¶ 1. By dеclaratory judgment, the trial court ruled that Chubb Indemnity Insurance Company (Chubb) did not have a duty to defend its insureds, Feter E Ullrich and Cari Ullrich, against the negligent misrepresentation allegations set out in a complaint filed by Joseph J. Jares, III and Susan M. Jares. The Jareses' complaint alleged that a residence they purchased from the Ullrichs was infested with raccoons, other animals, and animal debris, and that the Ullrichs had negligently failed to disclose the cоndition. The trial court determined that Chubb did not have a duty to defend the Ullrichs because the Jareses 1 complaint did not establish a causation nexus between the alleged negligent misrepresentation and the Jareses 1 alleged damage. The Ullrichs appeal.
¶ 2. We reverse. We hold that the Jareses' complaint sufficiently alleges a causation nexus pursuant to
Smith v. Katz,
BACKGROUND
¶ 3. Because this case was decided on the basis of the Jareses' complaint against the Ullrichs, we take the facts alleged therein as true and undisputed. On February 20, 2000, in preparation for the sale of their residence, thе Ullrichs executed a Real Estate Condition Report. While the report made representations about specific potential defects, it did not expressly address any defects regarding animal infestation. However, the report concluded with a general representation by the Ullrichs that there were no "other defects affecting the property." On or about July 31, 2000, the Jareses purchased the residence from the Ullrichs. In cоnnection with the sale, the Ullrichs provided the Jareses with the report. When the Jareses moved into the home following the closing, they discovered that portions of the residence were "infested with raccoons and other animals, dead animal bodies, their nests, feces, urine, and other matter in the walls and underneath the floors."
¶ 4. The Jareses' complaint further alleges that the Ullrichs negligently failed to disclose this defect on the Real Estate Condition Report and that the Jareses justifiably relied on the representations regarding the condition of the premises. As to damages, the Jareses alleged that they incurred costs for the repair and restoration of the property as well as loss of use of the property due to their inability to occupy the property for over two months. The Jareses sought compensatory damages for these losses plus their attоrney fees.
*327 ¶ 5. The Ullrichs tendered the defense of the Jareses1 complaint to their insurer, Chubb. In response, Chubb filed a motion to intervene in order to raise a coverage defense. In the meantime, Chubb asked the trial court to stay the proceedings and to bifurcate the coverage issue from the underlying action. The trial court granted Chubb's intervention requests.
¶ 6. Chubb then filed a motion for judgment on the pleadings pursuant to Wis. Stat. § 802.06(3) (2001-02) 2 seeking a declaratоry judgment that its policy did not provide coverage for the claims alleged by the Jareses. In support, Chubb made two arguments. First, Chubb argued that the Jareses' complaint failed to allege property damage within the meaning of the policy. Alternatively, Chubb argued that even if the complaint did allege property damage, it failed to demonstrate a nexus between the alleged misrepresentation and such damage. In response, the Ullriсhs argued that the Jareses' complaint specifically recited that the Jare-ses had been unable to occupy the property, an allegation that constituted "loss of use" of the property, a species of property damage covered by the Chubb policy. As to the "lack of nexus" argument, the Ullrichs pointed to the Jareses' allegation that it was the Ullrichs' misrepresentation of the animal infestation that induced them to purchase the property.
¶ 7. Following briefing by both parties and a motion hearing on September 11, 2002, the trial court granted Chubb's motion for declaratory judgment. Citing to Smith II, the court agreed with Chubb's alternative argument that there was no "causation nexus" between the negligent misrepresentation and the rac *328 coon infestation. As a result, the court concluded that Chubb had no duty to defend the Ullrichs against the Jareses' allegations. Given that ruling, the trial court did not reach the issue of property damage. The Ull-richs appeal.
STANDARD OF REVIEW
¶ 8. A judgment on the pleadings is essentially a summary judgment minus affidavits and other supporting documents. We first examine the complaint to determine whether a claim has been stated. If so, we then look to the responsive pleading to ascertain whether a material factual issue exists. Whether judgment on the pleadings should be granted is a question of law that we review do novo.
