2017 WI 43
SUPREME COURT OF WISCONSIN
CASE NO.: 2015AP79
COMPLETE TITLE: Maya Elaine Smith,
Plaintiff,
v.
Jeff Anderson, d/b/a Anderson Real Estate
Services,
Defendant-Third-Party Plaintiff,
v.
4th Dimension Design, Inc.,
Third-Party Defendant,
R & B Construction, Inc.,
Third-Party
Defendant-Appellant-Petitioner,
West Bend Mutual Insurance Company,
Intervenor-Respondent.
REVIEW OF A DECISION OF THE COURT OF APPEALS
Reported at 366 Wis. 2d 808, 874 N.W.2d 347
(WI Ct. App. 2016 – Unpublished)
OPINION FILED: April 27, 2017
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: October 18, 2016
SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Milwaukee
JUDGE: Pedro Colon
JUSTICES:
CONCURRED: ROGGENSACK, C. J. concurs (opinion filed).
DISSENTED: ABRAHAMSON, J. dissents, joined by BRADLEY A.
W., J. (opinion filed).
NOT PARTICIPATING: ZIEGLER, J. and BRADLEY, R. G., J. did not
participate.
ATTORNEYS:
For the third-party defendant-appellant-petitioner, there
were briefs by John E. Machulak and Machulak, Robertson & Sodos,
S.C., Milwaukee, and oral argument by John E. Machulak.
For the intervenor-respondent, there was a brief by Jeffrey
L. Leavell, Danielle N. Rousset and Jeffrey Leavell, S.C.,
Racine, and oral argument by Jeffrey L. Leavell.
2017 WI 43
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2015AP79
(L.C. No. 2013CV7085)
STATE OF WISCONSIN : IN SUPREME COURT
Maya Elaine Smith,
Plaintiff,
v.
Jeff Anderson, d/b/a Anderson Real Estate
Services,
Defendant-Third-Party Plaintiff,
FILED
v.
APR 27, 2017
4th Dimension Design, Inc.,
Diane M. Fremgen
Third-Party Defendant, Clerk of Supreme Court
R & B Construction, Inc.,
Third-Party Defendant-Appellant-
Petitioner,
West Bend Mutual Insurance Company,
Intervenor-Respondent.
Review of the decision of the Court of Appeals is dismissed
as improvidently granted.
¶1 PER CURIAM. On April 6, 2016 we granted R&B
Construction, Inc.'s petition for review of an unpublished
No. 2015AP79
decision of the Court of Appeals.1 Briefing of the parties and
of the amicus, Wisconsin Defense Counsel, Inc., were timely
completed, and on October 18, 2016, the court held oral
argument.
¶2 The petition for review asked the court to decide:
(1) whether a third-party complaint may state a claim for which
an insurance company has a duty to defend when the third-party
plaintiff was sued for misrepresentation by the first-party
plaintiff; (2) whether a third-party defendant may supplement
the third-party complaint with additional facts when the third-
party defendant seeks a defense from its insurance company; and
(3) whether summary judgment denying a claim for defense
conclusively concludes the duty to defend question,
notwithstanding subsequent developments in the lawsuit.
¶3 The circuit court granted summary judgment to West
Bend Mutual Insurance Company.2 The circuit court concluded that
there was no initial grant of coverage and also, if there were
an initial grant of coverage, the policy exclusions prevented
coverage for the claims for which R&B Construction sought
defense. Therefore, West Bend Mutual had no duty to defend.
The circuit court dismissed West Bend Mutual from the lawsuit
and R&B appealed.
1
Smith v. Anderson, No. 2015AP79, unpublished slip op.
(Wis. Ct. App. Dec. 22, 2015).
2
The Honorable Pedro A. Colon of Milwaukee County presided.
2
No. 2015AP79
¶4 In considering R&B's claim that West Bend Mutual had a
duty to defend R&B, the Court of Appeals decided no defense was
due based solely on its conclusion that there was no initial
grant of coverage for the injury from which a duty to defend
could arise.3 However, that was not the only argument that West
Bend Mutual made to the Court of Appeals. West Bend Mutual also
asserted that if the Court of Appeals concluded that there was
an initial grant of coverage, the policy exclusions obviated
coverage and therefore, there was no duty to defend.
¶5 The petition for review and the responses presented to
us during our review focused on the Court of Appeals decision.
Therefore, they were limited to whether there was an initial
grant of coverage under the policy. No party argued that if
there was an initial grant of coverage, the policy exclusions
nevertheless precluded coverage. Therefore, no party challenged
the circuit court's conclusion that the policy exclusions
precluded coverage, a conclusion that the Court of Appeals'
decision left in place because the Court of Appeals did not
address policy exclusions.
¶6 In 2016, we decided Water Well Sol. Serv. Group, Inc.
v. Consolidated Ins. Co., 2016 WI 54, 369 Wis. 2d 607, 881
N.W.2d 285. One of the questions presented in Water Well was
whether a four-corners analysis required interpretation of the
entire policy, i.e., whether there was an initial grant of
3
Smith v. Anderson, No. 2015AP79, unpublished slip op.,
¶¶16-17 (Wis. Ct. App. Dec. 22, 2015).
3
No. 2015AP79
coverage and whether any exclusion or exception affected
coverage. Id., ¶2. We concluded that when a claim for defense
is made, courts must interpret the entire policy – including any
grant of coverage and all applicable exclusions and exceptions
to exclusions that bear on coverage. Id., ¶¶2-3 (citing Marks
v. Houston Cas. Co., 2016 WI 53, ¶¶61-76, 369 Wis. 2d 547, 881
N.W.2d 309).
¶7 In the case now before us, if we were to stop our
analysis after determining that there was an initial grant of
coverage, the parties would not receive a full four-corners
analysis. Our decision could be viewed as retreating from the
clear directive we gave in Water Well where we said, "under the
four-corners rule the entire policy must be examined, including
the coverage-granting clauses, exclusions, and exceptions to any
applicable exclusions." Id., ¶2.
¶8 Our decision also would create confusion because the
circuit court concluded that the "Your Work" exclusion precluded
coverage, and that decision was not overturned by the Court of
Appeals. Before us, neither party briefed or argued that
coverage was precluded by a policy exclusion. Therefore, were
we to follow the lead of the parties and the Court of Appeals
and not address exclusions and any applicable exceptions to
exclusions, a question would remain about whether West Bend
Mutual had a duty to defend R&B because the circuit court
concluded that an exclusion precluded coverage under the West
Bend policy.
4
No. 2015AP79
¶9 Accordingly, because there are coverage questions for
which no argument or briefing was provided to us and because
deciding only whether there is a grant of coverage will cause
confusion and provide no answer to the parties on how they are
to proceed, we conclude that the petition for review was
improvidently decided.
By the Court.—The review of the decision of the court of
appeals is dismissed as improvidently granted.
¶10 ANNETTE KINGSLAND ZIEGLER and REBECCA GRASSL BRADLEY,
JJ., did not participate.
5
No. 2015AP79.pdr
¶11 PATIENCE DRAKE ROGGENSACK, C.J. (concurring).
Although I agree that the review herein was improvidently
granted, I write in concurrence for two reasons: (1) to point
out the significant risk parties face in failing to complete a
full, four-corners analysis before us, as is required by Water
Well Sol. Serv. Group, Inc. v. Consolidated Ins. Co., 2016 WI
54, ¶2, 369 Wis. 2d 607, 881 N.W.2d 285, and (2) to avoid public
confusion, which could result from Justice Abrahamson's dissent.
¶12 Unlike the full, four-corners analysis, which the
parties completed in both the circuit court and the court of
appeals, they presented only a partial analysis here. They
addressed only the initial grant of coverage issue. As is
apparent from Justice Abrahamson's writing that follows, she
would conclude that there was an initial grant of coverage.
West Bend Mutual ignored the risk that we could conclude that
its policy made an initial grant of coverage when West Bend
Mutual limited the issues it presented to us and did not address
the policy exclusions. Ms. Smith ignored the risk that the
circuit court's conclusion that the "Your Work" exclusion
precluded coverage when she chose not to attack that decision as
part of her review here. As a cautionary note, a full, four-
corners analysis is required, as we explained in Water Well.
¶13 Justice Abrahamson states, "We conclude” that no
policy exclusion excuses West Bend's duty to defend. However
this conclusion is unsupported by anything other than one
sentence found in ¶43 of her writing. In ¶43, she also states,
"we reverse the decision of the court of appeals," when the
1
No. 2015AP79.pdr
majority of the court does not reverse the decision of the court
of appeals. Accordingly, I write to avoid the potential for
public confusion that her writing may create.
2
No. 2015AP79.ssa
¶14 SHIRLEY S. ABRAHAMSON, J. (dissenting). This court
seriously errs in dismissing this petition for review as
improvidently granted. It errs because the parties and the
public need a decision from this court on the important issues
the parties presented, briefed, and argued in this court.
