Stuart v. Weisflog's Showroom Gallery, Inc.

PATIENCE DRAKE ROGGENSACK, J.

¶ 83. {concurring). I join only the majority opinion's conclusion that American Family Mutual Insurance Company's (American Family) policy does not provide coverage for the misrepresentations1 and the negligent construction that the jury found. I write separately because: (1) the *533majority opinion appears to misread Everson v. Lorenz, 2005 WI 51, 280 Wis. 2d 1, 695 N.W.2d 298; (2) the majority opinion employs disputed facts that the jury did not find in order to support its reasoning; and (3) the claim for coverage due to Weisflog's Showroom Gallery, Inc.'s (Weisflog's Showroom) negligent construction of the addition to Robert Stuart and Lynn Farquhar-Stuart's (the Stuarts) residence is barred by the economic loss doctrine. Accordingly, although I respectfully concur, I join none of the majority opinion except its ultimate conclusion that the American Family policy provides no coverage for the claims on which the Stuarts prevailed before the jury.

I. BACKGROUND

¶ 84. This lawsuit arises from the design and construction of an addition to the home of the Stuarts. It is the second decision of this court relative to the construction of the Stuarts' addition, the first being Stuart v. Weisflog's Showroom Gallery, Inc., 2008 WI 22, 308 Wis. 2d 103, 746 N.W.2d 762 (Stuart I), to which I filed a separate opinion, concurring in part and dissenting in part.

*534¶ 85. The Stuarts wanted to enlarge their home. To this end, they entered into a written contract entitled, "Remodeling Architectural Contract" wherein plans were drawn by Weisflog's Showroom for an addition that would double the size of their home and provide an in-ground swimming pool with surrounding deck. The total cost of the plans produced for the Stuarts under the Remodeling Architectural Contract was $1,500.

¶ 86. Five months after entering into the Remodeling Architectural Contract, the Stuarts entered into a second contract with Weisflog's Showroom2 entitled, "Remodeling Contract," in the amount of $278,076.96, to construct their home improvements.

¶ 87. Approximately four years after the construction was completed, the Stuarts commenced this action alleging negligence in the design and construction of their home addition and breach of contract. They later amended the complaint to allege that they were damaged because of Home Improvement Protection Act (HIPA) violations under Wis. Stat. § 100.20(5) and Wis. Admin. Code § ATCP 110.02(11), based on alleged misrepresentations that induced them to enter into the two contracts. However, before trial, the Stuarts dismissed their breach of contract claims and proceeded on claimed HIPA violations, based on alleged misrepresentations with regard to both contracts,3 and on claims of common law negligence in the design and construction of the addition.

*535¶ 88. The jury was the fact finder for the Stuarts' claims. It found false, deceptive or misleading representations4 were made to induce the Stuarts to enter into both contracts. The jury found common law negligence in regard to the design and construction of the addition. Because the jury was the fact finder, the Special Verdict answers are critical to a correct application of the relevant law. In this case, we are asked to interpret the Commercial General Liability (CGL) policy that Ameri*536can Family provided to Weisflog's Showroom to decide whether coverage exists thereunder, in light of the findings of the jury.

II. DISCUSSION

A. Standard of Review

¶ 89. Resolution of the issues that I will address are questions of law, wherein we provide independent review, "but benefiting from the analyses of the court of appeals and the circuit court." Marder v. Bd. of Regents of the Univ. of Wis. Sys., 2005 WI 159, ¶ 19, 286 Wis. 2d 252, 706 N.W.2d 110. The interpretation of an insurance contract is a question of law. Katze v. Randolph & Scott Mut. Fire Ins. Co., 116 Wis. 2d 206, 212, 341 N.W.2d 689 (1984). Whether the economic loss doctrine applies either to a particular type of claim or to a particular fact set presents a question of law. See Kaloti Enters., Inc. v. Kellogg Sales Co., 2005 WI 111, ¶ 10, 283 Wis. 2d 555, 699 N.W.2d 205; Kailin v. Armstrong, 2002 WI App 70, ¶ 43, 252 Wis. 2d 676, 643 N.W.2d 132.

