Case Title: Phillips v. Parmelee

Citation: 2013 WI 105

Docket Number: 2011AP002608

State: wisconsin

Court: Wisconsin Supreme Court

Date: 2013-12-27T00:00:00Z

Document:
2013 WI 105 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2011AP2608   
COMPLETE TITLE: 
Michael D. Phillips, Perry A. Petta and Walkers 
Point  
Marble Arcade, Inc., 
          Plaintiffs-Appellants-Petitioners, 
     v. 
Daniel G. Parmelee and Aquila Group, LLC, 
          Defendants, 
American Family Mutual Insurance Company, 
          Intervening Defendant-Respondent.   
 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at 345 Wis. 2d 714, 826 N.W.2d 686 
(Ct. App. 2012 – Published) 
PDC No.: 2013 WI App 5  
 
 
OPINION FILED: 
December 27, 2013 
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
October 23, 2013   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Milwaukee 
 
JUDGE: 
Timothy M. Witkowiak 
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
        
 
NOT PARTICIPATING: PROSSER, J., did not participate.   
 
 
 
ATTORNEYS: 
 
For 
the 
plaintiffs-appellants-petitioners, 
there 
were 
briefs by Christopher L. Strohbehn, Jason D. Luczak, and Gimbel, 
Reilly, Guerin & Brown LLP, Milwaukee, and oral argument by 
Christopher L. Strohbehn. 
 
For the intervening defendant-respondent, there was a brief 
by Wayne M. Yankala and Mingo & Yankala, S.C., Milwaukee, and 
oral argument by Mark Mingo.   
 
 
 
2013 WI 105
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.   2011AP2608 
(L.C. No. 
2010CV19544) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Michael D. Phillips, Perry A. Petta and Walkers 
Point Marble Arcade, Inc., 
 
          Plaintiffs-Appellants-Petitioners, 
 
     v. 
 
Daniel G. Parmelee and Aquila Group, LLC, 
 
          Defendants, 
 
American Family Mutual Insurance Company, 
 
          Intervening Defendant-Respondent. 
 
 
 
FILED 
 
DEC 27, 2013 
 
Diane M. Fremgen 
Clerk of Supreme Court 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed.    
 
¶1 
SHIRLEY S. ABRAHAMSON, C.J.  This is a review of a 
published decision of the court of appeals affirming an order of 
the circuit court for Milwaukee County, Timothy M. Witkowiak, 
Judge.1  The circuit court granted American Family Mutual 
Insurance Company's motion to intervene and to bifurcate the 
                                                 
1 Phillips v. Parmelee, 2013 WI App 5, 345 Wis. 2d 714, 826 
N.W.2d 686. 
No. 
2011AP2608   
 
2 
 
proceedings on insurance coverage issues from proceedings on 
liability 
and 
damages. 
 
The 
circuit 
court 
then 
granted 
intervenor American Family's motion for declaratory and summary 
judgment.  The circuit court held that American Family had no 
duty to defend or indemnify Daniel G. Parmelee or Aquila Group, 
LLC, referred to collectively as the defendant-sellers, with 
respect to claims asserted by Michael D. Phillips, Perry A. 
Petta and Walkers Point Marble Arcade, Inc., referred to 
collectively as the plaintiff-buyers of the defendant-sellers' 
real estate.2   
¶2 
The circuit court held that the asbestos exclusion in 
the American Family policy precluded coverage.   
¶3 
The court of appeals affirmed the order of the circuit 
court in favor of American Family, stating that the policy 
precludes coverage.    
¶4 
We affirm the decision of the court of appeals.   
¶5 
In the circuit court and court of appeals proceedings, 
American Family argued that there was no initial grant of 
coverage under the policy.  The issue of coverage is not before 
us.  The only issue presented is whether the asbestos exclusion 
in the American Family Business Owners policy issued to the 
defendant-sellers precludes coverage for the losses that the 
plaintiff-buyers claim. 
                                                 
2 Aquila Group purchased the building in April 2006.  
Parmelee is the sole member of Aquila Group, a Wisconsin Limited 
Liability Company.  In September 2006, Aquila Group sold the 
property to Walkers Point.  Petta and Phillips own Walkers 
Point.   
No. 
2011AP2608   
 
3 
 
I 
¶6 
The essential facts for purposes of this review are 
undisputed.   
¶7 
Prior to purchasing an apartment building, Aquila 
Group had the building inspected.  The inspection report 
indicated that the building's heating supply ducts likely 
contained asbestos.  Aquila Group obtained a Business Owners 
policy from American Family, insuring the building.  Aquila 
Group listed the property for sale.   
¶8 
In preparation for the sale of the building, Parmelee 
completed and signed a Real Estate Condition Report.  The Report 
contained a statement that the defendant-sellers were not "aware 
of the presence of asbestos or asbestos-containing materials on 
the premises."     
¶9 
After the plaintiff-buyers purchased the building, 
their contractor cut through asbestos-wrapped ducts, dispersing 
asbestos 
throughout 
the 
building. 
 
