Kevin D. Trost v. Haack Homestead Inspections, LLC

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
February 6, 2020
A party may file with the Supreme Court a
Sheila T. Reiff petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10
and RULE 809.62.

Appeal No. 2018AP2344 Cir. Ct. No. 2016CV2548

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT IV

KEVIN D. TROST AND JENNIFER M. GAGNE,

PLAINTIFFS,

LIBERTY MUTUAL INSURANCE COMPANY,

SUBROGATED-PLAINTIFF,

V.

HAACK HOMESTEAD INSPECTIONS, LLC, STEVEN T. HERFEL D/B/A
D&S ROOFING D/B/A DOLLARS AND SENSE CONSTRUCTION, PEKIN
INSURANCE COMPANY AND TOKIO MARINE SPECIALTY INSURANCE
COMPANY,

DEFENDANTS,

RAYMOND A. WEIHOFEN AND DONNA J. WEIHOFEN,

DEFENDANTS-APPELLANTS,

ECONOMY PREMIER ASSURANCE COMPANY,

INTERVENOR-RESPONDENT.
No. 2018AP2344

APPEAL from an order of the circuit court for Dane County:
RHONDA L. LANFORD, Judge. Affirmed.

Before Fitzpatrick, P.J., Blanchard and Kloppenburg, JJ.

Per curiam opinions may not be cited in any court of this state as precedent

or authority, except for the limited purposes specified in WIS. STAT. RULE 809.23(3).

¶1 PER CURIAM. Raymond and Donna Weihofen appeal an order of
the Dane County Circuit Court granting summary judgment in favor of Economy
Premier Assurance Company on the issue of whether Economy had a duty to
defend the Weihofens against claims brought by Kevin Trost and Jennifer Gagne.
Trost and Gagne purchased a house from the Weihofens.1 After purchasing the
house, the Buyers discovered a bat infestation and water intrusion inside the
house, and the Buyers brought suit against the Weihofens.2 The Weihofens’
liability insurer, Economy, intervened in the lawsuit to request a determination by
the circuit court on the issue of whether Economy has a duty to defend the
Weihofens against the Buyers’ claims. The circuit court concluded that Economy
does not have a duty to defend and granted Economy’s motion for summary
judgment.

¶2 We conclude that Economy has no duty to defend the Weihofens
against the allegations in the Buyers’ complaint under the liability policy that

1
For convenience, we will now refer to Trost and Gagne as “the Buyers.”
2
The Buyers also brought a negligence claim against Haack Homestead Inspections, the
company that performed a pre-purchase inspection of the home. The Buyers’ claim against
Haack is not at issue in this appeal.

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No. 2018AP2344

Economy issued to the Weihofens. Accordingly, we affirm the circuit court’s
order.

BACKGROUND

¶3 The following facts are undisputed for purposes of this appeal.

¶4 The Buyers purchased a house from the Weihofens in November
2014. Before the sale of their house, the Weihofens executed a Real Estate
Condition Report. The report stated that the Weihofens were not aware of
“defects in the roof,” “water or moisture intrusions,” or “other defects affecting the
property.” The report was provided to the Buyers. After the Buyers moved into
the house, they discovered that the home had a bat infestation and water intrusion.

¶5 The Buyers brought suit against the Weihofens. The Buyers’
complaint asserted three separate misrepresentation claims against the Weihofens
relating to statements made by the Weihofens in the Real Estate Condition Report.
The Buyers also asserted claims for breach of warranty and negligence against
Steven Herfel relating to Herfel’s installation of a new roof on the Weihofens’
house seven years before the Weihofens sold the house to the Buyers.

¶6 From June 1, 2014, to June 1, 2015, the Weihofens were insured
under a personal liability policy issued by Economy.3 The policy provided the
following pertinent liability coverage, identifying the Weihofens as “you”:

Legal Liability Protection. Under the liability
section of this policy you’re covered when someone makes
a claim against you. We’ll cover your legal liability

3
For convenience, we will refer to the insurance policy issued by Economy as “the
policy.”

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No. 2018AP2344

resulting from an occurrence in which there is actual
accidental property damage … subject to the limitations
and exclusions in [the policy]. By occurrence, we mean an
event, including continuous or repeated exposure to the
same conditions, resulting in … property damage neither
expected nor intended by anyone insured by [the policy].