B. Insurance Coverage

1. The misrepresentation verdicts' effect on coverage

¶ 90. The Stuarts contend that they suffered property damage due to Weisflog's Showroom's representations that caused them to enter into the Remodeling Architectural Contract and the Remodeling Contract. The parties do not dispute that it is necessary to show that the property damage was caused by an "occurrence," in order to come within the American Family CGL policy. "Occurrence" is defined in the policy. *537Accordingly, we must determine whether the representations that the jury found were false, deceptive or misleading are "occurrences" under the policy.

¶ 91. We interpret the language of an insurance policy as "a reasonable person in the position of the insured would have understood the words." Kremers-Urban Co. v. Am. Employers Ins. Co., 119 Wis. 2d 722, 735, 351 N.W.2d 156 (1984). In regard to property damage, the policy provides:

COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement.
b. This insurance applies to "bodily injury" and "property damage" only if:
(1) the "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory"; and
(2) the "bodily injury" or "property damage" occurs during the policy period.

"Occurrence" is defined in the policy as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Therefore, the policy requires that the property damage be caused by an accident in order for damages to be covered by the policy. It follows that, in order for the property damage the Stuarts claim the HIPA-misrepresentations caused to fall within the policy, the defendants' statements must be accidents.

¶ 92. We have reviewed insurance policies' definitions of "accident" in a number of cases. We recently considered the meaning of "accident" in a case involving *538an insurance policy that defined that term identically to how it is defined in the American Family CGL policy. We did so in the context of a coverage claim for property damage that was allegedly caused by a misrepresentation. Everson, 280 Wis. 2d 1, ¶¶ 15-16.

¶ 93. Everson sued Lorenz based on theories of intentional, negligent and strict liability for misrepresentation due to a typographical error in a real estate condition report that Lorenz, the seller of the real estate, gave to Everson, the buyer. Id., ¶¶ 4-5. The condition report disclosed that portions of 16 of the lots that Lorenz was selling came within the 100-year floodplain. Id. However, it failed to list the lot that Everson purchased, even though portions of it also came within the 100-year floodplain. Id., ¶ 5. When Everson discovered that a portion of his lot lay within the 100-year floodplain, he sued Lorenz, claiming that he could not build his home in the location that he desired due to Lorenz's misrepresentation. Id.

¶ 94. Lorenz tendered the defense of Everson's suit for property damage to his CGL insurer. Id., ¶ 6. We opined that coverage for property damage under Lorenz's CGL policy was dependent on whether the property damage was caused by an "occurrence." Id., ¶ 15. Lorenz's CGL policy defined "occurrence" as an "accident, including continuous or repeated exposure to substantially the same general harmful conditions." Id.

¶ 95. Lorenz argued that a typographical error caused the omission of the lot Everson purchased from the list of 16 lots shown on the condition report as lying partially in the 100-year floodplain. Therefore, Lorenz argued the failure to disclose the true condition of the lot he sold to Everson was an "accident." Id., ¶ 16.

¶ 96. We disagreed. We explained that while the condition report may have accidentally misrepresented *539the condition of the lot, the giving of the condition report to Everson was a "volitional act." Id., ¶¶ 19-21. We held that volitional acts are not accidents. Id., ¶ 22. As we explained, "What happened here, stripped to its essentials, is that an 'action,' not an 'accident,' of Lorenz gave Everson the misleading information. . . . [T]he decision to give Everson the report is not an 'accident' within the meaning of the policy." Id. (citations omitted).

