Rich Products Corp v. Zurich American ( 2002 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 01-3501
RICH PRODUCTS CORPORATION,
Plaintiff-Appellant,
v.
ZURICH AMERICAN INSURANCE COMPANY,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 95 C 968—Rudolph T. Randa, Judge.
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ARGUED MARCH 1, 2002—DECIDED JUNE 12, 2002
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Before FLAUM, Chief Judge, BAUER, and HARLINGTON
WOOD, JR., Circuit Judges.
HARLINGTON WOOD, JR., Circuit Judge. This case has
been here before. See Rich Products Corp. v. Kemutec, Inc.,
241 F.3d 915 (7th Cir. 2001). The first time the district
court on cross motions for summary judgment had partially
decided the case by granting in part and denying in part
some of each motion. The district court also granted Rich
Products Corporation’s (“RPC”) motion for leave to as-
sert claims against Zurich American Insurance Company
(“Zurich”), as the insurer of Kemutec, Inc., the distributor
who sold RPC the defective machinery, pursuant to WIS.
2 No. 01-3501
STAT. §§ 632.24 and 803.04(2)(a), which allow a direct ac-
tion against insurers for damages caused by negligence. The
case was certified to us under Fed. R. Civ. P. 54(b). The dis-
trict court then dismissed RPC’s tort claims leaving only
RPC’s breach of express and implied warranties claims in
the district court. As Wisconsin law must be applied, we
relied on the Wisconsin Economic Loss Doctrine explained
by the Wisconsin Supreme Court in Daanen & Janssen, Inc.
v. Cedarapids, Inc., 573 N.W.2d 842 (Wis. 1998), and af-
firmed, leaving only RPC’s warranty claims to be resolved
in the district court.
Since that time there has been additional activity in the
district court on motions by Zurich which thereafter re-
sulted in the dismissal of various counts against Zurich.
The district court further made it clear that “if Kemutec
is to be held liable at all, it is for breach of implied warran-
ties . . . .” In the present successive appeal, RPC concedes
that it now has only its warranty claims left. Kemutec
maintains it has no insurance coverage to satisfy RPC’s
warranty claims, is insolvent, and intends to file bank-
ruptcy if RPC pursues its warranty claims. All of this is
unfair, RPC asserts.
This opinion will answer these concerns.
ANALYSIS
We will take each of the issues separately as stated by
RPC.
Issue No. 1:
Do WIS. STAT. §§ 632.24 and 803.04(2)(a), which allow
a direct action against insurers for damages caused
by negligence, allow a direct action to proceed where
the formal negligence claims have been dismissed,
No. 01-3501 3
but the property damage suffered by RPC was caused
by negligence and the remaining warranty claims are
based on that negligence?
The Wisconsin statutes cited by plaintiff do not favor the
result plaintiff urges in a direct action against Zurich. The
relevant portion of WIS. STAT. § 803.04(2)(a) provides, “(2)
Negligence actions: insurers. (a) In any action for damages
caused by negligence, any insurer . . . is by this section
made a proper party defendant in any action brought by
plaintiff in this state on account of any claim against the
insured.” (Emphasis added.)
This statute, as it is captioned, is a negligence section
applicable to insurers which permits insurers to be joined
in a case where a claim is alleged against the insured, but
the section unambiguously is limited to damage claims
caused by negligence. Implied warranty claims, as this case
involves, do not constitute a negligence action for damages.
In Wisconsin, warranty claims and negligence claims are
not to be intertwined as RPC urges. See Sunnyslope Grad-
ing, Inc. v. Miller, Bradford & Risberg, Inc., 437 N.W.2d
213, 215-18 (Wis. 1989) (discussing breach of warranty, neg-
ligence, and the economic loss doctrine). Our case, United
States v. Ettrick Wood Products, Inc., 916 F.2d 1211 (7th
Cir. 1990), cited by RPC, is not apropos as it raised a Rule
54(b) issue. Our task is to follow the Wisconsin statutes, not
to try to judicially amend them. See DNR v. Wisconsin
Power & Light Co., 321 N.W.2d 286, 288 (Wis. 1982).
RPC also cites Shade Foods, Inc. v. Innovative Products
Sales & Marketing, Inc., 93 Cal. Rptr. 2d 364, 379 (Cal. Ct.
App. 2000), to support its theory that the absence of a
negligence claim against the insurer is not fatal to recovery
where there is a warranty claim. Although there are some
factual similarities, California does not have direct action
statutes as does Wisconsin which limit the available rem-
edies.
4 No. 01-3501
Issue No. 2:
Did the district court’s dismissal of RPC’s direct ac-
tion against Zurich violate the purpose and intent of
Wisconsin’s direct action statutes?
RPC asserts that the district court’s dismissal of the di-
rect action against Zurich violates the purpose and intent
of the direct action statutes. It would, in our view, violate
the purpose and intent of Wisconsin’s direct action statutes
to hold as RPC urges. The Wisconsin statutes do not permit
such interpretation even to avoid duplicative litigation,
preserve judicial resources, reduce the expenses of the par-
ties, or to reach a quicker resolution. Those are worthy ob-
jectives, but those same objectives can be accomplished by
understanding and following the Wisconsin statutes. In any
event, that is an argument for the Wisconsin courts, not for
this court.
Issue No. 3:
Did the district court err in concluding that Zurich
was not required to plead any alleged limitations of
the direct action statute as an affirmative defense?
RPC cites several Wisconsin cases but no Wisconsin case
is cited which holds that the application of the Wisconsin
direct action statute is waived as an affirmative defense if
not raised affirmatively to each claim pled. Zurich pled the
Wisconsin direct action statute only as it related to RPC’s
misrepresentation claims. However, that was enough. All
parties were on notice from the pleadings as to what this
lawsuit involved. No party was prejudiced by any lack of
additional pleadings.
Zurich could rely on the Wisconsin statute without plead-
ing the limitation of the Wisconsin statute as an affirmative
defense to the breach of implied warranty claim. We see no
waiver by Zurich in not pleading the Wisconsin statute as
No. 01-3501 5
an affirmative defense to each and every claim made by
RPC.
Issue No. 4:
Did the district court err in holding that pleading an
affirmative defense of “failure to state a claim” is
tantamount to pleading specific limitations of Wis-
consin’s direct action statute as an affirmative de-
fense?
We see no error in the district court’s ruling that Zurich’s
pleading “failure to state a claim” made it unnecessary for
Zurich to further specifically plead Wisconsin’s direct action
statute as an affirmative defense. In the circumstances of
this case, it would have eliminated this issue from this
appeal had it been more specifically pled, but we view that
as mere surplusage when the same defense is raised in a
motion to dismiss. See Blaney v. United States, 34 F.3d 509,
512 (7th Cir. 1994).
CONCLUSION
Pleadings in some circumstances can be critical, but not
in the particular circumstances of this case. RPC’s appellate
lawyers have done everything reasonably possible to re-
cover from RPC’s failure to have its lawyers assist with
the original transaction. RPC failed to seek any warranty
whatsoever to cover the problems which developed with
Kemutec’s machines. Zurich is not liable for RPC’s own
failures in the original transaction.
AFFIRMED.
6 No. 01-3501
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-97-C-006—6-12-02