Society Ins. v. Capitol Indemnity Corp.

• Decision Date: 04 February 2003
• Docket Number: No. 02-1856.,02-1856.
• Citation: 260 Wis.2d 549,2003 WI App 61,659 N.W.2d 875
• Parties: SOCIETY INSURANCE, Plaintiff-Respondent, v. CAPITOL INDEMNITY CORPORATION, Defendant-Appellant.
• Court: Wisconsin Court of Appeals

260 Wis.2d 549

2003 WI App 61

659 N.W.2d 875

SOCIETY INSURANCE, Plaintiff-Respondent, v. CAPITOL INDEMNITY CORPORATION, Defendant-Appellant.

No. 02-1856.

Court of Appeals of Wisconsin.

Submitted on briefs December 3, 2002.

Decided February 4, 2003.

On behalf of the defendant-appellant, the cause was submitted on the briefs of Allen M. Ratkowski and Jeaneen J. Dehring of Piper & Schmidt, Milwaukee.

On behalf of the plaintiff-respondent, the cause was submitted on the brief of Arthur P. Simpson of Simpson & Deardorff, S.C., Milwaukee.

Before Wedemeyer, P.J., Schudson and Curley, JJ.

¶ 1. WEDEMEYER, P.J.

Capitol Indemnity Corporation appeals from a summary judgment granted in favor of Society Insurance in an insurance coverage dispute. Capitol claims the trial court erred when it found Society was entitled to contribution from Capitol for a claim Society paid for property damage to an insured following a fire at the insured premises. Because the two insurance policies did not insure the same interest or the same insureds, contribution is not appropriate, and we reverse the judgment and remand to the trial court with directions to grant judgment in favor of Capitol.

BACKGROUND

¶ 2. The following facts are undisputed. On October 13, 2000, a fire occurred at the Broadway Baby, a restaurant located at 7155 North 43rd Street in Milwaukee. The restaurant was operated by John Bohan, who leased the premises from the owner, Thomas Beckman. As a part of the lease agreement, Bohan was responsible for obtaining property damage insurance for the property, which he did. Bohan procured a policy of businessowner's property and liability insurance from Society, which went into effect on January 23, 2000. On October 11, 2000, the policy was amended. Among other items, the amendment named Beckman as an "additional insured"—per an attached schedule. The attached schedule provided:

A. The following is added to Paragraph C. WHO IS AN INSURED in the Businessowners Liability Coverage Form:

4. The person or organization shown in the Schedule is also an insured, but only with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to you and shown in the Schedule.

¶ 3. Beckman also obtained insurance for the North 43rd Street property from Capitol. Under the Capitol policy, Beckman was the only named insured and the business description was for "Lessor's Risk."

¶ 4. After the October 13, 2000 fire, Bohan made a claim under his policy with Society. Society paid $41,071.60 as compensation for damages to the property. Society then sought contribution from Capitol. Capitol denied that it owed Society any contribution for the claim. ¶ 5. Beckman never filed a claim for the loss with Capitol. In fact, Beckman requested that Capitol cancel the insurance policy retroactive to the day before the fire occurred. Capitol complied with this request. Society then filed a declaratory judgment action against Capitol asking the court to declare that Capitol's policy also applied to the loss incurred at the property and seeking contribution. Both parties filed motions seeking summary judgment in their favor.

¶ 6. The trial court granted Society's motion and denied Capitol's motion. The trial court found that retroactive cancellation after a loss has occurred violates public policy in Wisconsin. The trial court also found that the two policies covered the same interest, the same insured, and the same loss. As a result, the trial court ordered Capitol to pay Society contribution on a pro rata basis, in the amount of $16,187.51. Judgment was entered. Capitol now appeals.

DISCUSSION

¶ 7. The issue in this case is one of first impression: whether an insurer for an owner/lessor of property is liable to pay contribution to the lessee's insurer for damages occurring to the property. This case was resolved on cross-motions for summary judgment.

[1-6]

¶ 8. We review orders for summary judgments independently, employing the same methodology as the trial court. Green Spring Farms v. Kersten, 136 Wis. 2d 304, 315, 401 N.W.2d 816 (1987). The interpretation of an insurance contract presents a question of law for our independent review. Tara N. v. Economy Fire & Cas. Ins. Co., 197 Wis. 2d 77, 84, 540 N.W.2d 26 (Ct. App. 1995). We interpret an insurance policy using the same rules of construction that are applied to other contracts. Allstate Ins. Co. v. Gifford, 178 Wis. 2d 341, 346, 504 N.W.2d 370 (Ct. App. 1993). "The policy language, as the agreed-upon articulation of the bargain reached between the parties, is dispositive to the extent it is plain and unambiguous." Id. If the terms of an insurance contract are plain on their face, the policy must not be rewritten by construction. Id. When the terms of the policy are unambiguous, they should be applied according to their everyday meaning, except where the policy itself provides an application definition. Kremers-Urban Co. v. American Employers Ins. Co., 119 Wis. 2d 722, 736, 351 N.W.2d 156 (1984).