¶15 This dismissal embodies regrettable appellate practice
given the circumstances of this case and the court's scanty
workload.
¶16 This dismissal has unnecessarily caused these parties
and the amicus curiae expense and delay without giving the
parties, the amicus, or the public the benefit of a decision on
important issues.1
¶17 The parties have been awaiting a final appellate
decision for more than two years since the circuit court issued
its judgment. Obviously, they have incurred substantial
expenses. The circuit court entered judgment on November 25,
2014. The court of appeals issued its decision on December 22,
2015. This court granted R&B Construction's petition for review
on April 6, 2016. R&B Construction, Inc., West Bend Mutual
Insurance Company, and Wisconsin Defense Counsel Inc., as amicus
curiae, all filed briefs in this court. This court held oral
argument on October 18, 2016.
¶18 The petition for review in the instant case raised the
following significant issues:
1
Wisconsin Defense Counsel, Inc. filed an amicus curiae
brief.
1
No. 2015AP79.ssa
1. Can a third-party complaint state a claim that an
insurance company has a duty to defend, where the
complaint against the third-party plaintiff is for
misrepresentation?
2. Should a party looking to his insurance company to
provide him with a defense be able to introduce
information not stated in the pleadings to show that
there could be claims requiring his insurer to
provide a defense?
3. Can a party denied a defense after his insurance
company succeeds on a motion for summary judgment
reassert a right to a defense if later developments
in the case show that he is entitled to a defense?
¶19 We granted review of these issues because they are
law-developing. Resolving the first issue relating to third-
party practice would have given this court the opportunity to
explain the proper application of the four-corners rule in duty-
to-defend cases involving third-party complaints and answers.
¶20 The case also presents yet another important
opportunity to educate litigants and ourselves about preserving
issues for review in this court. We have missed a good
opportunity to once again clarify the rules of appellate
practice.
¶21 Furthermore, the court's case load is scanty. We
probably will decide fewer than 55 cases from September 2016
through June 2017 (up from fewer than 45 cases from September
2015 through June 2016).
¶22 Here are the circumstances leading to the untoward
dismissal in the instant case.
¶23 The court of appeals held in favor of West Bend
Insurance on coverage, a dispositive issue. As a result, the
court of appeals need not, and did not, decide whether certain
2
No. 2015AP79.ssa
policy exclusions precluded a duty to defend.2 Because West Bend
Insurance failed to assert in this court that its duty to defend
was precluded by policy exclusions, an argument that would have
supported the decision of the court of appeals, West Bend
Insurance waived (forfeited) its right to have this court decide
the policy exclusion issue as a matter of right.
¶24 To preserve the issue of the effect of the policy
exclusions for review as a matter of right in this court, West
Bend Insurance was required to present the issue of policy
exclusions to this court. It could have accomplished this goal
in one of two ways.
¶25 West Bend Insurance could have presented the issue of
policy exclusions to this court in its response to R&B
Construction's petition for review. Wisconsin Stat.
§ (Rule) 809.62(3)(d) provides: "If filed, the response may
contain any of the following: . . . (d) Any alternative ground
supporting the court of appeals result or a result less
favorable to the opposing party than that granted by the court
of appeals."3 West Bend did not present the issue of policy
exclusions in its response to R&B Construction's petition for
review.4
2
Smith v. Anderson, No. 2015AP79, unpublished slip op.,
¶17, n.2 (Wis. Ct. App. Dec. 22, 2015).
3
See In Interest of Jamie L., 172 Wis. 2d 218, 232–33, 493
N.W.2d 56 (1992).
4
Michael S. Heffernan gives the following practice tip in
Appellate Practice and Procedure in Wisconsin § 23.13 (7th ed.
2016), regarding a response to a petition for review:
(continued)
3
No. 2015AP79.ssa
¶26 Alternatively, West Bend Insurance could have asserted
and discussed the issue of policy exclusions in its brief in
this court.5 West Bend Insurance's brief in this court did not
present or develop this issue of policy exclusions.
¶27 Having taken neither alternative course of action,
West Bend Insurance has not preserved this issue for review as a
matter of right.
¶28 In light of West Bend Insurance's failure to preserve
the issue of policy exclusions as a matter of right, the court
has three alternative courses of action it might take in the
instant case: (1) The court may review the issue; (2) the court
may decide West Bend Insurance has waived (forfeited) the right
to a review of the issue; or (3) the court may remand the issue
to the court of appeals for a review of the decision of the
circuit court on the issue.6
It is particularly important to file a response if the
respondent believes that there are alternative grounds
to support the underlying decision, or if there are
issues that need to be decided other than those relied
on by the court of appeals. See State v. Smith, 2016
WI 23, ¶41, 367 Wis. 2d 483, 878 N.W.2d 135, petition
for cert. filed (U.S., Oct. 10, 2016 (No. 16-6409);
see also Wis. Stat. Ann. § 809.62(3), Judicial Council
Committee cmt.——2008.
West Bend Insurance did not have to file a cross-petition.
It had no adverse decision from which to cross-petition. See
Wis. Stat. § (Rule) 809.62(7); In Interest of Jamie L., 172
Wis. 2d 218, 232–33, 493 N.W.2d 56 (1992); Michael S. Heffernan,
Appellate Practice and Procedure in Wisconsin § 23.13 (7th ed.
2016). West Bend Insurance did not file a cross-petition.
5
See Jamie L., 172 Wis. 2d at 232–33.
6
See Jamie L., 172 Wis. 2d at 232–33.
4
No. 2015AP79.ssa
¶29 Holding West Bend Insurance to have waived (forfeited)
the application of its policy exclusions is especially apt in
the instant case. The court should not decide the issue without
briefs.7 Nor should the court examine the briefs filed in the
court of appeals on appeal from the circuit court in lieu of
requiring briefs here. The order granting the petition for
review explicitly states that if a party wishes to rely on any
materials in its brief to the court of appeals, the material has
to be restated in the brief filed in this court. Nor should the
court order additional briefs here or remand the issue to the
court of appeals. West Bend Insurance was fully cognizant of
the policy exclusion issue and obviously decided not to raise it
in this court. There is no compelling reason to give West Bend
Insurance another kick at the can.8
¶30 Here's the opinion that I think this court should be
issuing reversing the decision of the court of appeals:
* * * *
REVIEW of a decision of the Court of Appeals. Reversed and
remanded.
7
Cf. State v. Howes, 2017 WI 18, ¶¶103-106, 373
Wis. 2d 468, ___ N.W.2d ___ (Abrahamson, J., dissenting).
8
See State v. Alexander, 2013 WI 70, ¶31 n.10, 349
Wis. 2d 327, 833 N.W.2d 126, quoting with approval Rivera–Gomez
v. de Castro, 843 F.2d 631, 635 (1st Cir. 1988) ("Judges are not
expected to be mindreaders. Consequently, a litigant has an
obligation to spell out its arguments squarely and
distinctly . . . , or else forever hold its peace.") (internal
quotation marks and citation omitted).
5
No. 2015AP79.ssa
¶31 SHIRLEY S. ABRAHAMSON, J. This is a review of an
unpublished decision of the court of appeals.9 The court of
appeals affirmed the order of the circuit court for Milwaukee
County, Pedro Colon, Judge, granting summary judgment in favor
of West Bend Mutual Insurance Company against its insured, R&B
Construction, Inc. The circuit court declared that West Bend
Insurance had no duty to defend its insured, R&B Construction,
with respect to a third-party complaint Jeff Anderson, d/b/a
Anderson Real Estate Services, filed against R&B Construction,
Inc.
¶32 According to the court of appeals, the third-party
complaint did not allege "property damage" or an "occurrence"
under the terms of the insurance policy.
¶33 For the reasons set forth, we conclude that the
allegations against R&B Construction in Jeff Anderson's third-
party complaint assert property damage caused by an occurrence,
as those words are used within the insurance policy issued by
West Bend Insurance. Thus, West Bend Insurance has a duty to
defend R&B Construction in Jeff Anderson's third-party action.
¶34 West Bend Insurance failed to assert in this court
that its duty to defend was precluded by exclusions in the
policy. Thus, West Bend Insurance failed to preserve this issue
for review as a matter of right. It has waived or forfeited
this issue.
9
Smith v. Anderson, No. 2015AP79, unpublished slip op.
(Wis. Ct. App. Dec. 22, 2015).
6
No. 2015AP79.ssa
¶35 The facts giving rise to the waiver or forfeiture
began when the court of appeals held in favor of West Bend
Insurance on coverage, a dispositive issue, and did not decide
whether certain policy exclusions precluded a duty to defend.10
Because West Bend Insurance failed to assert in this court that
its duty to defend was precluded by policy exclusions, an
argument that would have supported the decision of the court of
appeals, West Bend Insurance waived (forfeited) its right to
have this court decide the policy exclusion issue as a matter of
right.
