Michael D. Phillips v. Daniel G. Parmelee
840 N.W.2d 713
Wis.2013Background
- Aquila Group (seller) purchased an apartment building, obtained an American Family Business Owners policy, then listed and sold the property to Walkers Point (buyers).
- Prior to purchase Aquila’s inspection report indicated the heating ducts likely contained asbestos; seller's Real Estate Condition Report stated seller was not "aware of the presence of asbestos."
- After purchase the buyers’ contractor cut asbestos-wrapped ducts, dispersing asbestos; buyers allege the building became uninhabitable, tenants vacated, financing failed, and the property was foreclosed.
- Buyers sued the sellers for breach of contract/warranty, statutory and criminal violations, and negligence for failing to disclose asbestos-related defects.
- American Family intervened and moved for declaratory and summary judgment, arguing its policy’s asbestos exclusion precludes coverage for the buyers’ losses; the circuit court and court of appeals agreed.
- The Wisconsin Supreme Court reviewed only whether the asbestos exclusion bars coverage and affirmed the lower courts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the asbestos exclusion is ambiguous | "Asbestos" is undefined and has multiple forms; exclusion should be narrowly construed for coverage | Exclusion language is broad and unambiguous; it plainly excludes asbestos-related losses | Exclusion unambiguous; a reasonable insured would read "asbestos" to include any form and exclusion bars coverage |
| Whether the exclusion requires a causal nexus and covers accidental dispersal | Exclusion should be limited to "exposure to" or "use of" asbestos and not to mere presence or accidental dispersal | Exclusion text ("arising out of, resulting from, caused by, or contributed to in whole or in part by asbestos") requires some causal relationship and encompasses the dispersal here | Court finds causal nexus present (loss arose from dispersal of asbestos); exclusion applies |
| Whether the sellers’ nondisclosure/negligence claims are outside the asbestos exclusion | Nondisclosure torts are independent of asbestos and thus not barred by the exclusion | Exclusion focuses on the loss’s asbestos-related cause, not the tort label; losses arising from asbestos are excluded regardless of underlying claim | Court: scope depends on whether loss arises from asbestos; here loss did, so exclusion precludes coverage |
| Whether third-party authority (Great American) supports insured-friendly reading | Buyers cite Great American to limit exclusion where wording omitted release/dispersal language | American Family argues Great American is distinguishable because its exclusion was narrower | Great American is inapposite; policy language here is broader and controls |
Key Cases Cited
- Bethke v. Auto-Owners Ins. Co., 345 Wis. 2d 533 (2013) (insurance-policy interpretation standard)
- Wadzinski v. Auto-Owners Ins. Co., 342 Wis. 2d 311 (2012) (policy language as expression of parties' intent)
- Schinner v. Gundrum, 349 Wis. 2d 529 (2013) (framework: initial grant of coverage, exclusions, exceptions)
- Day v. Allstate Indemnity Co., 332 Wis. 2d 571 (2011) (ambiguities construed in favor of coverage)
- Lawver v. Boling, 71 Wis. 2d 408 (1976) (meaning of "arising out of" — requires causal relationship)
- Great Am. Restoration Servs. v. Scottsdale Ins. Co., 78 A.D.3d 773 (2010) (New York case construing narrower asbestos exclusion)