Phillips v. Parmelee

• Decision Date: 11 December 2012
• Docket Number: No. 2011AP2608.,2011AP2608.
• Citation: 2013 WI App 5,345 Wis.2d 714,826 N.W.2d 686
• Parties: Michael D. PHILLIPS, Perry A. Petta and Walkers Point Marble Arcade, Inc., Plaintiffs–Appellants, v. Daniel G. PARMELEE and Aquila Group, LLC, Defendants, American Family Mutual Insurance Company, Intervening Defendant–Respondent.
• Court: Wisconsin Court of Appeals

345 Wis.2d 714

826 N.W.2d 686

2013 WI App 5

Michael D. PHILLIPS, Perry A. Petta and Walkers Point Marble Arcade, Inc., Plaintiffs–Appellants, ^†

v. Daniel G. PARMELEE and Aquila Group, LLC, Defendants,American Family Mutual Insurance Company, Intervening Defendant–Respondent.

No. 2011AP2608.

Court of Appeals of Wisconsin.

Submitted on Briefs July 30, 2012.

Opinion Filed Dec. 11, 2012.

On behalf of the plaintiffs-appellants, the cause was submitted on the briefs of Christopher L. Strohbehn and Jason D. Luczak of Gimbel, Reilly, Guerin & Brown, LLP, of Milwaukee.

On behalf of the intervening defendant-respondent, the cause was submitted on the brief of Wayne M. Yankala of Mingo & Yankala, S.C., of Milwaukee.

Before CURLEY, P.J., KESSLER and BRENNAN, JJ.

CURLEY, P.J.

[345 Wis.2d 717]¶ 1 Michael D. Phillips, Perry A. Petta, and Walkers Point Marble Arcade, Inc. (collectively, “Phillips”) appeal the trial court's order granting declaratory/summary judgment to American Family Mutual Insurance Company (“American Family”), an intervening defendant that issued a business owner's policy to Aquila Group, LLC, an entity owned by Daniel G. Parmelee (collectively, “Parmelee”). Parmelee sold an apartment building to Phillips that was covered by the American Family policy. Phillips submits that the trial court correctly determined that there was an initial grant of coverage, but erred in its determination that the asbestos exclusion found in American Family's policy negated any insurance coverage for the damages sought in this suit and relieved American Family of the duty to defend. We conclude, as did the trial court, that there was an initial grant of coverage; however, the asbestos exclusion applies. Consequently, we affirm.

Background

¶ 2 This case arises out of damages Phillips sustained as a result of the dispersal of asbestos in a twenty-unit apartment building that he purchased from Parmelee. Phillips sued Parmelee on November 12, 2010. He sought damages for breach of contract/warranty, a violation of Wis. Stat. §§ 895.446 and 943.20 (2009–10), negligence, and punitive damages.¹

¶ 3 Several months after Parmelee filed an answer, American Family filed a motion to intervene, bifurcate and stay the proceeding. In addition, it filed a counter-claim and cross-claim for declaratory judgment. American Family argued that while the business owners policy it issued to Parmelee in April 2006 covered the apartment building, due to exclusions listed in the policy it did not provide coverage for any damages sought by Phillips. After briefs and arguments by counsel, the trial court granted American Family's motion to intervene on May 9, 2011, and granted its motion for declaratory judgment on September 12, 2011, concluding that American Family's policy did not provide coverage to Parmelee due to the policy's asbestos exclusion; and further, that American Family had no duty to defend Parmelee. Shortly thereafter, Phillips filed a notice of appeal. The parties then stipulated to stay the trial court proceedings while the appeal was pending.

[345 Wis.2d 719]¶ 4 In his complaint, Phillips alleged that shortly after Parmelee purchased a twenty-unit apartment building in New London, Wisconsin, Parmelee decided to put the property back on the market for sale. Prior to purchasing the building, Parmelee had procured a building inspection and report. This report, dated March 29, 2006, indicated that the building contained various defects. Included in the report was a statement by the inspector that:

There is probably asbestos in the basement heating supply ducts, [they] must be tested to be sure, so all the areas that are torn and damaged, which are numerous, must be encapsulated for safety. For example, the laundry room with three washers and two dryers [have] several heating pipes with friable asbestos-like insulation. A professional abatement team should further investigate and mitigate the danger.

¶ 5 In the course of negotiating the sale of the building to Phillips, Parmelee completed and signed a real estate condition report for the property. In this report, Parmelee indicated that he was not “aware of the presence of asbestos or asbestos-containing materials on the premises.” In addition, he indicated in the report that he was not “aware of a defect caused by unsafe concentrations of ... other potentially hazardous or toxic substances on the premises.”