¶36 To preserve the issue of the effect of the policy
exclusions for review as a matter of right in this court, West
Bend Insurance was required to present the issue of policy
exclusions to this court. It could have accomplished this in
one of two ways.
¶37 West Bend Insurance could have presented the issue of
policy exclusions to this court in its response to R&B
Construction's petition for review. Wisconsin Stat.
§ (Rule) 809.62(3)(d) provides: "If filed, the response may
contain any of the following: . . . (d) Any alternative ground
supporting the court of appeals result or a result less
favorable to the opposing party than that granted by the court
of appeals."11 West Bend did not present the issue of policy
10
Smith v. Anderson, No. 2015AP79, unpublished slip op.,
¶17, n.2 (Wis. Ct. App. Dec. 22, 2015).
11
See Jamie L., 172 Wis. 2d at 232–33.
7
No. 2015AP79.ssa
exclusions in its response to R&B Construction's Petition for
Review.12
¶38 Alternatively, West Bend Insurance could have asserted
and discussed the issue of policy exclusions in its brief in
this court.13 West Bend Insurance's brief in this court did not
present or develop this issue of policy exclusions.
¶39 Having taken neither alternative course of action,
West Bend Insurance has not preserved this issue for review as a
matter of right.
¶40 In light of West Bend Insurance's failure to preserve
the issue of policy exclusions as a matter of right, the court
has three alternative courses of action it might take in the
instant case: (1) The court may review the issue; (2) the court
12
Michael S. Heffernan gives the following practice tip in
Appellate Practice and Procedure in Wisconsin § 23.13 (7th ed.
2016), regarding a response to a petition for review:
It is particularly important to file a response if the
respondent believes that there are alternative grounds
to support the underlying decision, or if there are
issues that need to be decided other than those relied
on by the court of appeals. See State v. Smith, 2016
WI 23, ¶41, 367 Wis. 2d 483, 878 N.W.2d 135, petition
for cert. filed (U.S., Oct. 10, 2016 (No. 16-6409);
see also Wis. Stat. Ann. § 809.62(3), Judicial Council
Committee cmt.——2008.
West Bend Insurance did not have to file a cross-petition.
It had no adverse decision from which to cross-petition. See
Wis. Stat. § (Rule) 809.62(7). See Jamie L., 172 Wis. 2d at
232–33; Michael S. Heffernan, Appellate Practice and Procedure
in Wisconsin § 23.13 (7th ed. 2016). West Bend Insurance did
not file a cross-petition.
13
See Jamie L., 172 Wis. 2d at 232–33.
8
No. 2015AP79.ssa
may decide West Bend Insurance has waived (forfeited) the right
to a review of the issue; or (3) the court may remand the issue
to the court of appeals for a review of the decision of the
circuit court on the issue.14
¶41 Holding West Bend Insurance to have waived (forfeited)
the application of its policy exclusions is especially apt in
the instant case. The court should not decide the issue without
briefs.15 Nor should the court examine the briefs filed in the
court of appeals on appeal from the circuit court in lieu of
requiring briefs here. The order granting the petition for
review explicitly states that if a party wishes to rely on any
materials in its brief to the court of appeals, the material has
to be restated in the brief filed in this court. Nor should the
court order additional briefs here or remand the issue to the
court of appeals. West Bend Insurance was fully cognizant of
the policy exclusion issue and obviously decided not to raise it
in this court. There is no compelling reason to give West Bend
Insurance another kick at the can.16
14
See Jamie L., 172 Wis. 2d at 232–33.
15
Cf. State v. Howes, 2017 WI 18, ¶¶103-106, 373
Wis. 2d 468, ___ N.W.2d ___ (Abrahamson, J., dissenting).
16
See State v. Alexander, 2013 WI 70, ¶31 n.10, 349
Wis. 2d 327, 833 N.W.2d 126, quoting with approval Rivera–Gomez
v. de Castro, 843 F.2d 631, 635 (1st Cir. 1988) ("Judges are not
expected to be mindreaders. Consequently, a litigant has an
obligation to spell out its arguments squarely and
distinctly . . . , or else forever hold its peace.") (internal
quotation marks and citation omitted).
9
No. 2015AP79.ssa
¶42 Accordingly, we need address only whether West Bend
has a duty to defend under the coverage provisions of the
policy, namely the provisions regarding "property damage" and
"occurrence" because that is the only issue raised and briefed
by the parties in regard to the duty to defend.
¶43 We conclude that West Bend Insurance has a duty to
defend under the coverage provisions of the policy, and that
West Bend has forfeited or waived any argument it had that a
policy exclusion excuses its duty to defend. Accordingly, we
reverse the decision of the court of appeals and remand the
cause to the circuit court for further proceedings not
inconsistent with this decision.
¶44 To understand the legal issue regarding the duty to
defend, we have to set the stage from the beginning. This
litigation began shortly after Maya Elaine Smith purchased a
residence in Milwaukee from the owner, Jeff Anderson, d/b/a
Anderson Real Estate Services. After apparently discovering
defects in the structure, including leaks in the basement,
Smith, the plaintiff, sued Jeff Anderson, the defendant,
asserting a claim for breach of contract and numerous claims for
misrepresentation. Smith amended her complaint on January 27,
2014.
¶45 When we refer herein to the Smith complaint, we are
referring to the amended Smith complaint. For purposes of this
decision it would not matter whether we referred to the original
Smith complaint or the amended complaint; they are substantially
10
No. 2015AP79.ssa
the same.17 The amended complaint further develops factual
allegations. The facts that are material to our analysis——that
the basement leaked and the drain tiles were clogged, both of
which require repair——appear in both complaints.
¶46 Jeff Anderson, the defendant in Smith's complaint, in
turn sued (by means of a third-party complaint) 4th Dimension
17
Anderson's third-party complaint was filed before Smith's
amended complaint was served on Anderson. Anderson attached the
original Smith complaint to his third-party complaint. The
third-party complaint was not amended to attach the amended
Smith complaint. We examine the amended complaint for several
reasons.
The parties, the circuit court, and the court of appeals
discuss the amended complaint. For example, West Bend Insurance
stated in its Intervenor Complaint that its "policy does not
provide coverage, either defense or indemnity, for the
allegations of the amended complaint or the third party
complaint."
The amended complaint in the instant case was filed as a
matter of course. No permission was needed from the circuit
court or parties because the amended complaint was filed within
six months of the filing of the complaint. Wis. Stat.
§ 802.09(1). "[A]n amended complaint supersedes or supplants
the prior complaint. When an amended complaint supersedes a
prior complaint, the amended complaint becomes the only live,
operative complaint in the case . . . ." Holman v. Family
Health Plan, 227 Wis. 2d 478, ¶12, 596 N.W.2d 358 (1999)
(footnote omitted). The amended complaint in the instant case
apparently became effective as to Jeff Anderson on February 3,
2014, when he was served with the amended complaint.
"Generally, an amended complaint supersedes a previous
pleading and will determine a liability insurer's duty to
defend. . . . Accordingly, most courts require that the latest
amended pleadings or potential amendments be relied upon by the
insurer in determining its duty to defend." 14 Steven Plitt et
al., Couch on Insurance § 200:20 (3d ed. 2005).
11
No. 2015AP79.ssa
Design, Inc., an engineering firm,18 and R&B Construction, a
contractor, naming both as third-party defendants. Jeff
Anderson, the third-party plaintiff, had contracted with these
two firms to do work on the residence before the sale to Smith.
¶47 4th Dimension Design, Inc. inspected the residence,
assessed the basement walls' structural integrity, and submitted
a report to Jeff Anderson. Jeff Anderson then gave the report
and engineering plans to the contractor, R&B Construction, with
directions to implement 4th Dimension's recommendations and
plans. According to Jeff Anderson's third-party complaint, R&B
Construction, among other things, repaired the basement's walls,
replaced drain tiles, installed a sump pump and sump crock, and
provided warranties against faulty workmanship or materials for
the basement repair and resolution of drainage issues.
¶48 Jeff Anderson's third-party complaint seeks
contribution or indemnity from these two third-party defendants,
should Jeff Anderson be held liable to Smith.19 Contribution and
indemnification seek to distribute liability among multiple
actors that cause the same harm.
¶49 R&B Construction was insured under a Contractors
Businessowners' Liability Policy with West Bend Insurance. This
18
4th Dimension Design is not a party in the review before
us.
19
Jeff Anderson's third-party complaint alleged that if he
is found liable to Smith, "he is entitled to be indemnified and
held harmless from any and all liabilities . . . ," "requests
that the third party defendants contribute their respective
share of liability," and asserts "a claim for
contribution . . . against [the] third party defendants."
