Kraemer Bros., Inc. v. U.S. Fire Ins. Co.

• Decision Date: 30 May 1979
• Docket Number: No. 76-096,76-096
• Parties: KRAEMER BROS., INC., a Wisconsin Corporation, Plaintiff-Appellant, v. UNITED STATES FIRE INSURANCE COMPANY, a Foreign Corporation, Defendant-Respondent and Third-Party Plaintiff, The Prepakt Concrete Company, a Foreign Corporation, and the Andrews Company, Inc., a Wisconsin Corporation, Third-Party Defendants.
• Court: Wisconsin Supreme Court

Page 857

278 N.W.2d 857

89 Wis.2d 555

KRAEMER BROS., INC., a Wisconsin Corporation, Plaintiff-Appellant, v. UNITED STATES FIRE INSURANCE COMPANY, a Foreign Corporation Defendant-Respondent and Third-Party Plaintiff The Prepakt Concrete Company, a Foreign Corporation, and the Andrews Company, Inc., a Wisconsin Corporation Third-Party Defendants.

No. 76-096.

Supreme Court of Wisconsin.

Submitted on Briefs Nov. 1, 1978.

Decided May 30, 1979.

Michael G. Laskis and Melli, Shiels, Walker & Pease, S. C., Madison, on brief for appellant.

Kenneth M. Kenney and Kenney, Krembs, Fellows & Wolfe, Milwaukee, on brief for respondent.

ABRAHAMSON, Justice.

This is an appeal from a summary judgment denying recovery to the insured on a contractor's multiple peril form insurance policy. We reverse the judgment.

Kraemer Bros., Inc., plaintiff-insured, sued United States Fire Insurance Company, defendant insurance company, on an insurance policy for loss and damages in the sum of $112,000 caused by the collapse of a retaining wall erected by Prepakt Concrete Company, Kraemer's subcontractor. Kraemer alleged in its complaint that on or about June 12, 1972 it entered into a contract with the State of Wisconsin to construct a living complex at the Wisconsin School for the Deaf and that the U.S. Fire Insurance Company had issued to Kraemer its form policy entitled "contractor's multiple peril form," which the parties refer to as an "all-risk" policy. The policy covered "materials, supplies, machinery, equipment, fixtures and temporary structures to be used in or incidental to the construction, fabrication, installation, erection or completion of uncombustible, 4 story, living complex for Wisconsin School of the Deaf and remodeling of power plant."

The policy is attached to the complaint as an exhibit and includes the following provisions:

Paragraph 8 of the policy sets forth the perils insured against:

"8. Perils Insured Against. This policy insures against all risks of direct physical loss or damage to the property insured from any external cause except as hereinafter provided."

Paragraph 9 of the policy lists perils which are excluded from coverage:

"9. Perils Excluded. This policy does not insure against:

" . . .s E

"(c) loss or damage caused by faulty materials, improper workmanship or installation, errors in design or specifications. . . . "

The complaint further alleges that the collapse of the retaining wall occurred while the policy was in full force, that the collapse damaged, destroyed and injured insured property in the amount of $112,000 (including costs of removal of debris and repairing and replacing damaged, destroyed and injured property) and that the damage was not caused by Kraemer's use of faulty materials, improper workmanship or installation, nor by any error in design or specifications attributable to Kraemer. The complaint did not describe the cause of the collapse.

U.S. Fire answered the complaint denying liability and asserting as an affirmative defense that, on information and belief, the collapse of the retaining wall was caused by faulty materials, improper workmanship and errors in design on the part of Prepakt.

Kraemer demurred to the affirmative defense on the ground that it did not state facts sufficient to constitute a defense. The trial court overruled the demurrer.

U.S. Fire then moved for summary judgment. This motion was opposed by Kraemer. The trial court granted summary judgment to U.S. Fire and dismissed the complaint. It is this judgment from which Kraemer appeals.

We first consider whether the trial court properly overruled Kraemer's demurrer to the affirmative defense. ¹ U.S. Fire's defense to the action is that the collapse was caused by faulty materials, improper workmanship and errors in design on the part of Prepakt and that under the terms of the policy U.S. Fire is not liable for the loss. As stated above, paragraph 9(c) of the policy excluded "loss or damage caused by faulty materials, improper workmanship or installation, errors in design or specifications . . . ." Kraemer maintains that U.S. Fire does not state a defense as a matter of law because the policy exclusion refers only to the acts of the insured (I. e Kraemer) and not to acts of strangers to the insurance contract (I. e., Prepakt). Thus the decision of the demurrer turns on the proper construction of the policy.

