Stuart v. Weisflog's Showroom Gallery

• Decision Date: 10 July 2008
• Docket Number: No. 2005AP1287.,2005AP1287.
• Citation: 2008 WI 86,753 N.W.2d 448
• Parties: Robert STUART and Lin Farquhar-Stuart, Plaintiffs-Respondents, v. WEISFLOG'S SHOWROOM GALLERY, INC., and Ronald R. Weisflog, Defendants-Respondents, American Family Mutual Insurance Company, Defendant-Appellant-Petitioner.
• Court: Wisconsin Supreme Court

753 N.W.2d 448

2008 WI 86

Robert STUART and Lin Farquhar-Stuart, Plaintiffs-Respondents, v. WEISFLOG'S SHOWROOM GALLERY, INC., and Ronald R. Weisflog, Defendants-Respondents, American Family Mutual Insurance Company, Defendant-Appellant-Petitioner.

No. 2005AP1287.

Supreme Court of Wisconsin.

Argued September 5, 2007.

Decided July 10, 2008.

For the defendant-appellant-petitioner there were briefs by Paul J. Pytlik, Michelle M. Stoeck, and Hills Legal Group, Ltd., Waukesha, and oral argument by Paul J. Pytlik.

For the plaintiffs-respondents there was a brief by James J. Carrig, Matthew R. Jelenchick, and Niebler, Pyzyk, Klaver & Carrig L.L.P., Menomonee Falls, and oral argument by Matthew R. Jelenchick.

An amicus curiae brief was filed by Jeffrey Leavell and Jeffrey Leavell, S.C., Racine, on behalf of the Civil Trial Counsel of Wisconsin.

¶ 1 LOUIS B. BUTLER, JR., J

This is a review of a published court of appeals opinion¹ affirming the circuit court's determination that a commercial general liability (CGL) insurance policy issued by American Family Mutual Insurance Company (American Family) to Weisflog's Showroom Gallery, Inc. (WSGI)² covered damages awarded to Robert Stuart and Lin Farquhar-Stuart (the Stuarts) in a lawsuit resulting from the misrepresentations, as well as design and construction defects, related to a home remodeling project WSGI performed for the Stuarts.

¶ 2 A jury found WSGI liable for the statutory and tort violations alleged by the Stuarts, estimating damages "resulting from the negligence" of the defendants at $95,000. The Circuit Court for Waukesha County, Judge Patrick C. Haughney presiding, also required the jury to apportion the damages between the misrepresentation and negligence in construction claims. The court subsequently accorded statutory double damages and attorney fees to only the percentage of the award assigned to the misrepresentation claim.

¶ 3 The court of appeals reversed.³ The damage award and related issues raised in that appeal are the subjects of the companion case, Stuart v. Weisflog's Showroom Gallery, Inc., 2008 WI 22, ___ Wis.2d ___, 746 N.W.2d 762 (Stuart I), which was released earlier this term.

¶ 4 The subject of the present opinion is a separate appeal by American Family, in which the insurance company asks us to determine whether WSGI's CGL insurance policy covers the damages awarded to the Stuarts.⁴ We agree with American Family that the damages caused by Weisflog and WSGI in this case are not covered by the insurance policy because their misrepresentations were not accidental "occurrences" within the meaning of the policy, and because property damage arising out of their work is excluded from coverage. We therefore reverse the decision of the court of appeals and remand this matter for further proceedings consistent with this opinion and with Stuart I.

I

¶ 5 The facts of this case are identical to those set out in the companion case, Stuart I. Only those facts pertinent to the issues raised in this appeal will be repeated here.

¶ 6 In 1995 the Stuarts entered into a "Remodeling Architectural Contract" with WSGI for architectural drawings for a sizable home remodeling project.⁵ The next year, the Stuarts entered a "Remodeling Contract" with "Weisflog Homes" to perform the construction work on the project, which included, among other things, expansion of the living room, family room, master bedroom and garage, and the addition of a bedroom and a hot tub/spa room, at a cost of approximately $278,000.⁶

¶ 7 WSGI completed construction in 1997. Four years later, the Stuarts discovered problems with the floor in the hot tub/spa room. An engineer/home inspector hired by the Stuarts found significant defects in the design and construction of the project, including rotted wood, warped windows, mold and mildew, inadequate ventilation, improper clearance to floor joists, exposed insulation, lack of access to attic and crawl spaces, drainage problems, improperly installed lighting, lack of rain gutters, improperly constructed stairs, and lack of hand rails. In 2003 the Stuarts brought suit against WSGI, Weisflog, and Employers Insurance of Wausau, alleging negligence. The action against Employers Insurance of Wausau was voluntarily dismissed on April 29, 2003, and an amended complaint filed the same day named American Family, with whom WSGI had a CGL policy, as a party to the suit. A second amended complaint was filed on August 11, 2003, alleging that WSGI and Weisflog engaged in misrepresentation in violation of the Home Improvement Trade Practices Act, codified as Wis. Admin. Code § ATCP 110 (Sept.2001) and enforced through Wis. Stat. § 100.20(2005-06),⁷ and breach of contract,⁸ while incorporating the negligence claims of the first amended complaint. The Stuarts sought double damages, pursuant to Wis. Stat. § 100.20(5).⁹

