560 F.Supp.3d 1242
W.D. Wis.2021Background:
- Plaintiff Steven Kutchera owned an off-premises garage covered by a State Farm homeowner policy endorsement for “other structures.”
- From 2014 he used the garage to perform paid auto repairs; he purchased then canceled a separate business policy in 2017 and told State Farm he had "basically closed" the shop when obtaining the homeowner policy for 2019–2020.
- The policy’s off-premises structures endorsement expressly excludes coverage for structures "used either completely or in part for business purposes."
- In January 2020 the garage roof collapsed from ice and snow; State Farm’s investigation (ledgers, tax records) showed roughly $22,000 in 2019 gross receipts from garage work during the policy period.
- State Farm denied the claim in May 2020 as excluded by the business-use clause; Kutchera sued for breach of contract, bad faith, and under Wis. Stat. § 628.46 for late payment.
- The district court granted summary judgment for State Farm, holding the business-use clause is an exclusion (not a condition or promissory warranty) so Wis. Stat. § 631.11(3) does not bar denial; the tort/statute-based claims failed as they depended on a successful contract claim.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the business-use clause is a “condition” or “promissory warranty” under Wis. Stat. § 631.11(3) | The clause functions as a promissory warranty/condition because it requires refraining from business use after policy inception, so § 631.11(3) limits denial unless business use increased or contributed to the loss | The clause is an exclusion: it defines risks not covered and limits scope of coverage from the start; § 631.11(3) therefore does not apply | The clause is an exclusion, not a condition or promissory warranty; § 631.11(3) does not apply |
| Whether State Farm must prove business use increased risk or contributed to loss | Kutchera: insurer must prove causal relationship between business use and loss under § 631.11(3) | State Farm: either the clause is an exclusion or, if § 631.11(3) applied, it can show business use evidence | Court did not reach causation because § 631.11(3) was inapplicable given exclusion format |
| Ambiguity of “in part” business use and construction against insurer | Kutchera: “in part” is vague; construed for coverage | State Farm: policy read reasonably; records show substantial business activity in the policy period | "In part" not ambiguous here; $22,000 of 2019 receipts is sufficient to qualify as business use |
| Whether coverage is illusory because "business" is defined broadly | Kutchera: broad definition makes other-structures coverage meaningless | State Farm: exclusions include express exceptions; ‘‘business’’ limited to income-generating activity—coverage remains viable in many situations | Coverage not illusory; exceptions and ordinary non-income uses preserve meaningful coverage |
Key Cases Cited
- Bortz v. Merrimac Mut. Ins. Co., 92 Wis. 2d 865, 286 N.W.2d 16 (Ct. App. 1979) (distinguishes exclusions from conditions; exclusions define risks excluded from coverage while conditions operate to suspend or terminate coverage)
- Struebing v. Am. Ins. Co. of Newark, N.J., 197 Wis. 487, 222 N.W. 831 (1929) (defines promissory warranty as a statement that must be literally true for policy to be binding)
- Moe v. Allemannia Fire Ins. Co., 209 Wis. 526, 244 N.W. 593 (1932) (clause excluding encumbered property held an agreement limiting coverage, not a promissory warranty)
- Fox v. Catholic Knights Ins. Soc., 263 Wis. 2d 207, 665 N.W.2d 181 (2003) (interprets § 631.11(3) as addressing conditions subsequent/promissory warranties and quotes jury-instruction commentary)
- Ruff v. Graziano, 220 Wis. 2d 513, 583 N.W.2d 185 (Ct. App. 1998) (describes business-pursuits exclusions as common in homeowner and general liability policies)
- Cardinal v. Leader Nat. Ins. Co., 166 Wis. 2d 375, 480 N.W.2d 1 (1992) (policy exclusions construed narrowly against insurer; interpretation from perspective of reasonable insured)