Michael D. Phillips v. Daniel G. Parmelee ( 2013 )

2013 WI 105
SUPREME COURT OF WISCONSIN
CASE NO.: 2011AP2608
COMPLETE TITLE: Michael D. Phillips, Perry A. Petta and Walkers
Point
Marble Arcade, Inc.,
Plaintiffs-Appellants-Petitioners,
v.
Daniel G. Parmelee and Aquila Group, LLC,
Defendants,
American Family Mutual Insurance Company,
Intervening Defendant-Respondent.
REVIEW OF A DECISION OF THE COURT OF APPEALS
Reported at 345 Wis. 2d 714, 826 N.W.2d 686
(Ct. App. 2012 – Published)
PDC No.: 2013 WI App 5
OPINION FILED: December 27, 2013
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: October 23, 2013
SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Milwaukee
JUDGE: Timothy M. Witkowiak
JUSTICES:
CONCURRED:
DISSENTED:
NOT PARTICIPATING: PROSSER, J., did not participate.
ATTORNEYS:
For the plaintiffs-appellants-petitioners, there were
briefs by Christopher L. Strohbehn, Jason D. Luczak, and Gimbel,
Reilly, Guerin & Brown LLP, Milwaukee, and oral argument by
Christopher L. Strohbehn.
For the intervening defendant-respondent, there was a brief
by Wayne M. Yankala and Mingo & Yankala, S.C., Milwaukee, and
oral argument by Mark Mingo.
2013 WI 105
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2011AP2608
(L.C. No. 2010CV19544)
STATE OF WISCONSIN : IN SUPREME COURT
Michael D. Phillips, Perry A. Petta and Walkers
Point Marble Arcade, Inc.,
Plaintiffs-Appellants-Petitioners,
v. FILED
Daniel G. Parmelee and Aquila Group, LLC,
DEC 27, 2013
Defendants,
Diane M. Fremgen
Clerk of Supreme Court
American Family Mutual Insurance Company,
Intervening Defendant-Respondent.
REVIEW of a decision of the Court of Appeals. Affirmed.
¶1 SHIRLEY S. ABRAHAMSON, C.J. This is a review of a
published decision of the court of appeals affirming an order of
the circuit court for Milwaukee County, Timothy M. Witkowiak,
Judge.1 The circuit court granted American Family Mutual
Insurance Company's motion to intervene and to bifurcate the
1
Phillips v. Parmelee, 2013 WI App 5, 345 Wis. 2d 714, 826
N.W.2d 686.
No. 2011AP2608
proceedings on insurance coverage issues from proceedings on
liability and damages. The circuit court then granted
intervenor American Family's motion for declaratory and summary
judgment. The circuit court held that American Family had no
duty to defend or indemnify Daniel G. Parmelee or Aquila Group,
LLC, referred to collectively as the defendant-sellers, with
respect to claims asserted by Michael D. Phillips, Perry A.
Petta and Walkers Point Marble Arcade, Inc., referred to
collectively as the plaintiff-buyers of the defendant-sellers'
real estate.2
¶2 The circuit court held that the asbestos exclusion in
the American Family policy precluded coverage.
¶3 The court of appeals affirmed the order of the circuit
court in favor of American Family, stating that the policy
precludes coverage.
¶4 We affirm the decision of the court of appeals.
¶5 In the circuit court and court of appeals proceedings,
American Family argued that there was no initial grant of
coverage under the policy. The issue of coverage is not before
us. The only issue presented is whether the asbestos exclusion
in the American Family Business Owners policy issued to the
defendant-sellers precludes coverage for the losses that the
plaintiff-buyers claim.
2
Aquila Group purchased the building in April 2006.
Parmelee is the sole member of Aquila Group, a Wisconsin Limited
Liability Company. In September 2006, Aquila Group sold the
property to Walkers Point. Petta and Phillips own Walkers
Point.
2
No. 2011AP2608
I
¶6 The essential facts for purposes of this review are
undisputed.
¶7 Prior to purchasing an apartment building, Aquila
Group had the building inspected. The inspection report
indicated that the building's heating supply ducts likely
contained asbestos. Aquila Group obtained a Business Owners
policy from American Family, insuring the building. Aquila
Group listed the property for sale.
