Kozak v. U.S. Fidelity and Guar. Co.

• Decision Date: 22 August 1984
• Docket Number: No. 83-1936,83-1936
• Parties: Edward L. KOZAK and Charlotte Kozak, Plaintiffs-Appellants, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, Defendant-Respondent.
• Court: Wisconsin Court of Appeals

Page 362

355 N.W.2d 362

120 Wis.2d 462

Edward L. KOZAK and Charlotte Kozak, Plaintiffs-Appellants, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, Defendant-Respondent.

No. 83-1936.

Court of Appeals of Wisconsin.

Submitted on Briefs July 6, 1984.

Opinion Released Aug. 22, 1984.

Opinion Filed Aug. 22, 1984.

Conrad J. Shearer, of Shearer & Shearer, Kenosha, for plaintiffs-appellants.

Thomas R. Schrimpf, of Kluwin, Dunphy & Hankin, Milwaukee, for defendant-respondent.

Before SCOTT, C.J., BROWN, P.J., and ROBERT W. HANSEN, Reserve Judge.

SCOTT, Chief Judge.

Charlotte and Edward L. Kozak appeal from a judgment dismissing their claim against the United States Fidelity and Guaranty Company (USF&G) on the merits. The issue is whether an exclusionary clause excepting "wrongful conversion and embezzlement" from an insurance policy covering loss by theft is ambiguous as applied to a farm tenant who made an unauthorized sale of cattle and appropriated the proceeds for his own use. Because we find that the exclusionary clause is ambiguous, we conclude that it does not defeat the Kozaks' claim under the policy. Accordingly, we reverse.

Charlotte and Edward L. Kozak (Kozaks) are the owners of a farm in East Troy, Wisconsin. They entered into a livestock share lease with Eugene A. Nelson providing that Nelson live and work on the farm and providing for joint ownership of fifty-six dairy cattle. The lease specifically provided that any purchase or sale of the jointly owned property was to be made by mutual agreement. Without the knowledge or agreement of the Kozaks, Nelson sold a total of forty-nine cattle and appropriated the proceeds for his own use.

The Kozaks filed a claim for theft loss under a Farmowners-Ranchowners Policy issued by USF & G. USF & G denied liability and moved for summary judgment based on the following portion of the policy:

PERILS INSURED AGAINST

This policy under this form insures against direct loss to the property covered by the following perils, subject to the conditions herein and of the policy of which this form is made a part.

....

9. THEFT, meaning any act of stealing or attempt thereat. With respect to this peril, this policy does not apply to loss:

....

c. by wrongful conversion and embezzlement; ....

USF & G's motion for summary judgment was denied. ¹ A trial was held to the court, and judgment was entered dismissing the Kozaks' claim on the merits. ² The Kozaks appeal.

We have not found any Wisconsin cases that construe the policy terms at issue in this case under similar facts. ³ In our review of this case, therefore, we are guided by the general principles of insurance policy construction as they are espoused in the case law.

The construction of words and clauses in an insurance policy is a question of law for the court. Katze v. Randolph & Scott Mutual Fire Insurance Co., 116 Wis.2d 206, 212, 341 N.W.2d 689, 691 (1984). Appellate courts owe no deference to the trial court's resolution of issues of law. Behnke v. Behnke, 103 Wis.2d 449, 452, 309 N.W.2d 21, 22 (Ct.App.1981).

In interpreting an insurance contract, our objective is to give effect to the intentions of the parties. Garriguenc v. Love, 67 Wis.2d 130, 134, 226 N.W.2d 414, 417 (1975). The words of the insurance contract are to be construed according to the principle that the test is not what the insurer intended the words to mean but what a reasonable person in the position of the insured would have understood the words to mean. Id. at 134-35, 226 N.W.2d at 417. We construe all provisions tending to limit liability most strongly against the insurer. Wisconsin Builders, Inc. v. General Insurance Co. of America, 65 Wis.2d 91, 103, 221 N.W.2d 832, 838 (1974). Whether an ambiguity in an insurance policy exists depends on the meaning that the term or provision would have to a reasonable person of ordinary intelligence. Herwig v. Enerson & Eggen, 98 Wis.2d 38, 40, 295 N.W.2d 201, 203 (Ct.App.1980), aff'd, 101 Wis.2d 170, 303 N.W.2d 669 (1981). An ambiguity exists when a word or phrase is reasonably susceptible to more than one construction. Garriguenc, 67 Wis.2d at 135, 226 N.W.2d at 417.

The dispute here centers around the terms "embezzlement and wrongful conversion" found in an exclusionary clause in the insurance policy issued by USF & G. The Kozaks contend that a lay person would interpret Nelson's conduct as theft and that a lay person would not interpret Nelson's conduct to be excepted from coverage by the exclusionary clause because the terms "wrongful conversion and embezzlement" are ambiguous. We agree.

First, while USF & G may have fully intended that Nelson's conduct be excluded from coverage, USF & G's intent is not controlling in construing the words of the policy. Rather, we must construe the words of the policy in terms of what a reasonable person in the Kozaks' position would have understood those words to mean. See Garriguenc, 67 Wis.2d at 134-35, 226 N.W.2d at 417. Consequently, we do not charge the Kozaks with the knowledge that USF&G intended to exclude coverage for loss by the theft committed by their farm tenant. The policy does not specifically exclude loss by theft committed by a farm tenant, employee or bailee. USF & G, as the drafter of the policy, had the full opportunity to explain its terms and to thereby specifically exclude conduct such as Nelson's from coverage. It did not. Instead, the terms "wrongful conversion and embezzlement" were left undefined in the policy.

Second, the ordinary and commonly accepted meanings of the terms "wrongful conversion and embezzlement" are not sufficient to distinguish "wrongful conversion and embezzlement" from theft in general. In determining the ordinary and commonly accepted meaning of the terms used in an insurance policy, it is appropriate to look to definitions in a recognized dictionary. Lawver v. Boling, 71 Wis.2d 408, 414, 238 N.W.2d 514, 517 (1976). For this purpose, we look to Webster's Third New International Dictionary (1976).

According to Webster's, the word "convert" means "change" or "transformation," (id. at 499), and the term "wrongful" means "unjust" or "unlawful." Id. at 2642. A reasonable person of ordinary intelligence may attribute numerous different meanings to the term "wrongful conversion" in accordance with the dictionary definitions. Similarly, the word "embezzlement" is defined to mean "fraudulent appropriation of property by a person to whom it has been entrusted (as of an employer's money by his clerk or of public funds by the officer in charge)." Id. at 739. As the examples given in Webster's make apparent, "embezzlement" is commonly used to describe the theft of money by an employee. Therefore, we agree with the Kozaks' contention that a reasonable person of ordinary intelligence who purchases an insurance policy covering theft would consider conduct such as Nelson's covered under the policy. The ordinary and commonly accepted meanings of the terms "wrongful conversion and embezzlement" are not specific enough to distinguish these acts from theft in general in the mind of a reasonable person.

Third, neither the Wisconsin statutes nor a Wisconsin supreme court case defining "conversion" distinguish the acts of "conversion" and "embezzlement" from theft in general.

Theft, as defined in sec. 943.20, Stats., includes the following:

Theft. (1) ACTS. Whoever does any of the following may be penalized as provided in sub. (3):

(a) Intentionally takes and carries away, uses, transfers, conceals, or retains possession of movable property of another without his consent and with intent to deprive the owner permanently of possession of such property.

(b) By...