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COURT OF APPEALS DECISION DATED AND FILED November 11, 2009 David
R. Schanker Clerk of Court of Appeals |
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NOTICE |
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This opinion is subject to further editing. If published, the official version will appear in the bound volume of the Official Reports. A party may file with the Supreme Court a petition to review an adverse decision by the Court of Appeals. See Wis. Stat. § 808.10 and Rule 809.62. |
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APPEAL
from an order of the circuit court for
Before Brown, C.J., Anderson and Snyder, JJ.
¶1 PER CURIAM. In this duty-to-defend case, Jim Karrels Trucking Sand & Gravel and Jim Karrels (“Karrels”) appeal an order granting summary judgment to Acuity, a Mutual Company, Karrels’ commercial general liability insurer. The circuit court concluded that Acuity owed Karrels no duty to defend against the breach of contract, negligence and slander of title claims Camelot Development Group, LLC (“Camelot”) and CDG Belgium Grocery, LLC (“CDG”) filed against Karrels. We agree and affirm.
¶2 CDG owns property on which it intended to construct the Belgium Village Market, a retail grocery store. In October 2006, Camelot, as CDG’s general contractor, subcontracted with Karrels for excavation and grading work preparatory to the construction of the Village Market. William and Nancy Eiseman own Camelot, CDG and the Village Market. Problems arose. In August 2007, Camelot asked Karrels to cease all work on the project.
¶3 Camelot and CDG filed suit alleging that Karrels (1) breached the contract by failing to follow plans and specifications, (2) negligently damaged the property through grading and drainage errors and (3) slandered their title by placing on the property liens supported by information Karrels knew or should have known was false. See Wis. Stat. § 706.13(1) (2007-08).[1] They claimed damages in excess of $1 million, including over $832,000 in lost profits because the Village Market’s opening was delayed. Acuity undertook a defense of Karrels under a reservation of rights, was permitted to intervene, and sought a declaration either that it had no duty to defend or indemnify Karrels or of the limits of its obligations under the policy.[2]
¶4 Acuity then moved for summary judgment on grounds that it had
no duty to defend or indemnify Karrels. It
contended that the policy did not make an initial grant of coverage for the
claims Camelot and CDG set forth in its amended complaint because none of the
claims allege an “occurrence,” and because breach of contract and slander of
title do not state claims for property damage.
See Vogel v. Russo, 2000 WI 85, ¶17, 236
¶5 The circuit court addressed both motions at a single hearing. Seeing no prejudice to any of the parties, the court permitted Camelot and CDG to amend the complaint. As to summary judgment, Acuity acknowledged it may have a duty to defend claims the newly added parties might make, but argued that it had no obligation to defend Karrels for Camelot’s and CDG’s current claims. The circuit court agreed, and granted summary judgment. Karrels appeals.
¶6 We first emphasize that this appeal is limited to addressing whether Acuity has a duty to defend against the claims of Camelot and CDG. Claims regarding lost profits, flooding of the Eisemans’ adjacent property or damages to the Village Market were not Camelot’s and CDG’s to make. Such claims were not properly before the circuit court and are not before us here.
¶7 We review summary judgment decisions de novo, applying the
same methodology as the circuit court. Green
Spring Farms v. Kersten, 136
¶8 An insurer’s duty to defend its insured is determined by
comparing the allegations of the complaint to the terms of the insurance
policy. Estate of Sustache v. American
Fam. Mut. Ins. Co., 2008 WI 87, ¶20, 311
¶9 Camelot’s and CDG’s complaint[3] states claims for breach of contract, negligence and slander of title. Specifically, it alleges that Karrels failed to perform the agreed-upon excavation and grading services, damaged the property by cutting trenches, miscalculating the grade and creating pools of trapped water, failed to timely and properly complete the work, and slandered Camelot’s and CDG’s title by filing falsely supported claims for lien. The plaintiffs’ answers to interrogatories asserted that Karrels hit drain tile on the property, causing flooding to the property and to land adjacent to it,[4] leading to construction delays which in turn delayed the opening of the Village Market. Camelot’s and CDG’s claimed damages relate to the cost of repairing Karrels’ allegedly negligent work, completing that left unfinished under the contract and lost profits from the delayed store opening.
¶10 The CGL policy Acuity issued Karrels during the time frame at
issue provided in relevant part:
COVERAGE A –
BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1.
Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of … property damage to which this insurance applies. We will have the right and duty to defend the insured against any suit seeking those damages. However, we will have no duty to defend the insured against any suit seeking damages for … property damage to which this insurance does not apply
….
b. This insurance applies to … property damage only if:
(1) The … property damage is caused by an occurrence that takes place in the coverage territory
“Property damage” means either physical injury to tangible property including loss of its use or loss of use of tangible property that is not physically injured. “Occurrence” means “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
¶11 Karrels asserts that Acuity owes a duty to defend because there is arguable coverage for at least some of what Camelot’s and CDG’s complaint alleges. Specifically, Karrels contends that the negligence claim, expanded upon in the answers to interrogatories, alleges physical injury to tangible property—the broken drain tile with consequent flooding of the subject property and adjacent property—and also alleges loss of use of tangible property—the resultant delays in the construction project and store opening. Karrels argues that this property damage was caused by an “occurrence,” his inadvertent damaging of the drain tile.
