Kevin L. Mathison v. Wayne R. Kulhanek

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 2, 2021
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. 2019AP1568 Cir. Ct. No. 2018CV115

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT III

KEVIN L. MATHISON AND RICHARD WHITING,

PLAINTIFFS-APPELLANTS,

V.

WAYNE R. KULHANEK,

DEFENDANT,

AUTO-OWNERS INSURANCE COMPANY,

DEFENDANT-RESPONDENT.

APPEAL from a judgment of the circuit court for Oneida County:
PATRICK F. O’MELIA, Judge. Affirmed.

Before Stark, P.J., Hruz and Seidl, 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).
No. 2019AP1568

¶1 PER CURIAM. Kevin Mathison and Richard Whiting appeal from
a summary judgment dismissing Auto-Owners Insurance Company from this
action and declaring there was no insurance coverage for their claims under
Auto-Owner’s commercial general liability (CGL) policy issued to
Wayne Kulhanek. We conclude Kulhanek was not an insured under the policy
and thus, there was no grant of coverage in the first instance. We therefore affirm
the judgment.

BACKGROUND

¶2 Kulhanek owned a building in Rhinelander and operated his
business, NOW Equipment LLC, out of a portion of that building.
NOW Equipment LLC sold and reconditioned restaurant equipment. Kulhanek
leased the space in which the business was operated to the LLC, of which he was
the sole member.

¶3 Another portion of Kulhanek’s building contained a garage with a
vehicle lift, which Kulhanek leased for $650 monthly to Mathison for a
transmission repair business. Kulhanek and Mathison did not have a written lease
agreement. Mathison sometimes worked on Kulhanek’s vehicles in lieu of making
rent payments.

¶4 Mathison spent several months in jail during the leasehold period
and he was several months behind on his rental payments at the time he was
incarcerated. At that time, personal property owned by Whiting was in the garage
rented by Mathison. Shortly after Mathison was incarcerated, Kulhanek noticed
lights on in the garage. Only Mathison and Kulhanek possessed keys to the garage
overhead and service doors. Kulhanek let himself into the garage with his key to

2
No. 2019AP1568

investigate, but he did not notice anyone inside, and left after five minutes without
discovering who, if anyone, had been in the garage on that occasion.

¶5 On another occasion while Mathison was in jail, Kulhanek noticed
footprints in the snow leading into the garage. After noticing the service door was
open, Kulhanek checked inside but did not notice anything out of the ordinary.
Nevertheless, he changed the locks on both garage doors thereafter. Kulhanek did
not notify Mathison that he had changed the locks, but he had a new set of keys for
Mathison pending his release from jail.

¶6 Before the garage locks were changed, Whiting informed Kulhanek
that he wanted to remove his vehicle parts from Mathison’s shop. Kulhanek
denied this request because he was unaware of which parts belonged to which
customers.

¶7 During Mathison’s incarceration, Kulhanek began looking for a new
potential tenant for the garage, and in the process of getting “it ready to rent” he
contacted a junk dealer. Kulhanek instructed the junk dealer to “just take the
junk,” but he did not oversee the removal or create an inventory of removed items.
Kulhanek did not remove anything from the garage other than what was removed
by the junk dealer. Kulhanek was not paid for the junk.

¶8 After Mathison was released from jail, Kulhanek advised him that he
could not access the garage until he paid his back rent. Kulhanek also told him
that he was terminating Mathison’s lease. After Mathison made a payment toward
his back rent, Kulhanek permitted him access to remove his personal property
from the garage. He also told Mathison that he had hired a person to remove scrap
metal from the garage while Mathison had been incarcerated. Upon entering the
garage, Mathison realized that some of his personal property was missing,

3
No. 2019AP1568

including transmissions and transmission cores, hand tools, a tire machine, a floor
jack, scan tools, and a 150-horsepower Evinrude outboard motor. Automobile
parts owned by Whiting were also missing, including a transmission that Mathison
was rebuilding for him.

¶9 Mathison and Whiting subsequently commenced the present lawsuit
against Kulhanek, alleging negligent bailment and conversion. An amended
complaint added Auto-Owners as a defendant. Auto-Owners moved to bifurcate
and stay proceedings on the merits pending a determination on insurance
coverage. Auto-Owners also counterclaimed and cross-claimed, seeking a
declaratory judgment on the coverage issues.

¶10 Following discovery, Auto-Owners moved for summary judgment,
which the circuit court granted. The court determined that Kulhanek did not
qualify as an “insured” under Auto-Owners’ CGL policy. The court further
concluded there was no “occurrence” triggering coverage, and that an “intentional
acts” exclusion also precluded coverage. A motion for reconsideration was filed,
on which there was no specific ruling by the court. This appeal follows.

DISCUSSION

¶11 The issue of insurance coverage is often addressed through a motion
for summary judgment, and the interpretation of an insurance contract presents a
question of law that we decide de novo. Siebert v. American Fam. Mut. Ins. Co.,
2011 WI 35, ¶28, 333 Wis. 2d 546, 797 N.W.2d 484. We must interpret an
unambiguous insurance policy according to its plain terms as understood by a
reasonable person in the position of the insured. Id., ¶31. We do not construe
policy language to cover risks the insurer did not contemplate or underwrite and

4
No. 2019AP1568

for which it did not receive a premium. Estate of Sustache v. American Fam.
Mut. Ins. Co., 2008 WI 87, ¶19, 311 Wis. 2d 548, 751 N.W.2d 845.

