Liebovich v. Minnesota Ins. Co.

• Citation: 751 N.W.2d 764,2008 WI 75
• Decision Date: 01 July 2008
• Docket Number: No. 2006AP405.,2006AP405.
• Parties: Gregory A. LIEBOVICH, Plaintiff-Appellant, v. MINNESOTA INSURANCE COMPANY and American International Insurance Company, Defendants-Respondents-Petitioners.
• Court: United States State Supreme Court of Wisconsin

751 N.W.2d 764

2008 WI 75

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

No. 2006AP405.

Supreme Court of Wisconsin.

Argued November 29, 2007.

Decided July 1, 2008.

For the defendants-respondents-petitioners there were briefs by Michael A. Mesirow, Patti J. Kurth, and Kasdorf, Lewis & Swietlik, S.C., Milwaukee, and oral argument by Michael A. Mesirow.

For the plaintiff-appellant there was a brief by Jon P. Axelrod, Megan A. Senatori, Jacob P. Westerhof, and DeWitt Ross & Stevens S.C., Madison, and oral argument by Jon P. Axelrod.

¶ 1 LOUIS B. BUTLER, JR., J

This case involves an insurance provider's duty to defend the holder of a broad homeowners' liability policy against claims that he built his house too close to a shoreline in violation of a restrictive covenant. Gregory A. Liebovich (Liebovich) sued his insurers, Minnesota Insurance Company and American International Insurance Company (AIG),¹ after they refused to defend him in a lawsuit filed against Liebovich by some of his neighbors for violating a covenant with a 125-foot setback restriction. AIG filed a motion for summary judgment, which the circuit court granted. The court of appeals affirmed in part, reversed in part, and remanded, concluding in a published opinion² that AIG had a duty to defend Liebovich, and that AIG could have sought a judicial determination of its responsibilities if it felt the policy did not provide coverage, but instead AIG unilaterally breached its duty to defend.

¶ 2 Upon review, we agree with the court of appeals' conclusion that AIG's unilateral decision to deny liability coverage to Liebovich was a violation of its duty to defend. That duty was established by the filing of a complaint against Liebovich which, contrary to AIG's arguments, contained the requisite allegations of an occurrence, injury, and damages triggering AIG's responsibilities under the policy. Therefore, AIG's unilateral decision to deny liability coverage to Liebovich, without first turning to the well-established procedures described in Elliott v. Donahue, 169 Wis.2d 310, 485 N.W.2d 403 (1992), Newhouse v. Citizens Security Mutual Insurance Co., 176 Wis.2d 824, 501 N.W.2d 1 (1993), and Baumann v. Elliott, 2005 WI App 186, 286 Wis.2d 667, 704 N.W.2d 361, and despite the allegations of an occurrence, injury, and damages in the Halls' complaint, was a breach of AIG's duty to defend Liebovich. We further conclude that the intentional acts exclusion in Liebovich's policy does not justify AIG's abandonment of its policyholder because the neighbors' complaint does not allege that Liebovich intended to harm them. Consequently, we hold that AIG had a duty to defend Liebovich and that it breached that duty. We affirm the court of appeals' decision, adding to the remand directions that the circuit court should additionally address Liebovich's indemnification claim against AIG on remand.

I

¶ 3 Liebovich and his neighbors, Stephen R. Hall, Judith K. Hall, and Cedric Blazer,³ own property with lake frontage on the south shore of Geneva Lake. When Liebovich built his home, the Halls filed a complaint⁴ against him alleging he had violated a 125-foot setback covenant deed restriction by building a portion of his new home too close to the shore of Geneva Lake.

¶ 4 The first two causes of action in the Halls' complaint allege that Liebovich had constructive and actual knowledge of the restriction, but violated it intentionally and in willful disregard of his neighbors' rights, aggrieving them and entitling them to a writ requiring removal of the portion of his home violating the restriction. The form of relief sought for the first two causes of action includes a declaration that the setback restriction is valid, enforceable, and applicable to Liebovich's property; an injunction requiring compliance with the restriction; a writ of mandamus "directing Liebovich to take all necessary action, including, but not limited to, razing and removal of that portion of the single-family dwelling located on the Liebovich property which violates the 125 foot building setback restriction"; repayment of legal costs and disbursements; judgment under Wis. Stat. § 844.20(1) and (2)(2003-04),⁵ including injunctive relief and damages; and other relief the court deems just or equitable.

