COURT OF APPEALS DECISION DATED AND FILED August 13, 2008 David R. Schanker Clerk of Court of Appeals |
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This opinion is subject to further editing. If published, the official version will appear in the bound volume of the Official Reports. A party may file with the Supreme Court a petition to review an adverse decision by the Court of Appeals. See Wis. Stat. § 808.10 and Rule 809.62. |
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APPEAL
from an order of the circuit court for
Before
¶1 NEUBAUER, J.
¶2 We conclude that Toldt Woods’ complaint, construed liberally
in favor of
BACKGROUND
¶3 Toldt Woods filed a complaint seeking a temporary injunction and
other relief for, among other things, damages allegedly caused by
¶4 Acuity filed a motion for leave to intervene, bifurcate and
stay proceedings. Acuity subsequently moved
for declaratory relief contending that it had no duty to defend or indemnify
¶5 The trial court held a hearing and found that “the property damage that is alleged in this complaint was actually caused by the negligent construction of the easement and the pond and thus the property damage … was not caused by an occurrence within the meaning of that term under Acuity’s policy.” The court agreed with Acuity that “the alleged property damage as stated in this complaint in fact is an anticipated consequence of alleged faulty workmanship.” The trial court additionally found that the trespass claim fell under the “intentional act” exclusion in Acuity’s policy.
¶6 The trial court found that Acuity had no duty to defend or
indemnify
DISCUSSION
¶7 Standard of Review. The issue on appeal is whether
Acuity has a duty to defend
¶8 In making this narrow inquiry, we bear in mind that the
complaint is construed liberally in favor of the insured and the insured is
entitled to the benefit of all reasonable inferences from the facts pled in the
complaint.
¶9 Toldt’s Complaint. The Toldt Woods complaint states three
claims: (1) breach of covenants and negligent construction practices; (2)
breach of covenants and negligent construction of a pond; and (3) trespass.
¶10 Relevant to the first claim, the complaint alleges:
¶11 The first claim additionally alleges that “[t]he construction
practices of …
¶12 Toldt Woods’ second claim complains of
¶13 The prayer for relief includes a request for a preliminary injunction and for compensatory and statutory damages.
¶14 Acuity’s Policy. Acuity issued a commercial general liability
(CGL) policy to
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies. We will have the right and duty to defend the insured against any suit seeking those damages. However, we will have no duty to defend the insured against any suit seeking damages for bodily injury or property damage to which this insurance does not apply….
b. This insurance applies to bodily injury and property damage only if:
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory[.]
¶15 Acuity’s CGL policy defines “occurrence” as: “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Property damage is defined as “[p]hysical injury to tangible property, including all resulting loss of use of that property,” and “[l]oss of use of tangible property that is not physically injured.”
¶16 Occurrence. The threshold question is whether Toldt
Woods’ complaint alleging damages from mud rivers flowing from the
¶17 Thus, in Kalchthaler, the court found that there
was a covered “occurrence” when the parties agreed that the subcontractor’s
work resulted in windows that leaked, causing water damage to the interior of a
residence.
The policy applies to property damage caused by an occurrence. Property damage, as defined by the policy, means physical injury to tangible property. Here, water entering leaky windows wrecked drapery and wallpaper. This is a physical injury to tangible property. An occurrence, as defined in the policy, is an accident. An accident is an “event or change occurring without intent or volition through carelessness, unawareness, ignorance, or a combination of causes producing an unfortunate result.” Webster’s Third New International Dictionary 11 (1993). Here, the parties have stipulated that fifty percent of the damages were due to [the subcontractors’] negligence. Furthermore, there is no question that an event occurred: the window leaks. This is an accident. So we have property damage caused by an occurrence and the policy applies.
¶18 In American Girl, the CGL policyholder, a general contractor,
hired a soil engineering subcontractor to analyze site soil conditions for
construction of a warehouse. American
Girl, 268
¶19 In Glendenning’s, a general contractor sought coverage under its
CGL policy for breach of contract and implied warranty claims arising out its
subcontractor’s alleged negligent improvements to a dairy facility.
¶20 The court determined that the claim of improperly installed rubber
mats, which were damaged by the scraper that cleaned manure from them, alleged
an “occurrence.”
¶21 Acuity contends that the allegations in Toldt Woods’ complaint
are limited to faulty workmanship and not an occurrence arising from faulty
workmanship. We reject Acuity’s
argument. We conclude that Toldt Woods’ allegations
of damage caused to the Toldt Woods’ property by the negligent erosion control
practices during construction of the
¶22 Acuity argues that the consequences (i.e., the mud rivers) caused
by
¶23 Exclusions. We next look to see if any exclusions apply;
exclusions are narrowly or strictly construed against the insurer and any
ambiguities are resolved in favor of coverage.