¶ 97. Everson is on all fours with the case before us. First, the policy definition of "accident" is the same in Everson as it is in the American Family CGL policy under review here. Second, the context here is similar to that in Everson, i.e., the Stuarts claim property damage caused by representations that the defendants made. Third, the defendants chose to promise the Stuarts that Weisflog's Showroom will design plans and construct an addition to the Stuarts' home that will comply with the building codes. The defendants' statements were part of the sales pitch to do business with the Stuarts, just as Lorenz's giving of the real estate condition report to Everson was part of Lorenz's sales pitch. Therefore, I conclude that the defendants' statements are volitional acts and not accidents within the meaning of the American Family CGL policy. Since the defendants' statements are not accidents, they cannot be occurrences under the CGL policy. Accordingly, I conclude that there is no coverage under the American Family CGL policy for the misrepresentations that the jury found.

¶ 98. The majority opinion employs a somewhat different interpretation of Everson. It relates:

With the jury having found the presence of such volition and intent, in accordance with the requirements of *540the code, the only reasonable conclusion regarding WSGI's [Weisflog's Showroom Gallery, Inc.] conduct "in order to induce" is that such conduct cannot qualify as an accidental, i.e., unintentional, occurrence. . ..
In support of this conclusion, we turn to Everson , . . .5

¶ 99. It appears to me that the majority opinion misreads Everson and confuses Everson's discussion of "volitional act" by adding an intent to deceive to the volitional act.6 Everson did not address whether Lorenz knew the information he gave Everson was false. Everson focused on whether Lorenz gave Everson a real estate condition report that had a typo on it. Everson, 280 Wis. 2d 1, ¶ 22. We concluded that when Lorenz gave Everson the report, Lorenz's act was volitional because he intended to give Everson a copy of the report. Id. There is nothing in Everson that implies the court concluded Lorenz knew the report was inaccurate or intended to deceive Everson. However, in interpreting Everson, the majority asserts that "we concluded that a false assertion 'requires a degree of volition inconsistent with the term accident.' "7 The majority's reading of Everson misapprehends what must be volitional to be deemed nonaccidental. The majority appears to conclude that, under Everson, it is only the false assertion that must be volitional. The majority is mistaken. The volitional act in Everson was not Lorenz's assertion, but rather, Lorenz's giving to Ever-*541son the written condition report, regardless of the veracity of the report's content. Id.

¶ 100. Furthermore, we are not free on this review to add questions and answers to the Special Verdict. Nor are we free to support our reasoning in an opinion by inserting facts that were disputed, but which the jury did not find. The majority opinion finds facts throughout the opinion.

¶ 101. The jury made two specific findings in regard to the defendants' representations. In answering question number 13, the jury found representations were made that the addition "will comply" with the building codes. In answering question 4, the jury found the defendants did not represent that they were licensed architects. The jury did not find that Ronald Weisflog did not understand the Brookfield codes and regulations; yet that is the impression the majority opinion gives.

¶ 102. For example, the majority opinion quotes Robert Stuart's statement that Ronald Weisflog told him that he "professed a very high standard of quality... . He understood Brookfield codes and regulations very well. . . . He could provide architectural service for us."8 The majority opinion then says, "Ronald Weisflog knew at the time of the misrepresentations that he was not familiar with an applicable building code."9 The jury did not find that Ronald Weisflog was not familiar with the building codes when he said that he would construct the addition in compliance with them. Ronald Weisflog repeatedly asserted that he was familiar with the relevant codes. However, the majority opinion supports some of its conclusions by *542finding facts, which we are not permitted to do on this review. See Wurtz v. Fleischman, 97 Wis. 2d 100, 108, 293 N.W.2d 155 (1980).10

¶ 103. The majority opinion attempts to put aside my objection in this regard by citing Coney v. Milwaukee & Suburban Transport Corp., 8 Wis. 2d 520, 99 N.W.2d 713 (1959) and asserting, "we may refer to whatever facts in the record support the jury's findings."11 Coney does not apply because Coney is a sufficiency of the evidence opinion where the jury's findings were challenged. When a claim is made that the evidence is not sufficient to support a jury's verdict, we do consider the record to determine whether there is credible evidence to support that verdict. D'Huyvetter v. A.O. Smith Harvestore Prods., 164 Wis. 2d 306, 320, 475 N.W.2d 587 (Ct. App. 1991). However, the majority opinion is not evaluating the sufficiency of the evidence in this case. It is using portions of the trial transcript to support findings it chooses to make, not to support findings that the jury made.

