Case Title: Jay W. Smith v. Paul Katz

Citation: 

Docket Number: 

State: wisconsin

Court: Wisconsin Supreme Court

Date: 1999-06-22T00:00:00Z

Document:
SUPREME COURT OF WISCONSIN 
 
 
Case No.: 
96-1998 
 
 
Complete Title 
of Case: 
 
 
Jay W. Smith and Debra J. Smith,  
 
Plaintiffs, 
West Bend Mutual Insurance Company,  
 
Intervenor-Plaintiff-Respondent, 
 
v. 
Paul Katz, d/b/a Underroof Building and Design 
and Robert L. Reisinger, Jr.,  
 
Defendants, 
Philip A. Giuffre,  
 
Defendant-Third-Party Plaintiff-Appellant-
 
Petitioner, 
David A. and Mary A. Stawski,  
 
Third-Party Defendants.  
 
ON RECONSIDERATION FROM THE WI SUPREME COURT 
Previously reported at:  218 Wis. 2d 442,  
   578 N.W.2d 202 (1998) 
 
 
Opinion Filed: 
June 22, 1999 
Submitted on Briefs: 
 
Oral Argument: 
January 6, 1999 
 
 
Source of APPEAL 
 
COURT: 
 
 
COUNTY: 
 
 
JUDGE: 
 
 
 
JUSTICES: 
 
Concurred: 
 
 
Dissented: 
 
 
Not Participating:  
 
 
ATTORNEYS: 
For the defendant-third-party plaintiff-
appellant-petitioner there were letter briefs by Kent A. Tess-
Mattner and Schmidt & Rupke, S.C., Brookfield and oral argument 
by Kent A. Tess-Mattner. 
 
 
For the intervenor-plaintiff-respondent there was 
a letter brief by Michael R. Vescio and Jeffrey Leavell, S.C., 
Racine and oral argument by Jeffrey L. Leavell. 
 
No. 96-1998 
 
1 
 
NOTICE 
This opinion is subject to further editing and 
modification.  The final version will appear in 
the bound volume of the official reports. 
 
 
No. 96-1998 
 
STATE OF WISCONSIN               :        
        
 
 
 
 
IN SUPREME COURT 
 
 
Jay W. Smith and Debra J. Smith,  
 
          Plaintiffs, 
 
West Bend Mutual Insurance Company,  
 
          Intervenor-Plaintiff-Respondent, 
 
     v. 
 
Paul Katz, d/b/a Underroof Building and  
Design and Robert L. Reisinger, Jr.,  
 
          Defendants, 
 
Philip A. Giuffre,  
 
          Defendant-Third-Party Plaintiff- 
          Appellant-Petitioner, 
 
David A. and Mary A. Stawski,  
 
          Third-Party Defendants.  
FILED 
 
JUN 22, 1999 
 
Marilyn L. Graves 
Clerk of Supreme Court 
Madison, WI 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed. 
¶1 
DAVID T. PROSSER, J.   This case is before the court 
because we granted Philip A. Giuffre's (Giuffre) motion for 
reconsideration of our decision in Smith v. Katz, 218 Wis. 2d 
442, 578 N.W.2d 202 (1998).  In the earlier decision, we 
affirmed an unpublished decision of the court of appeals1 on 
                     
1 Smith v. Katz, No. 96-1998, unpublished slip op. (Wis. Ct. 
App. Aug. 12, 1997).  
No. 96-1998 
 
2 
grounds that Giuffre's insurance policy in the record did not 
cover the period in which alleged property damage occurred.  
When the record was amended to include a policy covering a later 
period, we granted Giuffre's motion for reconsideration. 
¶2 
The ultimate issue before the court is whether West 
Bend Mutual Insurance Company (West Bend) has a duty under the 
policies to defend and indemnify Giuffre for the claims made by 
Jay and Debra Smith (Smiths).  We conclude that the claims 
against Giuffre in the Smiths' amended complaint do not 
constitute claims for property damage caused by an occurrence 
under the language of the West Bend policies and thus affirm the 
decision of the court of appeals. 
FACTS 
 
¶3 
For purposes of this review, the facts are not in 
dispute.  The Smiths purchased a vacant lot in Greenfield, 
Wisconsin, on July 19, 1991, from Giuffre for $29,000.00.  In 
March of 1993, the Smiths hired Paul Katz d/b/a Underroof 
Building & Design (Katz) to construct a house on the lot.  In 
preparing for construction, Katz excavated some soil and 
discovered underground springs.  When Katz began to construct 
the foundation for the house, the foundation hole filled with 
water, causing the concrete foundation to collapse three or four 
times during construction.  Eventually, the house was completed 
after delay and extra cost.  The Smiths later complained during 
discovery that the pressure from ground water was pushing in and 
cracking the foundation walls and that there was cracking inside 
the house.  
No. 96-1998 
 
3 
PROCEDURAL HISTORY 
 
¶4 
The Smiths filed an action in Milwaukee County Circuit 
Court on April 19, 1995.  The original complaint made four 
claims against Giuffre:  (1) breach of warranty, (2) intentional 
misrepresentation, (3) strict responsibility misrepresentation, 
and (4) negligent misrepresentation.  The complaint was later 
amended 
to 
include 
two 
additional 
defendants 
and 
three 
additional claims against them.2  However, the claims against 
Giuffre were not amended. 
 
