grant of coverage under the "Commercial General Liability Coverage Form," which covers bodily injury and property damage liability for Simons' allegedly negligent provision of construction services to Foleys.

2. Policy Exclusions.

¶16 Second, we examine whether any of the policy exclusions preclude coverage. Water Well, 369 Wis. 2d 607, ¶16. Hastings Mutual argues that the Fungi Exclusion in its policy precludes Foleys' claims. We agree.

¶17 The Fungi Exclusion applies to the "Commercial General Liability Coverage Form," which, as just noted, provides the initial grant of coverage.

¶18 Our initial focus is on the terms of the Fungi Exclusion:

This insurance does not apply to:
Fungi or Bacteria
a. 'Bodily injury' or 'property damage' which would not have occurred, in whole or in part, but for the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of, any 'fungi' or bacteria on or within a building or structure, including its contents, regardless of whether any other cause, event, material or product contributed concurrently or in any sequence to such injury or damage.
b. Any loss, cost or expenses arising out of the abating, testing for, monitoring, cleaning up, removing, containing, treating, detoxifying, neutralizing, remediating or disposing of, or in any way responding to, or assessing the effects of, 'fungi' or bacteria, by any insured or by any other person or entity
c. The following definition is added to the Definition Section:
'Fungi' means any type or form of fungus, including mold or mildew and any mycotoxins, spores, scents or byproducts produced or released by fungi.

(Emphasis added.)

¶19 We next consider Foleys' complaint against Simons and Hastings Mutual. It alleges in relevant part:

• Simons failed to exercise ordinary care in installing and inspecting the bathroom he remodeled, and that failure resulted in a "shower area the condition of which was not watertight and leaked, which condition would foreseeably cause mold to grow."
• The "proximate result" of water leaking around the shower area was that "mold proliferated," a species of that mold "in turn released the toxic mycotoxin trichothecene" into the dwelling "contaminating" the house andaffecting members of the Foley family, and rendering the house and its contents permanently uninhabitable and unusable.
• As a "proximate result" of the trichothecene contamination, Foleys incurred medical expenses and sustained permanent damage to their bodies, and Foleys

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