¶ 104. By contrast with the majority opinion herein, the record cites I employed in my dissent in Stuart I relative to the jury's apportionment of damages (Stuart I, 308 Wis. 2d 103, ¶ 45) were necessary because the majority opinion concluded that the evidence was not sufficient to support the jury's verdict on damages. Stuart I, 308 Wis. 2d 103, ¶ 31. As many cases have explained, upon a challenge to the jury's verdict based on the sufficiency of the evidence, we *543must review the record to determine if there is credible evidence to support the verdict. Coryell v. Conn, 88 Wis. 2d 310, 315, 276 N.W.2d 723 (1979) (reviewing whether the record contains credible evidence that supports the jury's damages award). That is what I have done in reviewing the evidence of damages in Stuart I.

2. Economic loss doctrine

¶ 105. The Stuarts also assert that there is coverage under the CGL policy for property damage they sustained due to Weisflog's Showroom's negligent construction of the addition to their home.12 The majority addresses this contention by interpreting other provisions of the CGL policy.13 I address it under the economic loss doctrine because I conclude that the Stuarts' negligent construction claim is precluded by the economic loss doctrine. Therefore, there are no damages that can be awarded for negligent construction and no coverage is needed.

a. General principles

¶ 106. The economic loss doctrine is a common law doctrine created by the courts to recognize that contract law and the law of warranty are better suited than tort law to deal with purely economic loss between two contracting parties. Kaloti, 283 Wis. 2d 555, ¶ 28. *544We have defined "economic loss" as "damages resulting from inadequate value because the product is inferior and does not work for the general purposes for which it was manufactured and sold." Id., ¶ 29 (quoting Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 400-01, 573 N.W.2d 842 (1998)). Economic damages include damages to the product itself and to other components in an integrated system. Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 235, 249-50, 593 N.W.2d 445 (1999). We have applied it to the construction of residential real estate, Linden v. Cascade Stone Co., 2005 WI 113, 283 Wis. 2d 606, 699 N.W.2d 189, and to remodeling contracts, 1325 North Van Buren, LLC v. T-3 Group, Ltd., 2006 WI 94, 293 Wis. 2d 410, 716 N.W.2d 822. However, contracts for services, where a product is merely incidental, do not fall within the scope of the economic loss doctrine. Ins. Co. of N. Am. v. Cease Elec., Inc., 2004 WI 139, ¶ 36, 276 Wis. 2d 361, 688 N.W.2d 462. When a contract is mixed, including both services and the creation of a product, we must determine the predominant purpose of the contract before we may conclude whether the economic loss doctrine applies. Linden, 283 Wis. 2d 606, ¶ 22.

¶ 107. In order to determine whether the economic loss doctrine applies to preclude common law claims for negligence between contracting parties where both a product and services are provided, a court must determine whether the predominant purpose of the contract is to provide a product or to provide services. 1325 N. Van Buren, 293 Wis. 2d 410, ¶ 24; Linden, 283 Wis. 2d 606, ¶¶ 18-22. We employ a totality of the circumstances test to determine the predominant purpose of a contract. Linden, 283 Wis. 2d 606, ¶ 22. The totality of circumstances includes both subjective and objective factors. Id. Those factors include, *545but are not limited to, the primary objective the contracting parties entered into the contract to achieve, the requirements of the contract, the nature of the business of the party doing work under the contract, and the value of the materials used. 1325 N. Van Buren, 293 Wis. 2d 410, ¶ 42.

¶ 108. The Stuarts entered into two separate contracts with Weisflog's Showroom, and the jury found Weisflog's Showroom was negligent in the design and in the construction of the addition.14 However, the jury awarded no damages for negligent design; it awarded damages only for negligent construction.15 The parties contracted to construct the addition to the Stuarts' home in the Remodeling Contract.

b. The Remodeling Contract

¶ 109. The Remodeling Contract indisputably involved: (1) the creation of a product, the addition, and (2) services, the construction labor. Therefore, I review the totality of the circumstances to determine the predominant purpose of this contract.