The 
plaintiff-buyers 
initiated an action against the defendant-sellers, claiming 
breach of contract/warranty, violation of Wis. Stat. §§ 895.446 
and 943.20, and negligence in failing to adequately disclose 
defective conditions including asbestos.  The plaintiff-buyers 
claim that the dispersal of asbestos rendered the building 
uninhabitable, that the tenants were ordered to vacate, that the 
plaintiff-buyers could not continue to finance the property, and 
that the building was lost in foreclosure. 
II 
No. 
2011AP2608   
 
4 
 
 
¶10 This case requires us to interpret the American Family 
insurance policy.     
 
¶11 The interpretation of an insurance policy is a 
question of law that this court decides independently of the 
circuit court or court of appeals, but benefiting from their 
analysis.  Bethke v. Auto-Owners Insurance Co., 2013 WI 16, ¶17, 
345 Wis. 2d 533, 825 N.W.2d 482; Wadzinski v. Auto-Owners Ins. 
Co., 2012 WI 75, ¶10, 342 Wis. 2d 311, 818 N.W.2d 819.  
 
¶12 Our goal in interpreting an insurance policy is to 
give effect to the intent of the parties.3 The intent of the 
parties to an insurance policy is presumed to be expressed in 
the language of the policy.4  We interpret the policy's language 
according to its plain and ordinary meaning, as understood by a 
reasonable person in the position of the insured.5   
 
¶13 When determining whether an insurance policy provides 
coverage, we look first to the initial grant of coverage.6  If 
there is an initial grant of coverage, we then evaluate whether 
                                                 
3 Hirschhorn v. Auto-Owners Ins. Co., 2012 WI 20, ¶22, 338 
Wis. 2d 761, 809 N.W.2d 529; Estate of Sustache v. Am. Family 
Mut. Ins. Co., 2008 WI 87, ¶19, 311 Wis. 2d 548, 751 N.W.2d 845. 
4 Wadzinski v. Auto-Owners Ins. Co., 2012 WI 75, ¶11, 342 
Wis. 2d 311, 818 N.W.2d 819. 
5 Hirschhorn, 338 Wis. 2d 761, ¶22; Estate of Sustache, 311 
Wis. 2d 548, ¶19. 
See also 1 Arnold P. Anderson, Wisconsin Insurance Law 
§ 1.27 (6th ed. 2013) ("The standard is what a reasonable person 
or lay person would understand the insurance policy to state."). 
6 Schinner v. Gundrum, 2013 WI 71, ¶37, 349 Wis. 2d 529, 833 
N.W.2d 685. 
No. 
2011AP2608   
 
5 
 
the policy's exclusions preclude coverage.7  Finally, if coverage 
has been withdrawn by an exclusion, we then examine whether an 
exception to that exclusion reinstates coverage.8   
 
 ¶14  The instant case does not involve the question of the 
initial grant of coverage.  Our review is focused only on 
interpreting the asbestos exclusion to determine whether it 
precludes coverage.  No other exclusion is before us.  No 
exceptions to the asbestos exclusion are involved. 
 
¶15 A reasonable insured is presumed to understand that an 
exclusion in a policy limits coverage.9  If the effect of an 
exclusion is uncertain, it will be construed in favor of 
coverage.  Day v. Allstate Indemnity Co., 2011 WI 24, ¶29, 332 
Wis. 2d 571, 798 N.W.2d 199.  Language in an insurance policy is 
narrowly construed against the insurer "if it is susceptible to 
more than one reasonable interpretation."  Folkman v. Quamme, 
2003 WI 116, ¶13, 264 Wis. 2d 617, 665 N.W.2d 857.  The rule of 
narrow construction of an exclusion against the insurer, 
however, "is not applicable if the policy is unambiguous."  
Whirlpool Corp. v. Ziebert, 197 Wis. 2d 144, 152, 539 N.W.2d 883 
(1995).   
¶16 We review a grant of summary judgment de novo, using 
the same methodology as the circuit court.  Estate of Sustache 
                                                 
7 Schinner, 349 Wis. 2d 529, ¶37. 
8 Id. 
9 Bulen v. West Bend Mut. Ins. Co., 125 Wis. 2d 259, 263, 
371 N.W.2d 392 (Ct. App. 1985). 
No. 
2011AP2608   
 
