Jacob v. Russo Builders
| Decision Date | 10 November 1998 |
| Docket Number | No. 97-3736,97-3736 |
| Citation | 224 Wis.2d 436,592 N.W.2d 271 |
| Parties | Leonard H. JACOB and Janet Jacob, Plaintiffs-Respondents, v. RUSSO BUILDERS and GRE Insurance Group, Defendants-Respondents, Limbach Construction Company, Defendant, West Bend Mutual Insurance Company, Defendant-Appellant. . Oral Argument |
| Court | Wisconsin Court of Appeals |
On behalf of the defendant-appellant, the cause was submitted on the briefs of Neal C. Schellinger of Schellinger & Associates of Brookfield, with oral argument by Neal Schellinger.
On behalf of the defendants-respondents, the cause was submitted on the brief of Thomas R. Schrimpf and Susan R. Tyndall of Hinshaw & Culbertson of Milwaukee, with oral argument by Susan R. Tyndall.
Before BROWN, NETTESHEIM and ANDERSON, JJ.
This case involves the interpretation of the business risk exclusion in a comprehensive general liability (CGL) policy issued by West Bend Mutual Insurance Company (West Bend) to Limbach Construction Company (Limbach). Limbach was a subcontractor who performed defective masonry work on a residence constructed for Leonard H. and Janet Jacob. As a result, the Jacobs suffered significant damages. West Bend appeals from an amended judgment premised upon the trial court's ruling that various damages to the Jacobs' home arising out of Limbach's faulty masonry were not excluded under the CGL policy it issued to Limbach.
This is the second time West Bend has appealed this case. In Jacob v. West Bend Mutual Insurance Co., 203 Wis.2d 524, 553 N.W.2d 800 (Ct.App.1996) ( Jacob I ), we reversed a ruling by Reserve Judge David C. Willis that West Bend had not properly discharged its duty to defend Limbach and therefore had waived its insurance coverage defenses. We determined that West Bend had properly discharged its duty to defend Limbach. We remanded the case to have the trial court determine West Bend's coverage defenses and, if coverage existed, to determine what damages were covered by West Bend's policy. On remand, the case was assigned to Judge Robert G. Mawdsley.
The issue on this appeal is whether various categories of damage incurred by the Jacobs are covered under West Bend's CGL policy which includes a business risk exclusion precluding coverage for damage to the named insured's work or product. Judge Mawdsley found coverage for all items of damage except those directly incurred in replacing and repairing the brick, and entered judgment against West Bend accordingly. We affirm in part, reverse in part and remand for further proceedings.
In March 1990, the Jacobs contracted with Russo Builders, a general contractor, for the construction of their home. Russo Builders then subcontracted with Limbach for the completion of several projects, including the masonry and brick veneer which would cover the entire exterior of the house with the exception of a small portion of the east wall, dormers and wood trim.
After the Jacobs moved into their home, they began to experience problems with rainwater leaking into the home through the masonry of every exterior wall. See id. at 529, 553 N.W.2d at 802. A severe rainfall in April 1993 caused flooding in the dining room and back hallway, and the ceilings bulged with water. See id. Ernest Bullock, an expert hired by the Jacobs, discovered that the water leakage was due solely to insufficient mortar between the bricks. Therefore, Limbach's masonry work was the cause of the water problems. Besides the costs for repairing and replacing Limbach's defective work, the Jacobs' other damages included: (1) expert fees to determine the cause and extent of the damage; (2) temporary repairs; (3) repairs to the interior of the residence; (4) relocation expenses while the interior repairs were made; (5) loss of use and enjoyment while the interior repairs were made; (6) refinancing costs; and (7) repairs to the landscaping, driveway, patio and sidewalk which were damaged in the course of accessing the defective masonry.