¶ 110. First, the addition constructed included many facets: a new hot tub room; a new, expanded kitchen; a new, expanded master bedroom suite; a powder room and entry change; an add-on to the garage with a mudroom, bath and family room; and an outdoor in-ground swimming pool and surrounding deck. Accordingly, a product was created. Second, the Stuarts' primary objective in entering into the Remodeling Contract was to nearly double the size of their home and significantly upgrade its amenities. The Stuarts sought a product. Third, the "remodeling contractor," *546Weisflog's Showroom, was in the business of creating products: remodeled residential properties. Fourth, the addition's cost to the Stuarts was $278,076.96. This cost included materials and the labor necessary to create a 2,000 square foot addition and an in-ground swimming pool. The Remodeling Contract stated that the "Contract amount is based upon bid sheet." Any changes in the specifications bid upon that raised or lowered the cost of the addition would be charged or credited to the Stuarts. Therefore, the parties bargained for the price of a product based on the addition's specifications, not on the hours of labor it took to complete the addition.

¶ 111. I conclude that under the totality of the circumstances presented, the Stuarts contracted for much more than services with materials being merely incidental, in contrast with the circumstances in Cease Electric. The Remodeling Contract had as its predominant purpose the creation of a product, the Stuarts' home addition. Accordingly, it falls squarely within the economic loss doctrine's proscription that the Stuarts may not maintain tort claims for the failure to complete the addition's construction in a workmanlike manner. Their claims sound in contract, not in tort. Linden, 283 Wis. 2d 606, ¶ 22.

¶ 112. My analysis of the Remodeling Contract for the Stuarts' home follows the analysis we employed in 1325 North Van Buren. There, we applied the totality of circumstances test to the remodeling of a warehouse and concluded that the parties bargained to produce a product: 42 residential condominiums and adjacent parking garages. 1325 N. Van Buren, 293 Wis. 2d 410, ¶ 46. My conclusion here is consistent with 1325 North Van Buren and with Linden. Accordingly, in compliance with that precedent, I conclude that the predominant *547purpose of the Remodeling Contract is to produce a product: the 2,000 square foot addition and the in-ground swimming pool with surrounding deck. Therefore, I also conclude that the Stuarts' claim for negligent construction should be dismissed, and the $71,25016 in damages awarded by the jury for that claim should be vacated. The economic loss doctrine precludes damages for negligent construction; therefore, no insurance coverage for those damages is needed.

III. CONCLUSION

¶ 113. Although I respectfully concur, I join none of the majority opinion except its ultimate conclusion that the American Family policy provides no coverage for the claims on which the Stuarts prevailed before the jury.

¶ 114. I am authorized to state that Justice ANNETTE KINGSLAND ZIEGLER joins this concurrence.

As I explained in my concurrence/dissent in Stuart v. Weisflog's Showroom Gallery, Inc., 2008 WI 22, 308 Wis. 2d 103, 746 N.W.2d 762 (Stuart I), the findings of the jury are not sufficient to sustain an actionable claim for misrepresentation because the jury found only promises of future performance, not representations of facts then in existence. Id., ¶¶ 69-73 (Roggensack, J., concurring in part and dissenting in part); see also Consol. Papers, Inc. v. Dorr-Oliver, Inc., 153 Wis. 2d 589, 594, 451 N.W.2d 456 (Ct. App. 1989) (concluding that Dorr-Oliver's representation that the clarifier it promised to construct would meet the specific operating requirements of Consolidated Papers was not actionable as a misrepresentation, even though the clarifier that was built did not comply with Consolidated Papers' specific operating requirements). Representations that are promises of future performance are not actionable as misrepresentations, unless the person promising future performance had no intention of carrying out that promise at the time he made the promise. Consol. Papers, 153 Wis. 2d at 594.