¶5 
On January 23, 1996, West Bend filed a motion to 
intervene, asserting that the allegations of the Smiths' 
complaint did not describe covered occurrences or damages that 
would trigger its duty to defend or indemnify Giuffre.  West 
Bend thereafter sought a declaratory judgment that it had no 
duty to defend or indemnify under the policy. 
 
¶6 
On March 5, 1996, West Bend moved for summary 
judgment.  First, West Bend argued that the Smiths' claims for 
damages were strictly pecuniary and economic in nature.  The 
                     
2 In their amended complaint, Jay and Debra Smith added 
allegations against Paul Katz d/b/a Underroof Building & Design 
(Katz) and Robert Reisinger.  The Smiths alleged that Katz 
breached his contract with them because the construction of the 
house, including the foundation and grading, was not performed 
in a good and workmanlike manner.  The Smiths also alleged that 
Katz was negligent in failing to remedy apparent water problems 
and failing to properly construct and/or finish the house. 
The Smiths alleged that Robert Reisinger, a consulting 
engineer, was careless and negligent in performing engineering 
services relative to the construction of the foundation of the 
house and the installation of a system for drainage of the 
underground springs and surface springs. 
No. 96-1998 
 
4 
West Bend policy3 defined "property damage" to mean "physical 
injury to tangible property, including all resulting loss of use 
of that property" or "loss of use of tangible property that is 
not physically injured."  West Bend declared that the alleged 
pecuniary and economic damages were not "property damage" under 
the plain language of the policy. 
¶7 
Second, 
West 
Bend 
argued 
that 
there 
was 
no 
"occurrence" under the plain language of the policy.  Under West 
Bend's policy, "'[o]ccurrence' means an accident, including 
continuous or repeated exposure to substantially the same 
general 
harmful 
conditions." 
 
West 
Bend 
asserted 
that 
misrepresentations made by a seller concerning the condition of 
property to be sold do not constitute an "occurrence" under 
Wisconsin law.  
¶8 
Third, West Bend argued that the policy did not 
provide 
coverage 
regarding 
the 
claim 
of 
"intentional" 
misrepresentation 
because 
the 
policy 
specifically 
excludes 
coverage for property damage "expected or intended" by the 
insured. 
¶9 
Finally, West Bend argued that even if property damage 
had been alleged under the policy, the "premises you sell" 
exclusion clause excluded coverage.  The policy excluded 
coverage for "'[p]roperty damage' to . . . [p]remises you sell . 
. . if the 'property damage' arises out of any part of those 
                     
3 The use of the singular word "policy" here reflects the 
single policy in the record at that point in the proceedings. 
No. 96-1998 
 
5 
premises. . . ."  According to West Bend, the alleged damages 
arose from premises sold to the Smiths by Giuffre and thus the 
allegations were not covered under the plain language of the 
policy. 
 
¶10 Giuffre countered that the court must look beyond the 
four corners of the Smiths' complaint because the complaint was 
ambiguous and evidence brought out in discovery showed that the 
Smiths were alleging physical injury to tangible property.  In 
addition, Giuffre asserted that the property damage was caused 
by abnormally high ground water, a preexisting condition which 
was an "occurrence" under the policy. 
 
¶11 A hearing on West Bend's motion for summary judgment 
was held on March 28, 1996.  The circuit court, Jacqueline D. 
Schellinger, Judge, granted West Bend's motion.  The court 
determined that based on the plain language of the policy there 
was no coverage or duty to defend against an intentional act.  
The court also concluded that the language in the policy 
excluding coverage for "[p]remises you sell, if the property 
damage arises out of any part of those premises," applied 
because the alleged property damage "arose out of [the] 
premises.  The part of [the] premises being the ground water."  
¶12 Giuffre moved the circuit court to reconsider its 
decision.  When the court denied the motion, Giuffre appealed. 
 
¶13 In a per curiam opinion, the court of appeals affirmed 
the circuit court.  Relying solely on the "premises you sell" 
exclusion, the court of appeals concluded there was no coverage 
under the policy.  The court stated that "the damage to the home 
No. 96-1998 
 
6 
resulted from the ground water seeping or pressing against the 
Smiths' basement walls.  This ground water was a part of the 
land that Giuffre sold to the Smiths.  Therefore, the property 
damage to the Smiths' home arose out of 'any part of the 
premises sold.'"  Katz, unpublished slip op. at 5-6. 
 
¶14 This court granted Giuffre's petition for review.  
After hearing oral argument on April 7, 1998, we determined that 
the damage the Smiths complained of occurred sometime after 
March 23, 1993, but that the only insurance policy in the record 
provided coverage from September 1990 through September 1991.  
Katz, 218 Wis. 2d at 444.  Accordingly, we remanded the case to 
the circuit court to determine whether Giuffre had another West 
Bend insurance policy for the period in question in 1993. 
 