¶12 Acuity disputes that Karrels’ unintended striking of the drain tile constituted an “occurrence” but asserts that, even if it is, at least one of the policy exclusions precludes coverage. For the reasons set forth below, we agree that at least one exclusion applies. Accordingly, we bypass the issue of whether there was an occurrence within the meaning of the policy.
¶13 The policy states the following exclusions to Coverage A:
This insurance does not apply to:
….
j.
Damage to
Property
Property damage to:
….
(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the property damage arises out of those operations;
(6) That particular part of any property that must be restored, repaired or replaced because your work was incorrectly performed on it.
¶14 Acuity contends that exclusion j(5) bars coverage because, as Nancy Eiseman testified at deposition, all of the damage from Karrels’ faulty workmanship was to the land itself and occurred while Karrels was performing his operations on it. She specifically testified that no damage other than wetting to the land resulted from Karrels allegedly hitting drain tile and that she “would like to stress” she did not know if he hit it at all. The construction manager likewise testified that he was not aware of damage to any property other than the land on which Karrels was working. Acuity also argues that exclusion j(6) bars coverage because, according to Nancy Eiseman, all of the damages Camelot and CDG claim are to restore, repair or replace work Karrels deficiently performed.
¶15 Naturally, Karrels disagrees.
He contends the j(5) exclusion applies only to damages arising out of
the insured’s “operations,” and he was not “performing operations” on the drain
tile when he struck it. The j(6)
exclusion similarly does not apply, he argues, because it bars coverage only
for damage occurring when “your work was incorrectly performed on it” and,
again, he was not “perform[ing work]” on the drain tile, but on the land. In support, Karrels directs us to several
cases in which courts in other jurisdictions applied comparable exclusions to
arguably similar facts and found coverage.[5] We focus our discussion on EOTT
Energy Pipeline Limited Partnership v. Hattiesburg Speedway, Inc., 303
F. Supp. 2d 819 (S.D.
¶16 There, the Hattiesburg Speedway operated a racetrack on
property under and through which EOTT operated and maintained an oil pipeline
by virtue of a right-of-way duly recorded in county land records.
¶17 The court concluded that neither property damage exclusion,
which track the j(5) and (6) exclusions at issue here, barred coverage. See id. at 826. The court stated that
¶18 The circuit court here saw it differently. It reasoned that, while difficult to “parse out” a piece of real property, an oil pipeline is “totally disassociated” from the roadway, whereas drain tile buried in a farm field is “so associated with the property that [Karrels] wasn’t working on something different when he damaged the drain tile. He was working on the property. Itself.” We agree.
¶19 The pleadings in EOTT Energy are telling. Although hired to work on the road surface, the complaint there alleged that the grader driver negligently caused the grader blade to strike the pipeline, rupturing it and causing a costly oil spill. The prayer for relief reflected the costs generated by the damage to the pipeline itself, the consequent cleanup, and the lost profits. The complaint here, by contrast, alleges defective workmanship on and damage to “the subject property,” not to the drain tile. The supplemental itemization of damages does not mention repair to the tile. Claims for flood damages on neighboring property and the over $832,000 lost profits were not Camelot’s and CDG’s claims to make.
¶20 The j(5) and (6) exclusions bar coverage for property damage to “[t]hat particular part” of the property being worked on. We agree with the circuit court that the drain tile was intrinsically tied to“[t]hat particular part” of the property being worked on, thus also precluding coverage for damages involving it.
¶21 Acuity next contends that the “impaired property” exclusion
bars coverage because Camelot and CDG have no claim for loss of use. That exclusion essentially bars coverage for
damage to unusable or less useful tangible property that, if repaired, can be
restored to use. A loss-of-use claim
requires that the property be rendered useless.
See Everson, 280
¶22 Finally, Acuity asserts that the “intentional act” exclusion
bars coverage for slander of title because Camelot and CDG would have to prove
that Karrels filed, documented or recorded against them a “knowingly” made false,
sham or frivolous claim of lien. See Kensington Dev. Corp. v.
¶23 We address these exclusions no further because Karrels does not
raise them. Rather, he rests on the
argument Camelot and CDG offered at summary judgment that at least another of
the theories fall within the policy’s coverage obligating Acuity to defend the
entire action. See State Farm Fire & Cas.
Co., 280
By the Court.—Order affirmed.
This opinion will not be published. See Wis. Stat. Rule 809.23(1)(b)5.
[1] All references to the Wisconsin Statutes are to the 2007-08 version unless noted.
[2] Acuity issued two consecutive policies during the time frame at issue. As the relevant provisions are identical in both, we will refer to “the policy” rather than “policies.”
[3] “Complaint,” which we use for simplicity, refers to the first amended complaint so as not to confuse it with the second amended complaint which added three new plaintiffs.
[4] The adjacent land is owned by newly added plaintiffs Nancy and William Eiseman.
[5]
See also