Hoffman LLC v. Cmty. Living Solutions LLC

• Decision Date: 28 December 2010
• Docket Number: Appeal No. 2009AP2165,Cir. Ct. No. 2007CV801
• Parties: Hoffman, LLC, Plaintiff, v. Community Living Solutions, LLC, Defendant-Respondent, Charlie Fredrickson, Tom Martin, Doug Schacht, Terry Mcl Acuity,
• Court: Wisconsin Court of Appeals

Hoffman, LLC, Plaintiff,

v.Community Living Solutions, LLC, Defendant-Respondent, Charlie Fredrickson, Tom Martin, Doug Schacht, Terry Mclaughlin and Duane Helwig, Defendants, Acuity, a Mutual Insurance Company, Intervening Defendant-Appellant.

Appeal No. 2009AP2165

Cir. Ct. No. 2007CV801

STATE OF WISCONSIN

COURT OF APPEALS

DISTRICT III

December 28, 2010

NOTICE

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.SeeWIS.STAT.§ 808.10andRULE809.62.

APPEAL from a judgment of the circuit court for Outagamie County: JOHN A. DES JARDINS, Judge.Reversed and cause remanded with directions.

Before Hoover, P.J., Peterson and Brunner, JJ.

¶1PER CURIAM.Acuity, a Mutual Insurance Company, appeals a judgment granted in favor of its insured, Community Living Solutions, LLC.The circuit court concluded that Acuity's policy covered claims made against Community by Hoffman, LLC and that Acuity had a duty to indemnify Community.We disagree and reverse.We remand with directions that the circuit court enter judgment declaring Acuity has no duty to indemnify Community.

BACKGROUND

¶2This case arises from a business dispute between two construction firms, Hoffman and Community.Community was founded by several of Hoffman's former employees.On May 16, 2007, Hoffman sued Community and five of its employees, alleging deceptive advertising, unfair competition, unfair trade practices, and tortious interference with business relationships.

¶3 Specifically, Hoffman alleged that the "Staff Experience" page of Community's website listed a number of projects Community employees had worked on but did not specify that those projects were completed while the employees worked at Hoffman.For this reason, Hoffman claimed Community's website was "untrue, deceptive and/or misleading."¹Hoffman's complaint also alleged that Community employees "made untrue, deceptive and misleading statements to Hoffman's employees, clients and/or potential clients for the purposeof harming Hoffman by trying to induce...Hoffman clients and potential clients to terminate their contractual and business... relationships with Hoffman in favor of a relationship with [Community]."

¶4 Community tendered defense of Hoffman's claims to Acuity, which insured Community under a commercial general liability policy.Acuity's policy went into effect on May 16, 2007, the same day Hoffman filed its complaint.The policy provided an initial grant of "personal and advertising injury" coverage as follows:

COVERAGE B-PERSONAL AND ADVERTISING INJURY LIABILITY

1.Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of personal and advertising injury to which this insurance applies....

b. This insurance applies to personal and advertising injury caused by an offense arising out of your business, but only if the offense was committed in the coverage territory during the policy period.

The term "personal and advertising injury" was defined in the policy:

14."Personal and advertising injury" means injury, including consequential bodily injury, arising out of one or more of the following offenses:

....

d. Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services[.²]

¶5 Acuity agreed to pay a portion of Community's defense fees, subject to a reservation of its rights and pending a coverage determination.³Acuity subsequently intervened.

¶6 Hoffman then filed an amended complaint on March 20, 2008.The amended complaint alleged several new causes of action, including a federal law claim.Community removed the case to the United States District Court for the Eastern District of Wisconsin.While the federal lawsuit was pending, Hoffman and Community reached a settlement, by which Community agreed to pay Hoffman $300,000.Acuity did not participate in the settlement negotiations.Following the settlement, the district court granted Acuity's motion to remand to state court for a coverage determination.

¶7 Acuity then filed a motion for declaratory judgment, seeking an order declaring that it had no duty to indemnify Community.Acuity argued that, based upon undisputed facts, its policy did not provide an initial grant of "personal and advertising injury" coverage for Hoffman's claims.In the alternative, Acuity argued various exclusions applied.In response, Community filed a "Brief in Opposition to Acuity's Motion for Summary Judgment," in which it conceded that nine of Hoffman's twelve claims were not covered.However, Community argued Hoffman's tortious interference, unfair competition, and false advertising claims were covered as "personal and advertising injury" under Acuity's policy.Community asked the court to deny Acuity's motion and also to find that Acuityhad a duty to indemnify Community for the entire amount of the $300,000 settlement.

¶8 After a hearing, the circuit court denied Acuity's motion.The court determined Acuity had a duty to indemnify Community and entered judgment ordering Acuity to pay Community $300,000.Acuity filed a "Motion for Reconsideration/Clarification," which the court denied without a hearing.Acuity now appeals.

