Title: Jay W. Smith v. Paul Katz

State: wisconsin

Issuer: Wisconsin Supreme Court

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.  
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at:  213 Wis. 2d 122, 570 N.W.2d 252 
 
 
 
(Ct. App. 1997-UNPUBLISHED) 
 
 
 
Opinion Filed: 
June 2, 1998 
Submitted on Briefs: 
 
Oral Argument: 
April 7, 1998 
 
 
Source of APPEAL 
 
COURT: 
Circuit 
 
COUNTY: 
Milwaukee 
 
JUDGE: 
Jacqueline D. Schellinger 
 
 
JUSTICES: 
 
Concurred: 
 
 
Dissented: 
 
 
Not Participating:  
 
 
ATTORNEYS: 
For the defendant-third party plaintiff-
appellant-petitioner there were 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 brief by Jeffrey Leavell, Gregory Boe, and Jeffrey Leavel, 
S.C., Racine and oral argument by Jeffrey 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 
 
JUNE 2, 1998 
 
Marilyn L. Graves 
Clerk of Supreme Court 
Madison, WI 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed and 
remanded. 
¶1 
N. PATRICK CROOKS, J.  This case is on review from an 
unpublished decision of the court of appeals.1  The court of 
appeals affirmed the judgment of the Milwaukee County Circuit 
Court, Jacqueline Schellinger, Circuit Judge, granting West Bend 
Mutual Insurance Company's ("West Bend") motion for summary 
                     
1 Smith v. Katz, No. 96-1998, unpublished slip op. (Wis. Ct. 
App. Aug. 12, 1997). 
No. 96-1998 
 
2 
judgment and dismissing West Bend from the action.  The circuit 
court concluded that two exclusions in West Bend's policy of 
insurance applied to this case and, therefore, West Bend had no 
duty to defend and indemnify its insured, defendant Philip A. 
Giuffre ("Giuffre").  The court of appeals affirmed the judgment 
of the circuit court, and Giuffre petitioned this court for 
review.   
¶2 
Upon review, we exercise our discretion to decide 
whether the alleged property damage in this case occurred during 
the period for which the insurance policy in the record provides 
coverage.  We conclude that because the alleged property damage 
took place at some point after March 23, 1993, and the insurance 
policy provisions state that coverage for property damage ended 
on September 12, 1991, West Bend has no duty to defend and 
indemnify Giuffre on the claims filed by Jay and Debra Smith.  
We affirm the court of appeals' decision for that reason, but 
remand to the circuit court for a determination of whether 
another West Bend insurance policy exists which requires West 
Bend to defend and indemnify Giuffre. 
A. 
¶3 
The facts are not in dispute for purposes of our 
review.  The underlying claim involves Giuffre's sale of a 
vacant lot in Greenfield, Wisconsin, to Jay and Debra Smith 
("Smiths") on July 19, 1991.  Approximately two years after the 
Smiths purchased the lot from Giuffre, the Smiths hired Paul 
Katz d/b/a Underroof Building and Design ("Katz") to construct a 
home on the lot.  In preparation for the laying of the 
No. 96-1998 
 
3 
foundation, Katz excavated some soil and discovered underground 
springs.  Consequently, when Katz began construction, the 
foundation hole filled with water.  The underground springs 
allegedly caused the concrete foundation to collapse three or 
four times during construction.  
¶4 
On April 19, 1995, the Smiths filed an action in 
Milwaukee County Circuit Court against Giuffre stating four 
claims.  Specifically, the Smiths asserted breach of warranty, 
intentional 
misrepresentation, 
strict 
responsibility 
misrepresentation, and negligent misrepresentation.2   
¶5 
On January 23, 1996, West Bend filed an intervening 
complaint as Giuffre's insurer under a business insurance policy 
issued for the period September 12, 1990, through September 12, 
1991.  In its complaint, West Bend asserted that the language of 
the insurance policy at issue did not provide a duty to defend 
and indemnify Giuffre against the Smiths' claims.   Accordingly, 
West Bend sought a declaratory judgment to that effect. 
¶6 
On March 5, 1996, West Bend filed a motion for summary 
judgment.  West Bend cited the language of the insurance policy, 
which states that the policy provides coverage to Giuffre for 
"property damage" caused by an "occurrence."  Under the terms of 
West Bend's policy, "property damage" is defined as: 
 
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 
 
                     
2 On October 26, 1995, the Smiths amended their summons and 
complaint to include additional named defendants and claims.  
The claims against Giuffre were not amended. 
No. 96-1998 
 