6 
 
v. Am. Family Mut. Ins. Co., 2008 WI 87, ¶17, 311 Wis. 2d 548, 
751 N.W.2d 845.  Summary judgment is proper when the record 
demonstrates that there is no genuine issue of any material fact 
and that the moving party is entitled to judgment as a matter of 
law.  Wis. Stat. § 802.08(2); Estate of Sustache, 311 Wis. 2d 
548, ¶17. 
III 
¶17 In the present review, we are asked to determine 
whether the asbestos exclusion clause in American Family's 
insurance policy precludes coverage for the claims made by the 
plaintiff-buyers.   
¶18 The asbestos exclusion provisions read as follows: 
This 
insurance 
does 
not 
apply 
to . . . "property 
damage" . . . with respect to: 
a.  Any loss arising out of, resulting from, caused 
by, or contributed to in whole or in part by 
asbestos, exposure to asbestos, or the use of 
asbestos.  "Property damage" also includes any claim 
for reduction in value of real estate or personal 
property due to its contamination with asbestos in 
any form at any time.   
b.  Any loss, cost, or expense arising out of or in 
any way related to any request, demand, order, or 
statutory or regulatory requirement that any insured 
or others identify, sample, test for, detect, 
monitor, clean up, remove, contain, treat, detoxify, 
neutralize, abate, dispose of, mitigate, destroy, or 
any way respond to or assess the presence of, or the 
effects of, asbestos. 
 
. . . . 
f.  Any supervision, instructions, recommendations, 
warnings or advice given or which should have been 
given in connection with any of the paragraphs 
above.   
No. 
2011AP2608   
 
7 
 
g.  Any obligation to share damages or repay someone 
in connection with any of the paragraphs above.   
 
¶19 We examine each of the plaintiff-buyers' arguments in 
turn.   
 
¶20 The 
plaintiff-buyers 
assert 
that 
the 
asbestos 
exclusion is ambiguous; American Family asserts it is not.  The 
plaintiff-buyers contend that because asbestos has a variety of 
forms and meanings and that because the word "asbestos" is 
undefined in the policy, the exclusion is ambiguous.  We are not 
persuaded.   
 
¶21 In the absence of other language in the policy, and 
there is none, a reasonable person in the position of the 
insured would not interpret the word "asbestos" to limit the 
clause to certain types of asbestos.  To a reasonable insured 
reading this policy, asbestos in any form is asbestos. 
 
¶22 The plaintiff-buyers assert that the broad language of 
the 
asbestos 
exclusion 
invites 
multiple 
reasonable 
interpretations 
and 
should 
be 
narrowly 
construed 
against 
American Family.10   
 
¶23 The opening sentence of the exclusion informs the 
insured that it excludes coverage for "any loss arising out of" 
exposure to or the use of asbestos.  We agree with the 
plaintiff-buyers that the words "arising out of" in the 
                                                 
10 "Language in an insurance policy is ambiguous 'if it is 
susceptible to more than one reasonable interpretation.'"  State 
Farm Mut. Auto. Ins. Co. v. Langridge, 2004 WI 113, ¶15, 275 
Wis. 2d 35, 683 N.W.2d 75 (emphasis in original; citations 
omitted).  
No. 
2011AP2608   
 
8 
 
exclusion are very broad, general, and comprehensive.  But they 
do have meaning and there are limits.11    
 
¶24 The words "arising out of" used in an automobile 
liability insurance policy "are commonly understood to mean 
originating from, growing out of, or flowing from, and require 
that there be some causal relationship between the injury and 
the risk for which coverage is provided."12  
 
¶25 The plaintiff-buyers maintain that there is a causal 
nexus requirement in the American Family policy's asbestos 
exclusion, and that this causal nexus should not be read out of 
the exclusion.  We agree with the plaintiff-buyers that the 
wording of the exclusion indicates a causal relationship between 
the loss and the asbestos.  The exclusion applies to loss 
"arising out of, resulting from, caused by, or contributed to in 
whole or in part by asbestos" (emphasis added).  Explicit in all 
of those terms is the requirement of some type of causal 
                                                 
11 The plaintiff-buyers assert that a broad reading of the 
asbestos exclusion excluding any loss caused "in whole or in 
part" by asbestos would potentially permit the mere presence of 
asbestos to preclude coverage of a loss caused by a source other 
than asbestos, such as flood, fire, or wind.  We do not address 
this hypothetical. The loss in the instant case arose "in whole" 
out of asbestos. 
12 Lawver v. Boling, 71 Wis. 2d 408, 415, 238 N.W.2d 514 
(1976).  See also Garriguenc v. Love, 67 Wis. 2d 130, 137, 226 
N.W.2d 414 (1975). 
No. 
2011AP2608   
 
9 
 
relationship between asbestos and the loss.13    In the present 
case, a causal nexus exists between the loss claimed and the 
asbestos; the loss here arose out of the dispersal of asbestos 
throughout the building.        
 