¶15 Giuffre then filed a motion with this court to amend 
the record to include a West Bend insurance policy in effect 
from September 12, 1992, through September 12, 1993.  This court 
granted the motion and amended the record.  We also granted 
Giuffre's motion for reconsideration which asked this court to 
decide the coverage issue now that we had proof of an effective 
policy at the time the damage occurred.  As a result, we must 
determine whether West Bend has a duty to defend and indemnify 
Giuffre under the policies now in the record for the claims 
filed by the Smiths. 
STANDARD OF REVIEW 
¶16 In this case, we review a decision of the circuit 
court granting West Bend's motion for summary judgment.  We 
review summary judgment rulings de novo, Burkes v. Klauser, 185 
No. 96-1998 
 
7 
Wis. 2d 308, 327, 517 N.W.2d 503 (1994), applying the same 
methodology set out in Wis. Stat. § 802.08(2) as applied by the 
circuit court.  Green Springs Farms v. Kersten, 136 Wis. 2d 304, 
315, 401 N.W.2d 816 (1987).  Under § 802.08(2), a motion for 
summary judgment must be granted when there is no genuine issue 
of material fact, and the moving party is entitled to judgment 
as a matter of law.4   
¶17 In addition, we are called upon to interpret an 
insurance contract.  Interpretation of an insurance contract is 
a question of law which this court reviews de novo.  Lambert v. 
Wrensch, 135 Wis. 2d 105, 115, 399 N.W.2d 369 (1987); Katze v. 
Randolph & Scott Mut. Fire Ins. Co., 116 Wis. 2d 206, 212, 341 
N.W.2d 689 (1984). 
ANALYSIS 
¶18 When the court granted Giuffre's petition for review, 
we expected this case to present an opportunity to analyze and 
interpret the "premises you sell" exclusion clause in standard 
form commercial general liability insurance policies sold in 
Wisconsin.  Both the circuit court and the court of appeals 
relied upon the "premises you sell" clause in awarding summary 
                     
4 Wisconsin Stat. § 802.08(2), provides: 
The 
judgment 
sought 
shall 
be 
rendered 
if 
the 
pleadings, depositions, answers to interrogatories, 
and admissions on file, together with the affidavits, 
if any, show that there is no genuine issue as to any 
material fact and that the moving party is entitled to 
a judgment as a matter of law.  A summary judgment, 
interlocutory in character, may be rendered on the 
issue of liability alone although there is a genuine 
issue as to the amount of damages.  
No. 96-1998 
 
8 
judgment to Giuffre's insurer.  Upon close examination, however, 
we are convinced that Giuffre does not have coverage under his 
policies.  Consequently, it is unnecessary and inappropriate to 
interpret the exclusion clause in circumstances where coverage 
does not exist. 
¶19 An insurance agreement functions as a contract between 
the insured and the insurer.  City of Edgerton v. General Cas. 
Co. of Wis., 184 Wis. 2d 750, 764, 517 N.W.2d 463 (1994).  
Therefore, "[i]nterpretation of insurance policies is governed 
by the same 
rules of construction 
that 
apply 
to 
other 
contracts."  Donaldson v. Urban Land Interests, Inc., 211 Wis. 
2d 224, 230, 564 N.W.2d 728 (1997). 
¶20 An insurer's duty to defend its insured is determined 
by comparing the allegations of the complaint to the terms of 
the insurance policy.  School Dist. of Shorewood v. Wausau Ins. 
Co., 170 Wis. 2d 347, 364-65, 488 N.W.2d 82 (1992). In other 
words, "[t]he duty to defend is triggered by the allegations 
contained within the four corners of the complaint."  Newhouse 
v. Citizens Security Mut. Ins. Co., 176 Wis. 2d 824, 835, 501 
N.W.2d 1 (1993) (citing Elliot v. Donahue, 169 Wis. 2d 310, 320-
21, 485 N.W.2d 403 (1992); Grieb v. Citizens Casualty Co., 33 
Wis.2d 552, 557-58, 148 N.W.2d 103 (1967)).  The duty to defend 
focuses on the nature of the claim and has nothing to do with 
the merits of the claim.  Grieb, 33 Wis. 2d at 558.  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 
No. 96-1998 
 
9 
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. 
¶21 It is important to remember that "a contract of 
insurance is not to be rewritten by the court to bind an insurer 
to a risk which the insurer did not contemplate and for which it 
has not been paid."  Qualman v. Bruckmoser, 163 Wis. 2d 361, 
365, 471 N.W.2d 282 (Ct. App. 1991) (citing Wisconsin Builders, 
Inc. v. General Ins. Co. of Am., 65 Wis. 2d 91, 103, 221 N.W.2d 
832 (1974)). 
¶22 There are two West Bend policies in the record.  Each 
contains similar coverage terms.  The first policy ran from 
September 12, 1990, to September 12, 1991.  The second policy 
ran from September 12, 1992, to September 12, 1993.  There is a 
third policy - between the other two - but that policy is not 
part of the record.  We assume that West Bend provided Giuffre 
with continuous general liability coverage which was derived 
from three separate consecutive policies.  In interpreting these 
policies, we recognize that Giuffre could have selected a 
different insurer beginning September 12, 1991, and West Bend 
could have first become Giuffre's insurer on September 12, 1992. 
  
¶23 The policies in the record read, in part, as follows: 
 
SECTION 1 - COVERAGES 
 
COVERAGE A.  BODILY INJURY AND PROPERTY DAMAGE 
LIABILITY 
No. 96-1998 
 
10
 
1. Insuring Agreement. 
 
a. We will pay those sums that the insured 
becomes legally obligated to pay as damages 
because of "bodily injury" or "property damage" 
to which this insurance applies.  We will have 
the right and duty to defend any "suit" seeking 
those damages.  We may at our discretion 
investigate any "occurrence" and settle any 
claim or "suit" that may result. . . . 
 
b. This insurance applies to "bodily injury" and 
"property damage" only if: 
 
1. The "bodily injury" or "property damage" 
is caused by an "occurrence" that takes 
place in the "coverage territory;" and 
2. The "bodily injury" or "property damage" 
occurs during the policy period. 
 