….

“Property damage” is damage to someone else’s
property or its loss or destruction and also the loss of its
use….

The policy also provided the following regarding a duty to defend:

We’ll pay for the cost of your defense, including
investigation, lawyer’s fees and court costs when someone
make a covered claim against anyone insured under this
policy.

¶7 Initially, the Weihofens retained their own counsel to represent them
in the Buyers’ lawsuit but, in February 2017, the Weihofens notified Economy that
the Weihofens were “tendering defense” of the suit to Economy. Economy did not
provide a defense to the Weihofens. Rather, Economy intervened in the Buyers’
lawsuit for the purpose of seeking a declaration of Economy’s duties under the
policy. The Weihofens and Economy filed cross-motions for summary judgment
on the issue of Economy’s duty to defend. The circuit court granted summary
judgment in favor of Economy, concluding that Economy did not have a duty to
defend the Weihofens under the policy, and the Weihofens appeal.

¶8 We will mention other material facts in the discussion that follows.

DISCUSSION

¶9 The Weihofens argue that the circuit court erred in concluding that
Economy did not have a duty to defend the Weihofens under the terms of the
policy. For the reasons that follow, we reject the Weihofens’ arguments.

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I. Standard of Review and Governing Principles Regarding the
Interpretation of Insurance Contracts and an Insurer’s Duty to Defend.

A. Standard of Review.

¶10 Economy’s request for declaratory relief presents a question of law
and turns upon the interpretation of the policy in light of relevant facts. See Olson
v. Farrar, 2012 WI 3, ¶24, 338 Wis. 2d 215, 809 N.W.2d 1. We review questions
of law de novo. Id.

¶11 We likewise review de novo the circuit court’s entry of summary
judgment, applying the same methodology as the circuit court. Cole v. Hubanks,
2004 WI 74, ¶5, 272 Wis. 2d 539, 681 N.W.2d 147. Summary judgment is
appropriate only if there is no genuine issue as to any material fact and the moving
party is entitled to judgment as a matter of law. WIS. STAT. § 802.08(2) (2017-
18).4 Here, Economy is the moving party and, as such, “bears the burden of
establishing the absence of a genuine, that is, disputed, issue of material fact.”
Midwest Neurosciences Assocs., LLC v. Great Lakes Neurosurgical Assocs.,
LLC, 2018 WI 112, ¶80, 384 Wis. 2d 669, 920 N.W.2d 767. We review summary
judgment materials “in the light most favorable to the non-moving party,” here the
Weihofens. Id.

B. Interpretation of Insurance Policies.

¶12 In this appeal, we must interpret provisions of the policy. The
objective in interpreting an insurance policy is to ascertain the intention of the

4
All references to the Wisconsin Statutes are to the 2017-18 version unless otherwise
noted.

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No. 2018AP2344

parties. Paper Mach. Corp. v. Nelson Foundry Co., Inc., 108 Wis. 2d 614, 620,
323 N.W.2d 160 (Ct. App. 1982). Language in an insurance policy is given its
common and ordinary meaning. Kremers-Urban Co. v. American Emp’rs Ins.
Co., 119 Wis. 2d 722, 735, 351 N.W.2d 156 (1984). Insurance policies are thus
interpreted based on “what a reasonable person in the position of the insured
would have understood the words to mean.” Id.

C. Duty to Defend.

¶13 Insurance policies, such as the policy Economy issued to the
Weihofens, are contracts that establish an insurer’s “duty to indemnify the insured
against damages or losses, and the duty to defend against claims for damages.”
Water Well Sols. Serv. Grp. Inc. v. Consolidated Ins. Co., 2016 WI 54, ¶14, 369
Wis. 2d 607, 881 N.W.2d 285 (quoting Olson, 338 Wis. 2d 215, ¶27).