12
No. 2015AP79.ssa
is a standard Commercial General Liability Policy ("CGL"), which
"protects the insured against liability for damages the
insured's negligence causes to third parties."20
¶50 R&B Construction tendered its defense in Anderson's
third-party action to West Bend Insurance, its insurance
company. West Bend Insurance intervened in the lawsuit.21 It
moved for summary judgment, asserting that it has no duty to
defend R&B Construction because the Smith complaint and the Jeff
Anderson third-party complaint do not allege property damage (as
defined in the policy) caused by an occurrence (as defined in
the policy). The circuit court granted summary judgment in
favor of West Bend Insurance, concluding that West Bend
Insurance had no duty to defend R&B Construction.
¶51 In deciding the instant case, we must examine both
Smith's complaint and Anderson's third-party complaint, as did
the parties, the circuit court, and the court of appeals.
¶52 After the circuit court ruled that West Bend Insurance
had no duty to defend R&B Construction in Jeff Anderson's third-
party complaint against R&B Construction, R&B Construction moved
for summary judgment seeking dismissal of Jeff Anderson's third-
party complaint against it. The circuit court denied this
motion, seemingly suggesting that R&B Construction's negligent
20
Wis. Label Corp. v. Northbrook Prop. & Cas. Ins. Co.,
2000 WI 26, ¶27, 233 Wis. 2d 314, 607 N.W.2d 276.
21
On tender of defense from its insured, an insurance
company can proceed in several different ways. See Marks v.
Houston Cas. Co., 2016 WI 53, ¶41, n.21, 369 Wis. 2d 547, 881
N.W.2d 309.
13
No. 2015AP79.ssa
work at the residence may have caused the damage Smith claimed
was caused by Jeff Anderson.
¶53 The circuit court's explanation for denying R&B
Construction's motion for summary judgment against Jeff Anderson
is as follows:
[T]here's some deviations which are significant in the
design by 4-D of the basement walls. Now I'm not
concluding that that is in fact the standard or that
in fact their deviation, if there is one, would
contribute to the condition of this faulty leaky
basement. But it is a disputed fact.
. . . .
So with the evidence before the court, there's——and
taking all inferences in favor of the defendant, I
can't find that there's not a dispute of material
fact. I think there is a dispute of material fact and
the allocation of responsibility within or——negligence
within which is allocated, I am not sure about at this
juncture nor do I have to decide.
. . . .
I don't know that we have the facts today. But I
wonder whether or not R&B shares responsibility, but
we'll find that out through discovery I suspect.
¶54 R&B Construction stresses the disparity in the circuit
court's rulings on the two summary judgment motions. R&B
Construction interprets the circuit court as concluding, in R&B
Construction Company's summary judgment motion against Jeff
Anderson (the second summary judgment motion), that Anderson's
third-party complaint stated a valid claim against R&B
Construction for negligent or faulty work on the basement or
drain tiles. R&B Construction further asserts that because such
a claim against R&B Construction is the sort of claim that is
covered by R&B Construction's policy, West Bend Insurance should
14
No. 2015AP79.ssa
have a duty to defend R&B Construction in Jeff Anderson's third-
party complaint against R&B Construction and that West Bend
Insurance should not have been relieved of any duty to defend
R&B Construction.
¶55 R&B Construction filed a petition for leave to file an
interlocutory appeal of the circuit court's denial of its motion
for summary judgment against Jeff Anderson, but the court of
appeals denied R&B Construction's petition. On R&B
Construction's motion, the circuit court has stayed all
proceedings in the instant case pending before it.
¶56 In the instant case, the court of appeals refused to
consider the circuit court's order denying R&B Construction's
motion for summary judgment against Jeff Anderson (the second
summary judgment motion). The court of appeals declared that
that order was not before it.22
¶57 Similarly, the circuit court's order denying R&B
Construction's motion for summary judgment against Jeff Anderson
(the second summary judgment) is not before this court. The
only order before us is the order in favor of West Bend
Insurance against R&B Construction on the issue of whether West
Bend Insurance has a duty to defend R&B Construction in Jeff
Anderson's third-party complaint against it.
¶58 The basic issue presented is whether Jeff Anderson's
third-party complaint against R&B Construction (to which Smith's
complaint against Jeff Anderson is attached) states a claim that
22
Smith v. Anderson, No. 2015AP79, unpublished slip op.
(Wis. Ct. App. Dec. 22, 2015), ¶17 n.2.
15
No. 2015AP79.ssa
West Bend Insurance had a duty to defend R&B Construction. The
answer to this question depends on several rules and principles
of law that we shall address on the way to reversing the
decision of the court of appeals and concluding that West Bend
Insurance has a duty to defend R&B Construction in the third-
party action. We remand the cause to the circuit court for
further proceedings not inconsistent with this decision.
I
¶59 The first issue of law we address is the standard of
review of the circuit court order granting summary judgment to
West Bend Insurance. We then set forth the four-corners rule
used to determine whether West Bend Insurance has a duty to
defend its insured. We then examine rules for interpreting
complaints and insurance policies, and principles applicable to
contribution and indemnification.
¶60 When we review a circuit court order granting summary
judgment, we apply the same standard of review and methodology
as that used by the circuit court.23 Summary judgment is
appropriate when there is no issue of material fact and the
moving party is entitled to judgment as a matter of law.24
¶61 When no extrinsic evidence is admitted on the motion
for summary judgment (and none is considered in the instant
case), the interpretation of an insurance policy, including the
23
Fireman's Fund Ins. Co. of Wis. v. Bradley Corp., 2003 WI
33, ¶15, 261 Wis. 2d 4, 660 N.W.2d 666.
24
Wis. Stat. § 802.08(2) (2011-12).
16
No. 2015AP79.ssa
duty to defend, is a question of law that this court determines
independently of the circuit court or the court of appeals while
benefiting from their analyses.25
¶62 In determining whether an insurance company has a duty
to defend its insured, the court applies the four-corners rule.26
Under the four-corners rule, the court determines an insurance
company's duty to defend its insured by comparing the terms of
the insurance policy to the allegations of the complaint. "The
insurer's duty arises when the allegations in the complaint
coincide with the coverage provided by the policy."27 Thus,
"[i]f the [factual] allegations in the complaint, construed
liberally, appear to give rise to coverage, insurers are
required to provide a defense until the final resolution of the
coverage question by a court."28 The proper application of the
four-corners rule presents a question of law that the court
25
Fireman's Fund, 261 Wis. 2d 4, ¶17.
26
In Water Well Solutions Service Group, Inc. v.
Consolidated Insurance Co., 2016 WI 54, ¶24, 369 Wis. 2d 607,
881 N.W.2d 285, this court "unequivocally [held] that there is
no exception to the four-corners rule in duty to defend cases in
Wisconsin." Because we recently concluded that the four-corners
rule has no exceptions, we will not address R&B Construction's
argument asserting that the court should carve out an exception
to the four-corners rule.
27
Smith v. Katz, 226 Wis. 2d 798, 807, 595 N.W.2d 345
(1999).
28
Olson v. Farrar, 2012 WI 3, ¶30, 338 Wis. 2d 215, 229,
809 N.W.2d 1.
17
No. 2015AP79.ssa
decides independently of the determinations rendered by the
circuit court and court of appeals.29
¶63 In applying the four-corners rule in the instant case,
the court is guided by the following rules for interpreting the
complaint:
• A court construes all allegations in the complaint
liberally when comparing the allegations of a
complaint to the terms of an insurance policy.30
• We assume all reasonable inferences in the allegations
of a complaint in favor of the insured.31
• Assuming all reasonable inferences in favor of the
insured means that we "resolve any doubt regarding the
duty to defend in favor of the insured."32
• The facts alleged in the complaint establish an
insurance company's duty to defend the insured.33
29
Olson, 338 Wis. 2d 215, ¶22.
30
Estate of Sustache v. Am. Family Mut. Ins. Co., 2008 WI
87, ¶21, 311 Wis. 2d 548, 751 N.W.2d 845.
31
Doyle v. Engelke, 219 Wis. 2d 277, 284, 580 N.W.2d 245,
248 (1998).
32
Fireman's Fund 261 Wis. 2d 4, ¶20; Wausau Tile, Inc. v.
County Concrete Corp., 226 Wis. 2d 235, 266, 593 N.W.2d 445
(1999) ("Any doubt as to the existence of the duty to defend
must be resolved in favor of the insured.").
33
Doyle, 219 Wis. 2d at 284 ("In determining an insurer's
duty to defend, we apply the factual allegations present in the
complaint to the terms of the disputed insurance policy."); Am.
