Jacob v. West Bend Mut. Ins. Co.
| Decision Date | 24 July 1996 |
| Docket Number | No. 95-0593,95-0593 |
| Citation | 553 N.W.2d 800,203 Wis.2d 524 |
| Parties | Leonard H. JACOB and Janet Jacob, Plaintiffs-Respondents-Cross Appellants-Cross Respondents, d v. WEST BEND MUTUAL INSURANCE COMPANY, Defendant-Appellant-Cross Respondent, Russo Builders and GRE Insurance Group, Defendants-Cross Respondents-Cross Appellants, dd Limbach Construction Company, Defendant. |
| Court | Wisconsin Court of Appeals |
On behalf of the defendant-appellant-cross respondent, the cause was submitted on the briefs of Neal C. Schellinger and Philip J. Tallmadge of Schellinger & Associates of Brookfield.
On behalf of the plaintiffs-respondents-cross appellants-cross respondents, the cause was submitted on the briefs of Thomas L. Smallwood, of Borgelt, Powell, Peterson & Frauen S.C. of Milwaukee.
On behalf of the defendants-cross respondents-cross appellants, the cause was submitted on the briefs of Thomas R. Schrimpf and Susan R. Tyndall of Hinshaw & Culbertson of Milwaukee.
Before ANDERSON, P.J. and NETTESHEIM and SNYDER, JJ.
This case brings us an appeal and two separate cross-appeals. The legal disputes result from the brick masonry work performed on a new home constructed for Leonard H. and Janet Jacob. Russo Builders was the general contractor, Michael Limbach Construction Company was the masonry subcontractor, and West Bend Mutual Insurance Company was Limbach's insurer.
On the appeal, West Bend argues that the trial court erred by ruling that West Bend breached its duty to defend Limbach Construction. We agree. We reverse this portion of the judgment and remand for the trial court to address West Bend's coverage defenses.
On one cross-appeal, the Jacobs argue that the trial court improperly eliminated the jury's damage awards for tuck-pointing the defective masonry and for diminution in value of the structure. Instead, the court entered judgment for the stipulated cost of replacing the defectively installed brick. We reject the Jacobs' argument. We affirm this portion of the judgment.
On the other cross-appeal, Russo argues that the trial court improperly rejected its proposed jury instruction regarding the liability of a general contractor vis-a-vis an independent subcontractor. We disagree. We hold that the court correctly instructed the jury. We affirm the judgment as entered against Russo.
In March 1990, the Jacobs contracted with Russo, a general contractor, calling for Russo to construct a home with a brick veneer exterior in the city of Brookfield, Wisconsin. Russo, in turn, subcontracted with Michael J. Limbach to perform the masonry work on the house. Limbach operated his business as a sole proprietorship under the name of Michael Limbach Construction Company. West Bend had issued a Standard Contractors Businessowners Policy to Limbach, identifying the insured as "Michael Limbach DBA Michael Limbach Construction."
Shortly after their home was completed in November 1990, the Jacobs began experiencing problems with rainwater leaking into the home through the masonry of every exterior wall. A severe rainfall in April 1993 caused flooding in the Jacobs' dining room and back hallway, and the ceilings bulged with water. They eventually had to have the ceilings punctured to allow the water to drain.
Michael Limbach died in May 1993, and a petition for the administration of his estate was filed in the Washington County Circuit Court on July 29, 1993. The deadline for filing claims was November 3, 1993.
The Jacobs commenced this action in the circuit court of Waukesha county on November 23, 1993. As defendants they named Russo, Limbach Construction, and West Bend. 1 The complaint alleged causes of action for breach of contract, breach of express and implied warranties, negligence, strict liability and misrepresentation. After examining the complaint, West Bend determined that its policy did not cover the Jacobs' claim against Limbach. West Bend wrote to Limbach Construction advising of this determination and reserving its denial of coverage rights under the policy. However, West Bend also authorized Limbach Construction to hire its own lawyer and promised that it would pay the fees and related costs.
In response to this letter, West Bend received a telephone call from Betty Limbach, Michael Limbach's surviving widow. Betty was also the personal representative of Michael's estate. Betty advised West Bend that Attorney Carol Beverly was representing her and the estate. Beverly then wrote to West Bend, advising that she had been retained by Betty and asking West Bend to confirm that it would pay for the defense of the Jacobs' action. West Bend responded to Beverly, confirming that it would pay the attorney's fees and costs to Limbach Construction in defending the action. West Bend again reserved its rights to defend on the coverage issue.
