Stuart v. Weisflog's Showroom Gallery, Inc.

• Decision Date: 23 August 2006
• Docket Number: No. 2005AP1287.,2005AP1287.
• 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.<SMALL><SUP>†</SUP></SMALL>
• Court: Wisconsin Court of Appeals

Page 766

722 N.W.2d 766

2006 WI App 184

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.^†

No. 2005AP1287.

Court of Appeals of Wisconsin.

Submitted on Briefs June 22, 2006.

Opinion Filed August 23, 2006.

COPYRIGHT MATERIAL OMITTED

On behalf of the defendant-appellant, the cause was submitted on the briefs of Paul J. Pytlik and Michelle M. Stoeck of Hills Legal Group, Ltd. of Waukesha.

On behalf of the plaintiffs-respondents, the cause was submitted on the brief of Roy E. Wagner and Matthew R. Jelenchick of Niebler, Pyzyk, Klaver & Wagner LLP of Menomonee Falls.

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

¶ 1 BROWN, J

In this appeal, an insurance company attempts to apply certain "business risk" exclusions to preclude coverage where its insured incurs liability for misrepresentation pursuant to WIS. ADMIN. CODE § ATCP 110.02.¹ The policy does include representations about work as an item excluded from the policy by the "your work" exclusion. However, the legislature created code liability with the specific purpose of remedying deficiencies not addressed by common-law misrepresentation. We assume if the insurer meant to lump this distinct sort of misrepresentation claim along with common-law claims, it would have said so. We hold the exclusion does not apply. Moreover, the general coverage provisions are broad enough to encompass code misrepresentation claims. The latter qualify as "occurrences" per the policy because intent to deceive is not a necessary element of the cause of action. Further, because the misrepresentations at issue caused the entire series of transactions between the corporation and the customers, the plaintiffs' double damages and attorney fee awards arose "because of" the plaintiffs' property damage. We affirm the trial court's decision that the policy covers the defendants' damages to the plaintiff.

¶ 2 In 1995, Robert Stuart and his wife, Lin Farquhar-Stuart (the Stuarts) contacted Ronald Weisflog, president of Weisflog's Showroom Gallery, Inc. (collectively, Weisflog), a corporation in the business of building and remodeling homes. Specifically, they wished to add a bedroom to their home, to expand the master bedroom, living room, and garage, and to add a hot tub/spa room. In return for an architectural fee, Weisflog agreed to consult with the Stuarts about their remodeling needs and provide them with finalized drawings and a home design.

¶ 3 Weisflog represented to the Stuarts that they were purchasing quality architectural services and that the specifications in the drawings would comply with all applicable building codes. In reality, nobody at Weisflog was a licensed architect and Weisflog was not familiar with parts of the local building code. Relying on these representations, the Stuarts entered a "Remodeling Architectural Contract" that November.

¶ 4 The Stuarts and Weisflog subsequently discussed a new contract. Weisflog again professed familiarity with local code requirements and promised the Stuarts that the proposed improvements would comply with those requirements. The Stuarts again relied on Weisflog's representations and entered into a "Remodeling Contract" in May 1996. This contract set forth the work to be done and with respect to several items specified that they were to be "per plan." Weisflog then constructed and completed the improvements to the Stuart residence.

¶ 5 At some point in 2001, Robert Stuart noticed that the floor in the spa room was spongy in certain places, and his foot went through a soft spot in the floor. When he pulled back the carpeting, he saw a "rotted hole." He also noticed that the windowsills in the room were warped and rotting. Weisflog suggested replacing the rotted wood and putting in tile to replace the carpet, but Stuart opted instead to have a building inspector examine the room.

¶ 6 The inspector's report identified several building code violations he discovered in the course of looking at both the spa room and the rest of the project. The report stated that "significant defects with the design and construction details" required corrective work. Among other defects, he noted improper ventilation of the spa room and attic, the venting of the clothes dryer into the attic instead of directly to the outside, improper clearance to floor joists, lack of access to crawl spaces, the absence of gutters to drain water away from the foundation and overhangs above the spa room, and no ice and water shield for the roof system. He also found mold in portions of the residence. According to the inspector, the damage was so extensive that it made more sense to demolish the spa room and rebuild than to repair it.

