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Insurer must defend property damage

By: dmc-admin//August 6, 2003//

Insurer must defend property damage

By: dmc-admin//August 6, 2003//

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Snyder

“Exclusion F excludes coverage for bodily injury or physical injury to tangible property. While this may apply to some claimed damage, the Droegkamps also allege pecuniary damage, damage not excluded by the policy.”

Judge Harry G. Snyder
Wisconsin Court of Appeals

A buyer’s allegation of “pecuniary damage” from undisclosed defects in a residence is sufficient to constitute “property damage,” invoking a duty to defend on the part of the broker’s insurer, the Wisconsin Court of Appeals held on July 30.

John J. & Lynne L. Droegkamp purchased a residence from James F. & Susan M. Langdon. Timothy Michelic acted as the real estate broker in the transaction, and at all times relevant to this matter was employed by Realty Executives.

American Southern is Michelic’s and Realty Executives’ errors and omissions insurer. The policy excludes coverage for intentional acts, but not for negligent ones. The policy also contains a standard exclusion for “bodily injury, sickness, disease or death of any person or physical injury to or destruction of or loss of use of tangible property.”

The Droegkamps alleged eight causes of action against the Langdons, Michelic and Realty Executives, including strict liability misrepresentation, negligent misrepresentation, and negligence. American Southern intervened, arguing that it had no duty to defend.

Waukesha County Circuit Court Judge J. Mac Davis granted the motion, and Michelic and Realty Executives appealed. The court of appeals affirmed in part and reversed in part, in a decision by Judge Harry G. Snyder.

Intentional Torts

The court agreed with the circuit court that the following counts alleged in the complaint were not covered by the policy: (1) breach of contract (warranty); (2) intentional misrepresentation; (3) statutory misrepresentation pursuant to Wis. Stat. secs. 895.80 and 943.20(1)(d); and (4) fraudulent misrepresentation pursuant to Wis. Stat. sec. 100.18.

For each count, the court concluded that an intentional act was alleged, and pursuant to the exclusion against coverage for intentional acts, those counts were not covered under the policy.

What the court held

Case: Droegkamp v. Langdon, No. 02-3418.

Issue: Where a homebuyer alleges “pecuniary damages” as a result of misrepresentations in the property condition report, does the realtor’s insurer have a duty to defend the suit?

Holding: Yes. The damages alleged are property damage not excluded by the policy.

Counsel: Rick J. Mundt, Madison; Bradley A. Temple, Madison, for appellant; For Respondent: Andrea H. Roschke, Milwaukee; Catherine La Fleur, Milwaukee

Causation

For the remaining claims, however, the intentional acts exclusion did not apply; the question was whether the exclusion for bodily injury or physical injury to property did. In each case, the court concluded that the exclusion was inapplicable.

Discussing the strict liability misrepresentation claim, the court concluded, “Exclusion F excludes coverage for bodily injury or physical injury to tangible property. While this may apply to some claimed damage, the Droegkamps also allege pecuniary damage, damage not excluded by the policy.”

Discussing the negligent misrepresentation claim, the court reasoned, “The same logic from the strict liability misrepresentation claim applies with equal force here. … Exclusion F only excludes coverage for bodily injury or physical injury to tangible property but the Droegkamps allege monetary and pecuniary damage, damage not excluded by Exclusion F.”

The court applied the same rationale to the negligence claim, and discussing the claim for rescission/restitution, the court concluded, “While this count is labeled a separate cause of action, it is, at heart, an alternative prayer for relief; the
Droeg-kamps are asking the court to rescind the sale based upon the misrepresentations of the defendants. Because we conclude that some of the misrepresentation claims are covered under American Southern’s policy, the request for rescission must also be covered.”

The court distinguished the three leading cases that govern insurance coverage for misrepresentation in the sale of property: Qualman v. Bruckmoser, 163 Wis. 2d 361, 471 N.W.2d 282 (Ct. App. 1991); Benjamin v. Dohm, 189 Wis. 2d 352, 525 N.W.2d 371 (Ct. App. 1994); and Smith v. Katz, 226 Wis. 2d 798, 595 N.W.2d 345 (1999), each of which held that there was no “causal nexus” between a misrepresentation and the property damage, and thus no coverage.

Distinguishing Smith, the court found, “Here the facts relating to causation alleged in the Droegkamps’ complaint are markedly different from those in Smith. First, the Droegkamps remained in full ownership and control of the property. Second, the home in question on the property already existed at the time of purchase. Third, the Droegkamps have not alleged any intervening negligent acts by or against third parties.”

Links

Wisconsin Court of Appeals

Related Article

Case Analysis

Distinguishing Qualman and Ben-jamin, the court found, “it is not clear from the text of the two cases whether the complaints expressly alleged that the misrepresentations induced the purchasers to buy.”

Holding that a sufficient causal nexus was alleged by the Droegkamps, the court stated, “The complaint alleges that the Langdons made false representations of material facts, representations that the Langdons necessarily ought to have known the untruth of, and that the Droegkamps believed these representations and relied upon them to their damage. The complaint also alleges that the Langdons negligently disclosed or failed to disclose or discover material facts regarding the condition of the property, which constituted a lack of reasonable care, and that these misrepresentations created an unreasonable risk of monetary damage to the Droegkamps, who believed the misrepresentations and relied upon them to their pecuniary damage. The complaint further alleges that the Langdons owed the Droegkamps a duty of care to provide them with pertinent information regarding the property, that the Langdons breached this duty by failing to discover material defects and that this breach caused the Droegkamps to purchase the property and suffer pecuniary loss.”

Accordingly, the court reversed.

Click here for Case Analysis.

David Ziemer can be reached by email.

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