The Jacobs sued Russo Builders, Limbach and their insurers for damages resulting from the defective masonry. The issues in the first trial were whether West Bend had properly discharged its duty to defend Limbach and the extent and cost of the Jacobs' damages. Judge Willis determined that West Bend had not properly discharged its duty to defend Limbach. The jury determined that Russo Builders and Limbach
were each fifty percent causally negligent and awarded the following damages:
Repair Interior Damage $9800
Driveway, Sidewalk, Patio Repair $5500
Expert Fees and Testing to Determine Cause $4760.91
Temporary Relocation Expense $3000
Repair of Landscaping $5000
Refinancing Costs $8300
Temporary Repairs $1000
Loss of Use and Enjoyment $50,000
The jury additionally awarded $110,500 associated with repairing the brick. On motions after verdict, Judge Willis reduced that amount to $102,470. 1 Based on the ruling that West Bend had breached its duty to defend Limbach, Judge Willis ruled that West Bend was liable for Limbach's portion of the verdict. See id. at 534, 553 N.W.2d at 804.
West Bend appealed the judgment, arguing that Judge Willis had erroneously determined that it had waived its insurance coverage defenses by failing to fulfill its duty to defend Limbach. See id. at 535, 553 N.W.2d at 804. We agreed with West Bend, reversed the judgment and remanded to the trial court to address West Bend's coverage defenses. See id. at 538, 553 N.W.2d at 805.
On remand, the case was assigned to Judge Mawdsley. Before Judge Mawdsley, West Bend argued, as it does here, that coverage for the damages claimed by the Jacobs was precluded by the business risk exclusion. Judge Mawdsley disagreed, ruling that West Bend's CGL policy provided coverage for all damages awarded by the jury, except the $102,470 associated with repairing and replacing the brick. West Bend again appeals. The Jacobs and Russo (Jacobs) are again respondents.
We begin by stating a point on which the parties agree. West Bend's CGL policy does not provide coverage for the cost of repairing or replacing Limbach's defective work ($102,470). Rather, this appeal concerns the other categories of the Jacobs' damage, all of which stem either directly or indirectly from Limbach's defective work. West Bend contends that since all these damages relate either to Limbach's defective masonry product or the costs attendant to repairing or replacing such product, they are excluded under the business risk exclusion. 2 The Jacobs respond that because Limbach's faulty masonry caused harm to property other than his own work or product, Judge Mawdsley correctly ruled that the policy provides coverage.
The interpretation of an insurance policy presents a question of law which we review de novo. See Filing v. Commercial Union Midwest Ins. Co., 217 Wis.2d 640, 644, 579 N.W.2d 65, 66 (Ct.App.), review denied, 220 Wis.2d 366, 585 N.W.2d 158 (1998). "When interpreting words of an insurance contract, we operate under the principle that the test is not what the insurer intended the words to mean, but rather what a reasonable person in the position of the insured would have understood the words to mean." Id.
The policy issued to Limbach contains a business liability provision which states that West Bend "will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of property damage or personal injury caused by an occurrence to which this insurance applies." (Emphasis omitted.) Pursuant to the language of the business risk exclusion at issue here, the policy does not provide coverage for damage to property "with respect to the completed operations hazard, to work performed by the named insured arising out of the work or any portion West Bend contends that the purpose of this exclusion is to "prevent liability coverage for faulty work and attendant business risks involved with replacing and repairing the damages associated with the defective product or work." It argues that the damages covered by Judge Mawdsley's ruling are encompassed by the exclusion. West Bend contends that Judge Mawdsley's ruling functionally converts this CGL policy into a performance bond.
thereof, or out of materials, parts or equipment furnished in connection therewith" or for "property damage to the named insured's products arising out of such products or any part of such products." (Emphasis omitted.) 3
West Bend relies upon this court's decision in Bulen v. West Bend Mutual Insurance Co., 125 Wis.2d 259, 371 N.W.2d 392 (Ct.App.1985). There, the property owner sued a contractor for damages resulting from the collapse of a basement wall during construction. The CGL policy issued to the contractor excluded, inter alia, coverage for property damage to the insured's product and for property damage to work performed by the insured. See id. at 261, 371 N.W.2d at 393. After considering the totality of the contract, and particularly the exclusionary provisions, we held that CGL policies with these kinds of exclusions were not intended to guarantee the quality of the workmanship and therefore did not provide coverage. See id. at 264-66, 371 N.W.2d at 394-95. 4 We stated:
The risk intended to be insured is the possibility that the goods, products or work of the insured, once relinquished or completed, will cause bodily injury or damage to property other than to the product or completed work itself, and for which the insured may be found liable. The insured, as a source of goods or services, may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some...
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