Smith v. Atlantic Mut. Ins. Co., 155
¶24 Acuity’s contractual liability exclusion precludes coverage for
“Bodily injury or property damage for which the insured is
obligated to pay damages by reason of the assumption of liability in a contract
or agreement.” Attached to Toldt Woods’
complaint is the Storm Water Drainage Easement and Agreement that
¶25 Madeline Square contends that the contractual liability
exclusion does not preclude a defense because Toldt Woods’ “claims for damages
resulting from the overflow of water, mud and sediment onto the Toldt Woods
property do not relate to the storm water pond, but instead relate to the
alleged failures on the part of Madeline Square … during the course of
construction of Madeline’s condominium project.” We agree with
¶26 Acuity also relies on the “damage to property” exclusion to
preclude coverage. The damage to property exclusion
excludes coverage for “[t]hat particular part of real property on which you or
any contractors or sub-contractors working directly or indirectly on your
behalf are performing operations, if the property
damage arises out of those operations; …”
Here, Madeline Square is claiming coverage for damages on Toldt Woods’
property which arose out of the condominium construction on Madeline Square’s
property. The allegations are not
limited to property on which
¶27 Lastly, Acuity relies on the “damage to your product” exclusion to preclude coverage. The damage to your product exclusion excludes coverage for “[p]roperty damage to your product arising out of it or any part of it.” “Your product” is defined as “[a]ny goods or products other than real property, manufactured, sold, handled, distributed or disposed of by” Madeline Square. The damage to your product exclusion is not applicable to this third-party property damage claim, as it falls under the exception for real property.
¶28 None of the business risk exclusions apply to Toldt Woods’ claims pertaining to the condominium construction activities. We therefore reject Acuity’s argument that the duty to defend is precluded by its policy exclusions.
¶29 Request for Relief. Acuity also contends that Toldt Woods’
“request for injunctive/equitable relief does not constitute damages in the
context of the policy.” In support,
Acuity points to Toldt Woods’ request for an order enjoining and restraining
¶30 However, Acuity inexplicably fails to address Toldt Woods’ allegations of damages in its complaint, allegations of past wrongs and injuries, and the additional request for “compensatory and statutory damages in an amount to be determined at trial.” Toldt Woods sufficiently alleges “damages” under the Acuity policy. We therefore reject Acuity’s argument.
CONCLUSION
¶31 We conclude that Toldt Woods’ complaint alleges a claim for
“property damage” arising out of an “occurrence” for which there is a
possibility of recovery under Acuity’s policy.
We further conclude Acuity’s policy exclusions do not preclude the
potential coverage for this claim and that the damages alleged in the complaint
fall under the scope of the policy. As
such, Acuity owes a duty to defend to
By the Court.—Order reversed and cause remanded with directions.
Not recommended for publication in the official reports.
[1] The
policies in Glendenning’s Limestone & Ready-Mix Co. v. Reimer, 2006 WI
App 161, ¶21, 295 Wis. 2d 556, 721 N.W.2d 704, American Family Mutual Insurance
Co. v. American Girl, Inc., 2004 WI 2, ¶37, 268
[2] In
both its appellate and circuit court briefs, Acuity acknowledges that Toldt
Woods’ complaint alleges property damage.
Acuity points to allegations in the complaint relating to the negligent
construction practices resulting in the “transport of sediment” and “property
damage to the pond and paths for calculated overland water flow.” Therefore, while at the oral argument the
issue of whether the complaint had sufficiently alleged property damage was
raised, Acuity’s briefing reveals that it did.
See Midway Motor Lodge v. Hartford
Ins. Group, 226
[3] The duty to
defend is broader than the duty to indemnify because “the duty to defend arises
from allegations contained in the complaint, whereas the duty to indemnify is
supported by fully developed facts.” Acuity
v. Bagadia, 2008 WI 62, ¶52 (citing Fireman’s Fund Ins. Co. v.
Bradley Corp., 2003 WI 33, ¶¶19-20, 261
[4]
We do
not examine the other claims because there is one theory of liability which
falls within the policy’s coverage, and as such, the insurer has a duty to
defend the entire lawsuit. Bradley Corp. v. Zurich Ins. Co.,
984 F. Supp. 1193, 1198 (E.D. Wis. 1997).
[5] While
the parties did not brief the issue, or discuss the exclusion in full, we also
question whether Acuity’s application of the exclusion to this indemnity is
inconsistent with American Girl. In that
case the supreme court explained that contractually assumed liability
exclusions do not apply to all liability arising out of a contract. The relevant distinction “is between
incurring liability as a result of a breach of contract and specifically
contracting to assume liability for another’s negligence.” American Girl, 268