Strauss et al v. Chubb Indemnity Insurance Company et al
Filing
147
ORDER signed by Judge J P Stadtmueller on 1/2/13 as follows: denying 54 Chubb Defendants' Motion for Summary Judgment; denying as moot 95 Plaintiffs' Motion to Strike; denying 64 Plaintiffs' Motion for Partial Summary Judgme nt against the Chubb Defendants; denying 58 Chartis' Motion for Summary Judgment; denying as moot 97 Plaintiffs' Motion to Strike; denying as moot 112 Chartis' Motion to Strike; and, denying 117 Chartis' Motion for Leave to File and Motion to Supplement. See Order. (cc: all counsel) (nm)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
RANDAL STRAUSS and DIANE STRAUSS,
Plaintiffs,
Case No. 11-CV-981-JPS
v.
CHUBB INDEMNITY INSURANCE
COMPANY, VIGILANT INSURANCE
COMPANY, FEDERAL INSURANCE
COMPANY, and GREAT NORTHERN
INSURANCE COMPANY,
Defendants,
RANDAL STRAUSS and DIANE STRAUSS,
Plaintiffs,
v.
CHARTIS PROPERTY CASUALTY
COMPANY,
Defendant.
Case No. 12-CV-062-JPS
ORDER
1.
BACKGROUND
In connection with homeowners’ insurance issued by Defendants
Chubb Indemnity Insurance Company (“Chubb”), Vigilant Insurance
Company (“Vigilant”), Federal Insurance Company (“Federal”), and Great
Northern Insurance Company (“Great Northern”) (collectively, the “Chubb
Defendants”), Plaintiffs Randal Strauss (“Mr. Strauss”) and Diane Strauss
(“Mrs. Strauss” and, together with Mr. Strauss, the “Strausses”) bring claims
against the Chubb Defendants for: (i) declaratory judgment regarding
coverage under the insurance; (ii) denial of insurance coverage in bad faith;
and (iii) “12% interest on their insurance claim per Wisconsin Statute [§]
628.46.” (collectively, the “Strauss-Chubb Claims”) (Docket #67).1 The Chubb
Defendants move for summary judgment on the Strauss-Chubb Claims.
(Docket #54). As against the Chubb Defendants, the Strausses move for
“partial summary judgment declaring that the continuous trigger theory
applies to the Strausses’ loss and that the Strausses have shown an initial
grant of coverage under the Chubb Defendants’ policies.” (Docket #64, 2-3).
In addition, in connection with homeowners’ insurance issued by
Defendant Chartis Property Casualty Company (“Chartis”), the Strausses
bring claims against Chartis for: (i) declaratory judgment regarding coverage
under the insurance; (ii) breach of contract; and (iii) denial of insurance
coverage in bad faith (collectively, the “Strauss-Chartis Claims”). (Docket
#1).2 Chartis moves for summary judgment on the Strauss-Chartis Claims.
(Docket #58, 1).
In an order dated March 23, 2012, the Court granted motions to
consolidate: (i) the action in which the Strauss-Chubb Claims were brought
(11-CV-981); and (ii) the action in which the Strauss-Chartis Claims were
brought (12-CV-062).
2.
FACTS
The subject of these actions is the Strausses’ home located at 104N
315E Eastwyn Bay Drive in Mequon, Wisconsin (the “House”). (Docket #93,
1-2); (Docket #62-3, 3) and see (Docket #101, 2). Construction of the House
concluded in 1994. (Docket #93, ¶ 2); (Docket #101, ¶ 1).
1
References to a docket entry number relate to the docket for Case No.
11-CV-981 unless noted otherwise.
2
Docket #1 refers to that entry number under 12-CV-062.
Page 2 of 25
In October of 2010, the Strausses discovered water damage at the
House (the “Water Damage”). (Docket #82, ¶ 11); (Docket #101, ¶ 1).3 In this
connection, the Strausses submitted claims to the defendants before the end
of that year. (Docket #82, ¶ 13); (Docket #14, ¶ 15) and (Docket #101, ¶ 5).
In a letter dated October 3, 2011, the Chubb Defendants denied the
Strausses’ claim. (Docket #8-17).
As of November 2012, Chartis has paid $85,290.54 to the Strausses in
connection with the Water Damage (Docket #101, 11 and 66). However,
Chartis affirmatively asserts that no additional amount is due to the
Strausses. (Docket #60, 1-2).
2.1
The Strauss-Chubb Claims
The Chubb Defendants filed various insurance policy documents as
exhibits to their initial answer (the “Chubb Defendants’ Insurance Policy
Documentation”). (Docket #8). The Strauss-Chubb Claims are brought on the
Chubb Defendants’ Insurance Policy Documentation. (Docket #67, 5-6). The
earliest reference to the House (chronologically-speaking) in that
documentation is in a document titled “Premium Summary Renewal” that
bears an “Effective date” of “10/1/93" and a “Policy period” of “10/1/93 to
10/1/94" that is coupled with a document titled “Coverage Summary
Renewal” that bears the same “Effective date” and “Policy period” and was
3
The defendants dispute the exact date the Strausses first discovered the
Water Damage. (Docket #82, ¶ 11); See (Docket #101, ¶¶ 89-98).
4
12-CV-62.
Page 3 of 25
“Issued by” Vigilant. (Docket #8-1, 1 and 3).5 This general pattern of
documentation continues for each following year up to an “Effective date”
of “10/1/99" and “Policy period” of “10/1/99 to 10/1/00" (Docket #’s 8-2
through 8-7, 1 and 3).
