Kelly C. McWilliam v. Truck Insurance Exchange

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.
August 23, 2023
A party may file with the Supreme Court a
Samuel A. Christensen 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. 2022AP566 Cir. Ct. No. 2019CV455

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT II

KELLY C. MCWILLIAM,

PLAINTIFF-APPELLANT,

V.

TRUCK INSURANCE EXCHANGE,

DEFENDANT-RESPONDENT,

THOMAS BELL,

DEFENDANT.

APPEAL from an order of the circuit court for Ozaukee County:
PAUL V. MALLOY, Judge. Affirmed.

Before Gundrum, P.J., Neubauer and Lazar, JJ.
No. 2022AP566

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. Kelly C. McWilliam appeals from the circuit court’s
order granting summary judgment and dismissing her claims against Truck
Insurance Exchange (Truck), the insurer of Stonecroft Condominium Association
(Stonecroft) in which she owns a unit. McWilliam argues that the court erred in
dismissing the breach of contract and bad-faith claims she brought on her own
behalf and as an assignee of Stonecroft’s claims against Truck. We conclude that
the circuit court did not err in granting summary judgment. Accordingly, we affirm.

BACKGROUND

¶2 This case comes before us on summary judgment; the material facts
are not in dispute.

¶3 McWilliam was responsible for a fire that caused nearly $342,000 in
damage to Stonecroft common areas after McWilliam or her boyfriend improperly
disposed of lit cigarettes. Stonecroft had a policy with Truck that insured the
association’s common areas. After the fire, Stonecroft filed a claim with Truck.
Truck promptly paid Stonecroft’s entire claim except for the $2,500 deductible on
the policy. Based on its reading of Stonecroft’s bylaws, Truck then filed a
subrogation action against McWilliam and her insurer, American Family Mutual
Insurance Company.

¶4 The circuit court dismissed the subrogation action, after the case was
settled.1 The court found that the association’s bylaws permitted the insurer to

1
The subrogation action was before the Honorable Joseph W. Voiland. The summary
judgment motion underlying this appeal was granted by the Honorable Paul V. Malloy.

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No. 2022AP566

recover from a unit owner only the amounts that were not covered by insurance.
This meant that only the $2,500 deductible was recoverable from McWilliam, and
the case was settled for that amount. This ruling was not appealed and is not
challenged here.

¶5 After the settlement in, and dismissal of, the subrogation action,
McWilliam filed suit against Stonecroft. McWilliam agreed to dismiss her claims
against Stonecroft in exchange for the assignment of Stonecroft’s claims against
Truck. McWilliam then filed the action underlying this appeal against Truck.
McWilliam sued Truck on her own behalf, alleging that she is an insured, and on
behalf of Stonecroft as its assignee.

¶6 Both parties filed a number of motions before the circuit court. The
court expressed sympathy toward McWilliam because she was the subject of the
subrogation action, but granted Truck’s motion for summary judgment on
McWilliam’s individual claims because McWilliam could not maintain a breach of
contract claim because she was not a third-party beneficiary of the insurance
contract, and thus, there was no bad faith. However, the court granted McWilliam’s
motion for declaratory judgment, concluding that the anti-assignment clause in the
Truck insurance contract was unenforceable. The court allowed McWilliam to
stand in Stonecroft’s shoes. The court did not rule on the merits of Stonecroft’s
claims at that time, however, so Truck filed a second motion for summary judgment
seeking dismissal of all remaining claims, which the court granted. The court
concluded there was no breach of contract or bad faith by Truck. McWilliam
appeals.

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DISCUSSION

Governing legal principles

¶7 We review the circuit court’s grant of summary judgment de novo.
Paskiewicz v. American Fam. Mut. Ins. Co., 2013 WI App 92, ¶4, 349 Wis. 2d
515, 834 N.W.2d 866. Summary judgment is proper where there is no genuine
dispute as to any material fact and the moving party is entitled to judgment as a
matter of law. Pemper v. Hoel, 2004 WI App 67, ¶4, 271 Wis. 2d 442, 677 N.W.2d
705.

