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High court to hear arguments in dispute between construction firm, insurance company

A case next week before the Wisconsin Supreme Court could help clarify when insurance companies are obliged to defend construction companies that are being sued by their clients.

Only after buying a house in Milwaukee did Maya Smith discover that its basement was leaking and its drain tiles were clogged. She responded in August 2013 by suing Jeff Anderson, the Wauwatosa-based real estate agent who had arranged the sale, alleging that he had misrepresented the property’s condition.

She also found out that Anderson had tried to cover up the leaking by painting and cleaning the basement, and that he had allowed structural repairs to be made without the proper permits first being obtained.

Smith sought money damages and asked the trial court to rescind the sale and return everything she had spent on buying the house, moving in and later improving the property.

In 2014, Anderson filed third-party complaints against the contractors he had enlisted for the basement repairs. Waukesha-based 4th Dimension Design had been brought on to inspect the basement and prepare an engineering report recommending repairs be made to the basement walls and foundation. Franklin-based R&B Construction was hired to perform the work that 4th Dimension had suggested, as well as to stop water seepage along one basement wall.

Anderson alleged that if he was eventually found liable for misrepresentation, 4th Dimension and R&B should pay or reimburse Anderson for any part of the damages that were awarded to Smith. R&B looked to the provider of its general liability policy, West Bend Mutual Insurance, to defend it against Anderson’s claim.

West Bend Mutual countered by arguing it had no duty to defend R&B. West Bend officials said the misrepresentation claims were not covered by R&B’s general-liability policy.

West Bend Mutual argued that its policy instead covered property damage caused by accidents. But Smith’s allegations against Anderson made no mention of any sort of accident.

West Bend Mutual said that even if Anderson had made misrepresentations about the repairs, those misrepresentations were actions and not the result of an accident. Also, the company noted, Anderson’s complaint made no allegations of property damage.

R&B, in turn, argued that the property damage had been caused by the water that had leaked into Smith’s basement. R&B also noted that Smith was asking to be reimbursed for repair costs. Those, the company argued, should be covered by its policy with West Bend Mutual.

Milwaukee County Circuit Court Judge Pedro Colon disagreed, finding that the alleged misrepresentations were not covered by R&B’s policy. R&B appealed, and the Wisconsin Court of Appeals agreed with Colon last December. The three-judge panel noted that Anderson’s claim against R&B had not alleged faulty workmanship on the part of R&B and that Anderson had stated that the work had been done properly.

R&B appealed again. The state Supreme Court decided in April to take the case.

R&B is now arguing, among other things, that the damages Smith had sought implied that the claim against R&B would be covered. For that reason, R&B argued, West Bend Mutual should not have been dismissed from the case.

R&B noted that Smith was also asking for damages to cover the cost of replacing her house’s drain tile. Even though R&B had not performed that repair work, Anderson was claiming R&B was responsible.

The Wisconsin Defense Council, an organization of attorneys that represent businesses and individuals, has submitted a brief in support of letting the appeals court decision stand.

The justices are scheduled to hear oral arguments in the case on Oct. 18.

About Erika Strebel,

Erika Strebel is the law beat reporter for the Wisconsin Law Journal and a law school student at UW-Madison. She can be reached at 414-225-1825.

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