Liebovich v. Minnesota Ins. Co.

• Decision Date: 24 January 2007
• Docket Number: No. 2006AP405.,2006AP405.
• Citation: 728 N.W.2d 357,2007 WI App 28
• Parties: Gregory A. LIEBOVICH, Plaintiff-Appellant, v. MINNESOTA INSURANCE COMPANY and American International Insurance Company, Defendants-Respondents.
• Court: Wisconsin Court of Appeals

728 N.W.2d 357

2007 WI App 28

Gregory A. LIEBOVICH, Plaintiff-Appellant, v. MINNESOTA INSURANCE COMPANY and American International Insurance

Company, Defendants-Respondents.

No. 2006AP405.

Court of Appeals of Wisconsin.

Submitted on Briefs November 16, 2006.

Opinion Filed January 24, 2007.

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of Jon P. Axelrod, Jacob P. Westerhof and Megan A. Senatori of DeWitt Ross & Stevens S.C. of Madison.

On behalf of the defendants-respondents, the cause was submitted on the brief of Michael A. Mesirow and Patti J. Kurth of Kasdorf, Lewis & Swietlik, S.C. of Milwaukee.

Before SNYDER, P.J., BROWN and NETTESHEIM, JJ.

¶ 1 BROWN, J

We are here required to construe a homeowner's insurance policy. What makes this case unusual is that the policy we construe is no ordinary policy. Rather, as the summary judgment record shows, this AIG¹ Private Client Group policy is an "innovative insurance" product designed to "enhance protection and minimize threats to the personal wealth of high net worth individuals." AIG touted the product as one "exclusively for high net worth individuals . . . crafted to ensure broad coverage." Indeed, the policy holder here, the plaintiff, Gregory Liebovich, paid a premium of $4751 for this special coverage between May 1, 2002 and May 1, 2003, and a much higher premium of $7591 for coverage between May 1, 2003 and May 1, 2004. Did he get what he paid for? Well, one example of broad coverage is that Liebovich was covered for an "occurrence" — defined as an "offense" in addition to the usual definition of "accident." Additionally, he was covered for personal injury arising out of "wrongful entry or eviction" without the limiting language found in some other policies. As we shall see, these examples illustrate why we must reverse, in part, the grant of summary judgment in this case.

¶ 2 This case began when Liebovich was sued by two contiguous neighbors on Geneva Lake. They claimed that he had built his house in violation of a setback restriction. Liebovich had homeowner's insurance policies with AIG, and tendered the defense to the company. AIG refused to defend, telling Liebovich that his policy did not cover the liability claimed in the suit. So, Liebovich had to hire counsel and defend the suit on his own. Eventually, the court ordered that he pay his two neighbors $10,000 in damages plus statutory costs and disbursements. He then sued AIG, claiming that it had breached its duty to defend and had denied coverage in bad faith. The circuit court granted summary judgment to AIG, holding that it had no duty to defend Liebovich and that the policies did not cover Liebovich's damages. We will now discuss the reasons for our reversal, beginning with a restatement of the pertinent law.

¶ 3 Liability insurance policies impose two duties on the insurer: the duty to indemnify and the duty to defend. Gross v. Lloyds of London Ins. Co., 121 Wis.2d 78, 84, 358 N.W.2d 266 (1984). The duty to defend is broader than the duty to indemnify because it is predicated on allegations in a complaint that, if true, would give rise to coverage. Elliott v. Donahue, 169 Wis.2d 310, 320-21, 485 N.W.2d 403 (1992). Any doubt as to whether a duty to defend exists must be resolved in favor of the insured. Id. at 321, 485 N.W.2d 403. If it is "fairly debatable" that coverage exists under the facts in the complaint, then there is a duty to defend unless and until coverage is resolved in favor of the insurer. See Baumann v. Elliott, 2005 WI App 186, ¶¶ 8-9, 286 Wis.2d 667, 704 N.W.2d 361.

¶ 4 An insurer believing that its policy does not indemnify against a particular claim has several options for preserving its rights without violating its duty to defend. See id., ¶ 8. It may seek a judicial resolution of coverage before the underlying claim is tried, or it may defend its insured under a reservation of rights. See id. The insurer may, on the other hand, simply refuse to assist and leave the insured to his or her own defense. If the insurer is correct that it owes no duty to defend, then it suffers no negative consequences of this action. See Menasha Corp. v. Lumbermens Mut. Cas. Co., 361 F.Supp.2d 887, 891-92 (E.D.Wis.2005). However, the insurer should be very wary of taking this route, because if it is later found that the insurer did have a duty to defend, the breach of that duty estops the insurer from contesting coverage in the underlying action. Prof'l Office Bldgs., Inc. v. Royal Indem. Co., 145 Wis.2d 573, 586, 427 N.W.2d 427 (Ct.App.1988). This means that it must pay, in addition to the insured's cost to defend the underlying action, any damages awarded in that action. Newhouse v. Citizens Sec. Mut. Ins. Co., 176 Wis.2d 824, 838, 501 N.W.2d 1 (1993). The insurer must also pay the insured's attorney fees in successfully establishing coverage.² Donahue, 169 Wis.2d at 314, 485 N.W.2d 403.