¶8 Interpretation of an insurance policy is a question of law we review
de novo. Id., ¶5. Insurance policies are contracts, and they should be interpreted as
such. Smith v. Atlantic Mut. Ins. Co., 155 Wis. 2d 808, 810, 456 N.W.2d 597
(1990). Our main focus is the language of the policy, which we give “its plain and
ordinary meaning as understood by a reasonable person in the position of the
insured.” See Wilson Mut. Ins. Co. v. Falk, 2014 WI 136, ¶23, 360 Wis. 2d 67,
857 N.W.2d 156 (citation omitted). A construction that gives meaning to every
provision of a contract is preferable to an interpretation that leaves part of the policy
without meaning. Stanhope v. Brown Cnty., 90 Wis. 2d 823, 848-49, 280 N.W.2d
711 (1979).

¶9 McWilliam raises four issues on appeal. She argues that the circuit
court erred in granting summary judgment because: (1) Truck breached its
insurance contract by seeking subrogation against McWilliam; (2) McWilliam is
entitled to pursue a bad-faith claim against Truck because she paid fees to Stonecroft
as a unit owner; (3) McWilliam is entitled to pursue breach of contract and bad-faith
claims against Truck as an assignee of Stonecroft; and (4) issue preclusion applies
to McWilliam’s status as Truck’s insured. We address each issue in turn below.

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No. 2022AP566

Truck did not breach its insurance contract by seeking subrogation against
McWilliam.

¶10 McWilliam argues that Truck breached a duty to Stonecroft by
pursuing a subrogation claim from which it ultimately was unable to recover.
However, this argument fails because the Truck policy expressly gave Truck the
right to seek subrogation if its insured, Stonecroft, had “rights to recover damages
from another[.]” Contrary to McWilliam’s statements, there is nothing in the Truck
policy establishing a promise that it would only seek recovery if it had knowledge
that the suit to recover would be successful. Moreover, although Truck was not
ultimately able to recover its claimed damages from McWilliam, Stonecroft had a
right pursuant to its bylaws to recover the amount it paid as a deductible. In fact,
Stonecroft did recover its deductible as a direct result of the subrogation action,
albeit via a settlement with McWilliam’s insurer.

¶11 McWilliam suggests that Truck should have known that the circuit
court would interpret the bylaws as it did because the bylaws were evaluated by
Truck before it brought the subrogation action. Prior to filing the subrogation
action, Truck investigated this issue by requesting how Stonecroft interpreted the
amended bylaws. After Truck filed suit, the parties offered differing interpretations
of the bylaws for the circuit court’s consideration because there were two different
bylaws governing subrogation rights—one was original to the bylaws and the other
was a later amendment. The court adopted McWilliam’s interpretation and
concluded that the bylaws permitted recovery against a unit owner only for damage
amounts that insurance did not cover. The mere fact that the court accepted one
interpretation over the other does not make the other interpretation unreasonable.
Nor does it mean that Truck’s subrogation action was meritless.

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No. 2022AP566

¶12 McWilliam also cites the anti-subrogation rule in support of her
assertion that Truck breached its insurance contract by seeking subrogation against
her as a Stonecroft unit owner. However, as we discuss in the section below, this
rule is not applicable to this situation because McWilliam was not an insured under
the Truck policy.

¶13 McWilliam argues that the circuit court in the subrogation action
“implemented” the anti-subrogation rule. Our review of the record shows that the
court did not base its decision on the anti-subrogation rule but rather limited the
scope of recovery for the subrogation claim based on its interpretation of the
association’s bylaws, and nothing in the court’s decision held that McWilliam was
entitled to a proportion of the payments made to Stonecroft.2

¶14 In sum, there is nothing about the underlying subrogation action that
caused damage to Stonecroft or reduced any of the payments owed to it by Truck,
which were paid in full. We therefore conclude that Truck did not breach its contract
by pursuing subrogation against McWilliam.

McWilliam cannot pursue a breach of contract or bad-faith claim against
Truck because she was not an insured under the policy terms.

