Fontana Builders, Inc. v. Assurance Co. of Am.

Decision Date29 June 2016
Docket NumberNo. 2014AP821.,2014AP821.
Citation882 N.W.2d 398,369 Wis.2d 495
PartiesFONTANA BUILDERS, INC., Plaintiff–Appellant–Petitioner, AnchorBank, FSB, Intervening Plaintiff–Co–Appellant–Petitioner, v. ASSURANCE COMPANY OF AMERICA, Defendant–Respondent.
CourtWisconsin Supreme Court

For the plaintiff-appellant-petitioner, there were briefs by Chris J. Trebatoski and Law Offices of Chris J. Trebatoski, LLC, Milwaukee and oral argument by Chris J. Trebatoski.

For the intervening plaintiff-co-appellant-petitioner, there were briefs by Norman D. Farnam, John J. Laubmeier and Stroud, Willink & Howard, LLC, Madison and oral argument by Norman D. Farnam.

For the defendant-respondent, there was a brief by William W. Ehrke, and Crivello Carlson, S.C., Milwaukee and John J. McInerney, and Leahy, Eisenberg & Fraenkel, Chicago. Oral argument by William W. Ehrke.

There was an amicus curiae brief by John E. Knight, Kirsten E. Spira and Boardman & Clark LLP, Madison, on behalf of the Wisconsin Bankers Association.

DAVID T. PROSSER, J.

¶ 1 This is a review of an unpublished decision of the court of appeals1 affirming judgments entered in favor of Assurance Company of America2 (Assurance) against its insured, Fontana Builders, Inc.3 (Fontana), and Fontana's lender, AnchorBank, FSB (AnchorBank).

¶ 2 The case involves a complicated insurance coverage dispute arising out of a 2007 fire that destroyed portions of a high-end custom home that was still under construction in Lake Geneva. The fire caused major damage not only to the home but also to the personal property of the home's occupants, who were the presumptive purchasers of the home upon its completion.

¶ 3 Both the construction contractor, Fontana, and the occupants/presumptive purchasers, James and Suzy Accola (the Accolas), had separate insurance policies. After the fire, the Accolas settled with Chubb Insurance Co. (Chubb), the insurer that provided their homeowner's policy, and received a substantial payment. Assurance then denied all coverage to Fontana for the fire, relying on the “permanent property insurance” condition in its builder's risk policy as grounds for the denial. Assurance's denial of coverage upset not only Fontana but also Fontana's mortgagee, AnchorBank, and James Accola, Fontana's president and sole shareholder who had personally guaranteed AnchorBank's loan.

¶ 4 In this factually complicated case, there have been two jury trials and two appeals, although this is the first appeal to reach this court. The parties have raised numerous issues. Upon reflection, however, we see two fundamental questions presented to the court. First, is the interpretation of the “permanent property insurance” condition in the builder's risk policy a question of fact for a jury or a question of law for the court? Second, if the interpretation of the “permanent property insurance” condition is a question of law, did that condition terminate Fontana's coverage under the builder's risk policy?

¶ 5 We conclude that the court of appeals incorrectly determined that interpretation of Assurance's builder's risk policy was a question of fact for a jury in this case, and we reaffirm the general principle that interpretation of insurance contracts presents a question of law for the court. We further conclude that the homeowner's policy in this case did not “apply” so as to terminate Fontana's builder's risk policy because Fontana and the Accolas insured different interests in the property. Fontana had a reasonable expectation that coverage would persist under the builder's risk policy while construction continued and Fontana remained the owner of the property. Accordingly, we reverse the decision of the court of appeals and remand to the circuit court for the determination of damages.4

I. FACTUAL BACKGROUND
A. Fontana's Construction Business

¶ 6 Fontana designed and built “spec” homes, speculative custom houses for which Fontana obtained financing and began construction before securing a buyer for the finished structure. When constructing a spec home, Fontana owned the house and was responsible for any mortgage until closing a sale to an eventual buyer. In the years preceding the fire, Fontana had built and sold 16 or 17 custom homes. At any given time, Fontana would normally have between one and three homes under construction.

¶ 7 James Accola was the president and sole shareholder of Fontana Builders, Inc. On three or four occasions, he and his wife, Suzy Accola, had purchased a completed home from Fontana and moved in with their three children. Before the fire damaged the Lake Geneva home, the Accolas intended to purchase the home after Fontana finished construction.

