COURT OF
APPEALS DECISION DATED AND
RELEASED May
9, 1996 |
NOTICE |
A party may file with the Supreme Court a petition to review an
adverse decision by the Court of Appeals.
See § 808.10 and Rule
809.62, Stats. |
This opinion is subject to further editing. If published, the official version will appear in the bound
volume of the Official Reports. |
No. 95-1065
STATE OF WISCONSIN IN
COURT OF APPEALS
DISTRICT IV
MICHAEL
P. NORKS,
Plaintiff,
v.
AMERICAN
FAMILY MUTUAL INSURANCE COMPANY,
Defendant,
ALLAN
J. DALLMAN AND LINDA M. DALLMAN,
Defendant-Third Party Plaintiff-Appellant,
HARTLAND
CICERO MUTUAL INSURANCE COMPANY,
Third Party Defendant-Respondent,
STETTIN
MUTUAL INSURANCE COMPANY,
Third Party Defendant.
APPEAL
from a judgment of the circuit court for Clark County: MICHAEL W.
BRENNAN, Judge. Affirmed in part;
reversed in part and cause remanded with directions.
Before
Gartzke, P.J., Dykman and Vergeront, JJ.
DYKMAN,
J. Allan J. and Linda M. Dallman
appeal from a judgment dismissing their third-party action for insurance
coverage against Hartland Cicero Mutual Insurance Company. The Dallmans were sued by Michael P. Norks
after a manure pit collapsed on a farm they sold to him. The trial court concluded that a pollution
exclusion in the Hartland policy precluded coverage.
The
issues presented are: (1) whether
Hartland's policy provides coverage for losses which are caused by occurrences
which take place before the policy's inception; (2) whether Norks suffered
property damage within the meaning of the policy; and (3) whether coverage
is excluded by the pollution exclusion or other provisions in the policy. We conclude that: (1) the policy provides coverage for losses which are caused
by occurrences which predate the policy period; (2) Norks suffered
property damage within the meaning of the policy; and (3) only the
pollution exclusion excludes some, but not all, of the damages alleged by
Norks.
BACKGROUND
In
1982, Allan J. and Linda M. Dallman constructed a manure pit on a dairy farm
they had owned since 1971. They
installed a gravity flow drainage system whereby a large pipe was placed in the
bottom of the pit leading out to another part of the farm. A steel plate with a cable attached to it
covered the pipe in the pit. When the
pit grew full, someone would pull the cable and the manure would empty out of
the pit through the pipe. The gravity flow
system, however, never worked properly but instead of removing the drainage
pipe, the Dallmans removed the cable from the steel plate and blocked off the
drainage pipe at the other end with soil so that it was no longer visible. From then on, they used a mechanical pump to
drain the pit.
The
Dallmans used the manure pit without incident between 1982 and 1989. In 1989, they sold the farm to Michael P.
Norks. During the sale to Norks, they
did not discuss the existence of the drainage pipe.
In
May 1992, the manure pit ruptured and manure drained out of the pit onto the
surrounding land and streams. Norks
filed suit against the Dallmans, alleging that during the sale, they
negligently or intentionally failed to disclose a material concealed defect or
condition which caused damage to his property.
He also alleged that the Dallmans negligently designed, constructed and
maintained the manure pit. He asked for
damages covering the costs of cleaning up the manure, the structural damage to
the manure pit and bringing the pit up to code.
At
the time the Dallmans sold the farm to Norks, they owned a farmowner's
insurance policy issued by Stettin Mutual Insurance Company. After the sale and when the manure pit
ruptured, the Dallmans owned a farmowner's policy issued by Hartland Cicero
Mutual Insurance Company. The Dallmans
tendered defense of the action to both Stettin and Hartland, but both companies
refused to defend them.
