Homebuilder may be able to collect twice on insurance policies

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Can a person collect on two insurance policies taken out apart from each other as a result of his separate roles as owner and builder of the same house?

According to the Wisconsin Supreme Court, he can.

The state’s high court on Wednesday found that a homebuilder who used his company to put up a house that later burnt down in a fire while he and his family were living there may be able to collect on both his business’ risk-insurance policy and his homeowner’s policy.

Wednesday’s ruling reverses decisions handed down by a Walworth County Circuit Court and the state’s District 2 Court of Appeals. Those courts had found that James Accola, owner of Fontana Builders Inc., of La Grange, Ill., had no right to collect on the builder’s risk policy that his company had taken on a house he had built in Lake Geneva.

The case dates to May 2007, when Accola obtained a 30-day temporary occupancy permit and used it to move with his family into the house before it was completed. Despite their taking up residency there, the house’s title remained in the name of Fontana Builders.

Accola had gotten his company to secure a builder’s risk policy from Assurance Co. of America, of Schaumburg, Ill. Separately, he had turned to Chubb Insurance Co. for a homeowner’s policy after learning he needed one in order to borrow money for his house from Fontana Builder’s lender, AnchorBank.

The house was destroyed in a fire a week after the homeowner’s policy took effect.

Accola filed a homeowner’s claim with Chubb and received a $1.5 million settlement. Fontana Builders’ separate claim to Assurance, though, was rejected. Assurance cited a contract clause calling for coverage to be terminated once a homeowner’s policy takes effect.

Fontana sued Assurance in 2008, alleging breach of contract.

In a decision handed down in April 2015, the District 2 Court of Appeals denied Accola coverage under Fontana Builders’ risk policy. The court pointed out that policies of this sort are meant to protect builders against losses occurring during the construction of a building. They often terminate once the related work is complete or once an owner or tenant moves into the property.

In overturning the Court of Appeals’ decision on Wednesday, the Supreme Court found that Fontana Builders officials had a reasonable expectation that the builder’s risk policy would apply while construction proceeded on a house that, at the time, was in Fontana Builder’s name rather than Accola’s.

The justices ruled that the appeals court’s decision was contrary to Wisconsin law governing insurance. In particular, the Supreme Court majority questioned why the interpretation of the builder’s risk policy had been put to a jury when being considered at the circuit-court level.

That question should have been one for the court to decide, according to Wednesday’s decision. Generally in Wisconsin, the interpretation of insurance contracts is believed to involve legal matters that are best left to the courts.

Wednesday marked the first time the Supreme Court had weighed in on Accola’s case. But his lawsuit has been twice before courts both at the circuit and appellate levels.

The first time the case was in circuit court, it was found that the builder’s risk policy in fact should cover Fontana Builders. The court of appeals overturned that decision in 2011.

Sending the case back to the circuit court, the appellate judges called for the settlement between Chubb and Accola over the homeowner’s policy to be admitted into evidence.

A jury then found that, because Chubb homeowner’s policy had applied at the time of the fire, the Assurance builder’s risk coverage had been terminated. That started the lawsuit back on its way to the Court of Appeals and, ultimately, the Supreme Court.

In a brief in the case, the Wisconsin Bankers Association urged the high court justices to side with Accola. The group cautioned that a finding to the contrary would run athwart of current law and could drive up construction costs by exposing banks to additional risk.

The association noted that the lower courts appeared to be uncomfortable with the prospect of Accola’s collecting on both his homeowner’s policy and, as a president and owner of Fontana Builders, the builder’s risk policy. They argued, though, that it was in fact two separate legal entities that had entered into the contracts. The case’s perhaps unusual facts, the group argued, should not give rise to a bad precedent.

In addition to finding that Accola could collect on both the homeowners and builder’s risk insurance policies, the Supreme Court sent the case back Wednesday to the Walworth County Circuit Court to decide what damages would be awarded.

Justice Rebecca Bradley concurred in part with Wednesday’s majority opinion but dissented with the part of the decision finding that the builder’s-risk policy was in effect at the time of the fire. She noted that the policy made it clear that it would be terminated once permanent property insurance had taken effect.

Justice Ann Walsh Bradley — joined by Justice Shirley Abrahamson — concurred with the majority, disagreed only with the court’s finding that the clause in the builders-risk policy involving termination was ambiguous. Follow @erikastrebel