¶ 8 In its answer to the second amended complaint, American Family stated that the policy it issued "may not provide coverage" for the claims. In a motion filed on March 5, 2004, American Family asked the circuit court for a declaration that the Stuarts' claims and damages were not covered by the policies issued to Weisflog and WSGI, and requested that American Family be summarily dismissed from the case. In an order signed on June 22, 2004, the court determined that the homeowners' policies issued to Weisflog did not cover the damages, but the court denied the motion as to the CGL policy issued to WSGI. In a pretrial report, American Family again set forth its position that it had no responsibility to cover damages caused by WSGI.

¶ 9 In support of his misrepresentation claim, Robert Stuart testified at trial that Ronald Weisflog had made assurances that his products are high quality, that he understood local codes and regulations, and that "he could provide architectural service for us where he would do all the architectural design work for us." In contrast with such assurances, the Stuarts highlighted not just the undisputedly poor quality of the product and services they received, but also the statements of both Ronald and Robert Weisflog admitting unfamiliarity with the building code.¹⁰

¶ 10 On October 6, 2004, a jury found that WSGI did make false, deceptive or misleading representations in order to induce the Stuarts to enter into a remodeling architecture contract, that the Stuarts relied on those representations, and that those representations were a cause of damages to the Stuarts. The jury further found WSGI negligent in the design of the remodeling project, and that such negligence was a cause of damages to the Stuarts. The jury also found WSGI negligent with respect to the construction of the addition to the Stuarts' home, and that such negligence was a cause of damage to the Stuarts. Finally, the jury found that WSGI made false, deceptive or misleading representations that remodeling work would comply with building codes in order to induce the Stuarts to enter the remodeling contract, that the Stuarts relied on those representations, and that those representations were a cause of damage to the Stuarts.

¶ 11 The jury held WSGI liable for $95,000 in damages "resulting from the negligence" to the Stuarts. In accordance with the special verdict instructions, the jury then apportioned the damages between the misrepresentation and negligence claims, allocating 25 percent of the award to violations of Wis. Admin. Code ch. ATCP 110 and 75 percent to negligence in construction.

¶ 12 In a post-verdict motion filed on October 27, 2004, American Family requested an order ruling that WSGI's CGL policy excluded coverage for the damages awarded to the Stuarts; dismissing the portion of damages related to misrepresentations because, American Family argued, the statute of limitations had expired; and dismissing the portion of damages related to negligence because, American Family argued, those claims were barred by the economic loss doctrine. The motion also requested that, in the alternative, a new trial be conducted to apportion those damages covered by insurance from those which are not.

¶ 13 In an order dated January 10, 2005, the circuit court denied the motion and concluded that insurance coverage existed under the CGL policy for the damages awarded. On February 10, 2005, judgment was entered against WSGI and American Family in the amount of $154,108. The award included the $95,000 awarded by the jury, in addition to double damages in the amount of $23,750 for the misrepresentation portion of the award, attorney fees of $15,675, and costs in the amount of $19,683.

¶ 14 The Stuarts filed an appeal on April 6, 2005; Weisflog and WSGI filed a cross-appeal. On May 9, 2005, American Family also filed a cross-appeal, which was subsequently designated a new appeal and given a separate case number.

¶ 15 On May 3, 2006, the court of appeals decided the Stuarts' appeal and Weisflog's and WSGI's cross-appeal. In Stuart v. Weisflog's Showroom Gallery, Inc., 2006 WI App 109, 293 Wis.2d 668, 721 N.W.2d 127, the court of appeals affirmed the circuit court's decision that the Stuarts' lawsuit was not barred by the statute of limitations and that the economic loss doctrine did not apply. Id., ¶¶ 4, 19-34. However, the court of appeals reversed the circuit court's decision to double only a portion of the award, and it remanded the matter for entry of judgment reflecting a doubling of the entire damage award and for redetermination of attorney fees. Id., ¶¶ 5, 42-57. The court of appeals also held that the circuit court erred in excluding a question as to Ronald Weisflog's personal liability from the verdict form, and remanded the matter for a retrial on that limited question. Id., ¶¶ 58-62. WSGI, Weisflog, and American Family petitioned this court for review, and review was granted on December 6, 2006.¹¹

¶ 16 The court of appeals decided American Family's separate cross-appeal in Stuart v. Weisflog's Showroom Gallery, Inc., 2006 WI...