SECTION V - DEFINITIONS 
 
. . . 
 
9. 
"Occurrence" means an accident, including 
continuous or repeated exposure to substantially the 
same general harmful conditions. 
 
. . . 
 
12. "Property damage" means: 
 
a. Physical injury to tangible property, 
including all resulting loss of use of 
that property.  All such loss of use shall 
be deemed to occur at the time of the 
physical injury that caused it; or 
 
b. Loss of use of tangible property that is 
not physically injured.  All such loss 
shall be deemed to occur at the time of 
the "occurrence" that caused it. 
¶24 Each policy promises to pay Giuffre those sums he is 
legally obligated to pay as damages because of property damage 
No. 96-1998 
 
11
that is caused by an occurrence when the property damage occurs 
during the policy period. 
¶25 When this case was last before the court, we noted 
that "Giuffre's counsel does not dispute that the alleged 
property damage took place after the construction of the home 
began in March of 1993."  Katz, 218 Wis. 2d at 450. 
¶26 Giuffre's burden in this case, given the terms of the 
policies, is to demonstrate that the Smiths' complaint against 
Giuffre alleged (1) there was property damage as defined in the 
policies; 
(2) 
Giuffre's 
conduct, 
i.e., 
his 
alleged 
misrepresentations, constituted an "occurrence" as defined in 
the policy; and (3) the property damage alleged was caused by 
Giuffre's conduct. 
 
¶27 In their amended complaint, the Smiths alleged four 
claims against Giuffre:  (1) breach of warranty; (2) intentional 
misrepresentation; (3) strict responsibility misrepresentation; 
and 
(4) 
negligent 
misrepresentation. 
 
The 
intentional 
misrepresentation claim is not involved in this appeal.5  The 
other three claims were set out, in part, as follows:   
FIRST CLAIM AGAINST DEFENDANT GIUFFRE 
BREACH OF WARRANTY 
. . .  
 
                     
5 The circuit court determined that coverage for the Smiths' 
allegation of intentional misrepresentation was barred by the 
"intentional acts" exclusion in the West Bend policy.  Giuffre 
did not challenge that determination before the court of appeals 
or this court.  Therefore, that allegation will not be 
addressed.  
No. 96-1998 
 
12
8.  Under the terms of the offer to purchase, 
defendant 
made 
certain 
warranties 
as 
to 
the 
condition of the vacant lot. 
 
9.  Defendant breached such warranties and as a 
result, plaintiffs sustained damages. 
 
. . .  
 
11.  Prior to and at the time of sale of the vacant 
lot by defendant to plaintiffs, defendant made 
certain representations as to the condition of the 
lot and/or failed to disclose to plaintiffs certain 
defects 
and 
conditions 
of 
the 
vacant 
lot.  
Specifically, defendant failed to disclose the 
existence of underground and surface springs and 
water problems which had existed for many years on 
the vacant lot and existed as of the date of the 
offer to purchase and the closing of the real estate 
transaction. . . . 
 
. . .  
 
THIRD CLAIM AGAINST DEFENDANT GIUFFRE 
 
STRICT RESPONSIBILITY MISREPRESENTATION 
 
. . .  
 
21. By virtue of defendant's representations and/or 
omissions to plaintiffs as to the true condition of 
the vacant lot, and plaintiffs' purchase of the 
vacant lot, defendant was in a position whereby he 
would tend to make a financial gain if plaintiffs 
entered into the transaction.  In fact, defendant 
did financially benefit and gain as a result of the 
sale of the vacant lot to plaintiffs. 
 
22. Plaintiffs relied upon the representations made 
by defendant and/or the omissions of material fact 
as to the true condition of the vacant lot, and in 
such reliance, plaintiffs executed the offer to 
purchase, agreed to close the transaction and in 
fact closed the transaction for the purpose of the 
vacant lot. 
 
No. 96-1998 
 
13
23. As a result of defendant's misrepresentations 
and omissions of fact, plaintiffs have sustained 
damages. 
 
FOURTH CLAIM AGAINST DEFENDANT GIUFFRE 
 
NEGLIGENT MISREPRESENTATION 
 
. . .  
 
25.  Defendant's representations and/or omissions of 
fact as set forth in the first, second, and third 
claims were and are false and untrue, defendant knew 
or should have known the true condition of the 
vacant lot, and defendant negligently made untrue 
representations and/or negligently omitted material 
facts as to the true condition of the vacant lot. 
 
26.  Plaintiffs believed such representations by 
defendant 
to 
be 
true 
and 
relied 
upon 
such 
representations or omissions by executing the offer 
to purchase, agreeing to close the transaction, and 
in fact closing the transaction to purchase the 
vacant lot. 
 
27. 
As 
a 
result 
of 
defendant's 
negligent 
misrepresentation and omissions of fact, plaintiffs 
have sustained damage. 
PROPERTY DAMAGE 
¶28 Nowhere in the first four counts of the amended 
complaint did the Smiths explicitly allege "property damage."  
Under Breach of Warranty, they claimed they "sustained damages." 
 Under Strict Responsibility Misrepresentation, they claimed 
they 
"have 
sustained 
damages." 
 
