TERRY WIEGERT AND DEBORAH WIEGERT, PLAINTIFFS, V. TM CARPENTRY, LLC, STATE FARM FIRE & CASUALTY COMPANY AND AUTO-OWNERS INSURANCE, DEFENDANTS, STONE CREEK BUILDERS, LLC, DEFENDANT-THIRD-PARTY PLAINTIFF-APPELLANT, V. TIMOTHY BALTHAZOR D/B/A TIM BALTHAZOR MASONRY AND SECURA INSURANCE, A MUTUAL COMPANY, THIRD-PARTY DEFENDANTS, ACUITY, A MUTUAL INSURANCE COMPANY, INTERVENOR-RESPONDENT.
2020AP1833
COURT OF APPEALS OF WISCONSIN
May 4, 2022
2022 WI App 28
Appeal from an order of the circuit court for Sheboygan County: DANIEL J. BOROWSKI, Judge. Affirmed. Cir. Ct. No. 2015CV363
Opinion Filed: May 4, 2022
Submitted on Briefs: October 26, 2021
JUDGES: Gundrum, P.J., Neubauer and Grogan, JJ.
Appellant ATTORNEYS: On behalf of the defendant-appellant, the cause was submitted on the briefs of Erik Fuehrer of Gabert, Williams, Konz & Lawrynk, LLP, Appleton.
Respondent ATTORNEYS: On behalf of the plaintiff-respondent, the cause was submitted on the brief of Christine Marie Rice of Simpson & Deardorff, S.C., Milwaukee.
NOTICE
This opinion is subject to further editing. If published, the official version will appear in the bound volume of the Official Reports.
A party may file with the Supreme Court a petition to review an adverse decision by the Court of Appeals. See
APPEAL from an order of the circuit court for Sheboygan County: DANIEL J. BOROWSKI, Judge. Affirmed.
Before Gundrum, P.J., Neubauer and Grogan, JJ.
BACKGROUND
¶2 The following undisputed facts were submitted to the circuit court on motions for summary and/or declaratory judgment filed by the insurers.
I. The Renovation Project
¶3 The Wiegerts decided to undertake certain renovations to their two-story home in the City of Sheboygan, including increasing the floor-to-ceiling height of the basement. In July 2014, the Wiegerts entered into a contract with TM Carpentry, LLC (TM) for the renovation. The contract called for TM to increase the height of the basement by removing the existing floor, excavating several inches of dirt below it, and pouring a new concrete floor. TM performed some of the excavation and other work but abandoned the project before its work was complete.
¶4 After TM left the job, the Wiegerts hired an engineering firm to inspect the basement and make recommendations to address the issues allegedly resulting from TM‘s work. After receiving the engineer‘s recommendations, the Wiegerts hired Stone Creek to do further renovation work.
¶5 On October 21, 2014, the Wiegerts entered into a contract with Stone Creek to finish the renovation project. Stone Creek‘s scope of work was set forth in a “Budgetary Proposal” and included the following:
(1) Removing basement ceiling, fixtures, and the basement stairway;
(2) Disconnecting electrical circuits and other utilities;
(3) Lifting the house and porch approximately three feet above the existing foundation;
(4) Installing two courses of concrete block on top of the existing foundation;
(5) Lowering the house onto the newly raised foundation;
(6) Installing new window openings including headers;
(7) Reinstalling mechanical services to the house; and
(8) Rebuilding the basement staircase.
Stone Creek subcontracted with Timothy Balthazor, d/b/a Tim Balthazor Masonry (Balthazor), to install the additional concrete block.
¶6 Stone Creek began its work in October 2014. Between October 27 and October 29, 2014, Stone Creek removed the basement staircase and ceiling, disconnected the utilities, and cut access holes in the existing foundation. On October 29, Stone Creek raised the house several feet above the existing foundation. The new courses of concrete block were installed between November 5 and November 19, 2014. Stone Creek lowered the house onto the new foundation on November 18 or 19 and performed additional work on the house from that date through mid-February 2015.
¶7 The Wiegerts noticed damage to the house during the three-week period in which it was elevated. Mrs. Wiegert noticed cracks developing in the walls of the house almost immediately after Stone
II. The Acuity Policy
¶8 TM, Stone Creek and Balthazor were insured under separate policies of insurance during the periods of time that they worked on the project.2 Stone Creek was insured under two policies, each of which covered a portion of the period in which Stone Creek‘s work was performed. Acuity issued a “Bis-Pak” policy of business liability insurance to Stone Creek with a policy period of November 7, 2013 to November 7, 2014. Stone Creek‘s other insurer, Auto-Owners Insurance, issued a policy of commercial general liability insurance to Stone Creek that was in effect from November 7, 2014, to November 7, 2015.
