Midway Motor Lodge of Brookfield v. Hartford Ins. Group

• Decision Date: 24 March 1999
• Docket Number: No. 98-0615,98-0615
• Citation: 593 N.W.2d 852,226 Wis.2d 23
• Parties: MIDWAY MOTOR LODGE OF BROOKFIELD, a Wisconsin partnership, Plaintiff-Appellant, d v. The HARTFORD INSURANCE GROUP, a foreign insurer, Hartford Insurance Company of the Midwest, Hartford Casualty Insurance Company, Hartford Fire Insurance Company, and Hartford Accident and Indemnity Company, Defendants-Respondents.
• Court: Wisconsin Court of Appeals

Page 852

593 N.W.2d 852

226 Wis.2d 23

MIDWAY MOTOR LODGE OF BROOKFIELD, a Wisconsin partnership Plaintiff-Appellant, ^d v. The HARTFORD INSURANCE GROUP, a foreign insurer, Hartford Insurance Company of the Midwest, Hartford Casualty Insurance Company, Hartford Fire Insurance Company, and Hartford Accident and Indemnity Company, Defendants-Respondents.

No. 98-0615.

Court of Appeals of Wisconsin.

Submitted on Briefs Jan. 20, 1999.

Opinion Released March 24, 1999.

Opinion Filed March 24, 1999.

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of David E. Leichtfuss and David A. Krutz of Michael Best & Friedrich LLP of Milwaukee.

On behalf of the defandants-respondents, the cause was submitted on the brief of Thomas R. Schrimpf of Hinshaw & Culbertson of Milwaukee.

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

ANDERSON, J.

Midway Motor Lodge of Brookfield (Midway) appeals from a summary judgment granted to The Hartford Insurance Group (Hartford). On appeal, Midway argues that Hartford breached an insurance contract with Hunzinger Construction Co. (Hunzinger), the insured, when Hartford failed to defend the negligence claims alleged against Hunzinger by Midway. Hartford maintains that its insurance policy with Hunzinger did not cover the claims in Midway's complaint. Midway disagrees, arguing that coverage exists or, in the alternative, is "fairly debatable" and, thus, Hartford breached the insurance contract by not seeking a judicial resolution of the coverage issue. Because Hunzinger assigned its rights in this action to Midway, Midway contends it is entitled to summary judgment against Hartford for the amount of the judgment entered against Hunzinger. We conclude that Hartford did not breach the contract with Hunzinger and is not bound to compensate Midway for its judgment against Hunzinger. The order for summary judgment in favor of Hartford is affirmed.

BACKGROUND

The Midway Motor Lodge complex--a hotel, restaurant and office tower--was built between 1980 and 1981. Hunzinger was hired as the general contractor and construction manager for the construction project. Several years later, Midway discovered a problem with its underground sewer system. The underground sewer lines had broken or sagged in many places. The faulty sewer lines prevented the hotel's sewage from flowing into the municipal sewer system. Instead, the sewage was being discharged and settling beneath the hotel.

Midway filed suit against Hunzinger, among others, seeking compensation for $1.3 million in damages it experienced from the sewer system failure and the cost of its repair. Midway's complaint reads in relevant part:

14. Hunzinger owed a duty of care to Midway in performing its general contractor and construction manager services .

15. Hunzinger was negligent in the performance of its services including the following: failing to construct the underground sewer system of the building complex according to plans and specifications; failing to adhere to the proper means and methods of construction for underground sewer system; failing to properly supervise and inspect the work done by its employees, agents and subcontractors on underground sewer system; and by failing to adequately analyze the proposed changes for the construction project and the underground sewer system.

16. The negligent actions and omissions of Hunzinger were a proximate cause of the failure of the underground sewer system.

Midway also requested the following relief from Hunzinger on this negligence claim: "[A]n amount to be determined by the trier of fact for all incidental and consequential damages suffered ."

After receiving notice of the lawsuit, Hunzinger tendered the defense to Hartford. Hartford was Hunzinger's insurance provider from February 1, 1979 through February 1, 1982. This coverage period coincides with the Midway construction project. After Hunzinger received no response from Hartford, it again requested the insurance carrier to provide a defense to Midway's cause of action. Hartford then phoned Hunzinger's counsel and informed him that Hartford's policies did not provide coverage because the underlying complaint did not allege property damage during the coverage period.