¶ 7 The Stuarts brought suit against Weisflog and against American Family Mutual Insurance Company, with whom Weisflog had a Commercial General Liability (CGL) policy. The complaint stated causes of action for violations of WIS. ADMIN. CODE ch. ATCP 110 and breach of contract. American Family moved for summary judgment on three grounds. It first claimed that the violations in the complaint failed to trigger coverage. According to American Family, the ch. ATCP 110 violations were not an "occurrence." Moreover, it argued, the double damages and attorney fees the Stuarts sought for the alleged violations did not qualify as property damage but rather were "economic in nature." Alternatively, it claimed that even if initial coverage existed, the business risk exclusions in the policy barred coverage. American Family also invoked the economic loss doctrine to bar coverage for damages associated with the negligence claim. The trial court denied the motion, and a jury trial ensued on the issues of negligence and the ch. ATCP 110 violations.²

¶ 8 At trial, several witnesses testified on behalf of the Stuarts, including the building inspector and an environmentalist who noted "very high concentrations" of mold on the property and that some of the mold was toxic. The Stuarts also offered the testimony of a licensed architect, who claimed that the architectural plans were deficient, noncompliant with applicable building codes, incomplete, and that they were "one of the substantial causes of the problems that the Stuarts are dealing with." This expert's report noted that the plans revealed that "major areas of construction are missing or devoid of detail" and that the design plans were "deficient in many other respects based on accepted standard architectural practices."

¶ 9 The jury found Weisflog negligent in both the design and construction of the project. In addition, it found that Weisflog had induced the Stuarts to enter both the "Remodeling Architectural Contract" and the "Remodeling Contract" by making false, deceptive, or misleading representations. It attributed 25% of the $95,000 damages award to the WIS. ADMIN. CODE ch. ATCP 110 violations and the remaining 75% to Weisflog's negligence.

¶ 10 After the verdict, the trial court ordered double damages, pursuant to WIS. ADMIN. CODE ch. ATCP 110 and WIS. STAT. § 100.20(5) (2003-04),³ but only for the percentage of the award attributable to Weisflog's ch. ATCP 110 violations. Also postverdict, American Family renewed the arguments in its summary judgment motion, claiming that Weisflog's policies did not cover the damages awarded to the Stuarts. The court again denied relief.

¶ 11 All parties appealed. We have already rendered our opinion with respect to several noninsurance-related issues raised by Weisflog and the Stuarts. Stuart v. Weisflog's Showroom Gallery, Inc., 2006 WI App 109, ___ Wis.2d ___, 721 N.W.2d 127. In that separate opinion, we rejected Weisflog's contention that because the damages were not based on a breach of contract claim, the economic loss doctrine barred recovery. See id., ¶ 28. First, we noted that the economic loss doctrine is inapplicable in a contract for services. Id., ¶ 32. We concluded that the "Remodeling Architectural Contract" was solely for design and architectural services and that, but for that threshold agreement, the Stuarts never would have entered the subsequent "Remodeling Contract." Id., ¶ 31. Because we viewed that threshold agreement as the driving force behind the whole project, we treated the contract as one for services. See id., ¶ 32.

¶ 12 Further, we determined that the legislature intended to do more than simply add a remedy to common-law misrepresentation and breach-of-contract claims. See id., ¶ 33. We opined that, instead, it wished to recognize violations of WIS. ADMIN. CODE ch. ATCP 110 as distinct causes of action and that doing so furthered the public policy behind that chapter and WIS. STAT. § 100.20.⁴ See Stuart, 2006 WI App 109, ¶ 33, 721 N.W.2d 127 (reading all of WIS. STAT. ch. 100 as a whole and noting that the courts have recognized WIS. STAT. § 100.18 as providing a distinct cause of action). That public policy, we said, was to encourage victims of improper home improvement projects to bring forward their causes of action as private attorneys general with the aggregate effect of enforcing the public's rights. Stuart, 2006 WI App 109, ¶ 33, 721 N.W.2d 127.

¶ 13 In addition to Weisflog's contention that the economic loss doctrine barred Stuart's recovery, we considered Stuart's contention that the court erred in computing double damages. See id., ¶¶ 43, 50. We noted that the policy behind that provision was, again, to encourage private actions and "to assess meaningful penalties so as to punish the particular wrongdoer and deter future offenders." Id., ¶ 49. We saw "no place in this framework for apportioning damages where . . . the damages flowed from the initial misrepresentation." Id. Our discussion reiterated that, but for Weisflog's misrepresentations, the Stuarts may not have entered into the contracts and thus avoided the harm, in short, that...