¶12 The insuring agreement under the CGL policy at issue provided an
initial grant of liability coverage, in relevant part, for “sums that the insured
becomes legally obligated to pay as damages because of ‘bodily injury’ or
‘property damage’ to which this insurance applies.” The policy’s declarations
page named only NOW Equipment LLC as the “INSURED.” The policy further
provided, “The word ‘insured’ means any person or organization qualifying as
such under Section II—Who Is An Insured.” Section II of the policy provided, in
relevant part:

SECTION II—WHO IS AN INSURED

1. If you are designated in the Declarations as:

….

c. A limited liability company, you are an insured. Your
members are also insureds, but only with respect to the
conduct of your business. Your managers are insureds, but
only with respect to their duties as your managers.

¶13 We conclude Kulhanek was not an insured under the unambiguous
language of the policy. He was not named as an insured—rather, the policy
clearly designated NOW Equipment LLC as the named insured. Kulhanek was a
member of the LLC, but as a member, Kulhanek could receive coverage only
while engaged in the conduct of the LLC. According to the unambiguous
language of the insurance policy, Kulhanek could therefore only be an insured as a
member of the LLC with respect to the conduct of NOW Equipment LLC’s
business.

5
No. 2019AP1568

¶14 Under the policy, property management cannot reasonably be
considered part of the conduct of NOW Equipment LLC. Kulhanek testified at his
deposition that NOW Equipment LLC was in the business of refurbishing and
selling restaurant equipment. The business description on the policy’s
declarations page listed the LLC’s business as “Refrigerator Refurb.” Under
either description, NOW Equipment LLC was not in the business of commercial
property rental, and any actions Kulhanek took in his role as Mathison’s landlord
were therefore not part of the conduct of NOW Equipment LLC’s business.

¶15 WISCONSIN STAT. ch. 183 (2017-18)1 governs limited liability
companies, and WIS. STAT. § 183.0401 provides that the manager of an LLC is
responsible for “management of the business or affairs of the limited liability
company.” Thus, Kulhanek could only act as a manager of NOW Equipment LLC
when he was conducting the business of refurbishing or selling restaurant
equipment. Kulhanek did not act with a purpose to benefit the business or affairs
of the LLC when he allegedly failed to secure personal property owned by
Mathison and Whiting. See Rayburn v. MSI Ins. Co., 2001 WI App 9, ¶16, 240
Wis. 2d 745, 624 N.W.2d 878 (2000). The very nature of the “conduct of
business” clause in the CGL policy limits coverage to liability arising from
operating the LLC. Again, the LLC was not in the business of renting commercial
space. A reasonable person in Kulhanek’s position, therefore, would not
understand that the duties of a manager of the LLC included leasing a portion of a
building not owned or leased by the LLC to a third party.

1
References to the Wisconsin Statutes are to the 2017-18 version unless otherwise
noted.

6
No. 2019AP1568

¶16 Similarly, Auto-Owners did not contemplate underwriting the risk of
Kulhanek renting out a portion of his building that was unoccupied by the LLC
and engaging in bailment of the personal property belonging to the tenant or his
customers. Kulhanek’s owning and leasing real property he personally owned is
separate and distinct from the conduct of the LLC’s business. It would be
unreasonable for Kulhanek to assume that a CGL policy providing coverage to
NOW Equipment LLC also afforded personal liability coverage to Kulhanek in
relation to his directing the removal of items from the garage space he rented to
Mathison.

¶17 Mathison and Whiting argue a policy provision applies stating that
an insured is also “any person … while acting as your real estate manager.”
(Emphasis added.) Mathison asserts that he was managing a “sublease” from the
LLC to Mathison. Mathison and Whiting also contend that a genuine issue of
material fact exists as to whether NOW Equipment LLC or Kulhanek,
individually, was the landlord of the space Mathison used. They note that invoices
submitted to Mathison were issued by NOW Equipment LLC, not Kulhanek
personally. Mathison also argues that if Kulhanek collected rents personally, he
would have been required to file a Schedule E form with his taxes. Mathison
asserts, “The invoices and lack of Schedule E are contemporaneous evidence of
who [sic] Kulhanek and Mathison considered the landlord to be.”

¶18 Mathison provides no citation to the record on appeal concerning
any evidence of tax returns that may have been filed, and we shall therefore not
further consider the issue. See Lechner v. Scharrer, 145 Wis. 2d 667, 676, 429
N.W.2d 491 (Ct. App. 1988). In addition, “your” in the above-referenced real
estate manager provision refers to NOW Equipment LLC, and the LLC did not
have a real estate manager nor own real estate. Finally, the deposition testimony

7
No. 2019AP1568

shows that Kulhanek, as the owner of the building, authorized NOW Equipment
LLC to collect rent on his behalf. Importantly, Mathison also clarified, in his
deposition, that his understanding was he owed rent to Kulhanek personally, not to
the LLC. Kulhanek therefore, raises no genuine issues of material fact as to the
identity of Mathison’s landlord.

¶19 Accordingly, we conclude, based on the summary judgment record,
that Kulhanek was not an insured under the policy, and accordingly, there was no
grant of coverage in the first instance in relation to Mathison’s and Whiting’s
claims. Because Auto-Owners’ policy provided no coverage, we need not reach
other issues regarding whether there was an “occurrence,” or whether any
exclusions operated to preclude coverage. See Gross v. Hoffman, 227 Wis. 296,
300, 277 N.W. 663 (1938).

By the Court.—Judgment affirmed.

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

8