The
Dallmans filed third-party actions against Hartland and Stettin, arguing their
policies covered the liability and that they had a duty to defend. Hartland and Stettin denied that their
policies entitled the Dallmans to a defense or indemnification. Hartland and Stettin moved to bifurcate the
trial and to have the coverage issue litigated before liability and damages
were established. On Hartland's and
Stettin's summary judgment motion, the trial court dismissed Stettin and
concluded that Hartland's pollution exclusion applied but that it did not
exclude all of the damages. Hartland
moved for reconsideration and, after a hearing and additional briefing, the
court reversed itself and concluded that Hartland's pollution exclusion applied
to prevent coverage for all of the alleged damages. The Dallmans appeal.
STANDARD OF REVIEW
An
appeal from a grant of summary judgment raises an issue of law which we review de
novo by applying the same standards employed by the trial court. Brownelli v. McCaughtry, 182
Wis.2d 367, 372, 514 N.W.2d 48, 49 (Ct. App. 1994). We first examine the complaint to determine whether it states a
claim, and then the answer to determine whether it presents a material issue of
fact. Id. If they do, we then examine the moving
party's affidavits and other supporting documents to determine whether that party
has established a prima facie case for summary judgment. Id. If it has, we then look to the opposing party's affidavits and
other supporting documents to determine whether there are any material facts in
dispute which would entitle the opposing party to a trial. Id. at 372-73, 514 N.W.2d at
49-50.
The
interpretation of an insurance contract is a question of law which we review de
novo. Katze v. Randolph &
Scott Mut. Fire Ins. Co., 116 Wis.2d 206, 212, 341 N.W.2d 689, 691
(1984). The object of contract
construction is to determine the intent of the contracting parties, and we
begin by looking to the language used by the parties to express their
agreement. Bank of Barron v.
Gieseke, 169 Wis.2d 437, 455, 485 N.W.2d 426, 432 (Ct. App. 1992). Our duty is to give the policy language its
plain meaning and determine what a reasonable person in the position of the
insured would have understood the words to mean. Garriguenc v. Love, 67 Wis.2d 130, 134-35, 226
N.W.2d 414, 417 (1975). When the
language is unambiguous, we construe the contract as it stands. Yee v. Giuffre, 176 Wis.2d
189, 192-93, 499 N.W.2d 926, 927 (Ct. App. 1993). Contractual language is ambiguous only when it is reasonably
susceptible of more than one construction.
Id. at 193, 499 N.W.2d at 927. Whether a contract is ambiguous is itself a question of law. Borchardt v. Wilk, 156 Wis.2d
420, 427, 456 N.W.2d 653, 656 (Ct. App. 1990).
OCCURRENCE
To
determine whether Hartland's policy provides coverage, we must first determine
whether the policy requires that the occurrence which caused the alleged losses
had to take place after the policy's inception.[1] The introduction of Hartland's policy states
that the parties agreed to the following:
"This policy, subject to all of its terms,
provides: insurance against loss to
property, personal liability insurance and other described coverages during the
policy period in return for payment of the required premium." The general grant of liability insurance
provides the following:
Coverage L - Personal Liability
We pay, up to our
limit of liability, all sums for which any insured is legally
liable because of bodily injury or property damage
caused by an occurrence to which this coverage applies.
We will defend any suit seeking damages, provided the suit resulted from bodily
injury or property damage not excluded under this
coverage.
This first paragraph was later amended to read:
We pay, up to the
limit of our liability, on behalf of the insured, all sums which the insured
shall become legally obligated to pay as compensatory damage only because of
bodily injury or property damage, excluding all common law punitive, and
statutory multiple damages, caused by an occurrence to which this coverage
applies.
The policy defines an occurrence as "an accident,
including continuous or repeated exposure to substantially similar
conditions."
Hartland
contends that its policy only provides coverage when the event or occurrence
giving rise to the loss and the loss itself take place after the policy's
inception and that its policy was not in effect when the occurrences which
caused the losses in this case took place.