Under 
Negligent 
Misrepresentation, they claimed that "plaintiffs have sustained 
damages."  Under the Intentional Misrepresentation count that 
was dismissed against West Bend, the plaintiffs claimed in 
Paragraph 15 that "Defendant's representations and/or omissions 
No. 96-1998 
 
14
to plaintiffs were made with intent to deceive . . . all to the 
plaintiffs' pecuniary damages."  (emphasis supplied). 
¶29 West Bend maintains that misrepresentations about 
property, whether they be intentional, strict responsibility, or 
negligent, cannot produce "property damage" within the terms of 
the policy.  Rather, misrepresentations produce economic losses 
or pecuniary damages.  West Bend cites Benjamin v. Dohm, 189 
Wis. 2d 352, 360-61, 525 N.W.2d 371 (Ct. App. 1994), where the 
court 
discussed 
negligent 
misrepresentation 
and 
strict 
responsibility misrepresentation which had allegedly occurred 
during a closing.  The court said: 
 
Strict responsibility misrepresentation provides a 
purchaser with the measure of damages representing the 
difference between the fair market value of the 
property in the condition when purchased and the fair 
market value of the property as it was represented, or 
the benefit of the bargain.  Luebke v. Miller 
Consulting Eng'rs, 174 Wis. 2d 66, 70-71, 496 N.W.2d 
753, 755 (Ct. App. 1993).  The measure of damages 
awarded to a party who successfully litigates a claim 
for negligent misrepresentation is the difference 
between the fair market value of the property at the 
time of the sale and the amount actually paid, or the 
out-of-pocket rule.  Gyldenvand v. Schroeder, 90 Wis. 
2d 690, 697-98, 280 N.W.2d 235, 239 (1979).   
The court concluded that the damages alleged in a claim for 
misrepresentation are for economic loss and are pecuniary in 
nature and do not constitute property damage within the terms of 
a standard liability policy.6  Id. 
                     
6  See also WI JI-CIVIL, 2405.5 STRICT RESPONSIBILITY:  
MEASURE OF DAMAGES IN ACTIONS INVOLVING SALE OF PROPERTY 
(BENEFIT OF THE BARGAIN) and 2406 NEGLIGENT MISREPRESENTATION:  
MEASURE OF DAMAGES INVOLVING SALE OF PROPERTY (OUT OF POCKET 
RULE). 
No. 96-1998 
 
15
 
¶30 In its opinion, the Benjamin court relied on Qualman 
v. Bruckmoser, 163 Wis. 2d 361, 471 N.W.2d 282 (Ct. App 1991), 
where the Qualmans alleged that they had suffered pecuniary 
damages but the Bruckmosers had a policy which afforded coverage 
for property damage, defined as "injury to or destruction of 
tangible property, including the loss of its use."  Qualman, 163 
Wis. 2d at 366.  The court said: 
 
Property damage within the meaning of the policy is 
not alleged.  There is no coverage in the policy for 
the pecuniary loss the Qualmans do allege.  Thus, 
American Family has no duty to defend. 
Id. at 366. 
 
¶31 The record in Qualman shows that the Qualmans' amended 
complaint makes repeated references to the physical damage they 
found in their newly-acquired property such as "cracked basement 
walls and defective kitchen pipes."  But the complaint ends each 
count with an allegation such as "the plaintiffs have incurred 
substantial money damages" or "the plaintiffs have suffered 
pecuniary damages."  The Qualmans ultimately demanded "the 
difference in value between the property as represented and its 
actual value. . . ."  A fair reading of that complaint leaves 
little doubt that misrepresentation was the theory of recovery, 
and the court said, "Simply because the underlying facts deal 
with defects in the property sold does not change the nature of 
the claim asserted by the Qualmans against the Bruckmosers.  Nor 
does it change the risks the policy insured against."  Id. at 
367. 
No. 96-1998 
 
16
 
¶32 In this case, the first four counts of the complaint 
did not contain any factual allegations about the condition of 
the Smiths' house.  There were two references to the existence 
of underground and surface springs (paragraphs 11 and 17) 
embodied in the four counts against Giuffre; but there were no 
allegations in those counts that the underground springs caused 
problems with the Smiths' house.  In fact, there was no 
reference in the first four counts to the fact that the Smiths 
had built a house.  The only count that mentions the underground 
springs was the count that referred to "pecuniary damages." 
 
¶33 In the sixth count of the amended complaint involving 
another party, Paul Katz d/b/a Underroof Building & Design, the 
Smiths made allegations about Katz's work constructing the 
house: 
 
"When 
defendant 
[Katz] 
began 
to 
construct 
the 
foundation, the entire foundation hole filled up with water and 
the foundation kept collapsing and collapsed three or four 
times.  Notwithstanding having knowledge of the water problems 
and the existence of surface and underground springs, defendant 
. . . was careless and negligent in failing to remedy such water 
problems and failing to properly construct and/or finish the 
house." 
 