Family Mut. Ins. Co. v. Am. Girl, Inc., 2004 WI 2, ¶24, 268
Wis. 2d 16, 673 N.W.2d 65 ("First, we examine the facts of the
insured's claim to determine whether the policy's insuring
agreement makes an initial grant of coverage.").
(continued)
18
No. 2015AP79.ssa
"[W]e must focus on the incident or injury that gives
rise to the claim, not the plaintiff's theory of
liability."34
¶64 In applying the four-corners rule in the instant case,
the court is guided by the following rules for interpreting an
insurance policy:
• Words and phrases in insurance contracts are subject
to the same rules of construction that apply to
contracts generally.35
Looking at the facts alleged rather than the legal theories
asserted comports with the concept of notice pleading.
Wisconsin Stat. § 802.01(1)(a) requires complaints to "plead
facts, which if true, would entitle the plaintiff to relief."33
Data Key Partners v. Permira Advisors LLC, 2014 WI 86, ¶21, 356
Wis. 2d 665, 849 N.W.2d 693.
34
Stuart v. Weisflog's Showroom Gallery, Inc., 2008 WI 86,
¶36, 311 Wis. 2d 492, 753 N.W.2d 448 (internal quotation marks
and quoted source omitted).
C.L. v. School Dist. of Menomonee Falls, 221 Wis. 2d 692,
701, 585 N.W.2d 826 (Ct. App. 1998), illustrates how to apply
this principle. In C.L., the plaintiff alleged that her
school's librarian sexually assaulted her. The court of appeals
looked to the facts alleged and concluded that an "intentional
acts" exclusion in the insured's policy precluded coverage
despite the plaintiff's characterization of her legal claims as
alleged negligent infliction of emotional distress. The court
stated that this legal theory, "although labeled as 'negligent'
infliction of emotional distress, allege[d] facts that certainly
are intentional in nature." C.L., 221 Wis. 2d at 701. The
court of appeals therefore concluded that the facts trumped the
legal theories asserted and precluded coverage under the policy.
C.L., 221 Wis. 2d at 704-05.
14 Steven Plitt et al., Couch on Insurance § 200.19 (3d ed.
2005) ("It is the factual allegations instead of the legal
theories alleged which determine the existence of a duty to
defend.").
19
No. 2015AP79.ssa
• The primary objective in interpreting and construing a
contract is to ascertain and carry out the true intent
of the parties.36
• The terms of an insurance policy are interpreted from
the perspective of a reasonable insured, but a court
will not find coverage that the insurance company did
not contemplate or for which the insurance company has
not received a premium.37
• A court broadly construes the policy to "ensure that
insurers do not frustrate the expectations of their
insureds by [prematurely] resolving the coverage issue
in their own favor[.]"38
• An insurance company's duty to defend its insured in a
lawsuit is necessarily broader than its duty to
indemnify, the other duty generally imposed on an
insurance company under a Commercial General Liability
Policy.39 The insurance company is required to "defend
all suits where there would be coverage if the
allegations were proven . . . ."40 By contrast, the
35
Fireman's Fund, 261 Wis. 2d 4, ¶16.
36
Fireman's Fund, 261 Wis. 2d 4, ¶16.
37
Am. Girl, 268 Wis. 2d 16, ¶23.
38
Olson, 338 Wis. 2d 215, ¶32 (quoting Baumann v. Elliott,
2005 WI App 186, ¶10, 286 Wis. 2d 667, 704 N.W.2d 361).
39
Olson, 338 Wis. 2d 215, ¶29.
40
Olson, 338 Wis. 2d 215, ¶29.
20
No. 2015AP79.ssa
duty to indemnify kicks in once a covered claim
against the insured has actually been proven.
• "The duty of defense depends on the nature of the
claim and has nothing to do with the merits of the
claim."41 Accordingly, the insurance company must
provide a defense for any suit where there would be
coverage, even if the allegations are "utterly
specious."42
• If any one claim falls within the policy coverage,
regardless of the merits of the claim, the insurance
company has a duty to provide a defense for its
insured.43
¶65 Finally we consider the terms of the complaints and
insurance policy in light of Jeff Anderson's third-party
complaint's request for indemnification and contribution. Both
41
Elliott v. Donahue, 169 Wis. 2d 310, 321, 485 N.W.2d 403
(1992).
42
Smith v. Katz, 226 Wis. 2d 798, 807, 595 N.W.2d 345
(1999).
43
"Insurers have an obligation to defend the entire lawsuit
when one theory of liability falls within coverage." 2 Sheila
M. Sullivan et al., Anderson on Wisconsin Insurance Law § 7.82
(7th ed. 2015), citing Charter Oak Fire Ins. Co. v. Hedeen &
Cos., 280 F.3d 730, 738 (7th Cir. 2002) (applying Wisconsin law)
and School Dist. of Shorewood v. Wausau Ins. Cos., 170
Wis. 2d 347, 366, 488 N.W.2d 82 (1992), rejected on other
grounds by Johnson Controls, Inc. v. Employers Ins. of Wausau,
2003 WI 108, ¶¶38–39, 264 Wis. 2d 60, 665 N.W.2d 257.
21
No. 2015AP79.ssa
of these doctrines distribute loss for a single harm among
multiple persons liable for the same harm.44
¶66 The underlying premise of the two doctrines is that
when multiple parties are liable for the same harm, the party
that paid may have a right, either contractually or under common
law, to reimbursement from the other parties. These doctrines
"tend to merge" even though they are distinct:
Contribution distributes the loss by requiring each
person to pay his proportionate share of the damages
on a comparative fault basis. Indemnification shifts
the entire loss from one person who has been compelled
to pay it to another who on the basis of equitable
principles should bear the loss.45
¶67 "A cause of action for contribution is separate and
distinct from the underlying cause of action, whether the latter
involves contract or tort claims . . . ."46
¶68 Jeff Anderson's claim of indemnification or
contribution rests on his claim of his "bearing . . . a greater
share of a common liability than is justified, and not the
source of the underlying liability." "It is enough that a joint
liability from whatever source exist."47
44
Swanigan v. State Farm Ins. Co., 99 Wis. 2d 179, 196, 299
N.W.2d 234 (1980); see also 2 Sheila M. Sullivan et al.,
Anderson on Wisconsin Insurance Law § 10.19 (7th ed. 2015).
45
Swanigan, 99 Wis. 2d at 196 (internal citations omitted).
46
III The Law of Damages in Wisconsin § 31.29, at 26
(Russell M. Ware ed., 6th ed. 2016) (citing Johnson v. Heintz,
73 Wis. 2d 286, 295, 243 N.W.2d 815 (1976); State Farm Mut. Auto
Ins. Co. v. Schara, 56 Wis. 2d 262, 201 N.W.2d 758 (1972); Wis.
Stat. § 893.92).
47
Schara, 56 Wis. 2d at 266.
(continued)
22
No. 2015AP79.ssa
¶69 In sum, in the instant case, Jeff Anderson's third-
party complaint does not explicitly state that R&B
Construction's work was "faulty, negligent, or defective." But
evidence of R&B Construction's negligence need not be proved to
determine whether West Bend Insurance has a duty to defend. In
a duty-to-defend case, a court is not charged with deciding
liability and the issue of damages.48 A claimant (here Jeff
Anderson) is entitled to recover on the general principles of
indemnity when the claimant has been obliged to pay damages by
reason of another's (here R&B Construction's) torts.49
II
¶70 We begin by examining Smith's complaint against Jeff
Anderson. We then examine Jeff Anderson's third-party complaint
against R&B Construction.
¶71 Smith alleged the following facts in her complaint:50
"[T]he contribution cause of action [may] be considered in
the same proceeding as the underlying cause of action, despite
the contingent nature of the contribution cause of action." III
The Law of Damages in Wisconsin § 31.29, at 26-27 (Russell M.
Ware ed., 6th ed. 2016) (citing Johnson, 73 Wis. 2d at 295).
48
2 Sheila M. Sullivan et al., Anderson on Wisconsin
Insurance Law § 7.53 (7th ed. 2015) ("An insured is not required
to produce evidence of the tortfeasor's negligence in a
declaratory-judgment action filed to determine insurance
coverage. A court in a declaratory judgment action is not
charged with deciding liability and damages issues.").
49
Milwaukee Mut. Ins. Co. v. Priewe, 118 Wis. 2d 318, 322-
23, 348 N.W.2d 585 (Ct. App. 1984) (citing Milwaukee v. Boynton
Cab Co., 201 Wis. 581, 586, 229 N.W. 28 (1930)).
50
As we explained previously, references are to Smith's
amended complaint.
23
No. 2015AP79.ssa
• Jeff Anderson painted and cleaned the basement so that
it appeared to be free from any defects prior to the
sale of the residence to Smith.
• After she purchased the residence, she discovered that
the drain tiles were plugged, that the basement
leaked, and that Jeff Anderson had performed
structural repair work without obtaining the required
permits.