¶14 The “duty to defend” is “the insurer’s ‘responsibility to defend the
insured from all actions brought against the insured based on alleged facts or
circumstances falling within the purview of coverage under the policy, regardless
of the suit’s validity or invalidity.’” Marks v. Houston Cas. Co., 2016 WI 53,
¶37, 369 Wis. 2d 547, 881 N.W.2d 309 (quoting 14 Steven Plitt et al., Couch on
Insurance § 200.1 (3d ed. 2015)). In considering whether an insurer has a duty to
defend, we compare “the four corners of the underlying complaint to the terms of
the entire insurance policy.” Water Well, 369 Wis. 2d 607, ¶15.

¶15 The three-step process in duty-to-defend cases is as follows:

(1) “First, a reviewing court determines whether
the policy language grants initial coverage for the
allegations set forth in the complaint. If the allegations set
forth in the complaint do not fall within an initial grant of
coverage, the inquiry ends.”

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No. 2018AP2344

(2) Second, “if the allegations fall within an initial
grant of coverage, the court next considers whether any
coverage exclusions in the policy apply.”

(3) Third, “[i]f any exclusion applies, the court next
considers whether an exception to the exclusion applies to
restore coverage.”

West Bend Mutual Ins. Co. v. Ixthus Medical Supply, Inc., 2019 WI 19, ¶11, 385
Wis. 2d 580, 923 N.W.2d 550 (quoting Water Well, 369 Wis. 2d 607, ¶16).

II. The Policy Did Not Make an Initial Grant of Coverage.

¶16 As noted, an insurer’s duty defend is determined by comparing the
relevant allegations in the Buyers’ complaint to pertinent provisions of the policy.
See Water Well, 369 Wis. 2d 607, ¶15. We now set forth portions of the Buyers’
complaint and the policy.

A. The Buyers’ Complaint.

¶17 The following are the pertinent portions of the allegations in the
Buyers’ complaint:

19. [After the buyers purchased the house, they]
noticed that many moderate to heavy rains resulted in the
intrusion of water into a portion of the basement
underneath the sunroom.…

20. [After the Buyers purchased the house, they]
discovered [that] the attic of the House was the residence of
multiple bats….

21. A bat exclusion contractor subsequently
advised that there were multiple locations along the
roofline that were missing standard flashing and left
openings through which bats could easily access the attic....
He also observed the presence of metal mesh from
someone’s prior attempt to exclude bats from the attic.

.…

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No. 2018AP2344

26. It was discovered that multiple locations on the
roof had excessive amounts of tar and/or caulk at various
junctions where someone had previously made an improper
attempt to address chronic water leakage….

.…

38. Herfel and his employees failed to meet these
obligations and duties by failing to properly install flashing
during the roofing process, failing to properly install roof
vents, and tarpapering over and nailing through and
walking on the gutters and gutter helmet during the roofing
process.

39. As a result of Herfel and his employees’ failure
to meet the required standard of care, the [Buyers] have
sustained damages including, but not limited to, water
damage to the structure of the House, bat intrusion and
habitation in the attic, and the cost of repair and
replacement of the roof, gutters, and gutter helmet.

….

49. … [The Weihofens] completed a real estate
condition report for the House and provided [the] report to
… [the Buyers]….

50. The real estate condition report disclosed that
[the Weihofens] were unaware of any problems with the
roof, any problems with water intrusion into the house or
basement, any problems with drainage, or any problems
with pests.

51. The representations in the real estate condition
report were made based on facts of the Weihofens’ own
knowledge or where they should have known the truth or
untruth of the representations.

52. Said representations contained in the real estate
condition report were untrue. [The Weihofens] tarred
and/or caulked various areas of the less than seven year old
roof in an improper attempt to correct leakage. They cut
open a gutter cover in an attempt to address poor gutter
functioning. They painted over areas of water damage in
an effort to conceal them from prospective purchasers.…
They installed metal exclusion mesh in the attic and
expandable foam sealant around the chimney in an effort to
exclude bats from the attic.

