Utica Mut. Ins. Co. v. Klein & Son, Inc.

• Decision Date: 02 August 1990
• Docket Number: No. 89-1342,89-1342
• Court: Wisconsin Court of Appeals
• Parties: UTICA MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v. KLEIN & SON, INC., a Wisconsin corporation, Klein Insurance Group, a Wisconsin corporation, and Edward Tanke, d Defendants-Respondents, the American Insurance Company a/k/a Fireman's Fund Insurance Companies, a foreign insurance corporation, Defendants.

Page 763

460 N.W.2d 763

157 Wis.2d 552

UTICA MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v. KLEIN & SON, INC., a Wisconsin corporation, Klein Insurance

Group, a Wisconsin corporation, and Edward Tanke,

^d Defendants-Respondents,

the American Insurance Company a/k/a Fireman's Fund

Insurance Companies, a foreign insurance

corporation, Defendants.

No. 89-1342.

Court of Appeals of Wisconsin.

Submitted on Briefs Nov. 11, 1989.

Opinion Released Aug. 2, 1990.

Opinion Filed Aug. 2, 1990.

[157 Wis.2d 554] L.E. Sheehan of Moen, Sheehan, Meyer & Henke, Ltd., La Crosse, on the briefs, for plaintiff-appellant.

Thomas M. Fitzpatrick of Fitzpatrick, Smyth, Dunn & Fitzpatrick, La Crosse, on the briefs, for defendants-respondents.

Before EICH, C.J., GARTZKE, P.J., and SUNDBY, J.

SUNDBY, Judge.

Utica Mutual Insurance Company appeals from a summary judgment declaring that its errors and omissions policy covers a claim against the Klein Insurance Group. Utica Mutual denied coverage because Klein failed to disclose the potential claim when it applied to Utica Mutual for errors and omissions insurance. Klein contends that Minnesota law controls and that under Minnesota law, Utica Mutual waived its right to deny coverage. It argues that, in any event, Utica Mutual is barred by waiver and estoppel from asserting its coverage defense.

We conclude that Wisconsin law applies and that the policy clause providing that the policy is issued in reliance upon the truth of applicant's representations is a coverage clause going to the scope of coverage assumed. Under Shannon v. Shannon, 150 Wis.2d 434, 454, 442 N.W.2d 25, 34 (1989), Utica Mutual could not waive the coverage clause and is not estopped from asserting its coverage defense. We therefore reverse the summary judgment and direct the circuit court to enter summary judgment declaring that Utica Mutual's policy does not cover the claim.

BACKGROUND

Klein's alleged error was failing to provide a bond requested by Joel Twaiten sufficient to protect him from personal liability for the continued operation of a Minnesota business which Twaiten sold. On November 22, 1982, Twaiten demanded that Klein pay an incurred loss. Klein forwarded a copy of the demand to its errors and omissions carrier, Fireman's Fund Insurance Companies, asking that Fireman's Fund accept the demand letter as notice of a potential claim. Fireman's Fund set up a file on the potential claim. On June 20, 1983, Fireman's Fund requested an update from Klein on the Twaiten claim. On June 28, 1983, Klein responded that it believed that Twaiten "will most likely sue [another insurer] before they take action against our agency."

Thereafter, Klein changed carriers. On October 1, 1985, Klein applied to Utica Mutual for errors and omissions insurance. Question 13 of the application inquired whether any claims had been made or incidents had arisen against the agency during the past five years. Klein answered "yes" and gave the details of another potential claim. Klein did not list the Twaiten claim. Question 14 asked: "Is the agency aware of any circumstances or any allegation or contentions of any incident which may result in any claim being made against the agency, their predecessors in business or any present or past partners?" Klein answered "no."

On July 9, 1986, Twaiten served Klein with a summons and complaint in an action on the Twaiten claim begun against Klein in Minnesota. Klein mailed a copy of the Upon receiving the suit papers, Utica Mutual retained Minnesota counsel to represent Klein. When Utica Mutual learned that Klein had previously notified Firemen's Fund of Twaiten's potential claim, it tendered the defense of the action to Firemen's Fund. It thereafter continued to tender defense of the action to Firemen's Fund.

summons and complaint to Firemen's Fund and to Utica Mutual.

On April 7, 1987, Firemen's Fund denied coverage. On May 8, 1987, Utica Mutual denied coverage because of Klein's application misrepresentation. Prior to that date, Utica Mutual had not informed Klein that it intended to assert a policy defense. When it denied coverage, Utica Mutual advised Klein that it was filing a declaratory judgment action in Wisconsin to determine the issue of coverage.