¶15 In an argument related to her position on Truck’s subrogation action,
McWilliam attempts to resurrect her individual claims on appeal by again asserting
that she was an “insured” included in Truck’s policy covering the Stonecroft
common areas. Although she admits that there is no authority under Wisconsin law

2
McWilliam makes a passing reference to reciprocal duties of the insurer and insured in
a subrogation action. She appears to argue that by bringing the subrogation action, Truck somehow
breached its duty to Stonecroft. However, this argument is undeveloped and unsupported by
relevant case law. As such, we decline to address it further. See State v. Pettit, 171 Wis. 2d 627,
631, 492 N.W.2d 633 (Ct. App. 1992).

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No. 2022AP566

for her position, McWilliam contends that by issuing a policy to Stonecroft, Truck
assumed the risk not only to insure the common property of the association, but also
to insure each of the individual owners. We disagree.

¶16 Undisputedly, the only named insured under the Truck Policy is
Stonecroft. As we now explain, contrary to McWilliam’s assertions, there are no
provisions in the property coverage that would apply to qualify McWilliam as an
insured.

¶17 McWilliam looks to certain policy terms in her attempt to create an
insured status for herself. First, she argues that a duty was created because the
overall policy Truck issued to Stonecroft is entitled “Condominium Owners Policy.”
However, the title of a policy package does not create duties and the freestanding
phrase is not something on which McWilliam may rely in support of her position.
Insurance policies should not be construed based on titles or headings. Ott v. All-
Star Ins. Co., 99 Wis. 2d 635, 645, 299 N.W.2d 839 (1981) (reversing in case where
trial and appellate courts interpreted policy based on its title).

¶18 Contrary to what the title might be read to imply, the plain text of the
policy itself indicates that Stonecroft is the only insured entitled to coverage. The
policy clearly states that “you” is defined as the “named insured” shown in the
Declarations, which is Stonecroft. The common elements are the covered property
that is insured under this form and any payment is to be made to “you” (the named
insured). The Policy specifically notes that only a “named insured” has the right to
make a claim for loss or damage for the covered common elements. The Policy also
notes that Truck will not pay the “named insured” more than its financial interests
in the covered property. Thus, any obligation under the property coverage is directly
tied to the “named insured,” Stonecroft.

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No. 2022AP566

¶19 Despite the clear use of “you” as defined by the policy to mean the
“named insured,” McWilliam contends that this language is irrelevant to our
interpretation of the contract to determine whether McWilliam has individual
coverage and Truck has corresponding duties to her regarding the common property.
However, as demonstrated above, all property coverage obligations are directly
connected to “you” or the entity listed as the “named insured.” Further, while the
coverage was for the common property, all obligations owed by Truck were to the
“named insured,” Stonecroft. There is nothing in the policy expanding this
definition of insured to include anyone with an ownership interest in the property as
a “named insured.” Nor is there any policy provision that broadens Truck’s
contractual obligations to include anyone or any entity other than the “named
insured.”

¶20 McWilliam next argues that the policy, as written, should be
interpreted to include unit owners as insureds because Stonecroft was characterized
as an “organization” in the policy rather than a partnership, corporation, or joint
venture. However, for the same reasons we reject her argument regarding the title
of the policy, we similarly conclude that this label does not somehow transform
McWilliam into a “named insured.”

¶21 We further find unpersuasive McWilliam’s attempts to ignore the
Declarations clearly defining the “named insured” as Stonecroft by citing to other
policy provisions, including the types of property covered by the policy and
obligations of the parties as it relates to claims. These terms do not conflict with the
terms of the policy that clearly define who is entitled to coverage in the event of an
occurrence such as a fire.

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No. 2022AP566

¶22 In sum, McWilliam’s arguments regarding the language of the policy
call on us to impermissibly rewrite the Truck policy. This we cannot do. See
Danbeck v. American. Fam. Mut. Ins. Co., 2001 WI 91, ¶10, 245 Wis. 2d 186, 629
N.W.2d 150 (explaining that “[w]here the language of the policy is plain and
unambiguous, we enforce it as written ... to avoid rewriting the contract by
construction and imposing contract obligations that the parties did not undertake”)
(citations omitted). Thus, we conclude that the Truck policy must be enforced as
drafted. We decline to usurp the rights of the contracting parties, Truck and
Stonecroft, by making McWilliam an insured when the contract demonstrates no
intent to do so.