• She was informed by experts that the defects existed
when Jeff Anderson owned the house.
• To repair or correct the condition of the property she
will need to obtain proper permits, install and
replace the drain tile, and correct Jeff Anderson's
structural repair work.
• She believed that Jeff Anderson failed to disclose
problems with the property.
¶72 The Smith complaint pleaded four causes of action
based on the facts stated above:
• Breach of Contract. As a term of the contract, Jeff
Anderson warranted that he had no notice of any
conditions affecting the property except those
identified in his Real Estate Condition Report. Jeff
Anderson breached his contract by failing to disclose
the condition of the property in his Real Estate
Condition Report or in the Offer to Purchase.
• Misrepresentation: Intentional. Jeff Anderson
represented that he had no notice or knowledge of any
24
No. 2015AP79.ssa
conditions affecting the property, failed to disclose
that the basement leaked, and concealed leaky basement
walls with paint, knowing the true material
significant defects in the property with the intent to
deceive and induce Smith to purchase the residence.
• Misrepresentation (Violation of Wis. Stat. §§ 895.44651
and 943.20(1)(d)).52 Jeff Anderson falsely represented
that he had no notice or knowledge of any conditions
affecting the property, failed to disclose that the
basement leaked, and concealed leaky basement walls
with paint. Jeff Anderson's false representations
were defects in violation of the statutes cited, with
the intent to deceive and induce Smith to purchase the
51
Wisconsin Stat. § 895.446(1) provides in relevant part:
(1) Any person who suffers damage or loss by reason of
intentional conduct that occurs on or after November
1, 1995, and that is prohibited under
s. . . . 943.20, . . . has a cause of action against
the person who caused the damage or loss.
52
Wisconsin Stat. § 943.20(1)(d) provides in relevant part:
(1) Acts. Whoever does any of the following may be
penalized as provided in sub. (3):
. . . .
(d) Obtains title to property of another person by
intentionally deceiving the person with a false
representation which is known to be false, made with
intent to defraud, and which does defraud the person
to whom it is made. "False representation" includes a
promise made with intent not to perform it if it is a
part of a false and fraudulent scheme.
25
No. 2015AP79.ssa
residence, entitling Smith to treble damages, attorney
fees, and costs.
• Misrepresentation (Violation of Wis. Stat. § 100.18:53
Jeff Anderson's untrue, deceptive, and misleading
representations in the purchase contract and his
concealing leaky basement walls with paint constituted
fraudulent misrepresentations in violation of the
statute, entitling Smith to monetary damages, attorney
fees, and costs.54
53
Wisconsin Stat. § 100.18 provides in relevant part:
(1) No person . . . with intent to sell, distribute,
increase the consumption of or in any wise dispose of
any real estate . . . directly or indirectly, to the
public for sale . . . shall make, publish,
disseminate, circulate, or place before the public, or
cause, directly or indirectly, to be made, published,
disseminated, circulated, or placed before the public,
in this state . . . an advertisement, announcement,
statement or representation of any kind to the public
relating to such purchase . . . [which] contains any
assertion, representation or statement of fact which
is untrue, deceptive or misleading.
54
See Everson v. Lorenz, 2005 WI 51, 280 Wis. 2d 1, 695
N.W.2d 298, for a discussion of Wis. Stat. § 100.18. In
Everson, the court of appeals certified to this court the issue
"[whether] an alleged strict responsibility misrepresentation
and/or negligent misrepresentation in a real estate transaction
constitute an 'occurrence' for the purpose of a commercial
general liability insurance policy such that the insurer's duty
to defend is triggered. In Everson, we concluded that no
coverage existed under the CGL policy, which defined
'occurrence' . . . . The basis for our decision that the CGL
policy did not provide coverage was our conclusion that a
volitional misrepresentation could not be considered an accident
for purposes of coverage." Stuart, 311 Wis. 2d 492, ¶30
(internal citations omitted).
(continued)
26
No. 2015AP79.ssa
¶73 The "Wherefore" clause of Smith's complaint asked for
judgment against Jeff Anderson for the difference in value
between the property as represented and its actual value, the
cost of placing the property in the condition it was represented
to be in, the cost of all repairs, the costs of the action, and
actual reasonable attorney fees. As an additional remedy
Smith's complaint sought "rescission/restitution."
¶74 In sum, Smith alleges that Jeff Anderson breached his
contract with Smith and that Jeff Anderson is a tortfeasor, that
is, that Anderson made misrepresentations to induce her to
purchase the residence. Factually, her complaint alleges
damages arising out of buying a residence from Jeff Anderson
with a leaky basement and damaged drain tiles. The legal causes
of action in Smith's complaint against Jeff Anderson are breach
of contract and misrepresentation. Smith's complaint does not
mention R&B Construction directly or indirectly.
¶75 The following facts were alleged in Jeff Anderson's
third-party complaint against R&B Construction:
• Jeff Anderson hired 4th Dimension to inspect and
assess the basement and recommend repairs of any
defects in the basement walls and foundation.
Smith's complaint alleging that Jeff Anderson's conduct
violated Wis. Stat. § 100.18 removed the complaint from coverage
as an occurrence under the liability insurance policy. See
Stuart, 311 Wis. 2d 492, ¶32.
For further discussion of Everson, see ¶109, nn.62-64,
infra.
27
No. 2015AP79.ssa
• Jeff Anderson gave 4th Dimension's report to R&B
Construction, contracting with it to perform repairs
according to the report.
• In addition, Jeff Anderson directed R&B Construction
to install drain tiles along the east wall and install
a sump crock and a sump pump. Jeff Anderson and R&B
Construction agreed that ground to the east of the
residence gradually sloped down in a westward
direction, which directed run-off towards the
basement's east wall.
• R&B Construction properly installed a new drain
system, a sump crock, and a sump pump, and made
certain that the drainage system was tested and "was
in good working order and draining to the proper area
of the property."
• "Without admitting that any of the work performed by
third-party defendant, R&B Construction, . . . was
faulty, negligent or defective," Jeff Anderson sought
indemnification and contribution from R&B Construction
were Jeff Anderson held liable to Smith.
• Based upon the warranties R&B Construction provided,
Jeff Anderson requested R&B Construction to correct
deficiencies, if any, arising out of its work.
• In the sale of the residence, Jeff Anderson made no
warranties as to the condition of the residence, sold
the residence to Smith in "as is" condition, and gave
Smith "copies of the third party defendant's reports,
28
No. 2015AP79.ssa
details of work performed and warranties regarding the
work performed."
• Smith did not contact R&B Construction and request it
to correct any deficiencies in its work.
¶76 In sum, Anderson's third-party complaint seeks
contribution or indemnification from R&B Construction should
Anderson be held liable to Smith.
¶77 Jeff Anderson's third-party complaint does not
explicitly assert that R&B Construction was negligent in
repairing the residence or causing the basement to leak and the
drain tiles to be damaged and that R&B Construction's conduct
caused Anderson to be held liable to Smith.
¶78 These assertions can, however, be reasonably inferred
from the facts stated in Smith's complaint and Anderson's third-
party complaint. The third-party complaint, "without admitting
that any of the work performed by third party defendant, R&B
Construction, . . . was faulty, negligent or defective," asked
that R&B Construction repair any defects should Jeff Anderson be
held liable to Smith. The third-party complaint further stated
that based upon the warranties R&B Construction provided, Jeff
Anderson requested R&B Construction to correct deficiencies, if
any, arising out of its work.
¶79 These parts of the third-party complaint reveal that
Jeff Anderson apparently attempted to construct the third-party
complaint to be consistent with his denial of liability to
Smith. A reasonable reading of the Smith complaint and the
third-party complaint is that Anderson was asserting that if he
29
No. 2015AP79.ssa
lost to Smith on her claims, he is entitled to compensation from
R&B Construction for its deficient performance that rendered him
liable to Smith.
¶80 It is evident from the two complaints that Smith and
Jeff Anderson have set forth distinct but interrelated facts and
claims. Smith's complaint alleges defects with the residence
and blames Jeff Anderson for breach of contract and
misrepresentation. Jeff Anderson obviously refuses to concede
liability to Smith and seeks compensation from R&B Construction
should he be liable to Smith. R&B Construction's work on the
residence before the sale to Smith may have caused, contributed
to, or aggravated the defects alleged by Smith.
III
¶81 Now that we have examined the complaints, we examine
the coverage provisions of the Contractors Businessowners'
policy that R&B Construction purchased from West Bend Insurance.
¶82 Under the policy, West Bend Insurance has a duty to
defend R&B Construction if the facts alleged in Anderson's
third-party complaint (to which Smith's complaint is attached)
constitute "property damage" caused by an "occurrence."
¶83 The West Bend Insurance policy contains standard CGL
policy language regarding "property damage" and "occurrence."