Freedom from Religion Found., Inc. v. Thompson,
¶ 9. In addition, an insurance agreement functions as a contract between the insured and the insurer.
Smith II,
*329 THE LAW OF DUTY TO DEFEND
¶ 10. In Smith II, the supreme court set out the legal test for determining an insurer's duty to defend:
An insurer's duty to defend its insured is determined by comparing the allegations of the complaint to the terms of the insurance policy. In other words, "[t]he duty to defend is triggered by the allegations contained within the four corners of the cоmplaint." The duty to defend focuses on the nature of the claim and has nothing to do with the merits of the claim. As a result, the insurer may have no duty to defend a claim that ultimately proves meritorious against the insured because there is no coverage for that claim. Conversely, the insurer may have a clear duty to defend a claim that is utterly specious because, if it were meritorious, it would be covered. The insurer's duty arises when the allegations in the complaint coincide with the coverage provided by the policy.
Id. at 806-07 (citations omitted; emphasis added).
THE CHUBB POLICYITHE JAMESES' COMPLAINT
¶ 11. Since an insurer's duty to defend is measured by comparing the policy provisions against the allegations of the complaint, we set out the relevant portions of the Chubb policy and the Jareses' complaint.
¶ 12. The "Personal Liability Coverage" provisions of the Chubb policy provide in relevant part:
We cover damages a covered person is legally obligated to pay for personal injury or property damage which take place anytime during the policy period and are caused by an occurrence ....
*330 "Property damage" means physical injury to or destruction of tangible property, including loss of its use ....
Defense coverages
We will defend a covered person against any suit seeking covered damages for personal injury or property damage.
¶ 13. The relevant allegations of the Jareses' complaint are the following:
5. That upon moving into the residence after the closing the [Jareses] first discovered that portions of the residence were infested with raccoons and other animals, dead animal bodies, their nests, feces, urine, and other matter in the walls and underneath the floors (hereinafter referred to as the raccoon infestation).
6. That the [Ullrichs] were aware of, or should have been aware of, the said raccoon infestation, and negligently failed to disclose said raccoon infestation to the [Jareses] on [the Real Estate Condition Report], or otherwise.
7. That the failure to disclose the said raccoon infestation by the [Ullrichs] was done to induce the [Jareses] into purchasing the premises.
8. That the [Jareses] 3 justifiably, to their damage, relied upon the misrepresentation of the condition of the premises made by the [Ullrichs] on [the Real Estate Condition Report] and by the [Ullrichs'] failure to disclose the said raccoon infestation to the [Jareses].
*331 9. That as a direct and proximate result of the said misrepresentation by the [Ullrichs] and the raccoon infestation of the premises the [Jareses] were unable to occupy the premises for a period of over 2 months, incurring relocation and additional living expenses totalling $9,441.99.
10. That further, as a direct and proximate result of the said misrepresentation by the [Ullrichs] and the raccoon infestation the [Jareses] incurred repair and restoration costs of $57,216.66 to remove the raccoons, their nests, urine, feces and other matter and to repair and restore the premises to the condition the premises were represented to be in by the [Ullrichs].
ANALYSIS
1. Property Damage
¶ 14.. We begin our discussion by addressing the issue not addressed by the trial court — whether the Jareses' complaint sufficiently alleges "property damage" within the meaning of the Chubb policy. As noted, the policy defines "property damage" as "physical injury to or destruction of tangible property, including loss of its use." The Ullrichs contend that the Jareses' allegation that they were unable to occupy the property for two months constitutes loss of use of the property, which is a form of "property damage" recognized by the Chubb policy.
