Westfield Insurane Co. v. Wensmann, Inc.
840 N.W.2d 438
| Minn. Ct. App. | 2013Background
- Diseworth (plaintiff/intervenor) sued Wensmann (contractor) for defective construction of 18 townhome units — primarily cracking decorative brick arches and alleged water infiltration. Wensmann went out of business.
- Westfield (insurer) issued a CGL policy to Wensmann effective April 1, 2007; Westfield filed a declaratory-judgment action against Wensmann on Oct. 12, 2011, seeking a declaration of noncoverage based on the policy’s "known loss"/prior-knowledge exclusion.
- Wensmann defaulted in the declaratory action; Westfield obtained default judgment but Diseworth learned of the action only after counsel withdrew and then moved to intervene and to vacate the default judgment. The court allowed intervention and vacated the default.
- The district court later granted Westfield summary judgment, holding the policy excluded coverage for many arch-defect claims because Wensmann knew of the property damage before the policy date; Diseworth appealed and Westfield cross-appealed the intervention/vacatur rulings.
- The Court of Appeals affirmed intervention and vacatur, affirmed noncoverage for arches built without the later Encompass (Jones) design (no genuine dispute of pre-policy knowledge), reversed summary judgment as to arches where implementation of the Jones design is disputed (units 880, 882, 960, 954) and as to all water-infiltration claims, and remanded.
Issues
| Issue | Diseworth's Argument | Westfield's Argument | Held |
|---|---|---|---|
| Whether Diseworth could intervene in insurer’s declaratory action | Diseworth had an interest in coverage as its recovery against the insolvent insured could depend on insurer coverage; sought to prevent multiplicity of suits | Intervention improper without an independent justiciable controversy between claimant and insurer | Intervention allowed under Minn. R. Civ. P. 24.01; claimant has sufficient interest and timeliness to intervene |
| Whether default judgment should be vacated | Diseworth moved promptly after learning of the action; showed plausible coverage claim, excusable delay, diligence, and no substantial prejudice to Westfield | Vacatur improper because Diseworth lacked reasonable prospect of success | Vacatur appropriate: Diseworth met Finden factors (reasonable claim, excuse, diligence, lack of substantial prejudice) |
| Whether the policy’s prior-knowledge/known-loss exclusion bars coverage for arch defects | Pre-policy cracks were cosmetic/minor for some arches and do not establish pre-policy "property damage"; coverage should remain for units where a new design may have been used | Pre-2007 cracking, payments for redesign, and expert report show Wensmann knew of structural defects before policy inception — exclusion applies | Exclusion applies as a matter of law to arches built without the Jones design (no genuine issue of material fact). Summary judgment improperly granted for arches where implementation of Jones design is disputed (genuine issue) |
| Whether the known-loss exclusion bars water-infiltration claims | Water-infiltration damage is distinct and there is insufficient evidence Wensmann knew of such problems pre-policy | Any related leaks were part of an ongoing, known damage continuum and thus excluded | Genuine factual dispute exists whether pre-policy knowledge extended to water-infiltration claims; summary judgment on those claims was improper |
Key Cases Cited
- Miller v. Mkt. Men’s Mut. Ins. Co., 262 Minn. 509, 115 N.W.2d 266 (Minn. 1962) (claimant may be permitted to intervene in separate coverage litigation to avoid multiplicity of suits)
- Domtar, Inc. v. Niagara Fire Ins. Co., 563 N.W.2d 724 (Minn. 1997) (known-loss doctrine: no insurable risk for losses known prior to policy inception)
- Wooddale Builders, Inc. v. Maryland Cas. Co., 722 N.W.2d 283 (Minn. 2006) (allocation of insurer liability and application of known-loss analysis across multiple units)
- Hyland Hill N. Condo. Ass’n v. Hyland Hill Co., 549 N.W.2d 617 (Minn. 1996) (aggregation/ distinction of defect types for limitation and coverage analyses)
- Dakota County v. BWBR Architects, Inc., 645 N.W.2d 487 (Minn. Ct. App. 2002) (discussing aggregation of water leaks for statute-of-limitations purposes)