Hartland relies upon Fidelity & Deposit Co. v. Verzal,
121 Wis.2d 517, 530-31, 361 N.W.2d 290, 296 (Ct. App. 1984), in which we held
that under the terms of the policy in that case, both the event giving rise to
the losses and the losses themselves had to take place during the policy
period.
In
Fidelity, the insurer "agree[d] to indemnify the insured for
all sums which the insured shall be obligated to pay by reason of liability
imposed on the insured by law for loss on account of property damage `caused by
or arising out of each occurrence happening anywhere in the world during
the policy period.'" Id.
at 528, 361 N.W.2d at 295. The policy
defined an "occurrence" as:
an accident or a happening or event or a continuous or
repeated exposure to conditions which unexpectedly and unintentionally results
in personal injury, property damage, or advertising liability during the
policy period. All such exposure to
substantially the same general conditions existing at or emanating from one
premises or location shall be deemed one occurrence.
Id. (emphasis added). We concluded
that the use of the phrase "during the policy period" in both the
general grant of liability coverage and the definition of occurrence required
that both the event giving rise to liability and the resulting losses had to
take place during the policy period. Id.
at 529-30, 361 N.W.2d at 296. We
reasoned that the parties could not have reasonably expected the policy to
cover losses arising during the policy period as the fortuitous consequence of
negligence which occurred at some time before the policy's inception. Id. at 531, 361 N.W.2d at 296.
Hartland's
policy does not limit the definition of an occurrence temporally; it contains
broad coverage which includes all accidents and events which cause
damages. Unlike the policy in Fidelity,
the introduction of the policy indicates that the loss, not the occurrence,
must take place during the policy period.
It is undisputed that the Dallmans' alleged intentional or negligent
misrepresentations of the condition of the farm and the alleged negligent
design, installation and maintenance of the manure pit took place before its
policy took effect. It is also
undisputed that the losses occurred during the term of the policy. Thus, the policy specifically provides
coverage for the damages caused by these occurrences.
PROPERTY DAMAGE
Hartland
also asserts that Norks has not suffered property damage within the meaning of
the policy by the Dallmans' alleged breach of contract and intentional and
negligent misrepresentations. Property
damage is defined as "injury to or destruction of tangible property including
the loss of its use." Hartland
relies upon Benjamin v. Dohm, 189 Wis.2d 352, 362, 525 N.W.2d
371, 375 (Ct. App. 1994), in which we concluded that causes of action in
negligent and strict liability misrepresentation were demands for economic
loss, not property damage.
We
would agree with Hartland if that was Norks's only claim. Norks, however, has two distinct
claims. He has asked for damages he
incurred to cleanup the manure which escaped from the pit and for
structural damage to the pit itself. The
latter, he alleges, was caused by the Dallmans' negligent design, construction
and maintenance of the manure pit. This
is a common law negligence claim and it squarely falls within the property
damage definition as it is injury to or destruction of tangible property.
POLLUTION EXCLUSION
Having
concluded that Norks has alleged damages covered by the policy, we must next
determine whether any of the other provisions suggested by Hartland exclude
coverage. First, Hartland argues that
the pollution and waste material provision excludes coverage. Provisions of an insurance contract which
are intended to limit the insurer's liability are strongly construed against
the insurer. Tempelis v. Aetna
Casualty & Sur. Co., 169 Wis.2d 1, 9, 485 N.W.2d 217, 220
(1992). Ambiguities in the language are
resolved in favor of the insured. Id.
This
provision excludes coverage for "the discharge, dispersal, release or
escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids
or gases, waste materials or other irritants, contaminants or pollutants into
or upon land, the atmosphere or water course, body of water, bog, marsh, swamp
or wetland." The Dallmans argue
that "liquified manure" is not a liquid, waste material or pollutant
and, therefore, is not excluded by this provision. They argue that the term "waste material" is overly
broad and ambiguous because while the common sense use of the word would
include manure, it also has other meanings.
We disagree.