The remainder of the Chubb Defendants’ Insurance Policy
Documentation appears to relate to policy periods from October 1, 2000, to
October 1, 2005, and be issued variously by: Federal (Docket #8-8, 3; #8-9, 7);
Vigilant (Docket #8-10, 9; #8-11, 5 and 11); Chubb (Docket #8-13, 11); and
Great Northern (Docket #8-14, 13).
The Chubb Defendants’ Motion for Summary Judgment argues both
that the Strauss-Chubb Claims: (1) are time-barred under both Wis. Stat.
§ 631.83(1)(a) and a suit limitation clause; and (ii) “do not even implicate the
Chubb Defendants’ policies because the lost first manifested many years
after the last policy issued by one of the Chubb Defendants expired”
and “Wisconsin follows a ‘manifestation trigger’ for first-party property
insurance, which means that only the insurance policy in effect when the loss
manifests is required to respond.” (Docket #54, 2).
5
This first reference to the House indicates that the House is a “Property
covered” for purposes of “LIABILITY” coverage. (Docket #8-1, 1). In a subsequent
“Coverage Update” bearing an “Effective Date” of “5/3/94" the House is “Added”
to the policy for, inter alia, “$864,000 DELUXE COVERAGE” which appears to be
property coverage (in contrast to liability coverage). See (Docket #8-1, 45). Notably,
that page warns, inter alia, “[t]o keep your records up to date, please attach this
update to your existing policy.” (Id.). Notwithstanding all of this, the Chubb
Defendants and the Strausses submit an undisputed proposed material fact to the
Court stating that “[t]he Chubb Defendants provided insurance coverage for the
Property between October 1994 and October 2005" (Docket #131, ¶ 3) without
reconciling that proposed fact with the ostensible coverage of the House that began
at least as early as May 3, 1994, nor do they providing the “existing policy” to which
the May 3, 1994 “Coverage Update” refers. The Court will refer to that existing
policy as the “Root Policy” hereafter.
Page 4 of 25
Proposed material facts submitted by the Chubb Defendants reference,
inter alia: (i) a provision titled “‘Legal Action Against Us’” (the “Legal Action
Against Us Provision”) (Docket #56, ¶ 17); and (ii) a definition of the term
“‘occurrence’ as ‘a loss or accident to which this insurance applies occurring
within the policy period.’” (Id., ¶ 18).6 In support of these two proposed
material facts, the Chubb Defendants cited only “See Answer to Complaint,
Document 8, Exs. A, B, C, D, E, F, G, H, I, J, K, L, M.” (Docket #56, ¶¶ 17 and
18).7 In response, the Strausses did not dispute the Chubb Defendants’
proposed fact regarding the Legal Action Against Us Provision (Docket #93,
¶ 17) and the Strausses disputed the Chubb Defendants’ proposed fact
regarding the definition of “occurrence” only insofar as the Strausses claim
6
The Court raises these two particular proposed material facts as examples
because the Legal Action Against Us Provision may have bearing on whether the
Strauss-Chubb Claims are time-barred (the first of two grounds raised in the Chubb
Defendants’ Motion for Summary Judgment) and the definition of the term
“occurrence” may have bearing on whether the Chubb Defendants’ policies are
implicated (the second of two grounds raised in the Chubb Defendants’ Motion for
Summary Judgment).
The following clarifies briefly why the Legal Action Against Us Provision
may be salient. The Strausses cite a range of cases they say support the proposition
that parties to an insurance contract are free to contract to lengthen the period of
limitation beyond any relevant statutory term, e.g., Keiting v. Skauge, 198 Wis.2d 887,
894 (Wis. Ct. App. 1995) (holding, in relevant part, “Where the parties have not
contracted for a different period of limitations…However, where the parties freely
and voluntarily wish to alter that state of affairs, public policy supports their right
to do so”), and the Chubb Defendants attempt to distinguish the fact patterns
(Docket #109, 4-5) while ignoring the elephant in the room: the Wisconsin public
policy which “favors freedom of contract, in the absence of overriding reasons for
depriving the parties of that freedom.” Cieslewicz v. Mutual Service Cas. Ins. Co., 84
Wis.2d 91, 103 (Wis. 1978).
7
This blithe citation to the Chubb Defendants’ Insurance Documentation
references over 700 pages of non-searchable material submitted in portable document
format (“PDF”).
Page 5 of 25
that “the definition of ‘occurrence’ in each of the Chubb Defendants’ Policies
contains additional language.” (Docket #93, ¶ 18).
In an order dated December 14, 2012, the Court directed both the
Chubb Defendants and the Strausses to file revised versions of their
respective submissions (Docket #’s 56 and 93) that include “pinpoint citations
keyed to PDF pagination for each and every citation to any of Exhibits A
through M to Docket #8 by no later than Wednesday, December 19, 2012.”
The Court has received the amended documents. (Docket #’s 130 and 131).
As for the Legal Action Against Us Provision, the Chubb Defendants’
citation in support of the corresponding proposed material fact now includes
citations to PDF pagination as well as the following edification in a footnote:
For the Court’s reference, at the time of the renewal of each
policy period, Chubb8 mailed the Insured a new declarations
page confirming the renewal and a table of contents listing the
forms that comprised the policy, but only included complete
versions of any of the policy forms that had changed since the
last renewal. Therefore, some of these citations cite to the table
of contents page, which shows that the form–and the language
it contains–did not change for that policy period.