¶34 In six of the seven counts of the complaint, the 
plaintiffs claimed they sustained "damages."  In one count 
against Giuffre, they referred to "pecuniary damages."  To sum 
up, there were fewer factual allusions to property damage in the 
present complaint than in the Qualmans' complaint.  There was no 
claim of physical injury to tangible property or loss of use of 
No. 96-1998 
 
17
property because of Giuffre.  But the repeated reference to 
"damages" in the complaint was more ambiguous than the specific 
"monetary" and "pecuniary" damages claimed in Qualman, so that 
the term is more subject to construction than the language in 
the Qualman complaint. 
¶35 Recently, in Doyle v. Engelke, 219 Wis. 2d 277, 284, 
580 N.W.2d 245 (1998) (citing Atlantic Mut. Ins. Co. v. Badger 
Medical Supply Co., 191 Wis. 2d 229, 241-42, 528 N.W.2d 486 (Ct. 
App. 1995)), this court reiterated that, in examining the 
allegations of a complaint in relation to the terms of the 
disputed 
insurance 
policy, 
we 
"liberally 
construe 
those 
allegations and assume all reasonable inferences."  But the 
court pointedly rejected an invitation to go beyond the four 
corners of the complaint saying:  "[T]he language of [Berg v. 
Fall, 138 Wis. 2d 115, 405 N.W.2d 701 (Ct. App. 1987)], 
indicating that courts may be allowed to go beyond the four 
corners of a complaint when determining whether coverage exists 
. . . is . . . contrary to a long line of cases in this state 
which indicate that courts are to make conclusions on coverage 
issues based solely on the allegations within the complaint."  
Doyle, 219 Wis. 2d at 284 n.3.   
¶36 Applying 
a 
liberal 
construction 
to 
the 
Smiths' 
complaint, we believe the allegations may be viewed as alleging 
"property damage" against Katz and Reisinger because reasonable 
inferences of property damage may be drawn from the allegations 
about the house.  But it is not reasonable to draw inferences 
about property damage from the allegations made against Giuffre. 
No. 96-1998 
 
18
 It cannot be said that the amended complaint, written more than 
four years after Giuffre sold the Smiths a vacant lot, gives 
Giuffre's insurer fair notice that the claims, based on 
Giuffre's alleged misrepresentations, involved physical injury 
to tangible property.  Cf. Hertlein v. Huchthausen, 133 Wis. 2d 
67, 393 N.W.2d 299 (Ct. App. 1986). 
 
¶37 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."  Cf. Sola Basic Indus. 
Inc. v. United States Fidelity & Guar. Co., 90 Wis. 2d 641, 280 
N.W.2d 211 (1979).  But we recognize that 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.7   
                     
7  See Safeco Ins. Co. of America v. Andrews, 915 F.2d 500, 
502 (9th Cir. 1990); Hamilton Die Cast, Inc. v. United States 
Fidelity & Guar. Co., 508 F.2d 417 (7th Cir. 1975); Allstate Ins. 
Co. v. Morgan, 806 F. Supp. 1460, 1464-65 (N.D. Cal. 1992); 
Allstate Ins. Co. v. Chaney, 804 F. Supp. 1219, 1222 (N.D. Cal. 
1992); Allstate Ins. Co. v. Hansten, 765 F. Supp. 614, 616 (N.D. 
Cal. 
1991); 
Liberty 
Mut. 
Ins. 
Co. 
v. 
Consolidated 
Milk 
Producers' Ass'n., 354 F. Supp. 879 (D.N.H. 1973); Devin v. 
United Services Automobile Assoc., 6 Cal. App. 4th 1149, 1158, 8 
Cal. Rptr. 2d 263, 269 (Cal. 1992); Giddings v. Industrial 
Indem. Co., 112 Cal. App. 3d 213, 219, 169 Cal. Rptr. 278, 281 
(Cal. Ct. App. 1980); Hartford Accident & Indem. Co. v. Case 
Found. Co., 294 N.E.2d 7, 13-14 (Ill. App. Ct. 1973); Dixon v. 
National American Ins. Co., 411 N.W.2d 32, 33-34 (Minn. Ct. App. 
1987); and State Farm Lloyds and State Farm Fire and Casualty 
Co. v. Kessler, 932 S.W.2d 732, 737 (Tex. Ct. App. 1996).  These 
cases support the holdings in Benjamin and Qualman. 
No. 96-1998 
 
19
 
¶38 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.8   
 
¶39 We conclude that the Smiths' complaint did not create 
a duty to defend because it did not explicitly or implicitly 
allege 
that 
Giuffre's 
purported 
misrepresentations 
caused 
"property damage" within the meaning of the policies.  The 
complaint did not provide fair notice to the insurer that the 
misrepresentation claims were not to be treated the same as any 
ordinary 
misrepresentation 
claims. 
 
A 
differently 
worded 
complaint might have permitted different inferences and yielded 
a different result. 
OCCURRENCE 
 
¶40 If, for the sake of argument, we were to assume that 
the Smiths' complaint did properly claim property damage with 
"physical injury to tangible property," Giuffre would still have 
to prove both "occurrence" and causation. 
 
¶41 In Benjamin v. Dohm, 189 Wis. 2d 352, the court was 
faced with a situation quite similar to the situation here.  The 
defendant, Dohm, sold buildings and land to be converted into 
                     
8  If the plaintiff demands punitive damages, that demand 
may suggest that the misrepresentation was not an "accident." 
No. 96-1998 
 
20
condominiums.  Id. at 357.  The structures were built on a 
landfill and the buildings settled.  Id.  Benjamin sued Dohm for 
negligent 
misrepresentation 
and 
strict 
responsibility 
misrepresentation alleging damages for loss of uninhabitable 
units which had to be demolished, loss of past rental income, 
costs to tear down the units, past carrying costs of units, real 
estate taxes on the units, lost sale proceeds, loss of original 
partner capital contributions, loss of value of the entire 
project, and loss of anticipated profits from the project.  Id. 
 