¶ 15. Chubb responds that the loss of use of the property must be accompanied by "physical injury to or destruction of tangible property," per the phrase immediately preceding the policy's reference to "loss of use." Since loss of use does not represent physical injury to or destruction of the property, Chubb reasons that the *332 Jareses' complaint fails to allege property damage and there is no coverage. However, Chubb's analysis of the Jareses' complaint is too narrow. Chubb overlooks that besides alleging loss of use, the Jareses' complaint also alleges that the Jareses incurred repair and restoration costs. This latter allegation clearly implies that the residence was damaged, thus satisfying the "physical injury to . . . tangible property" component of "property damage" in the Chubb policy.
¶ 16. We recognize that in
Smith II,
the supreme court stated that, in most instanсes, misrepresentations and omissions will not produce property damage as defined in insurance policies.
Smith II,
¶ 17. The parties also debate as to whether the Jareses' complaint seeks damages for economic loss which would be precluded in this tort action.
See Bay Breeze Condo. Ass'n, Inc. v. Norco Windows, Inc.,
¶ 18. If, in fact, the Jareses' damage claims are barred by the economic loss doctrine, then it is for Chubb to raise that defense not by denying coverage, but rather by asserting it on behalf of the Ullrichs. As noted in Smith II, an insurer might well have a duty to defend a specious claim. Id. at 807.
2. Causation
¶ 19. Next we address whether the Jareses' complaint sufficiently alleges a causation nexus. Relying on Smith II, the trial court ruled that the complaint did not establish such a nexus. In determining whether рroperty damage was caused by an occurrence, a reviewing court must look at the alleged misconduct and determine whether a "causation nexus" exists between the alleged misconduct and the damage claimed. Id. at 823. Without a "causation nexus," the alleged occurrence cannot cause property damage. Id.
¶ 20. The facts of Smith II reveal the following. The Smiths purchased a lot in July 1991 but did not discover underground springs on the lot until they preрared for construction in March 1993. Id. at 801. When their builder, Paul Katz, began to construct the foundation of the house, the foundation hole filled with water, causing the concrete foundation to collapse three or four times during construction. Id. The Smiths filed *334 suit against the seller alleging breach of warranty, intentional misrepresentation, strict responsibility misrepresentation and negligent misrepresentation. Id.
¶ 21. In addressing causation, the supreme court held that therе were several reasons why the seller's misrepresentations did not cause physical injury to the Smiths' property. Id. at 823. First, the court noted that the Smiths' purchased the property in July 1991 but there was no physical injury to the property until after March 1993. Second, the court noted:
In the interim, ownership and control of the vacant lot had changed hands. The Smiths not only decided to build a house but also decided where on the lot the house should be located. They selected Paul Katz and Robert Reisinger to assist them. Someone other than [the seller] decided to continue building the house in the same spot even after its concrete foundation collapsed three or four times.
Id. Third, the court noted that the Smiths' additional allegations of negligence against the builder, Katz, and Reisinger provided evidence that the seller's misrepresentations did not cause the property damage. Id. The court concluded that "negligent misrepresentations do not cause ground water pressure or cracks in concrete foundations" and "there have been too many 'interruptions' between the 'occurrence' and the 'property damage' — too many decisions and actions by other people — to show an unbroken chain of causation under the policies." Id. at 824.
¶ 22. Chubb likens this case to
Smith II,
reasoning that just as negligent misrepresentations do not cause groundwater pressure, so also negligent misrepresentations do not cause animal infestation. At first blush, this is a tempting argument. But a closer examination of
Smith II
demonstrates that Chubb's reason
*335
ing does not hold up. Although the supreme court in
Smith II
determined that there was not a sufficient nexus under the facts of that case, the court clearly-allowed that in another case under different facts, the nexus requirement could be satisfied. The court cited with approval to the following passage from the court of appeals decision in
Welter v. Singer,
The Wisconsin Supreme Court, in Olsen v. Moore, [56 Wis. 2d 340 ,202 N.W.2d 236 (1972)] Joined the majority of jurisdictions by adopting the "cause" analysis. That is, where a single, uninterrupted cause results in all of the injuries and damage, there is but one "accident" or "occurrence." If the cause is interrupted or replaced by another cause, the chain of causation is broken and there has been more than one accident or occurrence.