(Docket #130, 4 n.1).
In response, the Strausses: (i) again do not dispute the proposed fact
regarding the “Legal Action Against Us Provision” (Docket #131, ¶ 17); (ii)
re-state their position that “the definition of ‘occurrence’ in each of the Chubb
Defendant Policies contains additional language” (Id., ¶ 18); and (iii) write:
For purposes of this motion, the Strausses do not dispute the
Chubb Defendants’ explanation in Footnote No. 1 regarding
the citation of the Chubb policies.
8
The Court notes that the term “Chubb” is not defined in Docket #130. This
lapse by counsel adds additional murkiness into an already opaque explanation.
Page 6 of 25
(Docket #131, 6 n.2).
According to the Chubb Defendants and the Strausses, the Legal
Action Against Us Provision and the definition of the term “occurrence” both
first appear in the Chubb Defendants’ Insurance Documentation (Docket #81) at page 47. See (Docket #131, ¶ 17). That page is only a “Table of Contents”
with a stated “Effective date” of “5/3/94" and it informs Mr. Strauss (the
named insured): “[t]o keep your records current, please attach this update to
your policy.” As explained in footnote 5 supra, the Court views this as a
reference to the Root Policy. The Root Policy does not appear to be among
the Chubb Defendants’ Insurance Documentation or otherwise submitted to
the Court.
As much as the Court would like to narrow the issues for trial,
because: (i) the Strauss-Chubb Claims are grounded in the Chubb
Defendants’ Insurance Documentation; (ii) a subset of the Chubb Defendants’
Insurance Documentation incorporates the Root Policy by reference; (iii) the
Root Policy is not in the record before the Court; and (iv) more generally, the
interrelationship of the Chubb Defendants’ Insurance Documentation
requires further clarification on the record, the Court is obliged to conclude
that any summary judgment in respect of the Strauss-Chubb Claims is
inappropriate at this juncture.
The Court acknowledges that the Chubb Defendants and the Strausses
have submitted a significant amount of briefing on a purported choice
between the so-called “continuous trigger” theory and the so-called
“manifestation” theory as each relates to the concept of when an on-going
loss is said to have “occurred’ for purposes of an occurrence-based
homeowner’s insurance policy. See e.g., (Docket #55, 11-19); (Docket #91, 17-
Page 7 of 25
24). Pending clarification of the interrelationship of the Chubb Defendants’
Insurance Documentation on the record at trial, the Court finds that the wiser
exercise of discretion is to rule definitively on this “continuous trigger”
versus “manifestation” theory debate only after the operative contractual
terms have been ascertained.
This being said, the Court observes that, among the Chubb
Defendants’ Insurance Documentation, in a document with an “Effective
Date” of “10/1/02[,]” the term “Occurrence” is defined as follows:
“Occurrence means a loss or accident to which this insurance applies
occurring within the policy period. Continuous or repeated exposure to
substantially the same general conditions unless excluded is considered to be
one occurrence.” (Docket #8-10, 15).
The Chubb Defendants assert boldly (arguably brazenly) that “[a]
‘manifestation trigger’ is applicable in first-party property insurance coverage
cases in Wisconsin.” (Docket #55, 11). They go on to explain that “[u]nder a
manifestation trigger of coverage, only the policy in effect when the loss first
manifests is obligated to respond.” (Id.). Curiously, to support the first of
these two assertions, the Chubb Defendants make public policy arguments
(Docket #55, 17-18) and variously cite to: (i) Wisconsin state court cases the
Chubb Defendants explicitly characterize as concerning “third-party liability
policies” (Id., 11); (ii) a federal court case from the Eastern District of
Wisconsin from which the Chubb Defendants infer application of a
manifestation trigger theory (Id., 12); (iii) various decisions of foreign
jurisdictions (e.g., the New Jersey and Texas Courts of Appeal) (Id., 13); and
(iv) select commentary (e.g., law review articles) (Id., 14). Put plainly, there
is a conspicuous absence of Wisconsin state court precedent applying the
Page 8 of 25
“manifestation trigger” to first-party property insurance cases. Rather, the
Chubb Defendants ask the Court to go out on a limb and recognize a
distinction not yet observed by Wisconsin state courts. The Seventh Circuit
very recently declined to do so in a decision dated June 25, 2012:
Safeco next argues that the district court wrongly used the
continuous trigger theory to determine the date of harm based
on the policy's language limiting coverage to “losses occurring
during the policy period.” Wisconsin applies, along with the
majority of courts, the continuous trigger theory to determine
the date of injury in cases where the exact date of harm is
uncertain and potentially occurring over several policy
periods. See Soc'y Ins. v. Town of Franklin, 233 Wis.2d 207, 607
N.W.2d 342, 346 (Wis.Ct.App.2000) (adopting the continuous
trigger theory to find that an injury “occurs continuously from
exposure until manifestation” (quoting Michael G. Doherty,
Allocating Progressive Injury Liability Among Successive
Insurance Policies, 64 U. Chi. L.Rev. 257, 261 (1997))). Safeco
asks us to carve out an exception and hold, despite a dearth of
Wisconsin caselaw, that the continuous trigger theory should
only apply in third-party coverage cases because the questions
presented in third-party cases (e.g., which policy should
defend and indemnify against environmental contamination
claims spanning multiple policy periods?) aren't present in
first-party property damage claims. We aren't inclined to
adopt an approach that lacks support from Wisconsin's
caselaw, but even if we did, Safeco's cases in support of
its position adopted a manifestation theory for determining
liability when a latent progressive condition causes
property damage. See Winding Hills Condo. Ass'n v. N. Am.