¶ 8 The home at issue, located at 1527 Muirfield Court, represented a substantial investment for Fontana. Nearly all of Fontana's assets were invested in the house, which the company planned to use to generate new opportunities for itself in the high-end housing market. The home was larger and included more detailed interior work than any previous Fontana-built home. Accola testified at the second trial that he intended to use the home to “showcase” Fontana as “one of the premier builders in the Lake Geneva area.” As the home's owner, Accola would have unfettered access to an example of Fontana's finished work when he courted prospective buyers. He had even arranged for a photo spread featuring the house in Trends, a nationally distributed magazine.

¶ 9 Fontana financed the project's construction through two mortgages with AnchorBank. The first mortgage, dated November 29, 2005, secured a $1.076 million loan. A subsequent mortgage, dated April 23, 2007, secured a $200,000 loan. Accola provided a personal guarantee on Fontana's loans and mortgages.

B. Fontana's Builder's Risk Coverage from Assurance

¶ 10 As a standard condition of making the loans, AnchorBank required Fontana to obtain builder's risk insurance covering the home during construction. Fontana purchased two policies from Assurance Company of America, which had provided builder's risk coverage for previous Fontana projects. Initially, Fontana purchased a new policy providing up to $800,000 in coverage for the Lake Geneva property. Effective for one year from October 19, 2005, the policy corresponded to the November 2005 loan from AnchorBank.

¶ 11 Fontana acquired the Assurance policy at issue in this case when it sought the second AnchorBank loan to cover increased project costs during construction. Because the previous policy had lapsed in October 2006, Assurance issued a new builder's risk policy providing $1.495 million in coverage, effective for one year from April 19, 2007.5 The policy listed “Fontana Builders, Inc. as the named insured.

¶ 12 Under the builder's risk policy, Assurance agreed to “pay for direct physical loss to Covered Property from any Covered Cause of Loss described in [the] Coverage Form.” Covered Property included [p]roperty which has been installed, or is to be installed in any commercial structure and/or any single family dwelling, private garage, or other structures that will be used to service the single family dwelling.” However, Covered Property did not include existing inventory, which the policy defined as “buildings or structures where construction was started or completed prior to the inception date of [the] policy.” The policy defined loss as “accidental loss and accidental damage,” and “Covered Cause of Loss [meant] risk of direct physical loss to Covered Property, except those causes of loss listed in the Exclusions.” The exclusions did not preclude coverage for fire damage.

¶ 13 A separate section of the policy specified additional conditions for coverage:

3. WHEN COVERAGE BEGINS AND ENDS
We will cover risk of loss from the time when you are legally responsible for the Covered Property on or after the effective date of the policy if all other conditions are met. Coverage will end at the earliest of the following:
a. Once your interest in the Covered Property ceases;
b. Ninety days after initial occupancy of the Covered Property ... [;]
....
c. When the Covered Property is leased to or rented to others[;]
.... d. When you abandon the reported location with no intention to complete it;
e. At the end of 12 months from the month when you first reported the location to us unless you report the location again and pay an additional premium....;
f. When permanent property insurance applies;
g. Once the Covered Property is accepted by the owner or buyer.

(Emphasis added.)

C. The Accolas' Homeowner's Policy from Chubb

¶ 14 James Accola obtained a 30–day temporary occupancy permit dated May 30, 2007, and, shortly thereafter, the Accolas moved most of their personal property into the home. Although the Accolas began residing in the home, Fontana continued interior work preparing the home for permanent occupancy. Fontana remained the home's owner and had not yet closed a sale or transferred title to the Accolas.

¶ 15 In anticipation of purchasing the home, the Accolas acquired a homeowner's policy from Chubb Insurance Co. The policy listed Jim Accola and “Susy [sic] Accola” as the named insureds, and it listed “Anchor Bank” as the mortgagee. Effective for one year from June 21, 2007, the coverage summary explained: “Your policy provides coverage against physical loss if your home or its contents are damaged, destroyed, or lost.” It provided $2 million of deluxe coverage for the dwelling and $1 million of deluxe coverage for the home's contents.

¶ 16 Additionally, the policy provided coverage for extra living expenses under certain circumstances:

If your house cannot be lived in because of a covered loss, we cover any increase in your living expenses that is necessary to maintain your household's normal standard of living. We cover these expenses for the reasonable amount of time it should take to repair or rebuild your house, or for your household to relocate, even if the policy period ends during that
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