With regard to property damage, the policy reads as follows:
We will pay those sums that the insured becomes
legally obligated to pay as damages because
of . . . "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
30
No. 2015AP79.ssa
against any "suit" seeking damages for . . . "property
damage" to which this insurance does not apply.
. . . .
This insurance applies to . . . "property damage" only
if:
(1) The . . . "property damage" is caused by an
"occurrence" that takes place in the "coverage
territory"; [and]
(2) The . . . "property damage" occurs during the
policy period . . . .
. . . .
"Property damage" means:
a. Physical injury to tangible property, including all
resulting loss of use of that property. All such loss
of use shall be deemed to occur at the time of the
physical injury that caused it; or
b. Loss of use tangible personal property that is not
physically injured. All such loss of use shall be
deemed to occur at the time of the "occurrence" that
caused it. (Emphasis added.)
¶84 The facts that Smith alleges——"drain tiles are plugged
with iron ochre, the basement leaked"——allege physical injury to
tangible property or allege loss of use of tangible property.
The drain tiles were physically injured when they were clogged
and did not function properly. Likewise, the basement walls
were physically injured, causing water leakage in the basement.
¶85 West Bend Insurance characterizes the amended
complaint as alleging only pecuniary loss or damage. This
characterization is not an accurate depiction of the Smith
complaint. Smith asserts that "in order to repair or correct
the condition of the property [she] will need to . . . install
and replace drain tile, and correct the defendant's structural
31
No. 2015AP79.ssa
repair work." Smith demands judgment for the cost of all
repairs. Ordinarily, tangible property that is not damaged does
not need to be repaired. Read liberally and with reasonable
inferences drawn in favor of the insured, the facts in the
amended complaint allege property damage as defined in the
policy.
¶86 Furthermore, the Smith complaint seeks damages for
loss of use of tangible property. Loss of use of tangible
property that is injured is property damage covered in the
policy. The Smith complaint can be read to state that the drain
tiles and the basement have been physically injured so that they
cannot be used to their full extent.
¶87 Although we conclude that the amended complaint can be
read to allege "property damage" under the insurance policy,
West Bend Insurance asserts that it has no duty to defend its
insured in the instant case unless an "occurrence" caused the
property damage.
¶88 The policy defines "occurrence" as "an accident,
including continuous or repeated exposure to substantially the
same general harmful conditions."
¶89 The word "accident" in this definition of "occurrence"
was considered in American Family Mutual Insurance Co. v.
American Girl, Inc., 268 Wis. 2d 16, ¶37, in which the court
stated:
The term "accident" is not defined in the policy. The
dictionary definition of "accident" is: "an event or
condition occurring by chance or arising from unknown
or remote causes." Webster's Third New International
Dictionary of the English Language 11 (2002). Black's
32
No. 2015AP79.ssa
Law Dictionary defines "accident" as follows: "The
word 'accident,' in accident policies, means an event
which takes place without one's foresight or
expectation. A result, though unexpected, is not an
accident; the means or cause must be accidental."
Black's Law Dictionary 15 (7th ed. 1999).
¶90 Applying this definition of "occurrence," the American
Girl court concluded that the damage at issue in that case——"the
continuous, substantial, and harmful settlement of the soil
underneath the building" that resulted from inadequate site-
preparation advice given by a soil engineer——was an occurrence
because "[n]either the cause nor the harm was intended,
anticipated, or expected."55 The property damage in American
Girl was ongoing and was an unintended result of a soil
engineer's faulty advice, so it was caused by an "occurrence."56
¶91 In reaching this conclusion, however, American Girl
distinguished "faulty workmanship" from "accidents." Faulty
workmanship claims alone are not "occurrences" because the
resulting harm is not accidental. But the harm is accidental
when "faulty workmanship" causes an unexpected harm, such as the
damaged building in American Girl. In other words, "while
faulty workmanship is not an 'occurrence,' faulty workmanship
55
Am. Girl, 268 Wis. 2d 16, ¶38.
56
See also Acuity v. Society Ins., 2012 WI App 13, ¶17, 339
Wis. 2d 217, 810 N.W.2d 812 (excavation adjacent to building's
wall caused cracking of floor within the building, which also
led to other injuries to physical property; "[i]t is clear that
this damage was caused by the accidental soil erosion that
occurred because of faulty excavation techniques. Accordingly,
the 'property damage' was caused by an 'occurrence' . . . . ").
33
No. 2015AP79.ssa
may cause an 'occurrence[,]' . . . [t]hat is, . . . an
unintended event."57
¶92 The court of appeals made this point in Acuity v.
Society Ins., 2012 WI App 13, ¶34, 339 Wis. 2d 217, 810
N.W.2d 812, as follows:
The lessons of American Girl, Glendenning's [Limestone
& Ready-Mix Co. v. Reimer, 2006 WI App 161, 295
Wis. 2d 556, 721 N.W.2d 704] and Kalchthaler [Keller
Const. Co., 224 Wis. 2d 387, 397, 591 N.W.2d 169
(1999)] are that while faulty workmanship is not an
"occurrence," faulty workmanship may cause an
"occurrence." That is, faulty workmanship may cause
an unintended event, such as soil settling in American
Girl, the leaking windows in Kalchthaler, or, in this
case, the soil erosion, and that event——the
"occurrence"——may result in harm to other property.
¶93 The "occurrence" that R&B Construction is alleged to
have caused in the instant case is the continuous and repeated
exposure to water leaking into the basement and matter flowing
into and clogging the drain tiles.
¶94 Like the faulty workmanship in these prior cases, R&B
Construction's allegedly faulty workmanship in the instant case
led to our conclusion that R&B Construction's alleged negligence
led to leaking basement walls and clogging of the drain tiles.
¶95 Either of these conditions continually caused
unexpected water damage to Smith's house. Water damage, when it
57
Acuity, 339 Wis. 2d 217, ¶24.
34
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is a condition that unexpectedly results from faulty
workmanship, is an "occurrence" under the policy.58
¶96 Therefore, we conclude that the complaints allege
facts that Smith's residence experienced property damage caused
by an occurrence.
¶97 As we stated previously, Jeff Anderson is entitled to
recover under the general principles of indemnification or
contribution if he is held liable to Smith for breach of
contract or misrepresentation by reason of R&B Construction's
alleged tortious conduct.
¶98 Here, Jeff Anderson's complaint can be read to allege
that R&B Construction negligently performed work on the Smith
residence, which caused property damage. This property damage
may result in Anderson being held liable for breach of his
contract with Smith and for misrepresentation of the condition
of the residence.
¶99 West Bend Insurance ultimately argues that Jeff
Anderson's "garden-variety contribution or indemnification"
claim passes through the same type of liability as that asserted
in Smith's complaint. According to West Bend Insurance, it has
no duty to defend because the insurance policy in the instant
case does not provide for defense or coverage of
misrepresentation claims.
58
Kalchthaler v. Keller Const. Co., 224 Wis. 2d 387, 391,
591 N.W.2d 169 (1999) (an "occurrence" under the policy existed
when a subcontractor's faulty work resulted in leaking windows,
which, in turn, caused water damage to the interior of the
house).
35
No. 2015AP79.ssa
¶100 West Bend Insurance's argument construes Wis. Stat.
§ 803.05, which permits third-party actions, too narrowly.
Section 803.05 provides, in relevant part, that "a defending
party, as a 3rd-party plaintiff, may cause a summons and
complaint to be served upon a person not a party to the action
who is or may be liable to the defending party for all or part
of the plaintiff's claim against the defending party . . . ."
Nothing in this statutory provision precludes a third-party
plaintiff, here Jeff Anderson, from asserting a theory of
liability that is distinct from the theory asserted in the
underlying action.59
¶101 Jeff Anderson's third-party complaint is distinct from
the underlying Smith action. Smith's allegations of facts
relate to breach of contract and misrepresentation. Jeff
Anderson's allegations of facts in his third-party complaint
against R&B Construction do not relate to misrepresentation by
R&B Construction; they relate to negligent performance of R&B
Construction's work for Jeff Anderson.
¶102 In sum, applying the four-corners rule and comparing
the liberal interpretation of the factual allegations in the
complaints (assuming all reasonable inferences in favor of the
59
See also 6 Wright & Miller, Federal Practice & Procedure
§ 1446 & n.23 (3d ed. 2016) (discussing Federal Rule of Civil
Procedure Rule 14, which has language analogous to Wis. Stat.
§ 803.05) ("The third-party claim need not be based on the same
theory as the main claim. . . . [because the] [p]urpose of
impleader would be defeated if its scope was circumscribed by a
requirement of identity of claims. Therefore, courts
consistently have held that impleader does not require an
identity of claims or even that they rest on the same theory.").