¶ 5 Whether an insurer had a duty to defend is a question of law we review de novo. Grube v. Daun, 173 Wis.2d 30, 72, 496 N.W.2d 106 (Ct.App. 1992). Wisconsin courts apply the "four corners" test in determining whether a duty to defend exists. See Newhouse, 176 Wis.2d at 835, 501 N.W.2d 1. We examine two documents: the complaint and the insurance policy. We construe the terms of an insurance policy as they would be understood by a reasonable person in the insured's position. Donahue, 169 Wis.2d at 321-22, 485 N.W.2d 403. If there is any doubt as to whether the complaint states facts that would give rise to liability under the policy, then the duty to defend exists. See id. at 321, 485 N.W.2d 403. No evidence outside of the complaint and the policy is considered. Prof'l Office Bldgs., 145 Wis.2d at 582, 427 N.W.2d 427.

¶ 6 Liebovich's policies state that AIG will "pay . . . damages an insured person is legally obligated to pay for personal injury . . . caused by an occurrence covered by this policy . . . unless stated otherwise or an exclusion applies." The policy defines "personal injury" as "injury, including bodily or mental harm arising out of any of the following acts: . . . [w]rongful entry or eviction." "Occurrence" is defined as either "[a] loss or an accident" or, importantly in this case, "[a]n offense, including a series of related offenses, committed during the Policy Period that results in personal injury." However, the policy excludes coverage for "acts or omissions of any person which are intended to result in, or would be expected by a reasonable person to cause, property damage or personal injury."

¶ 7 Boiled down to its essence, the policy thus indemnifies Liebovich for (1) damages he is legally obligated to pay (2) for a personal injury³ (which is an injury, including bodily or mental harm arising out of wrongful entry) (3) caused by an accident or offense (4) so long as Liebovich did not act with the intent to cause property damage or personal injury (or should not have reasonably expected property damage or personal injury to result). This means that if it is fairly debatable that the complaint in this case stated facts that could give rise to liability for Liebovich meeting each of these elements, AIG had a duty to defend. We will consider each in turn.

¶ 8 The great bulk of the allegations in the body of the complaint go to establishing that the 125-foot setback covenant exists in the relevant deeds. Then there are four more: that Liebovich built his house in violation of the setback; that he had actual and constructive knowledge of the restriction when he did it; that the violation was "intentional, in willful disregard of the rights of" his neighbors; and that the neighbors "have no other adequate, specific legal remedy available" because Liebovich has refused to cure the problem, and that because of this they are "aggrieved." Also, under one of the causes of action, the complaint states that Liebovich's house "has interfered with the interests of [the neighbors] in and to their neighboring real property." In the first ad damnum clause, the complaint requests, inter alia, an injunction preventing Liebovich from "maintaining the existing single-family dwelling on the . . . property," and a writ of mandamus directing Liebovich to raze and remove the portion of his house in violation. In the second, it requests further injunctions "and, to the extent not inconsistent with Plaintiffs' request for injunctive relief, for damages in an amount to be determined by the Court or a jury."

¶ 9 AIG first argues that the complaint does not state a claim for damages at all, but requests only equitable relief. AIG notes that the only request for damages comes in the ad damnum clause, which we have in the past refused to consider in applying the four corners test.⁴ See Midway Motor Lodge of Brookfield v. Hartford Ins. Group, 226 Wis.2d 23, 35-36, 593 N.W.2d 852 (Ct.App.1999); but see Baumann, 286 Wis.2d 667, ¶¶ 17-18, 704 N.W.2d 361. However, our supreme court has held that in deciding whether coverage exists, it is not enough to rely on the labels "equitable relief" and "damages." Johnson Controls, Inc. v. Employers Ins. of Wausau, 2003 WI 108, ¶ 44, 264 Wis.2d 60, 665 N.W.2d 257 (rejecting a "strict dichotomy" between the two). In Johnson Controls, the court explained that money spent to comply with an equitable remedy such as an injunction can give rise to coverage where the injunction is remedial in nature, i.e., provides compensation for past wrongs, rather than looking simply to the future. Id., ¶¶ 42-44, 48. Here, the razing of part of Liebovich's house would, at least in part, be a remedy for his past action of building the house where he was not permitted to do so.

¶ 10 Further, AIG's dependence on Midway is misplaced because it is the facts pled in the complaint, rather than the legal theories espoused, that determine the duty to defend. See Curtis-Universal, Inc. v. Sheboygan Emergency Med. Servs., Inc., 43 F.3d 1119, 1122 (7th Cir.1994)....