¶8 In preparation for the sale of the building, Parmelee
completed and signed a Real Estate Condition Report. The Report
contained a statement that the defendant-sellers were not "aware
of the presence of asbestos or asbestos-containing materials on
the premises."
¶9 After the plaintiff-buyers purchased the building,
their contractor cut through asbestos-wrapped ducts, dispersing
asbestos throughout the building. The plaintiff-buyers
initiated an action against the defendant-sellers, claiming
breach of contract/warranty, violation of Wis. Stat. §§ 895.446
and 943.20, and negligence in failing to adequately disclose
defective conditions including asbestos. The plaintiff-buyers
claim that the dispersal of asbestos rendered the building
uninhabitable, that the tenants were ordered to vacate, that the
plaintiff-buyers could not continue to finance the property, and
that the building was lost in foreclosure.
II
3
No. 2011AP2608
¶10 This case requires us to interpret the American Family
insurance policy.
¶11 The interpretation of an insurance policy is a
question of law that this court decides independently of the
circuit court or court of appeals, but benefiting from their
analysis. Bethke v. Auto-Owners Insurance Co., 2013 WI 16, ¶17,
345 Wis. 2d 533, 825 N.W.2d 482; Wadzinski v. Auto-Owners Ins.
Co., 2012 WI 75, ¶10, 342 Wis. 2d 311, 818 N.W.2d 819.
¶12 Our goal in interpreting an insurance policy is to
give effect to the intent of the parties.3 The intent of the
parties to an insurance policy is presumed to be expressed in
the language of the policy.4 We interpret the policy's language
according to its plain and ordinary meaning, as understood by a
reasonable person in the position of the insured.5
¶13 When determining whether an insurance policy provides
coverage, we look first to the initial grant of coverage.6 If
there is an initial grant of coverage, we then evaluate whether
3
Hirschhorn v. Auto-Owners Ins. Co., 2012 WI 20, ¶22, 338
Wis. 2d 761, 809 N.W.2d 529; Estate of Sustache v. Am. Family
Mut. Ins. Co., 2008 WI 87, ¶19, 311 Wis. 2d 548, 751 N.W.2d 845.
4
Wadzinski v. Auto-Owners Ins. Co., 2012 WI 75, ¶11, 342
Wis. 2d 311, 818 N.W.2d 819.
5
Hirschhorn, 338 Wis. 2d 761, ¶22; Estate of Sustache, 311
Wis. 2d 548, ¶19.
See also 1 Arnold P. Anderson, Wisconsin Insurance Law
§ 1.27 (6th ed. 2013) ("The standard is what a reasonable person
or lay person would understand the insurance policy to state.").
6
Schinner v. Gundrum, 2013 WI 71, ¶37, 349 Wis. 2d 529, 833
N.W.2d 685.
4
No. 2011AP2608
the policy's exclusions preclude coverage.7 Finally, if coverage
has been withdrawn by an exclusion, we then examine whether an
exception to that exclusion reinstates coverage.8
¶14 The instant case does not involve the question of the
initial grant of coverage. Our review is focused only on
interpreting the asbestos exclusion to determine whether it
precludes coverage. No other exclusion is before us. No
exceptions to the asbestos exclusion are involved.
¶15 A reasonable insured is presumed to understand that an
exclusion in a policy limits coverage.9 If the effect of an
exclusion is uncertain, it will be construed in favor of
coverage. Day v. Allstate Indemnity Co., 2011 WI 24, ¶29, 332
Wis. 2d 571, 798 N.W.2d 199. Language in an insurance policy is
narrowly construed against the insurer "if it is susceptible to
more than one reasonable interpretation." Folkman v. Quamme,
2003 WI 116, ¶13, 264 Wis. 2d 617, 665 N.W.2d 857. The rule of
narrow construction of an exclusion against the insurer,
however, "is not applicable if the policy is unambiguous."
Whirlpool Corp. v. Ziebert, 197 Wis. 2d 144, 152, 539 N.W.2d 883
(1995).
¶16 We review a grant of summary judgment de novo, using
the same methodology as the circuit court. Estate of Sustache
7
Schinner, 349 Wis. 2d 529, ¶37.
8
Id.