Smith II,
¶ 23. Here, the facts bearing on causation allegеd in the Jareses' complaint are markedly different from those in Smith II. First, the Jareses discovered the property damage soon after closing on the residence. Second, the Ullrichs remained in full ownership and control of the property. Third, the residence already existed. Fourth, the Jareses have not alleged any intervening negligent acts by or against any third parties. Moreover, the Jareses' complaint specifically allegеs "[t]hat as a direct and proximate result of the said misrepresentation by the [Ullrichs] and the raccoon infestation of the premises the [Jareses] were unable to occupy the premises for a period of over 2 months . . . ."
¶ 24. In examining the allegations of a complaint in relation to the terms of an insurance policy, we liberally construe those allegations and assume all reasonable inferences.
Id.,
¶ 25. In reaching our decision, we acknowledge that prior to
Smith II
Wisconsin law had not recognized that a misrepresentation about a defect in property could cause рroperty damage. Rather, cases had held that it is the defect, not the misrepresentation, that causes the property damage.
See Smith II, 226
Wis. 2d at
816-17, Benjamin v. Dohm,
We are not saying that strict responsibility misrepresentations or negligent misrepresentations can never cause "property damage" as defined in the policies, particularly when "property damage" can include "loss of use of tangible property that is not physically injured." But we recognize thаt the majority view in the cases is that misrepresentations and omissions do not produce "property damage" as defined in insurance policies. They produce economic damage.
Given this well established law, a complaint claiming strict responsibility misrepresentation or negligent misrepresentation must contain some statement about physical injury to tangible property, some reference to loss of use, or some demand for relief beyond money damages if the complaint is to satisfy the requirement that "property damage" be alleged within the four corners of the complaint.
Smith II,
¶ 26. We also reject Chubb's contention that the Jareses' complaint fails to link the Ullrichs' misrepresentation and the animal infestation. Chubb points to *338 the following language in the Jareses' complaint: "That as a direct and proximate result of the said misrepresentation by the [Ullriehs] and the raccoon infestation of the premises the [Jareses] were unable to occuрy the premises ... (Emphasis added.) Chubb argues that this language alleges two causes of action — the misrepresentation and the infestation — but does not link the two. We decline to read the complaint so narrowly.
¶ 27. Pursuant to Wis. Stat. § 802.06(6), pleadings are to be liberally construed with a view toward substantial justice to the parties. Likewise, in examining the allegations of a complaint in relation to the terms of a disputed insurance policy, we liberally cоnstrue the allegations and assume all reasonable inferences.
Smith II,
CONCLUSION
¶ 28. We conclude that the Jareses' complaint sufficiently alleged both "property damage" within the meaning of the Chubb policy and a "causation nexus" between the allеged misrepresentation and the claimed damage. We therefore conclude that Chubb has a duty to defend the Ullriehs. We reverse the judgment and remand for further proceedings.
By the Court. — Judgment reversed and cause remanded.
Notes
1n an earlier decision in the same case, the supreme court concluded that the defendant's insurance policy in the record did not cover the period in which'the alleged property damage occurred.
Smith v. Katz,
All references to the Wisconsin Statutes are to the 2001-02 version.
The complaint says that the "defendants" relied upon this misrepresentation. That obviously is a misnomer. The complaint should have said that the "plaintiffs" relied upon the misrepresentation.
Chubb also cites to
Benjamin v. Dohm,
We do not see these two cases as controlling in the instant case. First, as noted, the statements regarding the effect of an allegation of loss of use were dicta. Moreover, it is not clear from the text of the two cases whether the complaints expressly alleged that the misrepresentations induced the purchasers to buy. Here, the Jareses' complaint expressly alleges thаt the Ullrichs' misrepresentation was made to induce the Jareses to purchase the property and that the misrepresentation directly and proximately caused the Jareses to lose the use of the property. Again, our duty to defend analysis is limited to a comparison of the language of the complaint against the language of the policy.
Smith II,