Because the majority opinion in Stuart I chose not to address the issue of whether a promise of future performance is actionable as a misrepresentation and simply assumed that it was actionable, that issue is not before the court in regard to the coverage questions relating to the American Family CGL policy for the same conduct as Stuart I addressed. Therefore, I do not address it further in this opinion, except to note that the Stuarts' own argument in regard to coverage at once refutes their claim for misrepresentation and supports my view of the law.

This is so because the Stuarts argue in this review that "Weisflog's Showroom's representations became false after poor *533design and construction." The majority opinion recognizes that the Stuarts have changed their tune in this review, and it refuses to permit them to do so by stating the majority opinion's view of what "the record shows." Majority op., ¶ 42. A representation, of course, cannot ripen into an actionable misrepresentation at a later date, if promises are not kept. See Consol. Papers, 153 Wis. 2d at 594.

Failure to keep a promise of future performance is actionable as a breach of contract. Eli Envtl. Contractors, Inc. v. 435 Partners, LLC, 2007 WI App 119, ¶ 6, 300 Wis. 2d 712, 731 N.W.2d 354. Accordingly, I continue to stand by my separate opinion in Stuart I as a correct statement of the law of actionable misrepresentation.

In answering Special Verdict Question No. 9, the jury found that the Remodeling Contract was a contract between the Stuarts and Weisflog's Showroom.

Although it has no effect on the coverage question presented by the case at hand, I note that the Remodeling Architectural Contract, under which the plans for the addition were drawn, may not be a "home improvement contract" as that *535term is defined in HIPA. Wis. Admin. Code § ATCP 110.01(4) (Oct. 2004) defines a "home improvement contract" as an agreement "to perform labor or render services for home improvements, or furnish materials in connection therewith." Section ATCP 110.01(2) defines "home improvement" as "the remodeling, altering, repairing, painting, or modernizing of residential or non-commercial property, or the making of additions thereto..." Nothing in the Architectural Remodeling Contract provides that Weisflog's Showroom will construct the addition to the Stuarts' home. Robert Stuart testified that he believed he owned the plans produced under that contract and could take them to any builder he chose. The contract wherein Weisflog's Showroom agreed to perform "home improvements" is the Remodeling Contract.

Special Verdict Questions 1 and 13 addressed the Stuarts' misrepresentation claims. They provided:

1. Did Weisflog's Showroom Gallery, Inc., make any false, deceptive, or misleading representations in order to induce the Plaintiffs, Robert & Lin Stuart to enter into a remodeling architecture contract, or to obtain or keep any payment under the remodeling architecture contract?
ANSWER: Yes.
13. Did the remodeling contractor or its agents make false, deceptive or misleading representations that remodeling work will comply with the building codes in order to induce the Plaintiffs Robert and Lin Stuart to enter the remodeling contract?
ANSWER: Yes.

Majority op., ¶¶ 28-29.

The majority opinion asserts that "Ronald Weisflog knew at the time of the misrepresentations that he was not familiar with an applicable building code." Id., ¶ 31.

Id., ¶ 32.

i — I ^ 1=9

i — l CO 1=9 ^«1

Other portions of the majority opinion make similar factual findings. I have chosen not to detail all of them here, except to repeat that we are hound by the jury's findings. See id., ¶¶ 9 n.10, 41-42.

Id., ¶ 9 n.10.

This position is inconsistent with the Stuart's position before this court in Stuart I where they maintained that all of their damages arose out of Weisflog Showroom's representations. They apparently took this position because they sought to double their damages under HIPA provisions that proscribe false, deceptive or misleading representations. See Stuart I, 308 Wis. 2d 103, ¶¶ 27-28.

Majority op., ¶¶ 56-66.

See Special Verdict Questions No. 7 and 11.

See Special Verdict Question No. 16B.

The jury found total damages of $95,000 and that 75% ($71,250) of those damaged were caused by negligent construction of the addition.