9
Bulen v. West Bend Mut. Ins. Co., 125 Wis. 2d 259, 263,
371 N.W.2d 392 (Ct. App. 1985).
5
No. 2011AP2608
v. Am. Family Mut. Ins. Co., 2008 WI 87, ¶17, 311 Wis. 2d 548,
751 N.W.2d 845. Summary judgment is proper when the record
demonstrates that there is no genuine issue of any material fact
and that the moving party is entitled to judgment as a matter of
law. Wis. Stat. § 802.08(2); Estate of Sustache, 311 Wis. 2d
548, ¶17.
III
¶17 In the present review, we are asked to determine
whether the asbestos exclusion clause in American Family's
insurance policy precludes coverage for the claims made by the
plaintiff-buyers.
¶18 The asbestos exclusion provisions read as follows:
This insurance does not apply to . . . "property
damage" . . . with respect to:
a. Any loss arising out of, resulting from, caused
by, or contributed to in whole or in part by
asbestos, exposure to asbestos, or the use of
asbestos. "Property damage" also includes any claim
for reduction in value of real estate or personal
property due to its contamination with asbestos in
any form at any time.
b. Any loss, cost, or expense arising out of or in
any way related to any request, demand, order, or
statutory or regulatory requirement that any insured
or others identify, sample, test for, detect,
monitor, clean up, remove, contain, treat, detoxify,
neutralize, abate, dispose of, mitigate, destroy, or
any way respond to or assess the presence of, or the
effects of, asbestos.
. . . .
f. Any supervision, instructions, recommendations,
warnings or advice given or which should have been
given in connection with any of the paragraphs
above.
6
No. 2011AP2608
g. Any obligation to share damages or repay someone
in connection with any of the paragraphs above.
¶19 We examine each of the plaintiff-buyers' arguments in
turn.
¶20 The plaintiff-buyers assert that the asbestos
exclusion is ambiguous; American Family asserts it is not. The
plaintiff-buyers contend that because asbestos has a variety of
forms and meanings and that because the word "asbestos" is
undefined in the policy, the exclusion is ambiguous. We are not
persuaded.
¶21 In the absence of other language in the policy, and
there is none, a reasonable person in the position of the
insured would not interpret the word "asbestos" to limit the
clause to certain types of asbestos. To a reasonable insured
reading this policy, asbestos in any form is asbestos.
¶22 The plaintiff-buyers assert that the broad language of
the asbestos exclusion invites multiple reasonable
interpretations and should be narrowly construed against
American Family.10
¶23 The opening sentence of the exclusion informs the
insured that it excludes coverage for "any loss arising out of"
exposure to or the use of asbestos. We agree with the
plaintiff-buyers that the words "arising out of" in the
10
"Language in an insurance policy is ambiguous 'if it is
susceptible to more than one reasonable interpretation.'" State
Farm Mut. Auto. Ins. Co. v. Langridge, 2004 WI 113, ¶15, 275
Wis. 2d 35, 683 N.W.2d 75 (emphasis in original; citations
omitted).
7
No. 2011AP2608
exclusion are very broad, general, and comprehensive. But they
do have meaning and there are limits.11
¶24 The words "arising out of" used in an automobile
liability insurance policy "are commonly understood to mean
originating from, growing out of, or flowing from, and require
that there be some causal relationship between the injury and
the risk for which coverage is provided."12
¶25 The plaintiff-buyers maintain that there is a causal
nexus requirement in the American Family policy's asbestos
exclusion, and that this causal nexus should not be read out of
the exclusion. We agree with the plaintiff-buyers that the
wording of the exclusion indicates a causal relationship between
the loss and the asbestos. The exclusion applies to loss
"arising out of, resulting from, caused by, or contributed to in
whole or in part by asbestos" (emphasis added). Explicit in all
of those terms is the requirement of some type of causal
11
The plaintiff-buyers assert that a broad reading of the
asbestos exclusion excluding any loss caused "in whole or in
part" by asbestos would potentially permit the mere presence of
asbestos to preclude coverage of a loss caused by a source other
than asbestos, such as flood, fire, or wind. We do not address
this hypothetical. The loss in the instant case arose "in whole"
out of asbestos.
12
Lawver v. Boling, 71 Wis. 2d 408, 415, 238 N.W.2d 514
(1976). See also Garriguenc v. Love, 67 Wis. 2d 130, 137, 226
N.W.2d 414 (1975).
8
No. 2011AP2608
relationship between asbestos and the loss.13 In the present
case, a causal nexus exists between the loss claimed and the
asbestos; the loss here arose out of the dispersal of asbestos
throughout the building.