While
the term "waste material" may have more than one definition, that
fact, alone, does not render the term ambiguous if we conclude that only one
meaning applies in the context of the provision and comports with the parties'
reasonable expectations. Sprangers
v. Greatway Ins. Co., 182 Wis.2d 521, 537, 514 N.W.2d 1, 7 (1994). "A term is not ambiguous merely because
it is general enough to encompass more than one option. Broad terms may be used to permit flexibility
in the choice of methods available without creating an ambiguity." Mattheis v. Heritage Mut. Ins. Co.,
169 Wis.2d 716, 722, 487 N.W.2d 52, 54 (Ct. App. 1992) (citation omitted). In the context of this policy, we conclude
that a reasonable person in the Dallmans' position would have understood that
damages caused by "the discharge, dispersal, release or escape of ...
waste materials" would include cow manure which has leaked from a manure
pit onto the surrounding lands and streams.[2] Therefore, the environmental damage and
cleanup costs incurred by the leakage are excluded by this provision.
The
Dallmans next argue that even if this provision excludes coverage for the
cleanup of the leaked manure, it does not exclude coverage for the structural
damage to the manure pit. Hartland
argues, however, that the pollution exclusion is broad and excludes coverage
for all of the alleged damages. It
contends that this exclusion is similar to the one in American States
Ins. Co. v. Skrobis Painting & Decorating, Inc., 182 Wis.2d 445,
513 N.W.2d 695 (Ct. App. 1994), in which we concluded that an absolute
pollution exclusion precluded coverage for cleanup costs incurred regardless of
the theory of liability, when about 100 gallons of diesel fuel spilled out of a
tank and onto the ground.
In
American States, the policy excluded coverage for "`property
damage' arising out of the actual ... discharge, disbursal, release or escape
of pollutants." Id.
at 449, 513 N.W.2d at 696. The insured
argued for coverage because the damage was not caused by the "disbursal,
release or escape of pollutants," but from the negligent spilling of
diesel fuel. Id. at
452-53, 513 N.W.2d at 698. In rejecting
the insured's claim, we said:
There is a difference between theories of liability for
an occurrence and an occurrence itself.
Although the theory of liability asserted may change, the occurrence
that caused the injury will not. Here,
application of the absolute pollution exclusion does not depend on
"theories of liability" regarding whether, in some metaphysical
sense, the property damage was caused by initial negligence, subsequent
pollution, or both, but merely on the fact or "occurrence" of
property damage as a result of the pollution.
Id. at 453, 513 N.W.2d at 698.
In
this case, besides requesting damages for the cleanup of the manure, Norks has
asked for damages covering the structural damage to the manure pit caused by
the Dallmans alleged negligent construction, design and maintenance of the
pit. Hartland confuses the existence of
multiple types of damages which is at issue in this case, with the issue in American
States which dealt with multiple theories of liability for one type of
damage. In American States,
the only damages at issue were expenses incurred from the government's request
to cleanup the spilled diesel fuel. Id.
at 449, 513 N.W.2d at 696-97. We
conclude that Hartland's policy provides coverage because there are damages,
aside from those incurred for cleaning up the manure, which do not fall under
the pollution exclusion.
OTHER
OWNED PREMISES EXCLUSION
Hartland
also argues that the policy provides no coverage for personal liability
"resulting from premises owned, rented or controlled by an insured
other than the insured premises." It asserts that this provision means that its policy only covers
property for which the Dallmans purchased the policy and presently own. In other words, it does not cover losses
which occur on uninsured lands. We
disagree.
The
plain language of this exclusion applies to insureds who own, rent or control
other property besides the covered property.
It does not apply to this situation because the Dallmans do not
presently own, control or rent Norks's property. At the very least, the exclusion is ambiguous because it could
refer to premises that the insureds presently own or other premises owned by
the insureds at any time. We must
construe ambiguous provisions designed to limit coverage against the
insurer. Tempelis, 169
Wis.2d at 9, 485 N.W.2d at 220.
Consequently, we conclude that coverage is not excluded by the
provision.