Specialty Ins. Co., 332 N.J.Super. 85, 752 A.2d 837, 840
(N.J.Super.Ct.App.Div.2000); Prudential–LMI Com. Ins. v.
Superior Court, 51 Cal.3d 674, 274 Cal.Rptr. 387, 798 P.2d 1230,
1246–47 (1990). Given the finding that the loss manifested
during the policy period, the result would be the same.
Miller v. Safeco Ins. Co. of America, 683 F.3d 805, 810-811 (7th Cir. 2012)
(emphasis added). Pointing to the last sentence in the passage above, the
Page 9 of 25
Chubb Defendants argue that the remainder of the passage is dicta, all the
while selectively ignoring the Seventh Circuit’s comment that “We aren’t
inclined to adopt an approach that lacks support from Wisconsin’s caselaw,
….” Id.; (Docket #55, 15). With the benefit of the foregoing analysis, this
Court is similarly disinclined.
2.2
The Strauss-Chartis Claims
In June of 2010, Chartis issued a “Homeowners” insurance policy
providing certain property and liability coverages to Mr. Strauss for the
period from June 1, 2010, to June 1, 2011 (the “First Chartis Policy Period”),
and this policy was renewed for the period June 1, 2011, to June 1, 2012 (the
“Second Chartis Policy Period”) (together, “Chartis’ Policy”).9 (Docket #62-3,
3); (Docket #62-3, 41); (Docket #101, ¶ 2). Chartis’ Policy covers the insured
“against all risks of direct physical loss or damage to [the insured’s] house,
contents, and other permanent structures unless an exclusion applies.”
(Docket #62-3, 9 and 47) (bolding omitted). The House is an insured location
under Chartis’ Policy. (Docket #62-3, 3, 8, 41 and 46); (Docket #101, ¶¶ 1
and 2).
Chartis’ Policy provides “Dwelling” coverage for the House up to a
“COVERAGE LIMIT”10 and states that the “PAYMENT BASIS” for that
coverage is “Guaranteed Rebuilding Cost” (Docket #62-3, 3 and 41).
9
The Court has not located among any of the proposed facts filed in this
consolidated case a fact alleging (nor citation to any evidence establishing) that
Mrs. Strauss is indeed married to Mr. Strauss. This is salient because only Mr.
Strauss is expressly named as an insured on the policies submitted to the Court yet
the actions are brought by the Strausses. This said, Chartis’ Policy, for example,
defines “Insured Person” to include a spouse. See (Docket #62-3, 8).
10
$2,141,000 for the First Chartis Policy Period (Docket #62-3, 3) and
$2,343,960 for the Second Chartis Policy Period (Id. at 41).
Page 10 of 25
“Guaranteed Rebuilding Cost coverage means that for a covered loss
[Chartis] will pay the reconstruction cost of your house or other permanent
structures, for each occurrence, even if this amount is greater than the
amount of coverage shown on the Declarations Page.” (Id., 9 and 47) (bolding
omitted). In turn, “occurrence” is defined, in relevant part, as “[a] loss or an
accident, to which this insurance applies, including continuous or repeated
exposure to substantially the same general harmful conditions, which occurs
during the Policy Period and results in personal injury or property damage;
….” (Id., 8 and 46) (bolding omitted). The phrase “property damage” “means
physical injury to, destruction of, or loss of use of tangible property and the
resulting loss of its use.” (Id., 9 and 47).
3.
SUMMARY JUDGMENT STANDARD
“The court shall grant summary judgment if the movant shows that
there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Celotex Corp. v. Catrett, 477 U.S.
317, 324 (1986). “Material facts” are those under the applicable substantive
law that “might affect the outcome of the suit.” See Anderson, 477 U.S. at 248.
A dispute over “material fact” is “genuine” if “the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” Id. In other
words, in determining whether a genuine dispute of material fact exists, the
court must construe all reasonable inferences in favor of the non-movant. Lac
Courte Oreilles Band of Lake Superior Chippewa Indians v. Voigt, 700 F.2d 341,
349 (7th Cir. 1983).
Page 11 of 25
4.
CHARTIS’ MOTION FOR SUMMARY JUDGMENT
Chartis’ Motion for Summary Judgment argues that: (i) the Water
Damage was not fortuitous (Docket #60, 2); (ii) the Strausses’ claim for the
Water Damage is barred by “the ‘known loss’ or ‘loss in progress’ doctrine”
(Docket #60, 25); (iii) even if the Water Damage was fortuitous and the
Strausses’ claim for the Water Damage is not barred by the “known loss” or
“loss in progress” doctrines, the “‘Faulty, Inadequate or Defective
Planning[,]’” “‘Gradual or Sudden Loss[,]’” and “‘Fungi or Bacteria[,]’”
exclusions combine to exclude all of the Water Damage except “ensuing”
“active water damage which occurred during the Chartis policy period”
(Docket #60, 2); (iv) “the paid mold claim is subject to the Chartis Policy
sublimit of $10,000 for ‘Ensuing Fungi or Bacteria’”; (v) “The Strausses’
Additional Living Expense [under the Chartis policy] is not covered because
the house was not uninhabitable and the Strausses never moved out” (Id.);
and (vi) “at the very least, whether [Chartis’ policy] covers the Strausses’
claims is ‘fairly debatable’ such that summary judgment should be granted
for Chartis and against the Strausses’ on their Bad Faith action.” (Id., 2-3).