Hunzinger had also tendered defense on two other insurance companies which provided it coverage. Midway and Hunzinger reached a settlement agreement regarding the negligence claim. According to this $1 million settlement, the two other insurance carriers paid Midway a total of $300,000 on Hunzinger's behalf. All the parties agreed that Midway would receive a judgment against Hunzinger for the remaining $700,000. It was agreed that Midway would execute this judgment only against Hunzinger's Hartford insurance policy. Furthermore, Hunzinger was released from any liability for the $700,000 judgment and any other claims arising out of the lawsuit.

Midway then filed a suit against Hartford. Midway contended that Hartford breached its duty to defend Hunzinger, and as the assignee of Hunzinger's rights in this action, Midway argued it was entitled to the $700,000 judgment against Hartford. Midway moved the court for summary judgment. Hartford followed with its own motion for summary judgment. The trial court granted Hartford's motion. Midway appeals.

I. BREACH OF DUTY TO DEFEND THE INSURED

Midway's principal contention is that it is entitled to summary judgment because Hartford breached its contractual duty to defend ¹ Hunzinger and therefore is now liable for the judgment entered against Hunzinger. Supporting this allegation that a breach has occurred, Midway argues that the coverage issue is "fairly debatable" so Hartford was required to provide a defense and that Hartford failed to follow the appropriate options if it contested this coverage.

This requires us to evaluate whether the grant of summary judgment to Hartford was appropriate. We review a motion for summary judgment applying the same methodology as the trial court. See M I First Natl. Bank v. Episcopal Homes Management Inc., 195 Wis.2d 485, 496, 536 N.W.2d 175, 182 (Ct.App.1995). Here, both parties filed motions for summary judgment where they asserted there were no material issues of fact. Therefore, we will only address whether the moving party is entitled to judgment as a matter of law. See id. at 497, 536 N.W.2d at 182.

The pivotal issue in this case is whether Hunzinger's insurance policy with Hartford covered Midway's claims. If so, then Hartford breached the contract by not defending Hunzinger. Determining whether an insurer has breached a contractual provision of an insurance policy is a question of law. See Newhouse v. Citizens Sec. Mut. Ins. Co., 176 Wis.2d 824, 833, 501 N.W.2d 1, 5 (1993). We will review this question of law independently of the trial court. See United Capitol Ins. Co. v. Bartolotta's Fireworks Co., 200 Wis.2d 284, 290, 546 N.W.2d 198, 200 (Ct.App.1996).

A. Hartford's Policy

The insurer's duty to defend is triggered by "the allegations within the four corners of the complaint." Radke v. Fireman's Fund Ins. Co., 217 Wis.2d 39, 43, 577 N.W.2d 366, 369 (Ct.App.), review denied, 219 Wis.2d 923, 584 N.W.2d 123 (1998). Therefore, to determine whether Midway's claims against Hunzinger were covered by the Hartford insurance policy, we must apply the language of that insurance policy to the facts presented in Midway's complaint. See id. This exercise requires that we construe an insurance policy as it would be understood by a reasonable person in the position of the insured, and it is to be given its common and ordinary meaning. See Kulekowskis v. Bankers Life & Cas. Co., 209 Wis.2d 324, 329, 563 N.W.2d 533, 535 (Ct.App.1997). If the terms of the insurance policy are unambiguous, this court will not rewrite the contract but will simply apply the contract as written to the facts of the case. See Budget Rent-A-Car Sys., Inc. v. Shelby Ins. Group, 197 Wis.2d 663, 669, 541 N.W.2d 178, 180 (Ct.App.1995).

The relevant provisions of Hartford's insurance policy detail its liability as follows:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of property damage to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such property damage, even if any of the allegations of the suit are groundless, false or fraudulent . [Emphasis in original indicating terms that the policy defines.]

According to this language, Hartford is obligated to defend Hunzinger if the allegations in Midway's complaint describe "property damage" caused by an "occurrence." Thus, the policy's key definitions for determining coverage in this case are:

"occurrence" means an accident, including continuous or repeated exposure to conditions, which results in property damage neither expected nor intended from the standpoint of the insured;

"property damage" means (1) physical injury to or destruction of tangible property which occurs during the policy period or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.

Midway argues that its complaint alleging Hunzinger's negligence contains statements fulfilling the policy's definitions for both "property damage" and an "occurrence." Specifically, Midway contends that even if sufficient allegations are not explicitly stated in the complaint, this court should liberally review the complaint to find the statements necessary to fulfill these definitions. We will address each definition separately.

We first examine whether the complaint sufficiently alleges an "occurrence." In paragraph 12 of the complaint, Midway details many reasons it believes the construction of the sewer system was negligent. For example, it asserts that the sewer lines were out...