¶ 5 The third cause of action requests reformation of a 1968 affidavit and notice of covenant restrictions recorded with the register of deeds along with the deed for Liebovich's property. The Halls claim that the affidavit was executed to give notice of the 125-foot setback covenant restriction, but that it mistakenly described Liebovich's property as containing a "Form 2" restriction which allowed construction within 125 feet of the Geneva Lake shore at the low water line, when in fact, the deed accompanying the property contained the "Form 1" restriction prohibiting any structures less than 125 feet from the shore. Along with requesting reformation, the third cause of action requests that the reformed version of the affidavit be recorded with the Register of Deeds for Walworth County, reimbursement for costs and disbursements, and other relief the court deems just and equitable.

¶ 6 Liebovich is the holder of a "Private Client Group" homeowner's insurance policy (PCG policy), the relevant language of which is discussed later in this opinion. Liebovich asked AIG to defend and indemnify him in the lawsuit, based on the liability provisions of the PCG policy. In response, AIG sent a denial letter stating that it was refusing coverage because the Halls' second amended complaint alleges that Liebovich's conduct was intentional and in willful disregard of his neighbors' rights. As such, the letter stated, coverage is precluded by the policy's "intentional acts" exclusion, and by what AIG described as the lack of a request for damages in the Halls' complaint.

¶ 7 The Halls won their lawsuit and Liebovich was ordered to pay them $10,000 in damages along with statutory costs, disbursements, and interest. He was also enjoined from further violations of the covenant and from building certain additions or rebuilding the present encroachment if it is ever torn down. However, the court stopped short of granting an injunction requiring Liebovich to tear down the part of the house violating the covenant, adding a handwritten note to its order that "[i]t is further ordered, adjudged, and decreed that it would be inequitable to ... Liebovich to grant the injunctive relief requested."

¶ 8 Both the Halls and Liebovich appealed. The court of appeals affirmed the circuit court's decision, and this court denied the Halls' petition for review. Hall v. Liebovich Living Trust, 2007 WI App 112, ¶ 2, 300 Wis.2d 725, 731 N.W.2d 649, review denied, 2007 WI 114, 302 Wis.2d 106, 737 N.W.2d 432 (unpublished table decision).

¶ 9 On August 24, 2005, Liebovich filed suit against AIG⁶ for the company's failure to defend and indemnify him, alleging breach of AIG's contractual obligations to him and bad faith. Both parties moved for summary judgment. In its motion, AIG argued that no coverage exists under the PCG policy for the causes of action alleged within the four corners of the Halls' complaint. Liebovich responded that AIG had breached its duty to defend him and failed to follow the well-established procedures allowing insurance companies to seek a judicial determination about contested coverage rather than denying coverage without such a determination.

¶ 10 At a January 6, 2006, hearing, the circuit court, Honorable Michael S. Gibbs presiding, concluded that AIG did not breach a duty to defend because the Halls' allegation of being aggrieved does not rise to the level of the type of injury required for coverage. The court further concluded that the Halls did not allege damages, and that Liebovich's intent to build his house made the policy's intentional acts exclusion applicable. The court granted AIG's motion for summary judgment and denied Liebovich's motion for summary judgment.

¶ 11 Liebovich appealed. The court of appeals affirmed the dismissal of Liebovich's bad faith claim, while reversing the circuit court's conclusion that AIG did not have a duty to defend Liebovich and remanding for calculation of damages, costs, and fees. Liebovich v. Minnesota Ins. Co., 2007 WI App 28, ¶¶ 1, 17-18, 299 Wis.2d 331, 728 N.W.2d 357.

¶ 12 In its analysis of the duty to defend issue, the court of appeals rejected AIG's arguments that the Halls' complaint does not allege a personal injury or damages. Id., ¶¶ 9-11. The court ruled that the implicit allegation of a wrongful entry and explicit allegation of being aggrieved were sufficient to satisfy the personal injury requirement, and that damages were explicitly claimed along with the facts giving rise to those damages. Id. The court also rejected AIG's argument that there was no occurrence alleged, explaining that the PCG policy does not limit the definition of "occurrence" to accidents, but also includes offenses, and that AIG failed to establish why Liebovich's conduct was not such an offense. Id., ¶ 12. Finally, the court rejected AIG's invocation of the PCG policy's intentional act exclusion, concluding that the exclusion applies only when the insured intends or should have known that some harm would follow from his actions, which was not the case here. Id., ¶¶ 13-17. The court concluded on these grounds that AIG had a duty to defend Liebovich and had breached that duty. Id., ¶ 17.

¶ 13 AIG filed a petition for review, and we accepted review. Our review is limited to a determination of whether AIG had, and breached, a duty to defend Liebovich in the lawsuit filed against him by the Halls.⁷ We conclude that the four corners of the Halls' complaint contain allegations of the type of injury, damages, and occurrence required for coverage under Liebovich's policy and...