5.
ANALYSIS
The parties’ citizenship is diverse within the meaning of 28 U.S.C.
§ 1332 (a)(1), the amount-in-controversy requirement of § 1332 is satisfied,
and venue pursuant to 28 U.S.C. § 1391 is proper. (Docket #74, 3-4); (Docket
#6, 2-3).
A federal district court sitting in diversity “is to apply the law of the
state in which the court sits with respect to substantive matters. See Erie R.R.
Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).” Allstate Ins.
Co. v. Menards, Inc., 285 F.3d 630, 633 (7th Cir. 2002).
Page 12 of 25
In Wisconsin, insurance contract interpretation “presents a question
of law” for courts. American Family Mut. Ins. Co. v. Am. Girl, Inc., 286 Wis.2d
16, 32 (2004). In Am. Girl, the Wisconsin Supreme Court set forth its analytical
approach to insurance contract disputes as follows:
Insurance polices are construed as they would be understood
by a reasonable person in the position of the insured.
Kremers–Urban Co. v. American Employers Ins. Co., 119 Wis.2d
722, 735, 351 N.W.2d 156 (1984). However, we do not interpret
insurance policies to provide coverage for risks that the insurer
did not contemplate or underwrite and for which it has not
received a premium. Wisconsin Label, 233 Wis.2d 314, ¶ 25, 607
N.W.2d 276 ¶ 24. Our procedure follows three steps. First, we
examine the facts of the insured's claim to determine whether
the policy's insuring agreement makes an initial grant of
coverage. If it is clear that the policy was not intended to cover
the claim asserted, the analysis ends there. If the claim triggers
the initial grant of coverage in the insuring agreement, we next
examine the various exclusions to see whether any of them
preclude coverage of the present claim. Exclusions are
narrowly or strictly construed against the insurer if their effect
is uncertain. Cardinal v. Leader Nat'l Ins. Co., 166 Wis.2d 375,
382, 480 N.W.2d 1 (1992). We analyze each exclusion
separately; the inapplicability of one exclusion will not
reinstate coverage where another exclusion has precluded it.
Exclusions sometimes have exceptions; if a particular exclusion
applies, we then look to see whether any exception to that
exclusion reinstates coverage. An exception pertains only to
the exclusion clause within which it appears; the applicability
of an exception will not create coverage if the insuring
agreement precludes it or if a separate exclusion applies.
Silverton Enters. v. Gen. Cas. Co., 143 Wis.2d 661, 422 N.W.2d
154 (Ct.App.1988).
286 Wis.2d at 32-33.
As explained more fully infra in Section 5.3, on the state of the record
before it, the Court is obliged to conclude that genuine disputes of material
Page 13 of 25
fact remain as to which “risks” “caused” the Strausses’ claimed and
uncompensated “direct physical” losses to the House.11
5.1
Is Rainwater Infiltration Fortuitous?
Chartis’ Motion for Summary Judgment (including its various
supporting materials) does not appear to argue that the Water Damage is
attributable to any water damage other than rainwater infiltration (e.g., leaky
pipes). See, e.g., (Docket #101, ¶ 4). Therefore, the Court will consider whether
rainwater infiltration is considered fortuitous under Wisconsin law.
Chartis cites to Glassner v. Detroit Fire and Marine Ins. Co., 23 Wis.2d
532, 536 (1964), for the proposition that “[a]n ‘all-risk’ policy is a promise to
pay for loss caused by a fortuitous and extraneous happening, but it is not a
promise to pay for loss or damage which is almost certain to happen because
of the nature and inherent qualities of the property insured.” (Docket #60, 2425). In the view of the Glassner court, damage is fortuitous if “it resulted from
a ‘risk,’ as contrasted with being an ordinary and almost certain consequence
of the inherent qualities and intended use of the property.” 23 Wis.2d at 536.
Giving examples of “cause[s] which might be considered not to be ‘risks’ at
all, but almost certain consequences” the Glasser court listed “loss by wear
11
As noted supra in Section 2.2, Chartis’ Policy covers the insured “against
all risks of direct physical loss or damage to [the insured’s] house, contents, and other
permanent structures unless an exclusion applies.” (Docket #62-3, 9 and 47)
(emphasis added). As noted infra in Section 5.3, the exclusions Chartis invokes are
each keyed to what “caused” the claimed loss.
Page 14 of 25
and tear, deterioration, [and] mechanical breakdown.” Id. at 537.12 Against
the backdrop of Glassner, the Court predicts that the Wisconsin Supreme
Court would hold that rainwater infiltration is fortuitous because rainwater
infiltration is a risk attendant to home ownership, but not a certain
consequence like wear-and-tear. Therefore, summary judgment on this
ground is inappropriate.
5.2
Is the Strausses’ Claim for the Water Damage Barred by the
“Known Loss” or “Loss in Progress” Doctrines?
In 2004, the Wisconsin Supreme Court held that:
The known loss doctrine holds that insurers are not obligated
to cover losses which are already occurring when the coverage
is written or which has already occurred. Estate of Logan v.
Northwestern Nat'l, 144 Wis.2d 318, 348, 424 N.W.2d 179 (1988).
Here, the fact that settlement was occurring on the [property]
was known as early as March of 1995, and the extent of the
damage was substantially known by the time of the meeting in
January or February, 1997. The policies of these remaining
insurers post-date this period. Accordingly, the known loss
doctrine precludes coverage under these policies.
Am. Girl., 268 Wis.2d at 58-59.