¶42 The Benjamin court not only disavowed the existence of 
"property damage" but also held that even if property damage and 
loss of use were claimed in the complaint, coverage still did 
not exist because the property damage was not caused by an 
occurrence.  Id. at 363-65.  The court noted that the policy 
provided coverage for two kinds of property damage:  (1) actual 
physical injury to tangible property and the loss of use 
thereof, and (2) loss of use of tangible property not physically 
injured or destroyed.  Id. at 362-63.  The court observed that 
under either definition of property damage, the property damage 
had to be caused by an occurrence.  Id. at 363.  The court 
ultimately held that there was no coverage under either 
definition of property damage because the property damage or 
resulting loss of use was caused by structural defects and not 
the alleged misrepresentations.  Id. at 365. 
 
¶43 In addition to property damage, Giuffre must establish 
that there was an "occurrence" and that the occurrence caused 
the property damage.  The occurrence must have some relationship 
No. 96-1998 
 
21
to the insured in order to create a duty for the insurer.  
Giuffre contends that the occurrence here was his alleged 
negligent misrepresentation to the Smiths.  "West Bend cannot 
dispute that a 'negligent misrepresentation' or a negligent 
failure to disclose a material fact is a 'mishap' or 'chance 
event.'"  Petitioner's Brief at 30. 
 
¶44 Giuffre relies on Sheets v. Brethren Mut. Ins. Co., 
679 A.2d 540 (Md. 1996), for the proposition that negligent 
misrepresentation can serve as an occurrence within the meaning 
of a general liability insurance policy.  In Sheets, a Maryland 
couple sold their farmhouse to a family with nine children.  The 
buyers claimed that the sellers had negligently represented that 
the septic system in the farmhouse was in good working 
condition.  The buyers alleged that shortly after they took 
possession, the septic system began leaking and flooding an area 
near the house, whereupon it was condemned by a government 
agency and had to be replaced. 
 
¶45 On the question whether negligent misrepresentation 
constituted an "occurrence" or "accident" for purposes of 
insurance, the court said:  "Negligent misrepresentation is a 
form of negligence."  Sheets, 679 A.2d at 546.  The court then 
held that, in Maryland, an act of negligence constitutes an 
"accident" under a liability insurance policy when the resulting 
damage was an event that takes place without the insured's 
foresight or expectation.  Id. at 548.  The court went on to 
observe: 
 
No. 96-1998 
 
22
Just as courts are divided on the issue of whether 
negligence in general is an accident, courts are 
similarly split on the question of whether negligent 
misrepresentation constitutes an accident. 
Id. at 550.   
¶46 The Maryland court cited SL Industries v. American 
Motorists Ins. Co., 607 A.2d 1266, 1276-77 (N.J. 1992); 
Universal Underwriters Ins. Co. v. Youngblood, 549 So. 2d 76, 79 
(Ala. 1989); and First Newton Nat. Bank v. Gen. Casualty Co., 
426 N.W.2d 618, 625 (Iowa 1988), as cases recognizing that 
negligent misrepresentation can be an occurrence or accident.  
Sheets, 679 A.2d at 551.  Then it said: 
 
We prefer to follow those cases that treat negligent 
misrepresentation like other forms of negligence, 
which are covered as accidents if the insured did not 
expect or foresee the resulting damage.  In accordance 
with our own precedent outlined above, the ultimate 
inquiry is whether the resulting damage is "an event 
that 
takes 
place 
without 
one's 
foresight 
or 
expectation." 
Id. 
 
¶47 Several courts applying Wisconsin law have recognized 
that negligence can be an "accident" or "occurrence."  In Doyle, 
for example, we held that a reasonable insured would expect an 
insurance policy provision defining "event" to include negligent 
acts.  Doyle, 219 Wis. 2d at 289-90.  The policy had defined 
"event" to mean "an accident, including continuous or repeated 
exposure to substantially the same general harmful conditions" – 
the same definition as "occurrence" in Giuffre's policy.  
Speaking for the court, Justice Bradley wrote: 
 
No. 96-1998 
 
23
[W]e discover that "accident" is defined as "[a]n 
unexpected, 
undesirable 
event" 
or 
"an 
unforeseen 
incident" which is characterized by a "lack of 
intention."  The American Heritage Dictionary of the 
English Language 11 (3rd ed. 1992). 
 
It is significant that both definitions center on an 
unintentional 
occurrence 
leading 
to 
undesirable 
results. 
 
As 
we 
have 
recognized 
in 
the 
past, 
comprehensive general liability policies are "designed 
to protect an insured against liability for negligent 
acts resulting in damage to third parties."  General 
Cas. Co. of Wisconsin v. Hills, 209 Wis. 2d 167, 183-
84, 561 N.W.2d 718 (1997) (quoting Arnold P. Anderson, 
Wisconsin Insurance Law § 5.14, at 136 (3rd ed. 1990 
and Supp. 1997)).  Accordingly, we have little trouble 
concluding that a reasonable insured would expect the 
Policy provision defining "event" to include negligent 
acts. 
Doyle, 219 Wis. 2d at 289-90.  See also Lund v. American 
Motorists Ins. Co., 797 F.2d 544, 547-48 (7th Cir. 1986); 
Koehring Co. v. American Automobile Ins. Co., 353 F.2d 993, 996 
(7th Cir. 1965); Engsberg v. Town of Milford, 597 F. Supp. 251, 
255 (W.D. Wis. 1984).  In Engsberg, United States District Judge 
John Shabaz wrote:  "Clearly . . . allegations of gross 
negligence, if proved, fall within the coverage of the policy as 
leading to an occurrence and [Tower Insurance Company's] duty to 
defend the Town is thereby triggered."  Engsberg, 597 F. Supp. 
at 255. 
 