¶9 The Acuity policy contains several provisions relevant to this appeal. The policy contains an insuring agreement under which Acuity agreed to pay amounts that Stone Creek “becomes legally obligated to pay as damages because of property damage to which this insurance applies.” The Acuity policy applies to “property damage” that (1) occurs during the policy period and (2) is caused by an “occurrence.”3
¶10 The “property damage” exclusion at issue reads as follows:
This insurance does not apply to:
....
k. Damage to Property
Property damage to:
....
(5) That particular part of real property on which you or any contractor or subcontractor working directly or indirectly on your behalf is performing operations, if the property damage arises out of those operations.
PROCEDURAL HISTORY
¶11 In June 2015, the Wiegerts sued TM, Stone Creek, and their insurers, seeking to recover for the physical damage to, and loss of use of, their house. As summarized by the circuit court, the Wiegerts claimed that Stone Creek “caused significant physical damage to the [house] including cracking of the interior walls and unevenness in the wood flooring” throughout the house.
¶12 Acuity was not originally a party to the action but filed a motion to intervene, which the circuit court granted. Acuity also moved the court for an order “bifurcating litigation of the underlying merits from insurance coverage issues” and “staying proceedings on the merits until all insurance coverage issues have been decided.” The court granted this motion on October 5, 2015, but allowed the parties to conduct discovery during the stay as to coverage issues.4 Acuity served written discovery on the Wiegerts seeking information
¶13 After Acuity and the other insurers filed motions asking the circuit court to find or declare that they had no duty to defend or indemnify their respective insureds against the Wiegerts’ claims, the parties deposed Mr. and Mrs. Wiegert. The circuit court held oral argument on the motions on January 4, 2017, at the end of which it invited the parties to submit additional legal authorities analyzing the insurance coverage issues that had been raised in the motions in the context of contracted work to raise a house off its foundation.
¶14 In its decision and order, the circuit court agreed with Acuity that the k.(5) exclusion precluded coverage for the Wiegerts’ claimed damages that arguably occurred within Acuity‘s policy period. The court‘s decision rested on three determinations: (1) Stone Creek was working on “real property“—the Wiegerts’ house—when the alleged property damage occurred; (2) the entire house constituted the “particular part” of the real property on which Stone Creek was working because Stone Creek‘s contract required it to lift the entire house off the foundation; and (3) the claimed property damage “was caused by Stone Creek‘s actions in lifting the entire Residence off of the foundation and vertically supporting it.”
¶15 As to the third point, the circuit court noted Mrs. Wiegert‘s testimony that she observed cracking and other damage in the house immediately after it was lifted, and recognized that Acuity‘s coverage obligation was limited to “property damage” that occurred during its policy period:
Under the plain language of Acuity‘s policy, there is no coverage for events that occurred after Acuity‘s policy expired. Again, the only conceivable occurrence and property damage under Acuity‘s policy occurred as a result of lifting the Residence. Stone Creek‘s lift of the Residence was the only work that was completed during Acuity‘s policy period. While Stone Creek may have commenced the masonry work, there is no indication that the work was complete during Acuity‘s policy or that such work resulted in an occurrence and property damage to the Residence during Acuity‘s policy period.
¶16 The circuit court also implicitly rejected Stone Creek‘s contention, raised in its post-hearing submission, that the ruling would be premature, effectively determining that additional discovery as to whether damages were caused by work performed by TM Carpentry, or by work performed by Balthazor and/or Stone Creek after Acuity‘s policy period, would not be relevant to the coverage determination. Based upon these determinations, the court granted Acuity‘s motion.5
¶17 Stone Creek appeals. We include additional facts as necessary in the discussion below.
DISCUSSION
I. Applicable Legal Standards
¶18 Liability insurance policies typically impose two main duties—the duty to defend against claims for damages and the duty to indemnify, or “cover,” the insured against damages or losses. Johnson Controls, Inc. v. London Mkt., 2010 WI 52, ¶28, 325 Wis. 2d 176, 784 N.W.2d 579. “The duty to indemnify and the duty to defend are separate contractual obligations.” Id. Though Acuity sought rulings as to both duties, the circuit court specifically concluded that the “property damage” exclusion at issue here barred coverage for the Wiegerts’ claimed damages. Thus, only the question of whether Acuity has a duty to indemnify—the coverage issue—is before us on appeal.6
¶19 The circuit court granted what it referred to as “Summary/Declaratory Judgment,” concluding that Acuity did not have a duty to indemnify Stone Creek for any of the damage done to the Wiegerts’ house. Insurers may seek determinations of their coverage obligations through summary judgment or declaratory judgment. Young v. West Bend Mut. Ins. Co., 2008 WI App 147, ¶6, 314 Wis. 2d 246, 758 N.W.2d 196. Under either procedural vehicle, our standard of review is de novo because we must interpret and apply the terms of Acuity‘s policy. Nischke v. Aetna Health Plans, 2008 WI App 190, ¶4 & n.3, 314 Wis. 2d 774, 763 N.W.2d 554 (explaining that “our standard of review is the same for both situations“); Praefke v. Sentry Ins. Co., 2005 WI App 50, ¶¶5, 279 Wis. 2d 325, 694 N.W.2d 442 (though declaratory judgment is “addressed to the discretion of the trial court,” appellate review is de novo when “the exercise of discretion depends upon a question of law” such as the “interpretation of an insurance contract“).