In a vital clarifying footnote, the Wisconsin Supreme Court held that
it was the later of these two meetings – the one in early 1997 – that triggered
the application of the known-loss doctrine. Id. at 29 n.2. That court described
the factual context as follows: “[b]y early 1997, the settlement approached
12
Fifteen years later, the Wisconsin Supreme Court, with reference to its
decision in Glassner, posited that “[a]rguably a defect in the design and construction
of insured property is inherent in that property, rather than an ‘external cause,’”
but ultimately dismissed this argument out-of-hand by expressly stating that “[w]e
do not rest our decision upon this reasoning, however.” Kraemer Bros., Inc. v. U.S.
Fire Ins. Co., 89 Wis.2d 555, 564 (1979).
Page 15 of 25
one foot, the building was buckling, steel supports were deformed, the floor
was cracking, and sewer lines had shifted. In January or February 1997, the
parties met to discuss the settlement damage and the options for
remediation.” Id. Therefore, Am. Girl appears to hold that, in Wisconsin, the
known loss doctrine precludes coverage under an insurance contract only if
the extent of the damage was substantially known before the parties entered
into the insurance contract.13 Here, on the present state of the record before
it, the Court concludes that a reasonable jury could find that the extent of the
Water Damage was not “substantially known” by the Strausses before the
parties contracted for Chartis’ Policy. Therefore, Chartis’ motion for
summary judgment on this ground fails.
5.3
Do the “Faulty, Inadequate or Defective Planning” “Gradual
or Sudden Loss” and “Fungi or Bacteria” Exclusions in
Chartis’ Policy Combine to Exclude All of the Water Damage
Except Ensuing Active Water Damage Which Occurred
During the Chartis Policy Period?
The Strausses and Chartis appear to agree generally that the genesis
of the Water Damage is defective construction of certain portions of the
House which, in the absence of such defects, would typically function to
prevent rainwater infiltration (e.g., the roof and windows). See (Docket #63,
¶14), (Docket #118, 2 and 8), and (Docket #99, 4).
Chartis invokes the following exclusions:
2.
Gradual or Sudden Loss
We do not cover any loss caused by gradual deterioration, wet
or dry rot, warping, smog, rust, or other corrosion. In addition,
13
In Am. Girl, the Wisconsin Supreme Court equated the known loss
doctrine with the loss-in-progress doctrine, so this Court need not address the latter
any further. See 268 Wis.2d at 58.
Page 16 of 25
we do not cover any loss caused by inherent vice, wear and
tear, mechanical breakdown or latent defect. However, we do
insure ensuing covered loss unless another exclusion applies.
3.
Fungi or Bacteria
We do not cover any loss caused by the presence,
growth, proliferation, spread or any activity of fungi or
bacteria including the cost to test for, monitor, clean up,
move, remediate, contain, treat, detoxify, neutralize or
in any way respond to, or assess the effects of fungi or
bacteria.
This exclusion does not apply to:
a.
b.
8.
Coverage provided under PART II - PROPERTY.
Additional Coverage. Ensuing Fungi or Bacteria;
or
Ensuing covered loss unless another exclusion
applies.
...
Faulty, Inadequate or Defective Planning
We do not cover any loss caused by faulty, inadequate
or defective:
a.
b.
c.
d.
Planning, zoning, development, surveying, siting;
Design, specifications, workmanship, repair,
construction, renovation, remodeling, grading,
compaction;
Materials used in repair, construction,
renovation or remodeling; or
Maintenance;
of part or all of any property whether on or off the
residence.
However, we do insure ensuing covered loss unless
another exclusion applies.
Page 17 of 25
(Docket #62-3, 14 and 52) (bolding omitted).
The Strausses and Chartis do not agree with particularity as to the
precise construction defects, see, e.g., (Docket #118, 12-22), but appear to
generally agree that the “Faulty, Inadequate or Defective Planning” exclusion
applies to some extent. (Docket #60, 16); see (Docket #99, 17). Their main
dispute is over the practical effect of the “Faulty, Inadequate or Defective
Planning” exclusion’s ensuing-loss provision. As to this issue, the parties
agree that the appropriate Wisconsin authority is Arnold v. Cincinnati Ins. Co.,
276 Wis.2d 762 (Wis. Ct. App. 2004). (Docket #60, 16); (Docket #99, 16). In
Arnold, a two-stage restoration of housing siding went awry:
During the first stage, the mold, mildew and stains on the
siding were removed by applying [a] stripping product, then
rinsing with a pressure washer, then applying a wood restorer,
and then rinsing again with the pressure washer. During the
second stage, the siding was restained with a different stain.
The Arnolds were satisfied with the restained siding, but in the
process of removing the old stain, other parts of the house
were damaged.
...
There was damage to the windows, gutters, driveway, porch,
patio, roof and doors due to direct contact with [the] stripping
product, as well as damage to the interior of the home,
including the walls, ceiling, and carpeting, due to water and
the stripping product leaking in from the damaged seals of the
windows and skylights. Although most the damage occurred
before Labor Day 2001, there was continuing and progressive
damage caused by water coming in around the skylights.