BUSINESS EXCLUSION
Hartland next asserts
that the alleged damages are excluded by a business exclusion which provides
that the policy does not apply to liability which arises "from activities
in connection with an insured's business, except as provided
under Incidental Liability and Medical Payments Coverages." It contends that between 1971 and 1981, the
Dallmans were engaged in farming and that the design, construction and
maintenance of the manure pit was incidental to the farming business. We disagree.
First,
by the very terms of the policy, coverage is not excluded by this
provision. The policy defines
"business" as "a trade, profession or occupation including
rental of property to others all whether full or part time. Business does not include farming." Farming is defined as "the ownership,
maintenance or use of premises for the production of crops or the raising or
care of livestock, including all necessary operations. Farming also includes the
operations of roadside stands and farm markets maintained
principally for the sale of the insured's own farm
products." The work performed with
relation to the manure pit is farming and therefore does not fall within the
business exclusion.
Second,
the policy is a farmowner's policy. By
its very nature, it contemplates that the insured, the Dallmans, would be
operating a farming business on the premises.
We do not think that the Dallmans reasonably agreed to purchase a
farmowner's policy with the belief that any property damage which occurred on
the farm relating to the farming business would be excluded. Consequently, this provision does not
exclude coverage.
INTENTIONAL ACTS
Hartland
next argues that there is no coverage for liability "resulting from bodily
injury or property damage caused intentionally by or at
the direction of any insured." They contend that this provision excludes coverage for any damage
resulting from the Dallmans' alleged misrepresentations. We disagree.
The
complaint alleges that the Dallmans negligently or intentionally failed
to disclose a material concealed defect or condition which caused damage to his
property. Norks also alleged that the
negligent design, construction and maintenance of the manure pit caused
structural damage to the pit. This
latter claim does not allege any intentional acts. Consequently, we conclude that this provision does not exclude
coverage.
CONTRACTUAL
EXCLUSION
Hartland
also argues there is no coverage for liability "assumed under any contract
or agreement, except as provided under Incidental Liability and Medical
Payments Coverages." It argues
that any liability the Dallmans may have to Norks because of a breach of the
real estate agreement is excluded by this provision. We disagree.
Norks
has not alleged that the Dallmans' negligent design, construction and
maintenance of the manure pit were performed pursuant to any contractual
obligation with him. Instead, he has
presented a common law negligence claim.
This provision does not exclude coverage.
PERSONAL
LIABILITY
As
a final matter, Hartland argues that Norks has no viable claim against the
Dallmans because under McCarty v. Covelli, 182 Wis.2d 342,
345-46, 514 N.W.2d 45, 46 (Ct. App. 1994), a vendor of land is not subject to
liability for physical harm to his vendee caused by any dangerous condition on
the land after the vendee has taken possession which existed at the time the vendee
took possession. In essence, Hartland
asks us to rule on the merits of Norks's claims. But the trial was bifurcated at Hartland's request to address the
coverage issue before any proceedings took place on the merits of Norks's
claims. We may decline to review issues
raised for the first time on appeal. Evjen
v. Evjen, 171 Wis.2d 677, 688, 492 N.W.2d 361, 365 (Ct. App.
1992). We decline to do so here. Accordingly, we reverse and remand for a
trial on the merits of Norks's claims.
By
the Court.—Judgment affirmed
in part; reversed in part and cause remanded with directions.
Not
recommended for publication in the official reports.
[1] The trial court never decided this issue but
instead determined that the alleged losses were excluded by another provision
in the policy.
[2] Looking at this somewhat differently, the
Dallmans also ask us to focus on the fact that manure may be both a waste
product and a valuable fertilizer. But,
again, we look to the language of the policy to determine whether that
language excludes coverage for the damages alleged here. The policy excludes coverage for the release
of "waste materials." We do
not think that all of the possible subsequent uses of manure transforms it from
its initial nature as a "waste material," or that the different uses
for manure means it does not fall within the policy exclusion for damages
caused by released waste material.