¶23 Having no insured status and, therefore, no contractual relationship
with Truck, McWilliam cannot establish her breach of contract claim because she
had no contract with Truck. Without a cognizable breach of contract claim,
McWilliam’s individual bad-faith claim against Truck necessarily fails as well. See
Kranzush v. Badger State Mut. Cas. Co., 103 Wis. 2d 56, 73, 307 N.W.2d 256
(1981) (explaining “[t]he insurer’s duty of good faith and fair dealing arises from
the insurance contract and runs to the insured” and holding that “[n]o such duty can
be implied in favor of the claimant from the contract since the claimant is a stranger
to the contract and to the fiduciary relationship it signifies”).

¶24 McWilliam next argues that because her association fees contributed
to insurance premiums on the policy, she should qualify as a third-party beneficiary
or a co-insured. McWilliam cites to “the statutory ownership concepts and
insurance requirements” of WIS. STAT. ch. 703 (2021-22)3, and Wisconsin’s

3
All references to the Wisconsin Statutes are to the 2021-22 version unless otherwise
noted.

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No. 2022AP566

condominium laws, in support of her position. She argues that “[t]he legislature
designated the association as the trustee of the unit owners’ common property for
the purpose and convenience of securing the fire insurance required by § 703.17.”
We find her arguments unpersuasive.

¶25 First, the fact that Wisconsin condominium statutes require that
associations procure property and liability insurance, does not mean that the unit
owners are intended third-party beneficiaries. Moreover, McWilliam fails to cite to
any language in WIS. STAT. ch. 703, case law, or extrinsic evidence of legislative
intent that establishes § 703.17 was created for this purpose. See Berna-Mork v.
Jones, 174 Wis. 2d 645, 651, 498 N.W.2d 221 (1993) (construing a worker’s
compensation statute and explaining that if the statute does not set forth the
legislative intent unambiguously, courts rely on judicial construction of the statute
to ascertain such intent).

¶26 Pursuant to Wisconsin law, the limited interest that a unit owner has
in common property does not make a unit owner a third-party beneficiary. “To
maintain an action as a third[-]party beneficiary, a plaintiff must show that the
parties to the contract intentionally entered their agreement ‘directly and primarily
for his [or her] benefit ....’” Pappas v. Jack O. A. Nelsen Agency, Inc., 81 Wis. 2d
363, 370, 260 N.W.2d 721 (1978) (citation omitted). “A third party cannot maintain
an action as a third party beneficiary if under the contract his [or hers] was only an
‘indirect benefit, merely incidental to the contract between the parties.’” Id.
(citation omitted).

¶27 Applying these principles, we conclude that McWilliam has failed to
establish that she is a third-party beneficiary of Truck’s insurance contract or is
somehow Stonecroft’s co-insured. McWilliam fails to provide evidence in the

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No. 2022AP566

record that sufficiently demonstrates that Truck and Stonecroft entered into their
contract “directly and primarily for [her] benefit.” See id. The Truck policy does
not incorporate the association’s bylaws or any other agreements that would grant
McWilliam any benefits under Stonecroft’s policy with Truck. The policy clearly
was not primarily for the benefit of McWilliam. Her slight interest is not sufficient
to convey third-party beneficiary status on her. Absent this claimed third-party
beneficiary or co-insured status, McWilliam’s individual breach of contract claim
fails and her individual bad-faith claim fails along with it. See Kranzush, 103
Wis. 2d at 73.

McWilliam’s claims against Truck as Stonecroft’s assignee fail as a matter
of law.