276 Wis.2d at 770-771.
The Arnolds filed a claim under their homeowners’ insurance
policy and that policy excluded, inter alia, “Faulty, inadequate or defective”
construction, but excepted from that exclusion “ensuing loss” not otherwise
Page 18 of 25
excluded.14 Id. at 774. The Arnold court viewed interpretation of an “ensuing
loss” clause as a case of first impression in Wisconsin. Id. at 778. It held that
“a reasonable insured would understand, based both on logic and on the use
of ‘However’ at the beginning of the sentence, that the meaning of ‘ensuing’
here is a loss that follows the excluded loss ‘as a chance, likely, or necessary
consequence’ of that excluded loss” and that “a reasonable insured would
understand that, in addition to being a loss that follows as a chance, likely,
or necessary consequence of the excluded loss, an ensuing loss must result
from a cause in addition to the excluded cause.” Id. at 779. Applying these
principles to the facts of Arnold, the Court of Appeals of Wisconsin concluded
that exterior damage was excluded under the faulty construction exclusion
as was “damage to the interior of the house caused by the use of the power
washer.” Id. at 768. However, the court: (i) concluded “that any damage to
the interior of house that was caused by rain in conjunction with the
damaged caulking is a loss ensuing from the excluded loss caused by faulty
workmanship or faulty materials”; and (ii) found that the interior ensuing
loss was not otherwise excluded.15 Id.
14
In Arnold, the “ensuing loss” clause stated, “However, any ensuing loss
to property described in Coverages A and B not excluded or excepted in this policy
is covered.” 276 Wis.2d at 774.
15
In this connection, the court noted that “[t]here is an exclusion for ‘water
damage’ in subparagraph 1(c) of the Exclusions section, but it is specifically defined
in a manner that does not include damage from rain.” Id. At 785.
Page 19 of 25
Here, the Court applies Arnold16 to the Strausses circumstances and
Chartis’ Policy and holds that, if certain exterior damage to the House is
found to have been caused by faulty workmanship or materials (or, for this
matter, any other failures specified in Chartis’ Policy’s “Faulty, Inadequate
or Defective Planning” exclusion), that damage is excluded thereunder as a
matter of Wisconsin law. Based on the record before it, the Court is obliged
to find that genuine disputes of material fact exist with regard to claimed
losses to exterior pieces of the House. See, e.g., (Docket #118, 12-23) and
16
The Seventh Circuit’s holding in Allstate is instructive:
Although we believe that the task of the federal court sitting in
diversity is to ascertain the substantive content of state law as it
either has been determined by the highest court of the state or as it
would be by that court if the present case were before it now, we
pause to emphasize that this determination in no way implies any
erosion of our precedent that, in the absence of prevailing authority
from the state's highest court, federal courts ought to give great
weight to the holdings of the state's intermediate appellate courts
and ought to deviate from those holdings only when there are
persuasive indications that the highest court of the state would
decide the case differently from the decision of the intermediate
appellate court. See State Farm Mut. Auto. Ins. Co. v. Pate, 275 F.3d
666, 669 (7th Cir.2001); Lexington Ins. Co. v. Rugg & Knopp, Inc., 165
F.3d 1087, 1090 (7th Cir.1999); Allen v. Transamerica Ins. Co., 128 F.3d
462, 466 (7th Cir.1997). See generally E. Chemerinsky, Federal
Jurisdiction § 5.3 at 323-26 (3d ed.1999) (discussing Supreme Court
authorities); Yonover, supra at 5 n. 21. As the Supreme Court has
held, “[w]here an intermediate appellate state court rests its
considered judgment upon the rule of which it announces, that is a
datum for ascertaining state law which is not to be disregarded by
a federal court unless it is convinced by other persuasive data that
the highest court of the state would decide otherwise.” West v. Am.
Tel. & Tel. Co., 311 U.S. 223, 237, 61 S.Ct. 179, 85 L.Ed. 139 (1940).
Allstate Ins. Co., 285 F.3d at 637.
Page 20 of 25
(Docket #101, ¶ 20). Based on Arnold, the Court is also obliged to conclude
that if certain damage to the interior of the House is found to have been
caused by rainwater infiltration in conjunction with faulty workmanship (or
faulty materials), that damage is deemed to be a loss ensuing from the
excluded loss caused by faulty workmanship or faulty materials as a matter
of Wisconsin law.
Under Arnold, the next conceptual question is whether such an
ensuing loss is otherwise excluded. Chartis submits that the “Gradual or
Sudden Loss” and/or “Fungi or Bacteria”exclusions apply (Docket #17, 2) on
the theory that claimed and uncompensated interior losses to the House were
“caused by gradual deterioration, [and/or] wet…rot….” and/or “caused by
…wear and tear….” and/or “caused by the presence, growth, proliferation,
spread or any activity of fungi or bacteria….” (Docket #62-3, 14 and 52). On
the state of the record before it, the Court is obliged to conclude that genuine
disputes of material fact remain as to which “risks” “caused” the Strausses’
claimed and uncompensated “direct physical” losses to the interior of the
House. See, e.g., (Docket #101, ¶¶ 14, 18 and 26).
5.4
“Additional Living Expense” Coverage
Chartis’ Policy provides certain additional coverages. (Docket #62-3,
11 and 49). One such area of additional coverage is “Additional Living
Expense” relating to “a covered loss” under the policy. Id. Chartis asks the
Court to find that “[t]he Strausses’ Additional Living Expense [under the
Chartis policy] is not covered because the house was not uninhabitable and
the Strausses never moved out.” (Docket #60, 2). In response, the Strausses
clarify that they do not seek “lodging costs” but rather costs associated with
“remov[ing] their belongings from certain areas of the house where repair
Page 21 of 25
work was being performed and restrict[ing] their living area to rooms where
repair work was not underway.” (Docket #99, 15).
