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BENCH BLOG: Justices unanimous in asbestos decision

By: Jean DiMotto//January 20, 2014//

BENCH BLOG: Justices unanimous in asbestos decision

By: Jean DiMotto//January 20, 2014//

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Case law interpreting insurance policies on the rise

Jean DiMotto is a retired Milwaukee County Circuit Court judge. She served for 16 years, and was on the criminal bench for 12 of those years.
Judge Jean DiMotto retired in 2013 after 16 years on the Milwaukee County Circuit bench and now serves as a reserve judge.

There has been a recent spate of appellate cases interpreting insurance policies, including Schinner v. Gundrum and Barrows v. Renfrow. In the newest, Phillips v. Parmelee, all three levels of courts agreed on the interpretation of an asbestos exclusion.

Daniel Parmelee owned the entity, Aquila Group LLC (collectively, “Parmelee”). In 2006, Parmelee purchased a 20-unit apartment building in New London. Prior to this purchase Parmelee obtained a building inspection.

The inspection report of March 29, 2006, indicated that there was “probably asbestos in the basement heating supply ducts … For example, the laundry room with three washers and two dryers has several heating pipes with friable asbestos-like insulation.”

Parmelee nonetheless bought the building, insured it with a business owners policy from American Family Mutual Insurance Co., and promptly put the building back on the market for sale.

In the course of negotiating a sale with Michael Phillips, Parmelee signed a real estate condition report containing the statement that he wasn’t aware of the presence of asbestos or asbestos-containing materials on the premises.

Similarly, in the offer to purchase, Parmelee represented that as of the September 2006 date of acceptance, he had “no notice or knowledge of conditions affecting” the property.

Sometime in 2007, after the sale had been completed, Phillips’ contractor cut through asbestos-wrapped ducts in an attempt to remove them. This caused asbestos to be dispersed throughout the building.

The profound contamination led to tenants being forced to vacate the building and Phillips being unable to continue to finance the building, which was subsequently lost in foreclosure.

Trial court decision

The lawsuit was considered in Milwaukee County. Phillips sought damages for breach of contract/warranty, intentional misrepresentation causing property loss, negligence and punitive damages.

Thereafter, American Family was allowed to intervene as a defendant. As is typical, it moved to bifurcate and stay proceedings, then counterclaimed and cross-claimed for declaratory/summary judgment on the issue of insurance coverage.

American Family argued that there was no occurrence and therefore no coverage. If there was, however, coverage was precluded by the asbestos exclusion. Accordingly, there would be no duty to defend Parmelee much less indemnify him.

Milwaukee County Circuit Court Judge Timothy Witkowiak found coverage in the first instance triggered by the negligence claim, but determined that the asbestos exclusion applied and therefore granted judgment in favor of American Family.

Court of Appeals weighs in

In the appeal, American Family again contended that there was no occurrence and therefore no coverage under the coverage grant clause, and that the asbestos exclusion applied in the event coverage was found.

Phillips’ and Parmelee’s interests continued to be aligned against American Family since both litigants would benefit from insurance coverage for Parmelee.

They argued that the asbestos exclusion was ambiguous. Specifically, they noted that the exclusion did not particularize exposure to accidental dispersal of asbestos as opposed to exposure to it in its friable state.

In a decision authored by District I Presiding Judge Patricia Curley, the Court of Appeals first agreed with Witkowiak that there was threshold coverage because there was both an occurrence and property damage.

It further concluded there was no ambiguity in the asbestos exclusion, noting the clarity and breadth of the language, and therefore ruled that the exclusion applied, precluding coverage.

Supreme Court decision

American Family wisely abandoned its claim that there was no initial coverage of Phillips’ claims. Instead it focused exclusively on the asbestos exclusion.

Phillips again argued that the exclusion is ambiguous because the word “asbestos” is undefined in the policy.

In an opinion written by Chief Justice Shirley Abrahamson, the Wisconsin Supreme Court responded that a reasonable person in the position of the insured understands that “asbestos in any form is asbestos.”

Similarly, Phillips argued that the type of tort — negligence in failing to disclose the presence of asbestos — was not specified in the exclusion, rendering the exclusion ambiguous. The court ruled that the scope of the American Family exclusion does not depend on the type of tort from which the loss arose.

As he had done in both the trial court and Court of Appeals, Phillips cited a New York case with a similar factual modus operandi: a contractor caused the accidental dispersal of asbestos throughout a building.

There, the policy’s failure to articulate a specific cause of the loss — unknowing or accidental release or dispersal of asbestos — was outcome determinative in the court’s decision to preclude applicability of the exclusion.

But the court here found the New York case unpersuasive because the asbestos exclusion’s language was “crucially different” from the language in Parmelee’s policy.

Accordingly, the court affirmed the decision of the Court of Appeals, which had affirmed Witkowiak. The result was that the exclusion applied and American Family therefore had no duty to defend or indemnify Parmelee.

Commentary

This is a refreshing case from Wisconsin’s highest court. It is clearly and logically written. Both the relevant facts and the rules of insurance policy construction are presented concisely.

It is a succinct 10 pages, enhancing the likelihood that members of the bench and bar will read it. It comports with common sense.

Perhaps most refreshing is that it is a unanimous decision.

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