High court backtracks, declines to weigh in on duty to defend dispute

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The Wisconsin Supreme Court on Thursday declined to overturn lower courts in a case that some contended could have clarified when insurance companies are obliged to defend construction companies that get sued by their clients.

The case stemmed from a lawsuit filed by Maya Smith, who, after buying a house in Milwaukee, discovered the property had a leaky basement and clogged drainage tiles. She sued Jeff Anderson, the Wauwatosa-based real estate agent who arranged the sale, alleging he had tried to cover up the leaks by painting and cleaning the basement. She also contended that structural repairs had been made without the proper permits first having been obtained.

Anderson, in turn, filed third-party complaints against the contractor he had hired to make the basement repairs: Franklin-based R&B Construction. R&B called on its insurer, West Bend Mutual Co., to defend it in the suit.

West Bend Mutual responded by arguing that the claims were not covered by R&B’s general-liability policy, which was meant to provide protection against property damage caused by accidents, not actions such as misrepresentation.

R&B argued that West Bend Mutual was obliged to put up a defense, contending that property damage had occurred because water had leaked into the basement. R&B also noted Smith was seeking reimbursement to cover repair costs.

The state Supreme Court’s 4-1 decision on Thursday let stand lower court rulings in favor of West Bend. Justices Rebecca Bradley and Annette Ziegler did not participate, and Chief Justice Pat Roggensack concurred with the majority. Justice Shirley Abrahamson wrote a dissenting opinion.

Both Milwaukee County Circuit Court Judge Pedro Colon and the state Court of Appeals sided with West Bend Mutual, granting summary judgment on the grounds that the policy exemptions excused the insurance company from having to defend R&B.

The construction firm appealed for a third time. The high court decided to take the case last April and heard oral arguments last October.

The justices, in declining to overrule Colon and the state appeals court, cited recent decisions finding that courts must consider insurance policies in their entirety, including their exclusion provisions, when deciding whether a defense must be mounted.

The justices found that the parties in this case had neither submitted briefs nor made arguments concerning whether the exclusions in question precluded the insurer’s duty to defended. They said that if they had decided merely whether coverage was required in this particular instance without also discussing those exclusions, they would have been sowing confusion without giving the parties guidance on how to proceed.

The decision dismissed R&B’s petition, calling it ”improvidently granted.” Follow @erikastrebel