Glendenning's Limestone v. Reimer

• Decision Date: 13 July 2006
• Docket Number: No. 2005AP1092.,2005AP1092.
• Citation: 2006 WI App 161,721 N.W.2d 704
• Parties: GLENDENNING'S LIMESTONE & READY-MIX COMPANY, INC., Plaintiff, v. Michael A. REIMER, Defendant, Henk Kenkhuis and Linda Kenkhuis, Defendants-Third-Party Plaintiffs-Appellants, West Bend Mutual Insurance Company, Intervenor-Third-Party Defendant-Respondent.
• Court: Wisconsin Court of Appeals

Page 704

721 N.W.2d 704

2006 WI App 161

GLENDENNING'S LIMESTONE & READY-MIX COMPANY, INC., Plaintiff, v. Michael A. REIMER, Defendant, Henk Kenkhuis and Linda Kenkhuis, Defendants-Third-Party Plaintiffs-Appellants, West Bend Mutual Insurance Company, Intervenor-Third-Party Defendant-Respondent.

No. 2005AP1092.

Court of Appeals of Wisconsin.

Submitted on Briefs November 4, 2005.

Opinion Filed July 13, 2006.

COPYRIGHT MATERIAL OMITTED

On behalf of the defendants-third-party plaintiffs-appellants, the cause was submitted on the briefs of Margery Mebane Tibbetts, Clarence F. Asmus, and Duffy Dillon, of Brennan, Steil & Bastings, S.C., Janesville.

On behalf of the intervenor-third-party defendant-respondent, the cause was submitted on the brief of Rick J. Mundt and Laure Rakvic-Farr, of Winner, Wixson & Pernitz, Madison.

Before VERGERONT, DEININGER and HIGGINBOTHAM, JJ.

¶ 1 VERGERONT, J

This appeal arises out of a dispute between the Kenkhuises and the general contractor hired to make improvements to the dairy facility they lease. Henk and Linda Kenkhuis appeal the circuit court's order granting summary judgment in favor of the general contractor's insurer, West Bend Mutual Insurance Company. The circuit court concluded that the commercial general liability policy (CGL) issued to the general contractor did not provide coverage for the Kenkhuises' claims against him.

¶ 2 The primary issue on this appeal is whether the Kenkhuises' claims of breach of contract and implied warranty against the general contractor allege an "occurrence" within the meaning of the CGL policy. We conclude that faulty workmanship in itself does not constitute an "occurrence" within the meaning of this CGL policy. However, we also conclude that the factual circumstances alleged for the breach of contract and implied warranty claims against the general contractor do contain at least one instance of an "occurrence" that causes property damage within the meaning of the policy. Therefore, West Bend is not entitled to summary judgment dismissing the Kenkhuises' cross-claims of breach of contract and implied warranty and third-party claim against West Bend based on a lack of an "occurrence." Because West Bend concedes the ground on which the circuit court granted summary judgment on these claims was in error and offers no other basis on which to affirm the circuit court, we conclude the circuit court erred in granting summary judgment in favor of West Bend on the breach of contract and implied warranty cross-claims and the third-party claim. Accordingly, we reverse and remand for further proceedings.

¶ 3 In addition, we address two claims of procedural error and conclude that any error did not affect the Kenkhuises' substantial rights.

BACKGROUND

¶ 4 The Kenkhuises own a dairy herd on a farm they lease from Jeffrey Petry. The Kenkhuises and Petry hired Michael Reimer to make certain improvements to the dairy facility. Disputes arose between the Kenkhuises and Reimer about the adequacy of the work and payment, including payment of the subcontractors. When the concrete supplier, Glendenning's Limestone & Ready-Mix Company, Inc., was not paid by Reimer, it sued Reimer and the Kenkhuises. Glendenning's obtained a judgment against Reimer, and its claims against the Kenkhuises were dismissed. Meanwhile, Reimer and the Kenkhuises filed cross-claims against each other. The Kenkhuises' cross-complaint alleged that Reimer negligently performed the construction of the improvements, breached the contract with the Kenkhuises and breached implied warranties. Proceedings on the cross-claims were stayed when Reimer filed for bankruptcy.

¶ 5 The dispute over insurance coverage that is the heart of this appeal began when West Bend, Reimer's CGL insurer, moved to intervene and to bifurcate the issues so as to decide first its obligation to defend and indemnify Reimer. The court granted the motion. West Bend moved for a summary judgment declaring that it had no duty either to defend or indemnify Reimer based on the Kenkhuises' claims against him. Along with its motion for summary judgment, West Bend filed the affidavit of its attorney averring that the policy attached was a true and correct copy of the policy issued to Reimer. West Bend asserted that the economic loss doctrine barred the negligence claim against Reimer, that a number of exclusions in the policy barred coverage for the negligence and breach of implied warranty claims, and that a breach of contract is not an "occurrence" under the policy.