On January 20, 1994, the Jacobs filed a claim against Michael's estate in the Washington county probate action. As the basis for the claim, they presented a copy of the complaint in the Waukesha county action. Beverly filed an objection to the claim, contending that it did not state a claim against Michael's estate because the complaint did not name Michael Limbach personally as a defendant. 2
The probate court agreed with Beverly's Russo then asked the trial court to stay further proceedings and to refer the matter to arbitration pursuant to an arbitration provision in the construction agreement with the Jacobs. On March 14, 1994, Waukesha County Circuit Judge Robert G. Mawdsley granted this request, and the arbitration hearing was scheduled for August 24, 1994. On October 21, three days before the arbitration panel issued its decision, and four days before the jury trial was scheduled to commence, Judge Mawdsley entered an order that the arbitration decision be "produced and entered into the record binding the [Jacobs] and Russo Builders to the determination made therein as it relates to repair or replacement of the brick and mortar." On October 24, the arbitration panel issued its decision directing Russo to repair the brick walls of the Jacob home by tuck-pointing the joints. 4
objection and dismissed the Jacobs' claim. 3 The correctness of this ruling is not before us on appeal. However, it is historically important because Beverly relied on this ruling, in part, in developing her strategy in the Jacobs' action against Limbach Construction. Relying on this favorable ruling from the probate court, and believing that any judgment in this case against Limbach Construction posed no jeopardy to Michael's estate or to the beneficiaries or heirs of the estate, Beverly made the tactical decision to not actively defend in this action. She therefore notified West Bend that she would not be filing an answer on behalf of Limbach Construction and that Limbach Construction would not actively defend the Jacobs' action
Despite the arbitration panel's decision and Judge Mawdsley's order making the decision binding as to the Jacobs and Russo, the matter nonetheless proceeded to jury trial on October 25, 1994. The trial of the case was assigned to Reserve Judge David C. Willis, and all of the rulings which we review on this appeal were made by Judge Willis. Although the trial concerned itself with certain other incidental damage claims by the Jacobs, the principal issues at the trial were: (1) whether the masonry work was defective; and, if so, (2) what needed to be done to correct the problem. These were the same matters which had just been addressed by the arbitration proceedings and decided by the arbitration award.
As noted previously, Limbach Construction did not participate in the trial. As a result, the Jacobs' proofs of negligence against Limbach Construction stood uncontested. West Bend appeared and pursued its coverage defense. Russo appeared and defended on the merits.
The Jacobs presented expert testimony in support of their claims against Limbach Construction and Russo. This testimony opined that the problem could be corrected by tuck-pointing the masonry, but that this procedure still produced a diminution in value of the residence. In addition, at the close of evidence, the parties stipulated that the cost of entirely replacing the brick veneer, instead of repairing it by tuck-pointing, would be $102,470. No such stipulation was forthcoming on the question of tuck-pointing and the concomitant diminution in value. Therefore, those questions were included on the special verdict, along with seven other questions regarding the Jacobs' other consequential damages. 5
In response to the Jacobs' negligence theory, Russo requested jury instructions to the effect that a general contractor is not liable for the torts of an independent contractor. See, e.g., WIS J I--CIVIL 1022.6. The trial court rejected these proposed instructions.
The jury returned a verdict finding Russo and Limbach Construction each fifty percent causally negligent in the construction of the Jacobs' home. In addition to the consequential damage awards, the jury awarded the Jacobs $110,500 for the cost of tuck-pointing and $135,000 for the diminution in the value of the structure due to the tuck-pointing. Based on these findings, the trial court entered a default judgment against Limbach Construction. 6
Posttrial, West Bend moved for a directed verdict on its coverage defense. West Bend argued that the policy issued to Michael Limbach was not a performance bond, but rather, a contractor's businessowners policy. West Bend contended that its policy covered damage to other property or to third parties for defective workmanship, but not for the cost of correcting or replacing the defective workmanship itself. See, e.g., St. John's v. Continental Casualty Co., 147 Wis.2d 764, 786-87, 434 N.W.2d 112, 121 (Ct.App.1988).
However, the trial court never reached West Bend's...
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