.…

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54. [The Buyers] believed the representations
contained in the real estate condition report to be true and
relied upon them to their detriment incurring actual and
consequential damages.

.…

56. The representations contained in the real estate
condition report … were untrue, deceptive, or misleading
and were made … [to the Buyers] with an intent to induce
them to enter into a contract for the purchase of the House.

….

58. As a result of the untrue, deceptive, or
misleading statements contained in the real estate condition
report, [the Buyers] have sustained pecuniary loss.

.…

61. Knowing the falsity of the representations
about the roof, gutters, water intrusion, and pests in the real
estate condition report, [the Weihofens] intended to deceive
and defraud prospective purchasers into buying the House.

62. [The Buyers], relying upon the information
contained in the real estate condition report, acted to their
detriment and sustained actual damages, costs of
investigation, including attorneys’ fees and costs.

B. Applicable Policy Provisions.

¶18 We now repeat the applicable provisions of the policy:

Under the liability section of this policy you’re
covered when someone makes a claim against you. We’ll
cover your legal liability resulting from an occurrence in
which there is actual accidental property damage … subject
to the limitations and exclusions in [the policy]. By
occurrence, we mean an event, including continuous or
repeated exposure to the same conditions, resulting in …
property damage neither expected nor intended by anyone
insured by [the policy].

….

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No. 2018AP2344

“Property damage” is damage to someone else’s
property or its loss or destruction and also the loss of its
use.

(Emphasis added.)

C. Analysis.

¶19 Given the terms of the policy, the parties do not dispute that, for
there to be an initial grant of coverage, the complaint must allege that the
Weihofens’ conduct resulted in “property damage.”5 There is also no dispute that
the complaint alleges that misrepresentations of the Weihofens caused damages to
the Buyers. Economy asserts that the Buyers’ complaint did not trigger an initial
grant of coverage because the complaint does not allege that the Weihofens’
misrepresentations caused property damage. As stated by Economy, there is no
initial grant of coverage because there is no allegation in the complaint “that the
Weihofens’ misrepresentations,” or any other action on their part, “caused the
defective conditions in the house about which the [Buyers] complain.”6

¶20 The Weihofens do not argue to this court that the complaint alleges
that their misrepresentations caused property damage. Rather, the Weihofens
argue that an initial grant of coverage is triggered because the complaint alleges

5
The complete phrase in the policy regarding property damage is “actual accidental
property damage.” However, whether the property damage was “actual” or “accidental” is not
germane to our analysis, and we can ignore those terms.
6
Economy also contends that the Buyers’ complaint did not trigger an initial grant of
coverage because the Weihofens’ legal liability stems from the Weihofens’ misrepresentations,
and those misrepresentations are not an “occurrence” under the policy in as much as those
misrepresentations were not accidental. We do not reach this issue because we resolve the duty
to defend issue on another ground. See Cholvin v. Wisconsin Dep’t of Health and Family
Servs., 2008 WI App 127, ¶34, 313 Wis. 2d 749, 758 N.W.2d 118 (stating that, if a decision on
one point disposes of the appeal, we will not decide other issues raised).

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No. 2018AP2344

that the Weihofens’ conduct other than the misrepresentations caused property
damage. The Weihofens point to four purported bases to support their argument,
and we reject each.

¶21 First, the Weihofens argue that allegations in paragraphs 26 and 52
of the complaint that the Weihofens “tarred and/or caulked various areas of the …
roof in an improper attempt to correct leakage” into the house is an allegation of
conduct resulting in property damage. However, the Weihofens point to no
allegation in those paragraphs, or anywhere else in the complaint, which gives rise
to a reasonable inference that conduct of the Weihofens, such as attempts to
correct the leakage, caused damage or increased damage to the house. In other
words, there is nothing in the complaint alleging that the Weihofens’ attempt to
correct leakage caused “property damage.”