¶ 9. Capitol claims that the trial court erred in ruling that it should pay contribution to Society for a portion of the compensation Society expended for damages caused by the fire. Capitol contends that it does not owe contribution for three reasons: (1) the insurance policy was retroactively cancelled by Beckman, and, as a result, was not in effect on the date of the fire; (2) Capitol's insurance policy and Society's insurance policy do not cover the same interest; and (3) the two insurance policies do not cover the same insured. Capitol's first contention is incorrect, but its second and third theories prevail.

A. Retroactive Cancellation.

[7]

¶ 10. First, Capitol contends that its policy was not in effect on the date of loss because Beckman retroactively cancelled the policy. Society argues, and the trial court agreed, that retroactive cancellation here is contrary to public policy in this state. We agree.

¶ 11. Although Capitol correctly argues that parties to a contract are free to modify the terms of the contract, they may not do so under the circumstances presented here. See generally Ciokewicz v. Lynn Mut. Fire Ins. Co., 212 Wis. 44, 248 N.W. 778 (1933). Our supreme court has already rejected an attempt to rescind a fire insurance policy after a known loss. Id. at 48. "The rights of the parties bec[o]me fixed when the loss occur[s]." Id. Here, Beckman attempted to retroactively cancel his policy with Capitol after the loss occurred. Beckman stated in his March 14, 2002 affidavit that he requested the retroactive cancellation because he did not want Capitol to pay on this loss. Once a loss occurs, the parties may not retroactively cancel a policy which potentially covers that loss. See id. Capitol attempts to distinguish Ciokewicz because the insured in Ciokewicz changed his mind about cancellation, at first requesting cancellation and later indicating he did not want the policy cancelled. Id. at 48-49. We cannot hold that Beckman's continuing desire to cancel the policy distinguishes this matter from Ciokewicz.

[8, 9]

¶ 12. Our supreme court clearly indicated that the rights of the parties become fixed when the loss occurs. "An agreement of the parties and a return of a pro rata [] premium will not exempt an insurer from liability for loss which had previously occurred while the policy was in force." Id. Our supreme court reached this conclusion on sound fundamental principles. Allowing retroactive cancellation after a loss has occurred is contrary to good public policy and could lead to inequitable results. We decline to depart from the longstanding law established in Ciokewicz. Beckman's retroactive cancellation here was ineffective; therefore, we reject his contention that the Capitol policy was not in effect at the time of the fire loss.

B. Identity of Insureds.

[10, 11]

¶ 13. Contribution is an equitable remedy that is available between insurance companies that are equally liable for the discharge of common obligations. See Reliance Ins. Co. v. Liberty Mut. Fire Ins. Co., 13 F.3d 982, 983 (6th Cir. 1994)

. That is, contribution may be available when there is "double coverage" for the loss. Id. Double coverage exists only when both policies cover the same property, and the same interest in the property, against the same risk for the same insured. Id.

¶ 14. Both parties agree that contribution is available only under those circumstances. They disagree, however, as to whether those circumstances are present in this case. Capitol argues that the two polices covered different insurable interests and different insureds; therefore, it does not owe contribution to Society. Capitol apparently concedes that the two insurance policies cover the same property, i.e., the building/restaurant located at 7155 North 43rd Street.

¶ 15. Capitol's policy insured Beckman, who had an insurable interest in the property as owner, while Society's policy insured Bohan, who had an insurable interest as lessee/operator of the property. Capitol maintains, therefore, that there is no identity of insureds. Society points out, however, that its policy names Beckman as an "additional insured," for his lessor's interest in the property. Society suggests that on this basis there is an identity of insureds because both policies name Beckman as an insured for his lessor's interest. Capitol concedes that Beckman was named as an additional insured in Society's policy, but responds that an endorsement makes Beckman an insured only as to liability under Society's policy—not an insured for the purposes of property damage.

¶ 16. The endorsement referred to involved a mid-term change to the policy, which added Beckman as an additional named insured. Capitol contends that the amendment added Beckman as an additional insured only under the liability coverage of the policy and not under the property damage portion of the policy. Society responds that the amendment added...