STANDARDS OF REVIEW

¶9This case requires us to determine whether the circuit court properly concluded that Acuity had a duty to indemnify Community for Hoffman's claims.Liability insurance policies impose two distinct duties on the insurer: the duty to defend and the duty to indemnify.Liebovich v. Minnesota Ins. Co., 2007 WI App 28, ¶3, 299 Wis. 2d 331, 728 N.W.2d 357.Different standards apply to these two duties.

¶10 The insurer's duty to defend is determined by comparing the allegations in the complaint to the terms of the policy.Fireman's Fund Ins. Co. v. Bradley Corp., 2003 WI 33, ¶19, 261 Wis. 2d 4, 660 N.W.2d 666.The duty to defend hinges on the nature, not the merits, of the plaintiff's claim.Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 235, 266, 593 N.W.2d 445(1998)."An insurer has a duty to defend an insured in a third-party suit if the allegations contained within the four corners of the complaint, would, if proved, result in liability of the insurer under the terms of the insurance policy."Id.The duty to defend is based solely on the allegations in the complaint, without resort to extrinsic facts or evidence.Fireman's Fund, 261 Wis. 2d 4, ¶19.

¶11 The insurer's duty to indemnify is narrower than its duty to defend.Acuity v. Bagadia, 2008 WI 62, ¶52, 310 Wis. 2d 197, 750 N.W.2d 817.While the duty to defend arises from allegations contained in the complaint, the duty to indemnify must be supported by fully developed facts.Id.;see alsoEmployers Mut. Cas. Co. v. Horace Mann Ins. Co., 2005 WI App 237, ¶13, 287 Wis. 2d 418, 707 N.W.2d 280(while the duty to defend only requires arguable coverage, "[t]he duty to indemnify ultimately requires a finding of actual coverage.").Thus, an insurer may have a duty to defend a claim based on the allegations in the complaint, but the facts may ultimately show that the insurer does not have a duty to indemnify.Acuity, 310 Wis. 2d 197, ¶52.

¶12 Here, the circuit court determined Acuity had a duty to indemnify Community.Accordingly, the court denied Acuity's summary judgment motion and granted Community's cross-motion.⁴We independently review a grant of summary judgment, applying the same methodology as the circuit court.Wausau Tile, Inc., 226 Wis. 2d at 266.A party is entitled to summary judgment if there are no genuine issues of material fact and that party is entitled to judgment as a matter of law.WIS. STAT. § 802.08(2).⁵

¶13We examine the moving party's affidavits or other proof to determine whether they present a prima facie case for summary judgment.Lambrecht v. Estate of Kaczmarczyk, 2001 WI 25, ¶22, 241 Wis. 2d 804, 623 N.W.2d 751.If so, we examine the opposing party's affidavits to determine whether they present disputed material facts, or undisputed material facts from which reasonable alternative inferences may be drawn.Id.The party who opposes a summary judgment motion must set forth specific facts demonstrating that a genuine issue of material fact exists.Helland v. Kurtis A. Froedtert Mem 'l Luth. Hosp., 229 Wis. 2d 751, 756, 601 N.W.2d 318(Ct. App.1999)."It is not enough to rely upon unsubstantiated conclusory remarks, speculation, or testimony which is not based upon personal knowledge."Id.;see alsoWIS. STAT. § 802.08(3).

¶14 The summary judgment in this case involved interpretation of an insurance policy, which is an issue of law that we review independently.Sass v. Acuity, 2009 WI App 32, ¶4, 316 Wis. 2d 752, 765 N.W.2d 582.Insurance policy interpretation requires a three-step process.American Family Mut. Ins. Co. v. American Girl, Inc., 2004 WI 2, ¶24, 268 Wis. 2d 16, 673 N.W.2d 65.First, we examine the facts to determine whether the policy's insuring agreement makes an initial grant of coverage.Id.Second, if there is an initial grant of coverage, we examine the exclusions to determine whether any of them preclude coverage.Id.Third, we determine whether any exception to the applicable exclusions reinstates coverage.Id.We construe the policy so as to give effect to the parties' intentions.Danbeck v. American Family Mut. Ins. Co., 2001 WI 91, ¶10, 245 Wis. 2d 186, 629 N.W.2d 150."[W]hen the terms of an insurance policy are plain on their face, the policy must not be rewritten by construction."Smith v. Atlantic Mut. Ins. Co., 155 Wis. 2d 808, 811, 456 N.W.2d 597(1990).

DISCUSSION

¶15 Acuity's policy promises to indemnify Community for sums it becomes legally obligated to pay as damages because of "personal and advertising injury" caused by an offense...