¶22 Second, the Weihofens contend that an allegation in paragraph 52 of
the complaint that the Weihofens “cut open a gutter cover in an attempt to address
poor gutter functioning” is an allegation of conduct resulting in property damage.
However, the Weihofens point to no allegation in paragraph 52, or anywhere else
in the complaint, stating that the opening of the gutter cover caused any property
damage or made any property damage worse than it would have been otherwise.
In fact, paragraphs 38 and 39 are the only portions of the complaint (quoted
above) that allege any damage to, or resulting from, the gutters, and those
paragraphs allege that such damage was caused by Herfel.

¶23 Third, the Weihofens contend that an allegation in paragraph 52 of
the complaint that the Weihofens “installed metal exclusion mesh in the attic and
expandable foam sealant around the chimney in an effort to exclude bats from the
attic” is an allegation of conduct resulting in property damage. Once again,

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No. 2018AP2344

however, the Weihofens point to no allegation in paragraph 52, or anywhere else
in the complaint, that there would have been no, or fewer, bats in the attic of the
house if the Weihofens had not installed the mesh or the expandable foam sealant.
As a result, that allegation does not state that conduct of the Weihofens caused
property damage.

¶24 Fourth, the Weihofens point to what they describe as allegations that
they “[h]ired and paid for defective roofing work [by Herfel] that resulted in
ongoing water infiltration.” Economy argues that there is no claim against the
Weihofens, or facts alleged against them in the complaint, that the Weihofens are
liable for the defective roofing work done by Herfel. In reply, the Weihofens do
not dispute that there is no claim against them for negligent hiring or negligent
supervision of Herfel. Instead, the Weihofens argue that they “were potentially
liable” for negligent hiring or supervision of Herfel based on Herfel’s work on the
house. We see no viable argument from the Weihofens that a claim that is not in
the complaint and is only a “potential” liability against the Weihofens can be the
basis for an initial grant of coverage. There must be a claim for damages against
the insured for the duty to defend to arise. Id., ¶¶15, 17 (“This is because the four-
corners rule dictates that the duty to defend is determined by ‘the nature of the
claim alleged against the insured ... even though the suit may be groundless, false
or fraudulent.’” (quoted source omitted)). In addition, the policy notes that, for
there to be coverage, there must be a “claim” made against the Weihofens. We are
aware of no authority that requires Economy to defend a claim not made in the
complaint.

¶25 In short, the allegations in the complaint do not connect any alleged
conduct of the Weihofens to any property damage. Accordingly, we conclude that

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No. 2018AP2344

the conduct pointed to by the Weihofens did not trigger an initial grant of coverage
and, accordingly, Economy has no duty to defend.

¶26 The Weihofens present this court with an alternative argument on
why the allegations in the complaint sufficiently alleged a causal connection
between the Weihofens’ conduct and property damage. Specifically, they argue
that a connection is established by allegations in the complaint that the Buyers’
insurer, Liberty Mutual, “made a partial payment towards repair of … drywall”
that “contained an elevated amount of moisture” and that Liberty Mutual
“therefore maintains a subrogated interest for recovery of its amounts paid towards
the repair of these damages.” This argument collapses upon examination.
Nothing in the complaint alleges that Liberty Mutual has made a claim against the
Weihofens. Only Liberty Mutual can make its subrogated interest claim against
the Weihofens, and there is nothing within the four corners of the complaint to
show that Liberty Mutual has ever demanded subrogation against the Weihofens.
Accordingly, we reject this argument.

¶27 In summary, the allegations in the complaint do not establish that
any conduct by the Weihofens caused property damage. Accordingly, we
conclude that an initial grant of coverage was not triggered under the policy.7
Therefore, Economy has no duty to defend the Weihofens against the Buyers’
claims.

7
Because our conclusion regarding the duty to defend is dispositive, we do not reach the
Weihofens’ arguments that Economy breached its contract with them and that Economy is liable
to the Weihofens for damages. See id. (stating that if a decision on one point disposes of the
appeal, we will not decide other issues raised).

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No. 2018AP2344

CONCLUSION

¶28 For the foregoing reasons, the order of the circuit court is affirmed.

By the Court.—Order affirmed.

This opinion will not be published. See WIS. STAT.
RULE 809.23(1)(b)5.

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