¶28 Next, McWilliam argues that the circuit court erred in dismissing her
claims against Truck as Stonecroft’s assignee. She asserts that the assignment she
obtained from Stonecroft allows her to pursue her own individual claim arguing that
Stonecroft would have an interest in asserting the rights of one of the unit owners
that is independent from the true function of the association, which is to act as trustee
for the undivided interest of all the unit owners. In the absence of any Wisconsin
legal authority on point, McWilliam effectively requests that we create new law,
asking us to allow an association standing to bring a claim on behalf of one unit
owner against the association’s insurer based on a subrogation action brought by the
insurer. This court is an error-correcting court and it is not within our purview to
create new law. See Cook v. Cook, 208 Wis. 2d 166, 188, 560 N.W.2d 246 (1997)
(explaining the court of appeals’ “primary function is error correcting”).

¶29 Moreover, we find no support in Wisconsin law to allow the type of
action that McWilliam asks us to permit. In fact, WIS. STAT. § 703.15 only allows
an association to sue on behalf of “all” unit owners. It does not give an association

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the authority to sue on behalf of just one unit owner. This makes sense considering
that the association represents the undivided interests of all the unit owners for their
collective interests in the common elements of the complex. Additionally, WIS.
STAT. § 703.24 allows an association to sue an individual unit owner for any
violation of the bylaws. Thus, Stonecroft had authority to pursue the amount of its
deductible from McWilliam. If an association such as Stonecroft were allowed to
seek relief for one unit owner who had been sued by the association’s insurer, the
association would have a conflict of interest because it may have a duty to seek
recovery on behalf of the other unit owners from one unit owner for a breach of its
bylaws, including negligently causing damage to common property.

¶30 Finally, and perhaps the easiest way to dispose of McWilliam’s
arguments regarding the assignment, is the fact that the record fails to support any
claim that Truck breached its contract with Stonecroft. Truck promptly paid the full
claim made by Stonecroft, less the deductible, and even assisted Stonecroft in
recovering its deductible by filing the subrogation action against McWilliam. There
is no evidence of any breach and, without a breach of the contract, Stonecroft would
also have no grounds to assert a bad-faith claim against Truck. See Kranzush, 103
Wis. 2d at 73. For this reason alone, we conclude that the circuit court properly
dismissed the assigned Stonecroft claims against Truck.4

4
Because we are affirming the dismissal of the claims McWilliam seeks to assert on behalf
of Stonecroft, we need not address the issue of whether the assignment was valid. See Sweet v.
Berge, 113 Wis. 2d 61, 67, 334 N.W.2d 559 (Ct. App. 1983) (noting that we need not address other
issues when one is dispositive of the appeal).

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No. 2022AP566

There is no issue preclusion because the circuit court in the subrogation
action did not reach the issue of whether McWilliam was an insured under
the terms of the policy.

¶31 McWilliam finally argues that the circuit court erred in granting
summary judgment on the basis that she was not an insured under the policy. She
asserts that the circuit court that dismissed the subrogation action implicitly found
that she was insured. She also contends that Truck admitted in a letter to Stonecroft
that it owed McWilliam contractual duties. We disagree.

¶32 “Issue preclusion forecloses relitigation in a subsequent action of an
issue of law or fact that has been actually litigated and decided in a prior action and
reduced to judgment.” Jensen v. Milwaukee Mut. Ins. Co., 204 Wis. 2d 231, 235,
554 N.W.2d 232 (Ct. App. 1996). Contrary to McWilliam’s assertion, neither the
circuit court held, nor did Truck admit, that Truck owed McWilliam contractual or
good-faith duties.

¶33 First, although the circuit court referred to the fire insurance
requirement within the bylaws, it did not make any determination that Truck owed
a duty to McWilliam. The court based its decision in the subrogation action on the
association’s bylaws, not on its interpretation of the insurance policy as covering
McWilliam as an individual. Second, the letter from Truck to Stonecroft (that
McWilliam relies on as an admission of her insured status) simply included an
explanation that the deductible was recovered and set out the arguments Truck faced
in seeking any additional funds. Thus, there was no judicial finding or party
admission in this case and, accordingly, issue preclusion does not apply.

¶34 For the foregoing reasons, we conclude that the circuit court properly
granted Truck’s motion for summary judgment. Dismissal of all claims against
Truck was appropriate.

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No. 2022AP566

By the Court.—Order affirmed.

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

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