¶48 The negligence analysis in Doyle is strikingly similar 
to the negligence analysis in Sheets.  The decisions on 
negligence will require this court to decide, at some future 
date, whether strict responsibility misrepresentation and/or 
negligent misrepresentation are sufficiently similar to other 
kinds of negligence to categorize them as "accidents" in 
No. 96-1998 
 
24
liability insurance policies, or whether these torts are 
sufficiently different from other kinds of negligence to 
preclude their categorization as "accidents."  See Sheets, 679 
A.2d at 552-553 (Karwacki, J., dissenting). 
CAUSATION 
 
¶49 We will be more definitive about causation.  If we 
assumed, 
without 
deciding, 
that 
strict 
responsibility 
misrepresentation or negligent misrepresentation represented an 
"occurrence" within the terms of West Bend's policies, and that 
the Smiths' complaint adequately alleged that the Smiths had 
suffered physical injury to their tangible property, Giuffre 
would not be entitled to coverage because the requisite element 
of causation is not present. 
 
¶50 In Benjamin, the court of appeals said that none of 
Benjamin's property damage in the condominiums was caused by 
Dohm's negligent misrepresentation.  All of it was caused by 
structural defects.  "There is no 'causation nexus.'"  Benjamin, 
189 Wis. 2d at 365. 
 
In Qualman, the court likewise stated: 
 
There is no question that the defective condition of 
the house is an element in the Qualmans' complaint.  
Nevertheless, those defects cannot be considered the 
cause of the Qualmans' damages, even when interpreting 
both the complaint and the policy broadly. 
Qualman, 163 Wis. 2d at 367-68 (emphasis in original). 
 
¶51 The lack of a "causation nexus" recognized by the 
court of appeals in Benjamin is also apparent in this case.  
When determining whether alleged property damage was caused by 
No. 96-1998 
 
25
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.  Without 
such a "causation nexus," the alleged occurrence cannot cause 
property damage. 
¶52 There 
are 
several 
reasons 
why Giuffre's alleged 
misrepresentations did not cause physical injury to the Smiths' 
property.  Any alleged misrepresentations occurred about July 
19, 1991.  There was no physical injury to tangible property 
until after March of 1993.  In the interim, ownership and 
control of the vacant lot 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 Philip Giuffre 
decided to continue building the house in the same spot even 
after its concrete foundation collapsed three or four times.   
¶53 The Smiths allege negligence on the part of Katz and 
Reisinger, and this provides evidence that Giuffre's alleged 
misrepresentations did not cause property damage.  In the 
complaint, 
the 
Smiths 
alleged: 
 
"Notwithstanding 
having 
knowledge of the water problems and the existence of surface and 
underground springs, defendant [Katz] was careless and negligent 
in failing to remedy such water problems and failing to properly 
construct and/or finish the house."  The alleged negligence of 
the builder did not create a duty on the part of West Bend to 
defend Giuffre. 
No. 96-1998 
 
26
¶54 In Welter v. Singer, 126 Wis. 2d 242, 250, 376 N.W.2d 
84 (Ct. App. 1985), the court wrote: 
 
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. 
¶55 There is no "causation nexus" in the Smiths' complaint 
because negligent misrepresentations do not cause ground water 
pressure or cracks in concrete foundations, and because 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. 
GROUND WATER AS AN OCCURRENCE 
¶56 Giuffre also argues that "the 'occurrence' causing the 
plaintiffs' damages can be the excessive groundwater on the lot, 
not just the alleged misrepresentations."  He asserts that 
testimony by an expert hydrogeologist established that the 
damages alleged by the Smiths were caused by an occurrence 
because the ground water conditions acting on the foundation 
wall were "continuous or repeated exposure to substantially the 
same general harmful conditions."  This statement virtually 
concedes that the misrepresentations did not cause the alleged 
damage.  Instead, the above statement contends that ground water 
No. 96-1998 
 
27
conditions acting on the foundation wall were the occurrence 
which caused the alleged damage. 
 
¶57 Giuffre's argument that ground water conditions should 
also be considered an occurrence which caused the alleged 
property damage and made him eligible for coverage is misplaced. 
 As stated above, an insurer's duty to defend its insured is 
determined by comparing the allegations contained within the 
four corners of the complaint with the terms of the insurance 
policy.  School Dist. of Shorewood, 170 Wis. 2d at 364-65; 
Newhouse, 176 Wis. 2d at 835.  The Smiths allege that "[a]s a 
result of defendant's misrepresentations and omissions of fact, 
plaintiffs have sustained damages."  Looking at the allegations 
contained in the four corners of the complaint, the Smiths 
allege that the misrepresentations caused the damage, not the 
ground water conditions as set forth in an evidentiary affidavit 
by their expert hydrogeologist. 
¶58 In sum, we conclude that the Smiths' complaint did not 
allege that Giuffre had caused "property damage" within the 
language 
of 
Giuffre's 
policies. 
 
Moreover, 
the 
Smiths' 
allegations 
of 
strict 
responsibility 
misrepresentation 
and 
negligent misrepresentation, if true, did not "cause" property 
damage within the language of the policy because there was no 
causal nexus between the alleged occurrence and the alleged 
property damage.  On these facts, West Bend had no duty to 
defend or indemnify Philip Giuffre. 
By the Court.—The decision of the court of appeals is 
affirmed. 
No. 96-1998 
 
28
 
 
 
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