The coverage at issue states, in relevant part, as follows:
1.
Additional Living Expense
If a covered loss makes your residence uninhabitable, we cover
any reasonable increase in living expenses incurred by you to
maintain your household’s usual standard of living. Payment
will continue for the shortest reasonable amount of time
necessary to restore your residence to a habitable condition or
for your household to permanently locate elsewhere. If your
residence is under construction and you are living in the
residence at the time of loss, additional living expenses will
cease once you are restored to the condition you were just
prior [sic] to the loss.
(Docket #62-3, 11 and 49).
A genuine dispute of material fact exists as to whether the House was
uninhabitable17 for some period of time while remediation took place.
Therefore, summary judgment on this issue is inappropriate.
5.5
Bad Faith?
Lastly, Chartis asks the Court to find “at the very least,” that “whether
[Chartis’] Policy covers the Strausses’ claims is ‘fairly debatable’ such that
summary judgment should be granted for Chartis and against the Strausses’
on their Bad Faith action.” In this connection, Chartis filed a motion seeking
leave to file a supplemental memorandum in support of its Motion for
17
The terms of the provision do not require an insured to actually vacate if
the residence is uninhabitable; rather than promise to cover costs of hotel and
restaurant dining during a period of uninhabitability, the provision introduces
ambiguity by promising to “cover any reasonable increase in living expenses . . . to
maintain your household’s usual standard of living.” (Docket #62-3, 11 and 49).
Page 22 of 25
Summary Judgment on the Strausses bad faith claim “[b]ecause Wisconsin
law requires the Strausses [to] support their Bad Faith Claim with expert
testimony” in Chartis’ view. (Docket #117, 2).
The Supreme Court of Wisconsin spoke to this issue in 1995, in
holding:
We reject the circuit court's and court of appeals' brightline rule
requiring expert testimony in all bad faith tort claims. Cases
presenting particularly complex facts and circumstances
outside the common knowledge and ordinary experience of an
average juror will ordinarily require an insured to introduce
expert testimony to establish a prima facie case for bad faith.
Under the facts and circumstances of other cases, however, the
question of whether an insurer has breached its duty as a
reasonable insurer to evaluate its insured's claim fairly and
neutrally will remain well within the realm of the ordinary
experience of an average juror and therefore will not require
expert testimony. As this court has previously stated, “[t]he
requirement of expert testimony is an extraordinary one, and
is to [be] applied by the trial court only when unusually
complex or esoteric issues are before the jury.” White v.
Leeder, 149 Wis.2d 948, 960, 440 N.W.2d 557 (1989) (citing
Netzel v. State Sand & Gravel Co., 51 Wis.2d 1, 7, 186 N.W.2d
258 (1971)).
Weiss v. United Fire and Cas. Co., 197 Wis.2d 365, 374 (1995).18
Based on the present record before it (which, as described above,
contains a number of genuine disputes of material fact), the Court is unable
to conclude that the Strauss-Chartis Claims present particularly complex
facts and circumstances outside the common knowledge and ordinary
experience of an average juror.
18
See generally, Talmage v. Harris, 486 F.3d 968, 977 (7th Cir. 2007).
Page 23 of 25
Therefore, the Court will deny both: (i) Chartis’ Motion for Summary
Judgment on the Strausses’ bad faith claim (Docket #58); and (ii) Chartis’
motion for leave to file a supplemental memorandum in support of its
motion for summary judgment on the Strausses’ bad faith claim for failure
to designate expert testimony. (Docket #117).
6.
CONCLUSION
For the foregoing reasons, the parties’ respective motions for
summary judgment (Docket #’s 54, 58 and 64)) will each be denied.
Accordingly,
IT IS ORDERED that the Chubb Defendants’ Motion for Summary
Judgment (Docket #54) be and the same is hereby DENIED;
IT IS FURTHER ORDERED that Plaintiffs’ Motion to Strike Exhibit
4 to the Affidavit of Attorney Nicolas C. Mesco Filed in Support of the Chubb
Defendants’ Motion for Summary Judgment (Docket #95) be and the same
is hereby DENIED as moot;
IT IS FURTHER ORDERED that Plaintiffs’ Motion for Partial
Summary Judgment against the Chubb Defendants (Docket #64) be and the
same is hereby DENIED;
IT IS FURTHER ORDERED that Chartis’ Motion for Summary
Judgment (Docket #58) be and the same is hereby DENIED;
IT IS FURTHER ORDERED that Plaintiffs’ Motion to Strike Exhibit
D to the Affidavit of Dennis D. Fitzpatrick Filed in Support of Chartis’
Motion for Summary Judgment (Docket #97) be and the same is hereby
DENIED as moot;
IT IS FURTHER ORDERED that Chartis’ Motion to Strike Plaintiffs’
[Proposed] Statement of Additional Facts in Support of Their Brief in
Page 24 of 25
Opposition To Chartis’s Motion for Summary Judgment in Excess Of the
Limit Mandated by Civil L. R. 56(b)(2) and 56(b)(7) (Docket #112) be and the
same is hereby DENIED as moot; and
IT IS FURTHER ORDERED that Chartis’ Motion for Leave to File
Supplemental Memorandum in Support of Motion for Summary Judgment
on Bad Faith Claim for Failure to Designate Expert Testimony (Docket #117)
be and the same is hereby DENIED.
Dated at Milwaukee, Wisconsin, this 2nd day of January, 2013.
BY THE COURT:
J.P. Stadtmueller
U.S. District Judge
Page 25 of 25
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