Industrial Risk Ins. v. Am. Eng. Testing

• Decision Date: 14 April 2009
• Docket Number: No. 2008AP484.,2008AP484.
• Parties: INDUSTRIAL RISK INSURERS and Quad Graphics, Inc., Plaintiffs-Respondents-Cross-Appellants, v. AMERICAN ENGINEERING TESTING, INC., Denzin Engineering, LLC, HK Systems, Inc., Rack Structures, Inc., Federal Insurance Company, American Home Assurance Company, OneBeacon Insurance Co., St. Paul Fire & Marine Ins. Co., Commercial Union Midwest Insurance Company and St. Paul Surplus Lines Insurance Company, Defendants, Nicole L. Jackson, Raul Garza, Loren L. Swoboda, State Farm Insurance Companies, Rural Mutual Insurance Co., Progressive Insurance Companies, Richard R. Kottnitz and Denise Padilla, Intervenors, Lumbermens Mutual Casualty Co. and Leavitt Tubing Company, LLC, Defendants-Appellants-<SMALL><SUP>&#x2020;</SUP></SMALL> Cross-Respondents.
• Court: Wisconsin Court of Appeals

769 N.W.2d 82

2009 WI App 62

INDUSTRIAL RISK INSURERS and Quad Graphics, Inc., Plaintiffs-Respondents-Cross-Appellants, v. AMERICAN ENGINEERING TESTING, INC., Denzin Engineering, LLC, HK Systems, Inc., Rack Structures, Inc., Federal Insurance Company, American Home Assurance Company, OneBeacon Insurance Co., St. Paul Fire & Marine Ins. Co., Commercial Union Midwest Insurance Company and St. Paul Surplus Lines Insurance Company, Defendants, Nicole L. Jackson, Raul Garza, Loren L. Swoboda, State Farm Insurance Companies, Rural Mutual Insurance Co., Progressive Insurance Companies, Richard R. Kottnitz and Denise Padilla, Intervenors, Lumbermens Mutual Casualty Co. and Leavitt Tubing Company, LLC, Defendants-Appellants-^†

Cross-Respondents.

No. 2008AP484.

Court of Appeals of Wisconsin.

Oral Argument January 6, 2009.

Opinion Filed April 14, 2009.

On behalf of the defendants-appellants-cross-respondents Lumbermens Mutual Casualty Company and Leavitt Tubing Company, LLC, the cause was submitted on the briefs of John V. McCoy and Thomas C. Hofbauer of McCoy & Hofbauer, of Waukesha, with oral argument by Thomas C. Hofbauer.

On behalf of the defendant-appellant-cross-respondent St. Paul Surplus Lines Insurance Company, the cause was submitted on the briefs of Brady C. Williamson, Katherine Stadler and Bryan J. Cahill of Godfrey & Kahn, S.C., of Madison, and Jean M. Golden, Pro Hac Vici, of Cassiday, Schade LLP, of Chicago, Illinois, with oral argument by Brady C. Williamson.

On behalf of the plaintiffs-respondents-cross-appellants Industrial Risk Insurers and Quad Graphics, Inc., the cause was submitted on the briefs of Jeffrey R. Zehe and Patrick C. Hess of Nielsen, Zehe & Antas, P.C., of Chicago, Illinois, and Bruce A. Schultz and Karen M. Gallagher of Coyne, Schultz, Becker & Bauer, S.C., of Madison, with oral argument by Patrick C. Hess.

Before CURLEY, P.J., KESSLER and BRENNAN, JJ.

¶ 1 CURLEY, P.J

Leavitt Tubing Company, LLC (Leavitt) and Lumbermens Mutual Casualty Company (Lumbermens) appeal from a final judgment entered in favor of Industrial Risk Insurers (IRI) and Quad Graphics, Inc. (Quad).¹ IRI/Quad cross-appeals, contending that the trial court erred by refusing to award it interest and double costs against Lumbermens under the offer-of-settlement provisions found in WIS. STAT. § 807.01 (2007-08).²

¶ 2 Leavitt contends: (1) joint and several liability does not apply to it; (2) the economic loss doctrine precludes IRI/Quad's strict product liability claim; (3) the special verdict did not comply with Wisconsin law; and (4) the trial court erred when it admitted evidence of eddy current testing related to Leavitt's manufacturing process and when it did not allow Leavitt to cross-examine an HK employee regarding a host of issues that it contends were "critical to establishing Quad's contributory negligence." We conclude: Leavitt is jointly and severally liable for IRI/Quad's damages; the damage to adjacent buildings on Quad's property constituted damage to "other property" such that the economic loss doctrine does not bar IRI/Quad's strict liability claim; the form of the special verdict was proper despite Leavitt's contention that it did not address Leavitt's steel tubing as a component part of the AS/RS; Leavitt waived its remaining objections to the form of the special verdict by not placing those objections on the record; and the trial court's rulings on the evidentiary issues Leavitt raises were proper.³

¶ 3 In its cross-appeal, IRI/Quad contends that it is entitled to interest and double costs from Lumbermens under WIS. STAT. § 807.01. We agree based on our conclusion that IRI/Quad's settlement offer was valid. Consequently, we affirm on the appeal and reverse on the cross-appeal.