¶20 “The methodology governing summary judgment is well-established and we need not repeat it in its entirety.” Progressive N. Ins. Co. v. Jacobson, 2011 WI App 140, ¶7, 337 Wis. 2d 533, 804 N.W.2d 838. Summary judgment shall be awarded if “there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law.”
II. Analysis of Coverage Under the Acuity Policy
¶21 Wisconsin‘s insurance coverage analysis would normally require us to first consider whether Acuity‘s policy makes an initial grant of coverage. See Olson v. Farrar, 2012 WI 3, ¶41, 338 Wis. 2d 215, 809 N.W.2d 1. Here, however, we assume without deciding that the circuit court correctly determined that the record supports an initial grant of coverage—that is, an “occurrence” which caused “property damage” during Acuity‘s policy period, which ended on November 7, 2014. We can make this assumption because, for the reasons explained below, we agree with the circuit court that any damages that may ultimately be awarded against Stone Creek for property damage that occurred before November 7 would fall within the scope of the k.(5) exclusion.
¶22 The k.(5) exclusion is one of the standard “business risk” exclusions in commercial general liability insurance (CGL) policies. Acuity v. Society Ins., 2012 WI App 13, ¶35, 339 Wis. 2d 217, 810 N.W.2d 812, review granted, 2012 WI 77, 342 Wis. 2d 155, 816 N.W.2d 321, voluntary dismissal granted, 2013 WI 6, 345 Wis. 2d 406, 827 N.W.2d 98 (“The k.(5)
¶23 The k.(5) exclusion bars coverage for property damage to “[t]hat particular part” of real property on which an insured is performing operations, if the property damage arises out of the insured‘s operations. Our supreme court has not interpreted this exclusion to date, but we applied it in Acuity v. Society Ins. There, two contractors entered into a contract with a building owner to remove and replace a wall in the engine room of an animal processing plant. Acuity v. Society Ins., 339 Wis. 2d 217, ¶2. During excavation work near the wall, soil began to erode from under the concrete slab of the floor of the engine room, leading the slab to crack and deflect downward. Id., ¶4. The damage to the floor, in turn, caused damage to other parts of the building, disrupted utility service, damaged equipment in the plant, and decreased the plant‘s refrigeration capacity. Id. Acuity, the building owner‘s insurer, settled the owner‘s insurance claim and brought an action in subrogation against the contractors and their insurer, Society. Id., ¶¶7-8.
¶24 After concluding that the partial collapse of the engine room resulting from the contractors’ faulty excavation techniques constituted an “occurrence” that led to “property damage” under Society‘s policy, we analyzed whether the k.(5) exclusion barred coverage for the insurer‘s losses. Id., ¶33. In particular, we focused on the phrase “that particular part” and, drawing on decisions from other jurisdictions analyzing the same policy language, determined that it limited the exclusion‘s reach to “those parts of a building on which the defective work was performed, which is determined based on the scope of the construction agreement.” Id., ¶40. We recognized further that the inclusion of “[t]hat particular part” in the exclusion was intended to narrow our focus to the smallest component of the building on which the insured‘s work was performed. Id., ¶¶38-40 (citing Fortney & Weygandt, Inc. v. American Mfrs. Mut. Ins. Co., 595 F.3d 308, 311 (6th Cir. 2010) (describing “that particular part” as “trebly restrictive, straining to the point of awkwardness to make clear that the exclusion applies only to building parts on which defective work was performed, and not to the building
steam system because scope of insured‘s work on construction project “included excavation and backfill of certain steam pits, but ... did not include any work on the existing steam pit system that was damaged“).
¶25 Applying Acuity v. Society Ins. here, we focus on the scope of Stone Creek‘s work as set forth in its contract with the Wiegerts. Among other things, Stone Creek‘s contract expressly required it to lift the Wiegerts’ house off the existing foundation, install additional layers of concrete block, and lower the house onto the new foundation. Although certain line items in Stone Creek‘s contract specified work on components of the house, Stone Creek‘s contract clearly specified work—raising and lowering—to be performed on the entire structure.
¶26 We are also mindful that the Acuity policy limits Acuity‘s coverage obligation to “property damage” that occurred within the policy period, which ended on November 7, 2014. Between the start of Stone Creek‘s work in late October and November 7, Stone Creek (1) removed the basement ceiling and stairway; (2) cut access holes in the existing foundation; (3) disconnected electrical circuits and other utilities; and (4) raised the house approximately three feet above the foundation. The damage observed by Mrs. Wiegert “immediately” after the house was lifted was confined to interior portions of the house—walls, shoe molding, and floors.