¶ 6 In September 2006, Parmelee accepted Phillips' offer to purchase the apartment building for $419,000. Prior to accepting the offer to purchase, Phillips was given a copy of the aforementioned real estate condition report and Parmelee again represented in the offer to purchase that “as of the date of acceptance [he had] no notice or knowledge of conditions affecting the Property.” Although Parmelee claimed that he turned over his entire file on the property to Phillips for his review prior to accepting Phillips' offer to purchase the building, and that his file contained the March 29, 2006 building inspection report noting the probable presence of asbestos, Phillips denied ever seeing it at that time. Consequently, Phillips claimed that he was not put on notice that the property probably contained asbestos.

¶ 7 In 2007, asbestos was discovered on the property when a contractor hired by Phillips attempted to remove some pipes. As a result, the building was contaminated with asbestos, and the tenants were required to leave. Some time later, Phillips obtained the March 29, 2006 inspection report, which he denied ever having seen before.

¶ 8 As a result of the discovery of the asbestos, Phillips suffered serious financial problems, which ultimately led to the foreclosure of this and other properties owned by Phillips.

¶ 9 As noted, the trial court heard and granted American Family's motion for declaratory/summary judgment on September 12, 2011. American Family made numerous arguments in support of its position that Parmelee had no insurance coverage for the damages sought in this lawsuit. American Family argued that there was no “occurrence” or “property damage,” as those terms are defined in the policy, and that several exclusions in the policy, particularly the asbestos exclusion, applied. American Family also argued that the total pollution exclusion and the punitive damages exclusion applied. In granting American Family's motion, the trial court determined that the “negligence claim triggered an initial grant of coverage,” but the asbestos exclusion applied. Phillips' appeal followed.

Analysis

¶ 10 We review a grant of summary judgment by applying the same methodology as the trial court, and our review is de novo. See Emjay Inv. Co. v. Village of Germantown, 2011 WI 31, ¶ 24, 333 Wis.2d 252, 797 N.W.2d 844. A party is entitled to summary judgment when there are no disputed issues of material fact and that party is entitled to judgment as a matter of law. Wis. Stat. § 802.08(2).²This case also requires us to interpret an insurance policy, which presents a question of law for our de novo review. See Young v. West Bend Mut. Ins. Co., 2008 WI App 147, ¶ 7, 314 Wis.2d 246, 758 N.W.2d 196. We construe policy language “as it ‘would be understood by a reasonable person in the position of the insured.’ ” Id., ¶ 8 (citation omitted).

¶ 11 When we interpret an insurance policy, we first examine the policy's insuring agreement to determine whether it makes an initial grant of coverage for the plaintiff's claim. See Olson v. Farrar, 2012 WI 3, ¶ 41, 338 Wis.2d 215, 809 N.W.2d 1. If the claim triggers an initial grant of coverage, we then determine whether any of the policy's exclusions preclude coverage. See id. Finally, we determine whether an exception to an exclusion reinstates coverage. See id.

A. There was an initial grant of coverage.

¶ 12 Phillips contends that there is an initial grant of coverage under the policy's language because the facts alleged in the complaint establish that there was both an “occurrence” and “property damage.” Phillips' complaint alleges that Parmelee made false or fraudulent representations concerning the property, and that he did so either knowingly or recklessly. In addition, Phillips alleges that Parmelee negligently failed to disclose the defective condition of the property. Phillips further contends that “the tenants had to leave the property, which resulted in a loss of profits and income, foreclosure of multiple properties, loss of equity in the Property and other properties owned by the Plaintiffs, and other damages.”

¶ 13 The policy defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same harmful conditions.” Similarly, in Schinner v. Gundrum, 2012 WI App 31, 340 Wis.2d 195, 811 N.W.2d 431, this court, in discussing what is an accident, looked at several dictionary definitions of the word “accident.” Those included:

“[a]n event or condition occurring by chance or arising from unknown or remote causes.”

... “an event which takes place without one's foresight or expectation. A result, though unexpected, is not an accident; the means or cause must be accidental.”

Id., ¶ 8 (citations and some capitalization omitted). Applying those definitions, it would appear that the exposure/dispersal of asbestos falls within the definition of an “occurrence.” The complaint and Phillips' deposition establish that this occurred when a contractor cut through pipes that were, as it turned out, wrapped in asbestos. Phillips' deposition further explains that the exposure/dispersal of asbestos was unforeseen. This was due to Parmelee's forgetfulness and hasty filling out of the forms on which he ought to have disclosed the likely presence of asbestos, which—as Parmelee explained in his deposition—may have led to his failure to accurately state what he knew about the property:

Q. Now, why did you ... indicate that you were not aware of the presence of asbestos or asbestos-containing materials on the premises when you...