¶26 The plaintiff-buyers point out that because the
exclusion does not explicitly state that it applies to losses
that arise out of the "dispersal" or "presence" of asbestos, the
exclusion should not be interpreted as applying to the instant
case in which there was the mere presence of asbestos and the
accidental dispersal of asbestos.
¶27 The plaintiff-buyers insist that a more reasonable
interpretation of the asbestos exclusion in the American Family
policy is to limit the exclusion to loss caused by "exposure to"
or "use of" asbestos. For support of this argument, the
plaintiff-buyers rely on Great American Restoration Services.,
Inc. v. Scottsdale Insurance Co., 78 A.D.3d 773 (N.Y. App. Div.
2010), a New York case.
¶28 In Great American, as in the instant case, a
contractor caused the accidental dispersal of asbestos
throughout a building. But we agree with the circuit court and
court of appeals that Great American is not persuasive
13
See, e.g., Lawver, 71 Wis. 2d at 415 (noting that the
words "arising out of" require "some causal relationship between
the injury and the risk for which coverage is provided,"
although the causal connection in an automobile liability
insurance policy between the use of the car and the injuries is
not of the type "which would ordinarily be necessary to warrant
a finding of 'proximate cause' or 'substantial factor' as those
terms are used in imposing liability for negligent conduct.").
9
No. 2011AP2608
authority. The exclusion provision in Great American differs
significantly from the exclusion provision in the present case.
¶29 The asbestos exclusion at issue in Great American
enumerated asbestos-related bodily injury and property damage,
which were excluded from coverage as follows:
[T]hat coverage does not apply to "bodily injury" or
"property damage" arising out of the inhal[ation]" or
"prolonged physical exposure to" asbestos, the "use"
of asbestos in construction, the "removal" of asbestos
from products or structures, or the "manufacture,
sale, transportation, storage, or disposal" of
asbestos or products containing asbestos.14
¶30 Because the exclusion clause in Great American failed
to state that "coverage will not be provided for damages arising
out of the unknowing or accidental release or dispersal of
asbestos," the New York Court of Appeals construed the exclusion
in favor of the insured. Great American, 78 A.D.3d at 777.
¶31 The exclusion provision in Great American is crucially
different from the exclusion provision in the instant case.
Unlike the exclusion in Great American, American Family's
asbestos exclusion is written in broad, comprehensive language
including a wider range of asbestos-related losses than the
exclusion in Great American.
¶32 The plaintiff-buyers assert, among other claims, that
they never would have bought the property and suffered the loss
but for the defendant-sellers' negligent failure to disclose the
possibility of asbestos. They contend that the defendant-
14
Great Am. Restoration Servs., Inc. v. Scottsdale Ins.
Co., 78 A.D.3d 773, 775 (N.Y. App. Div. 2010).
10
No. 2011AP2608
sellers' negligent failure to disclose the presence of asbestos
is not covered by the asbestos exclusion and that there is no
causal nexus between their loss and the tort.
¶33 Yet, the scope of the asbestos exclusion does not
depend on the type of tort from which the loss arose; the
exclusion's language concerns the loss itself arising out of
asbestos. Our analysis focuses on whether the loss suffered by
the plaintiff-buyers is within the text of the asbestos
exclusion and thus reasonably contemplated by the parties.
¶34 The plaintiff-buyers also assert that the defendant-
sellers negligently failed to disclose defective conditions or
any other toxic or hazardous substances contained on the
property that are outside the scope of the asbestos exclusion
and are covered under the insurance policy. Although the
plaintiff-buyers had complaints regarding electrical and
plumbing issues, nothing in the record demonstrates that the
plaintiff-buyers sustained any loss related to such other
issues. Their loss arose from asbestos.
¶35 In sum, we are persuaded that a reasonable insured
would interpret the asbestos exclusion in American Family's
policy to preclude the loss alleged by the plaintiff-buyers.15
¶36 For the foregoing reasons, we affirm the decision of
the court of appeals.
15
Because the asbestos exclusion precludes coverage of the
claims made by the plaintiff-buyers, we need not evaluate
whether any other exclusions in the policy apply.
11
No. 2011AP2608
¶37 By the Court.——The decision of the court of appeals is
affirmed.
¶38 DAVID T. PROSSER, J., did not participate.
12
No. 2011AP2608
1