36
No. 2015AP79.ssa
insured) with the liberal interpretation of the text of the
policy (which we interpret from the perspective of a reasonable
insured), we conclude (resolving doubts in favor of the insured
and focusing on the incident or injury, not the theory of
liability) that West Bend Insurance has a duty to defend R&B
Construction in Jeff Anderson's action against it. This duty to
defend R&B Construction is triggered by facts in the complaints,
which demonstrate that at least one claim falls within the
policy coverage, regardless of the merits of the claim: the
leaking basement walls and the clogging of the drain tiles are
property damage, caused by a harmful condition that is the
unexpected result of R&B Construction's allegedly negligent
repairs in the basement. The complaints thus assert "property
damage" caused by an "occurrence" under the terms of the policy.
IV
¶103 Before we conclude, we turn to Qualman v. Bruckmoser,
163 Wis. 2d 361, 471 N.W.2d 282 (Wis. Ct. App. 1991), upon which
the court of appeals and West Bend Insurance rely. Qualman is
not dispositive in the instant case.
¶104 Asserting that the instant case is "on all fours" with
Qualman v. Bruckmoser, 163 Wis. 2d 361, 471 N.W.2d 282 (Wis. Ct.
App. 1991), West Bend Insurance contends that no property
damages are alleged in the instant case.
¶105 Qualman, like the instant case, arose out of the sale
of residential real property. The home-buyer in Qualman sued
the seller, claiming breach of contract and misrepresentation of
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existing significant structural aspects of the property.60 The
Qualman court noted that the damages for such claims, if proven,
would be "the difference between the market value of the
property at the time of purchase and the amount actually paid"
and concluded that "the damages alleged . . . are pecuniary in
nature and do not constitute property damage" under the
insurance policy.61
¶106 The court of appeals in the instant case viewed the
instant case as being controlled by Qualman for two reasons:
(1) In the Smith case, as in the Qualman case, the complaint
alleges that the seller breached its contract and made
misrepresentations, and misrepresentations do not constitute an
"occurrence" as defined in the policy; and (2) in the Smith
case, as in the Qualman case, the complaint does not allege
"property damage."
¶107 Qualman does not, however, govern the instant case
because the instant case is significantly different from
Qualman.
¶108 We first compare the complaints in the two cases with
regard to factual allegations claiming misrepresentations to
determine whether West Bend Insurance's policy requirement of an
"occurrence" has been satisfied.
60
Qualman v. Bruckmoser, 163 Wis. 2d 361, 367, 471
N.W.2d 282 (Wis. Ct. App. 1991).
61
Qualman, 163 Wis. 2d at 366.
38
No. 2015AP79.ssa
¶109 Qualman stands for the proposition that most, if not
all, misrepresentation claims are not "occurrences" as defined
in the standard CGL insurance policy.62 Each type of
misrepresentation requires a false assertion, and false
assertions "require[] a degree of volition inconsistent with the
term accident."63 Therefore, "where there is a volitional act
involved in such a misrepresentation, that act removes it from
coverage as an 'occurrence' under the liability insurance
policy."64
¶110 In Qualman, the insurance company was asked to defend
against a complaint by a buyer alleging breach of contract and
intentional misrepresentation. The Qualman court did not have
to consider a third-party complaint.
¶111 In the instant case, Smith's complaint alleges facts
against Jeff Anderson claiming he breached his contract and made
misrepresentations to her about the condition of the property to
induce the sale to her. But we are not deciding whether West
Bend Insurance has a duty to defend Jeff Anderson. No one
claims that West Bend Insurance has a duty to defend Jeff
Anderson.
¶112 Rather, we are deciding whether West Bend Insurance
has a duty to defend R&B Construction in Jeff Anderson's third-
62
Everson v. Lorenz, 2005 WI 51, 280 Wis. 2d 1, 695
N.W.2d 298. See also ¶72 n.54, supra.
63
Everson, 280 Wis. 2d 1, ¶¶19-20 (citing Qualman).
64
Everson, 280 Wis. 2d 1, ¶¶19-20 (citing Qualman).
39
No. 2015AP79.ssa
party action. Jeff Anderson's third-party complaint does not
allege that R&B Construction made misrepresentations to him.
¶113 Anderson's complaint should be interpreted, as we have
previously explained, as alleging facts claiming that R&B
Construction's negligent conduct caused property damage to the
residence and claiming that if Jeff Anderson is liable to Smith
for breach of contract or the tort of misrepresentation, R&B
Construction is liable to Jeff Anderson.
¶114 Neither Smith's complaint nor Jeff Anderson's third-
party complaint alleges facts that suggest R&B Construction
committed a volitional act misrepresenting the quality of its
work to either Smith or Jeff Anderson. A reasonable
interpretation of the complaints supports our reading that, if
R&B Construction is liable to Anderson, its liability rests not
on a volitional act involving misrepresentation but on R&B
Construction's negligence in performing its construction work
for Anderson.
¶115 The rule of law Qualman sets forth——that an insurance
company does not generally have a duty to defend an insured
against a complaint alleging facts constituting a claim for
misrepresentation——is not dispositive of West Bend Insurance's
duty to defend R&B Construction against Jeff Anderson's factual
allegations of R&B Construction's negligence.
¶116 We now compare the complaints in Qualman and the
instant case with regard to whether the complaint in the instant
case sets forth a claim for property damage within the policy.
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No. 2015AP79.ssa
¶117 The Smith complaint, unlike the Qualman complaint, was
not limited to seeking "difference in value" (pecuniary)
damages. Smith's complaint (in contrast to Qualman's complaint)
was not confined to the diminished value of Smith's residence.65
¶118 Smith made claims in the alternative for property
damages: Smith alleged that, in order to repair or correct the
condition of the property, she will have to replace drain tiles.
Drain tile is property and it need not be replaced unless it is
damaged.66 Smith's claim for repair of property evidences a
claim for property damage, including loss of property use.
¶119 Furthermore, when the third-party complaint (along
with Smith's complaint) and West Bend's insurance policy are
65
See Stuart, 311 Wis. 2d 492, ¶53 (Qualman "involve[s]
'difference in value' damages as awarded to remedy failure to
disclose preexisting defects in property sales. In this case,
in contrast, the Stuarts were awarded compensation for the
damage to their property that came after, and was caused by, the
defendants' statutory misrepresentation and common law
negligence.").
66
West Bend also relies on Wausau Tile, Inc. v. County
Concrete Corp., 226 Wis. 2d 235, 593 N.W.2d 445 (1999), for the
proposition that an insurance company has no duty to defend an
insured when the complaint does not allege property damage. In
Wausau Tile, the court held that the loss Wausau Tile claimed
for repairing and replacing pavers was not property damage but
economic loss not covered by the policy; the pavers were damaged
because one or more of their ingredients was of insufficient
quality. The parts of the complaint in Wausau Tile alleging
negligence, future personal injury claims of pedestrians, and
property damage to property adjoining the pavers were not in
litigation because the real parties in interest for these claims
were not parties to the action. Third parties, not Wausau Tile,
sustained and had claims for property damage or personal injury.
In the instant case, Jeff Anderson is the real party in interest
against whom claims for property damage are being made.
41
No. 2015AP79.ssa
liberally read and construed in favor of the insured, Jeff
Anderson claimed that R&B Construction worked on the residence,
that R&B Construction was arguably negligent in its work on the
residence, and that R&B Construction's negligence in the work
resulted in property damage, including loss of property use.
¶120 In sum, the court of appeals erred in stating that "no
contention [is made] that R&B's faulty workmanship caused the
water exposure or the multiple issues that resulted therefrom."67
¶121 West Bend Insurance has a duty to defend R&B
Construction in Jeff Anderson's third-party action against it.
Anderson's claim for contribution or indemnification impliedly
rests on factual allegations that R&B Construction negligently
performed its work on the residence. The third-party complaint
is separate and distinct from Smith's complaint against
Anderson, which rests on facts evidencing a breach of contract
or misrepresentation. Reading the facts alleged in both the
Smith and Jeff Anderson complaints liberally and drawing
reasonable inferences in R&B Construction's favor leads to the
following conclusion: Smith's complaint alleges property damage
(the leaking basement walls and clogged drain tiles), which was
caused by an occurrence (the accidental result of R&B
Construction's negligent conduct).
¶122 Accordingly, West Bend Insurance has a duty to defend
and the cause should be remanded to the circuit court for
further proceedings not inconsistent with this decision.
67
Smith v. Anderson, No. 2015AP79, ¶17, unpublished slip
op. (Wis. Ct. App. Dec. 22, 2015).
42
No. 2015AP79.ssa
* * * *
¶123 That's the opinion I think the court should have
adopted, reversing the decision of the court of appeals and
remanding the cause to the circuit court for further
proceedings.
¶124 I am authorized to state that Justice ANN WALSH
BRADLEY joins this opinion.
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