¶27 Given these facts, we agree with the circuit court that the only work performed by Stone Creek that could possibly have resulted in “property damage” during the Acuity policy period was the lifting of the house. When Stone Creek raised the house off the foundation, “[t]hat particular part” of the Wiegerts’ real property on which Stone Creek was performing operations was the entire house. Thus, any money damages awarded against Stone Creek for damage to the house that occurred before the end of the policy period on November 7 would fall within the scope of the k.(5) exclusion. Our conclusion is consistent with decisions from other courts that have applied comparable standard k.(5) and (6) business risk exclusions to damages allegedly resulting from the lifting of a residence. See Lafayette Ins. Co. v. Peerboom, 813 F. Supp. 2d 823, 834 (S.D. Miss. 2011) (construing “that particular part” to apply to the entire residence where contractor‘s work involved raising residence above flood plain); Grinnell Mut. Reinsurance Co. v. Lynne, 2004 ND 166, ¶¶3, 25, 686 N.W.2d 118 (concluding that “that particular part” of house on which contractor was working when house fell off support jacks was the entire structure).8
¶28 Stone Creek‘s arguments to the contrary are not persuasive. First, Stone Creek contends that further discovery is needed to ascertain the smallest component of its work that could have damaged
¶29 Next, Stone Creek suggests that improper installation of the new layers of concrete block may have destabilized the basement walls, in which case “[t]hat particular part” in the k.(5) exclusion would encompass only the foundation. This argument fails to account for the Acuity policy period, which ended on November 7, 2014. The undisputed facts show that the work to add new block onto the foundation began, but did not end, by November 7, and that Stone Creek did not lower the house onto the new foundation until at least November 18. Given the timing of this work, any “property damage” resulting from improper installation of the new block would necessarily have occurred after the Acuity policy expired.
¶30 Stone Creek also argues that the k.(5) exclusion should not apply to damage to interior components of the house Stone Creek was not hired to work on. This ignores that Stone Creek‘s contract required it to lift the entire house, and the “property damage” allegedly arose out of that work. That Stone Creek‘s contract did not specifically require it to work on the walls, shoe molding, and floors observed to be damaged immediately after the house was lifted does not mean that the k.(5) exclusion cannot apply to damage to those components of the house.9
III. Ripeness
¶31 Finally, we reject Stone Creek‘s contention that Acuity‘s motion was not ripe for decision because the stay on merits discovery precluded the parties from uncovering facts material to liability/causation and damages, which Stone Creek views as material to application of the exclusion in Acuity‘s policy.10
¶32 As noted above, the facts material to the application of the k.(5) exclusion are: (1) the relevant terms of the Acuity policy; (2) the terms of Stone Creek‘s contract with the Wiegerts; (3) the work performed by Stone Creek on the project; and (4) the damage to the house that arguably occurred within Acuity‘s policy period. Based
¶33 Stone Creek contends that a coverage determination must await additional discovery on liability and damages, pointing to the possibility that some or all of the Wiegerts’ claimed damages may be attributable to the work of TM, the first contractor to undertake renovations to the house, or the work on the foundation by Balthazor. We do not see how further discovery on these points would alter the analysis under the k.(5) exclusion. Any damages arising from the work of TM would precede Stone Creek‘s work, and there is no suggestion that Stone Creek would be liable for property damage caused by TM. Any work on the foundation, and the allegedly resulting property damage, did not occur until after Acuity‘s policy period. Notably, Stone Creek does not identify anything in the record suggesting that the damage Mrs. Wiegert observed immediately after the house was lifted could have arisen out of any work Stone Creek performed on a “distinct component part[]” of the house, as opposed to the entire house itself. See Acuity v. Society Ins., 339 Wis. 2d 217, ¶38 (citation omitted). Stone Creek does not argue that any part of the Wiegerts’ property other than the house sustained damage during the Acuity policy period. Absent a showing that facts which could alter the analysis under the k.(5) exclusion have yet to be discovered, we conclude that the circuit court did not decide Acuity‘s motion prematurely.
CONCLUSION
¶34 For the foregoing reasons, we affirm the circuit court‘s grant of summary judgment to Acuity. The pleadings and extrinsic evidence presented to the circuit court demonstrate that any damages that may ultimately be awarded against Stone Creek for property damage to the Wiegerts’ house that occurred during Acuity‘s policy period would fall within the scope of the k.(5) exclusion in the Acuity policy. We further conclude that the circuit court did not err in not deferring a decision on Acuity‘s coverage obligation until merits discovery was completed.
By the Court.—Order affirmed.