¶ 6 After West Bend filed its motion, the Kenkhuises amended their cross-complaint by stipulation. They added West Bend as a defendant to their cross-claims and added a third-party claim directly against West Bend for "the property damage resulting from the mistakes and carelessness of Defendant Reimer as general contractor and/or the subcontractors hired by him and which caused accidental damage to the subject dairy facility and the Kenkhuises' property." The Kenkhuises also added these factual allegations to support their claims:

9. The subcontractors selected, retained and paid by Reimer to perform the construction of the improvements to the Petry dairy facility were negligent in completing their work as follows: the concrete subcontractor poured and finished concrete for approximately 1,450 cow stalls such that the stalls have an inadequate slope; and said subcontractors failed to pour the concrete for the cow stalls over the top of a preexisting eight inch cement curb.

10. The negligence of the subcontractors hired by Reimer in performing their work caused accidental damage to the Kenkhuis' property, to wit: (a) The cow stalls are damaged in that they were not constructed per their specifications and must be repaired; (b) As a result of the inadequate slope, urine and manure gathers in puddles in the cow stalls and flows backwards rather than flowing to the designated drainage area; (c) As a result of the improper installation of rubber mats by Reimer and/or his subcontractors, the scraper which cleans manure has damaged the rubber mats; (d) The stall loops were irregularly and inconsistently installed by the subcontractors throughout the building; and (d) [sic] The neck bars for the cows are loose and irregular and not attached to either end of the barn.

11. Another consequence of the negligence of Reimer and/or the subcontractors Reimer selected, retained and paid, the Kenkhuis' dairy cows' flanks and udders are dirty creating potential for disease transmission and this has required Kenkhuis to engage extra labor at extra expense to clean the cows' utters [sic] prior to milking.

¶ 7 Although West Bend's motion sought a determination that it did not have an obligation to either defend or indemnify Reimer, the proceedings on the Kenkhuises' claims against Reimer had been stayed because of his bankruptcy filing, and Reimer did not respond to the motion. The Kenkhuises opposed the motion. They, too, argued in terms of the insurer's duty to defend the insured. However, it is apparent that they, like West Bend and the circuit court, understood that the pertinent issue raised by the motion was whether they had any claim against West Bend and also understood that this issue, like the issue of West Bend's duties to Reimer, depended upon the coverage afforded by the policy.¹

¶ 8 In opposing West Bend's summary judgment motion, the Kenkhuises conceded that the negligence claim was barred by the economic loss doctrine but argued that there was coverage for the breach of contract and implied warranty claims. The Kenkhuises submitted their affidavits, which included averments essentially tracking the allegations in the amended pleading quoted above.

¶ 9 The Kenkhuises also argued that West Bend's submission containing the insurance policy did not comply with WIS. STAT. § 802.08(3)² and should be denied on that basis. At the hearing on the motion, the circuit court ascertained that the Kenkhuises had not offered an affidavit disputing that the policy submitted was the correct one and did not have any knowledge that the policy was not the correct one. The circuit court stated that it would accept the submission.

¶ 10 The circuit court then granted summary judgment in West Bend's favor and dismissed all claims against it. It agreed with the Kenkhuises that, regarding the breach of contract and implied warranty claims, there was an "occurrence" under the policy under American Family Mutual Insurance Co. v. American Girl, Inc., 2004 WI 2, 268 Wis.2d 16, 673 N.W.2d 65. However, the court concluded that subparagraphs 5 and 6 of the "Damage to Property" exclusion applied, although this was not an exclusion that West Bend had raised.³

Analysis

¶ 11 On appeal, the Kenkhuises make two procedural challenges to the circuit court's decision — that it erred in sua sponte considering the "Damage to Property" exclusion and it erred in accepting West Bend's submission containing the insurance policy. The Kenkhuises also challenge the applicability of that exclusion as well as certain of the other grounds on which West Bend relied in the circuit court to argue that there was no coverage for the breach of contract and implied warranty claims.⁴ We first address the two procedural challenges and then address the only ground on which West Bend now contends there is no coverage: that there is no "occurrence" under the policy.

I. Circuit Court's Sua Sponte Consideration of "Damage to Property" Exclusion

¶ 12 On appeal the Kenkhuises contend the circuit court erred in sua sponte considering the "Damage to Property" exclusion because West Bend did not raise that exclusion and, thus, did not present factual submissions showing it was applicable. In addition, the Kenkhuises assert, there is an exception to the "Damage to Property" subparagraph 6 exclusion that is applicable, and they were deprived of an opportunity to establish that this exception to the exclusion applies....