The construction of an insurance policy is generally a matter of law for the court, although in a case of ambiguity where words or terms are to be construed by extrinsic evidence, the question is one for the fact-finder. The rule stated in Thurston v. Burnett & Beaver Dam Farmers' Mut. Fire Ins. Co., 98 Wis. 476, 478, 479, 74 N.W. 131 (1898), was recently quoted with approval in RTE Corp. v. Maryland Casualty Co., 74 Wis.2d 614, 621, 247 N.W.2d 171, 175.

" ' . . . The case comes clearly within the rule that where language is plain and unambiguous, the apparent import of the words must govern, and the rule that where there is no uncertainty as to the meaning of the words used in the contract and where such uncertainty exists, but there is no extrinsic evidence or circumstance bearing on the subject to be considered in determining the meaning attributed to them by the parties when the contract was made, the proper interpretation of the words and construction of the contract are solely for the court.' "

See also Pleasure Time, Inc. v. Kuss, 78 Wis.2d 373, 379, 254 N.W.2d 463 (1977).

In the case at bar no extrinsic evidence was offered or introduced bearing upon the meaning of the terms of the policy. The meaning of the policy was therefore a question of law to be determined by the trial court upon a consideration of the contract as a whole, and because it is a question of law, it may be redetermined independently by this court on appeal. Zweck v. D P Way Corp., 70 Wis.2d 426, 435, 436, 234 N.W.2d 921 (1975).

The rules governing construction and interpretation of insurance policies are those applicable to contracts generally. The objective in interpreting and construing a contract is to ascertain the true intention of the parties. Home Mut. Ins. Co. v. Insurance Co. of N. A., 20 Wis.2d 48, 51, 121 N.W.2d 275 (1963); French v. Fidelity & Casualty Co. of N. Y., 135 Wis. 259, 265, 115 N.W. 869 (1908). The policy is to be considered as a whole in order to give each of its provisions the meaning intended by the parties. Laaba v. Chicago Title Ins. Co., 72 Wis.2d 503, 511, 241 N.W.2d 434 (1976); D'Angelo v. Cornell Paperboard Products Co., 59 Wis.2d 46, 50, 207 N.W.2d 846 (1973).

Paragraphs 8 and 9 of the insurance policy contain the relevant provisions regarding perils covered by the policy, and perils excluded by the policy. Paragraph 8, quoted above, provides that a risk of direct physical loss or damage is covered by the policy if (a) the loss or damage to the property insured has an "external cause" and (b) the risk is not excluded by other provisions in the policy, primarily those in paragraph 9, entitled "Perils Excluded."

The requirement that the loss or damage arise from a cause external to the insured property is a provision typically found in an all-risk policy. Courts have construed this language as applying only to losses caused by an outside force or agency, fortuitous and extraneous to the insured property and have excluded from coverage losses arising from inherent qualities or defects of the insured property. ²

The all-risk policy was described in 5 Appleman, Insurance Law & Practice, sec. 3092, p. 371 (1970) as follows:

"In its original development, an all-risk policy was not in actuality that but merely a combination of several coverages and anything which was not expressly included was excluded. The title was, of course, misleading. Recently, however, courts have been indicating that such policies are considered to cover all fortuitous and extraneous losses, which are not specifically excluded from coverage. Nevertheless, such a policy is not a promise to pay for loss or damage which is almost certain to happen because of the nature and inherent qualities of the insured property."

In Glassner v. Detroit Fire & Marine Ins. Co., 23 Wis.2d 532, 536, 127 N.W.2d 761, 764 (1964), this court described such a policy as follows:

"An 'all risk' policy is a promise to pay for loss caused by a fortuitous and extraneous happening, but it is not a promise to pay for loss or damage which is almost certain to happen because of the nature and inherent qualities of the property insured. 1"

Arguably a defect in the design and construction of insured property is inherent in that property, rather than an "external cause," and therefore this kind of defect is not a peril included by paragraph 8 of the policy, even in the absence of a specific exclusion clause expressly applicable to such defects. See Aetna Casualty and Surety Ins. Co. v. Yates, 344 F.2d 939, 941 (5th Cir. 1965). But see Essex House v. St. Paul Fire and Marine Insurance Co., 404 F.Supp. 978, 987, 992 (S.D.Ohio 1975). We do not rest our decision upon this reasoning, however. We conclude that this peril is excluded by paragraph 9(c) of the policy.

The exclusion relied upon by U.S. Fire, paragraph 9(c) quoted above, provides that the policy does not insure against loss or damage caused by faulty materials, improper workmanship or installation and errors in design or specifications. There is no modifying or qualifying clause in paragraph 9(c) specifying the source of the faulty design, materials, or improper workmanship. Compare paragraph 9(d) of the policy which excludes a loss occurring because of a "dishonest act committed . . . by any Assured . . . ." If it was intended that paragraph 9(c) exclude only the acts of the Assured, I. e., Kraemer, the policy could have so stated, in a manner similar to paragraph 9(d).

We conclude that a loss caused by the collapse of a retaining wall because of faulty materials, improper...