¶26 The plaintiff-buyers point out that because the 
exclusion does not explicitly state that it applies to losses 
that arise out of the "dispersal" or "presence" of asbestos, the 
exclusion should not be interpreted as applying to the instant 
case in which there was the mere presence of asbestos and the 
accidental dispersal of asbestos.   
 
¶27 The plaintiff-buyers insist that a more reasonable 
interpretation of the asbestos exclusion in the American Family 
policy is to limit the exclusion to loss caused by "exposure to" 
or "use of" asbestos.  For support of this argument, the 
plaintiff-buyers rely on Great American Restoration Services., 
Inc. v. Scottsdale Insurance Co., 78 A.D.3d 773 (N.Y. App. Div. 
2010), a New York case.    
 
¶28 In 
Great 
American, 
as 
in 
the 
instant 
case, 
a 
contractor 
caused 
the 
accidental 
dispersal 
of 
asbestos 
throughout a building.  But we agree with the circuit court and 
court 
of 
appeals 
that 
Great 
American 
is 
not 
persuasive 
                                                 
13 See, e.g., Lawver, 71 Wis. 2d at 415 (noting that the 
words "arising out of" require "some causal relationship between 
the injury and the risk for which coverage is provided," 
although the causal connection in an automobile liability 
insurance policy between the use of the car and the injuries is 
not of the type "which would ordinarily be necessary to warrant 
a finding of 'proximate cause' or 'substantial factor' as those 
terms are used in imposing liability for negligent conduct."). 
No. 
2011AP2608   
 
10 
 
authority.  The exclusion provision in Great American differs 
significantly from the exclusion provision in the present case.   
 
¶29 The asbestos exclusion at issue in Great American 
enumerated asbestos-related bodily injury and property damage, 
which were excluded from coverage as follows:  
[T]hat coverage does not apply to "bodily injury" or 
"property damage" arising out of the inhal[ation]" or 
"prolonged physical exposure to" asbestos, the "use" 
of asbestos in construction, the "removal" of asbestos 
from products or structures, or the "manufacture, 
sale, 
transportation, 
storage, 
or 
disposal" 
of 
asbestos or products containing asbestos.14 
 
¶30 Because the exclusion clause in Great American failed 
to state that "coverage will not be provided for damages arising 
out of the unknowing or accidental release or dispersal of 
asbestos," the New York Court of Appeals construed the exclusion 
in favor of the insured.  Great American, 78 A.D.3d at 777.  
 
¶31 The exclusion provision in Great American is crucially 
different from the exclusion provision in the instant case.  
Unlike the exclusion in Great American, American Family's 
asbestos exclusion is written in broad, comprehensive language 
including a wider range of asbestos-related losses than the 
exclusion in Great American. 
 
¶32 The plaintiff-buyers assert, among other claims, that 
they never would have bought the property and suffered the loss 
but for the defendant-sellers' negligent failure to disclose the 
possibility of asbestos.  They contend that the defendant-
                                                 
14 Great Am. Restoration Servs., Inc. v. Scottsdale Ins. 
Co., 78 A.D.3d 773, 775 (N.Y. App. Div. 2010). 
No. 
2011AP2608   
 
11 
 
sellers' negligent failure to disclose the presence of asbestos 
is not covered by the asbestos exclusion and that there is no 
causal nexus between their loss and the tort.  
 
¶33 Yet, the scope of the asbestos exclusion does not 
depend on the type of tort from which the loss arose; the 
exclusion's language concerns the loss itself arising out of 
asbestos.  Our analysis focuses on whether the loss suffered by 
the plaintiff-buyers is within the text of the asbestos 
exclusion and thus reasonably contemplated by the parties.   
 
¶34 The plaintiff-buyers also assert that the defendant-
sellers negligently failed to disclose defective conditions or 
any other toxic or hazardous substances contained on the 
property that are outside the scope of the asbestos exclusion 
and are covered under the insurance policy.  Although the 
plaintiff-buyers 
had 
complaints 
regarding 
electrical 
and 
plumbing issues, nothing in the record demonstrates that the 
plaintiff-buyers sustained any loss related to such other 
issues.  Their loss arose from asbestos.       
 
¶35 In sum, we are persuaded that a reasonable insured 
would interpret the asbestos exclusion in American Family's 
policy to preclude the loss alleged by the plaintiff-buyers.15 
¶36 For the foregoing reasons, we affirm the decision of 
the court of appeals.  
                                                 
15 Because the asbestos exclusion precludes coverage of the 
claims made by the plaintiff-buyers, we need not evaluate 
whether any other exclusions in the policy apply.   
No. 
2011AP2608   
 
12 
 
 
¶37 By the Court.——The decision of the court of appeals is 
affirmed. 
 
¶38 DAVID T. PROSSER, J., did not participate. 
 
No. 
2011AP2608   
 
 
 
1