I. WISCONSIN OR MINNESOTA LAW?

Klein contends that this case is controlled by Minnesota law. It argues that under Minnesota law, Utica Mutual waived its right to deny coverage. Nikkari v. Jackson, 226 Minn. 393, 33 N.W.2d 36 (1948). We conclude that Wisconsin law controls.

In Urhammer v. Olson, 39 Wis.2d 447, 450, 159 N.W.2d 688, 689 (1968), the Wisconsin Supreme Court adopted the "grouping-of-contacts" approach for resolving conflicts questions raised as to a disputed contract. In Haines v. Mid-Century Ins. Co., 47 Wis.2d 442, 446-47, 177 N.W.2d 328, 330 (1970), the Wisconsin Supreme Court relied on the Restatement (Second) of Conflict of Laws, sec. 188, as the "embodiment" of the "grouping-of-contacts" approach. Section 188 provides:

(1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the [choice-of-law] principles stated in sec. 6. [ ¹]

(2) In the absence of an effective choice of law by the parties (see s. 187), the contacts to be taken into account in applying the principles of sec. 6 to determine the law applicable to an issue include:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicil, residence, nationality, place of incorporation and place of business of the parties.

These contacts are to be evaluated according to their relative importance with respect to the particular issue.

(3) If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied, except as otherwise provided in secs. 189-199 and 203.

As to this section, the Haines court stated:

This section, in the absence (as here) of an agreement between the parties of their choice of law, permits a functional conflicts analysis under which the method is not to count contacts but rather to consider which contacts are the most significant and to determine where those contacts are found.

Haines, 47 Wis.2d at 447, 177 N.W.2d at 330-31.

The contract between Klein and Utica Mutual is contained in an errors and omissions policy, a form of casualty insurance. As to such contracts, the Restatement says:

The validity of a contract of ... casualty insurance and the rights created thereby are determined by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue, some other state has a more significant relationship under the [choice-of-law] principles stated in sec. 6 to the transaction and the parties, in which event the local law of the other state will be applied.

Restatement (Second) of Conflict of Laws sec. 193 (1971).

Klein argues that Minnesota law should be applied to determine that Utica Mutual waived its right to deny coverage by assuming defense of the action against Klein. Klein contends that Minnesota has more significant contacts with Klein and Twaiten than Wisconsin because Klein does business in Wisconsin and Minnesota, was sued by Twaiten in Minnesota, and Utica Mutual retained a Minnesota law firm to defend Klein.

However, this is not a lawsuit between Twaiten and Klein. As between Utica Mutual and Klein, the location of the insured risk is in Wisconsin. "An insured risk, namely the object or activity which is the subject matter of the insurance, has its principal location, in the sense here used, in the state where it will be during at least the major portion of the insurance period." Id., comment b at 611. "The location of the insured risk will be given greater weight than any other single contact in determining the state of the applicable law provided that the risk can be located, at least principally, in a single state." Id.

The risk insured by Utica Mutual is an error or omission by Klein in conducting its business. This activity has its principal location in Klein's offices in Wisconsin. In accordance with the Restatement principles, we give greater weight to this fact than any other single contact in determining that Wisconsin law applies. Using the factors set forth in sec. 188 of the Restatement, we conclude that Wisconsin has the more significant contacts. The application was completed and signed in Wisconsin by an officer of Klein. The policy declarations were countersigned at Mayville, Wisconsin, by an authorized representative of Utica Mutual. Klein is domiciled in and its place of business is in Wisconsin. We therefore conclude that whether Utica Mutual waived its right to deny coverage to Klein is controlled by Wisconsin law.

II. RIGHT TO DENY COVERAGE

Utica Mutual contends that its policy does not cover Twaiten's claim because the claim would have been excluded had Klein revealed the existence of the potential claim as required by Utica Mutual's application for errors and omissions coverage. The policy provides:

17. Application: By acceptance of this policy the insured agrees that the statements in the application are his representations, that this policy is issued in reliance upon the truth of such representations, and that this policy embodies all agreements existing between himself and the company or any of its agents relating to this insurance. [Emphasis added.]

Klein argues that Utica Mutual seeks to reform the insurance contract and is barred by waiver and estoppel. We reject Klein's reformation argument for the simple reason that Utica Mutual does not ask that the contract be reformed. We conclude that Utica Mutual...