I. BACKGROUND.

¶ 4 This matter arises from the collapse of and resulting fire at a warehouse structure owned by Quad. Quad entered into a Design-Install Agreement (the Agreement) with HK, pursuant to which HK was to design and supervise the construction of an AS/RS to be located in Lomira, Wisconsin. HK subcontracted with Rack Structures, Inc. (RSI) for the design and installation of the rack structure. Leavitt manufactured the steel tubes RSI used to make the columns of the AS/RS rack structure.

¶ 5 The AS/RS consisted of a rack structure that was more than one hundred feet tall, ninety feet wide, and two football fields long. It was equipped with computer-controlled cranes designed to automatically transport, lift, store, and retrieve millions of pounds of paper. The AS/RS collapsed on July 12, 2002, at which time it had been in operation for approximately two months and was holding less than half of its intended load capacity. Inspection was ongoing at the time of the collapse, and Quad had not yet released approximately $400,000 in withheld progress payments to HK. The progress payments were to be made upon substantial completion of the project.

¶ 6 Due to the collapse and resulting fire, Quad initially alleged approximately $65,000,000 in damages of which its insurer, IRI, paid $59,000,000. Quad and IRI, as Quad's subrogated insurer, filed suit against the contractors and subcontractors who worked on the warehouse structure, along with their insurers.⁴

¶ 7 HK was afforded liability coverage for the project from a number of insurers: HK had both a primary commercial general liability (CGL) policy and a primary professional errors and omissions policy with Admiral Insurance Company (Admiral), each with limits of $1,000,000; a Westchester Surplus Lines (Westchester) policy provided umbrella coverage with a $10,000,000 limit; St. Paul Surplus Lines Insurance Company (St.Paul) afforded second layer excess coverage to HK through its policy, which had a $15,000,000 limit; and Federal Insurance Company (Federal) provided $10,000,000 in coverage excess to that provided by St. Paul. Prior to trial, IRI/Quad, HK, and various HK insurers entered into what was titled a "Special `Loy' Agreement and Covenant Not to Sue."⁵ (Some uppercasing omitted; bolding and italics added.) Also released were two insurers providing coverage to HK as an "additional insured" pursuant to policies issued to RSI.

¶ 8 Leavitt and its primary insurer also entered into a settlement agreement with IRI/Quad. The agreement reserved IRI/Quad's right to pursue Lumbermens, Leavitt's excess insurer, for Leavitt's liability to the extent coverage was afforded under its policy with Lumbermens. Lumbermens' policy limit was $20,000,000.

¶ 9 The trial was handled in two phases. In the first phase, the jury heard IRI/Quad's strict product liability claim against HK, RSI, and Leavitt, with IRI/Quad asserting that the AS/RS was a defective product. The jury found HK (51%), RSI (39%), and Leavitt (10%) liable for the collapse and further concluded that Quad was not negligent. Damages were not contested and the trial court inserted the amount of $63,335,819 on the special verdict form.

¶ 10 During the second phase which was tried to the court, the trial court heard IRI/Quad's claim that HK breached the Agreement. In addition to concluding that HK breached the Agreement, the trial court rejected arguments advanced by St. Paul regarding its coverage obligations and whether IRI was precluded from recovering from HK based on St. Paul's contention that IRI was required to insure HK pursuant to the terms of the Agreement.

¶ 11 The trial court also heard postverdict motions addressing whether HK would be included on the judgment that was to be entered and the availability of interest and double costs to IRI/Quad based on its settlement offers made before trial. After concluding that HK would not be included on the judgment and that IRI/Quad was not entitled to interest and double costs pursuant to WIS. STAT. § 807.01, judgment was entered against both St. Paul and Lumbermens for their policy limits, in addition to costs and disbursements. Additional facts are provided in the remainder of this opinion as needed.

II. ANALYSIS.

A. Leavitt's Appeal.

1. Is Leavitt jointly and severally liable for IRI/Quad's damages?

¶ 12 As noted, the jury allocated liability on IRI/Quad's product liability claim as follows: HK was 51% liable; RSI was 39% liable; and Leavitt was 10% liable for IRI/Quad's damages, which totaled more than $63,000,000. Quad was not found negligent. The trial court concluded that joint and several liability applies and entered judgment against Lumbermens, Leavitt's excess insurer, in the amount of $20,912,741.76.

¶ 13 Leavitt contends that joint and several liability does not apply to it. To support its position, Leavitt makes four arguments. First, it asserts that because IRI/Quad entered into a Pierringer agreement with both HK and RSI, IRI/Quad cannot recover RSI's portion of liability for the damages from Leavitt.⁶ Second, that once IRI/Quad entered into a Pierringer agreement with any joint tortfeasor, it was precluded from seeking more than the jury's apportionment of liability from a nonsettling tortfeasor due to the fact that it agreed to indemnify the settling tortfeasor for any contribution action. Third, that in IRI/Quad's agreement with HK, IRI/Quad agreed to indemnify HK. Therefore, because the trial court determined HK was 100% responsible for IRI/Quad's damages pursuant to the breach of contract claim and IRI/Quad agreed to indemnify HK, IRI/Quad should not be allowed to seek more than the jury's apportionment of liability from Leavitt. Fourth, that "based upon the history of joint and several liability in Wisconsin, joint and several liability no longer applies to all tortfeasors involved in strict product liability claims."

¶ 14 Leavitt's arguments require that we construe the settlement agreement, titled a "Special `Loy' Agreement and Covenant Not to Sue," which IRI/Quad entered into with HK. (Some uppercasing omitted; bolding and italics added.) "Releases should be construed to give effect to the intention of the parties. The...