4 
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. 
"Occurrence" is defined in West Bend's insurance policy as "an 
accident, 
including 
continuous 
or 
repeated 
exposure 
to 
substantially the same general harmful conditions." 
¶7 
 West Bend made several arguments that it had no duty 
to defend and indemnify Giuffre under the terms of the policy.  
First, West Bend argued that because the Smiths' complaint 
alleged strictly pecuniary or economic damages, there was no 
allegation of "property damage" for which the policy would 
provide coverage.  Second, West Bend argued that any alleged 
misrepresentations by Giuffre did not constitute an "occurrence" 
for which the policy would provide coverage because the 
misrepresentations were not an "accident."  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.  Fourth, West Bend argued that it had 
no duty to defend and indemnify Giuffre under a "premises you 
sell" exclusion contained in the policy.  Specifically, that 
provision 
excludes 
coverage 
for 
"'property 
damage' 
to 
 . . . [p]remises 
you 
sell . . . if 
that 
'property 
damage' 
arises out of any part of those premises."  West Bend argued 
that because the alleged damage arose from underground springs 
throughout the vacant lot, the damage arose from premises sold 
by Giuffre, which the policy does not cover.   
¶8 
A hearing on West Bend's motion for summary judgment 
was held on March 28, 1996.  The circuit court granted West 
Bend's motion based upon the coverage exclusions listed in the 
No. 96-1998 
 
5 
insurance policy.  The circuit court first concluded that the 
policy exclusion for property damage "expected or intended from 
the standpoint of the insured" excluded coverage regarding the 
Smiths' intentional misrepresentation claim.  The circuit court 
further concluded that the exclusion regarding "premises you 
sell" was applicable because the alleged property damage to the 
foundation "arose out of [the] premises.  The part of [the] 
premises being the ground water."  Accordingly, the circuit 
court dismissed West Bend from the action.  Giuffre's motion for 
reconsideration was denied on July 15, 1996, and he appealed. 
¶9 
The court of appeals affirmed the circuit court's 
grant of West Bend's motion for summary judgment and dismissal 
of West Bend from the action.  The court of appeals did not 
specifically consider whether West Bend had a duty to defend and 
indemnify Giuffre under the coverage provisions of the insurance 
policy.  Rather, the court of appeals addressed the exclusions 
to the coverage provisions, and concluded that the "premises you 
sell" exclusion in the policy would negate any duty of West Bend 
to defend and indemnify Giuffre.  The court determined that 
because the damage allegedly resulted from ground waterwhich 
was part of the land Giuffre sold to the Smithsthe property 
damage arose out of "any part of the premises sold."   
B. 
¶10 This case involves our review of the grant of a motion 
for summary judgment.  We review a motion for summary judgment 
de novo, using the same methodology as that employed by the 
circuit court.  See Shannon v. Shannon, 150 Wis. 2d 434, 441, 
No. 96-1998 
 
6 
442 N.W.2d 25 (1989).  Summary judgment motions are governed by 
Wis. Stat. § 802.08.  Under § 802.08(2), a motion for summary 
judgment will be granted "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."  With regard to the motion for 
summary judgment in this case, we must consider whether West 
Bend has a duty to defend and indemnify Giuffre under the terms 
of its insurance policy.3  The interpretation of language in an 
insurance policy is a question of law which we review de novo.  
See Lambert v. Wrensch, 135 Wis. 2d 105, 115, 399 N.W.2d 369 
(1987).  Although we review questions of law de novo, we benefit 
from the analyses of the circuit court and the court of appeals. 
 See Aiello v. Village of Pleasant Prairie, 206 Wis. 2d 68, 70, 
556 N.W.2d 697 (1996). 
                     
3 An insurance policy imposes a duty upon the insurer to 
defend the insured in a third-party claim for damages and a duty 
to indemnify the insured if the insured is found liable.  See 
Barber v. Nylund, 158 Wis. 2d 192, 195, 461 N.W.2d 809 (Ct. App. 
1990).  An insurer's duty to defend is broader than the duty to 
indemnify.  See Elliott v. Donahue, 169 Wis. 2d 310, 320, 485 
N.W.2d 403 (1992).   
An insurance carrier's duty to defend [an] insured in 
a third-party suit is broader than its duty of 
indemnification and is predicated on allegations in a 
complaint which, if proved, would give rise to 
recovery under the terms and conditions of the 
insurance policy.  The duty of defense depends on the 
nature of the claim and has nothing to do with the 
merits of the claim.  If there is any doubt about the 
duty to defend, it must be resolved in favor of the 
insured. 
 
Id. at 320-21 (internal citations omitted).   
No. 96-1998 
 
7 
¶11 West Bend makes several arguments that the insurance 
policy language does not provide coverage for Giuffre for the 
property damage alleged by the Smiths.  West Bend reiterates the 
arguments made to the circuit court and the court of appeals 
that the Smiths' claimed damages are not "property damage"; that 
even if there is property damage, it was not caused by an 
"occurrence"; and that even if there is property damage caused 
by an occurrence, there are policy exclusions that negate West 
Bend's duty to defend and indemnify Giuffre.  In addition, West 
Bend now argues that the insurance policy at issue in this case 
does not provide coverage because the alleged property damage 
did not occur within the policy period.  West Bend did not make 
this argument to the circuit court or the court of appeals, but 
raises the issue for the first time to this court.   
¶12 We will generally not consider issues raised for the 
first time on appeal.  See State v. Holland Plastics Co., 111 
Wis. 2d 497, 504, 331 N.W.2d 320 (1983).  However, this court 
may exercise its discretion to reach issues first raised on 
appeal.  In deciding whether to exercise our discretion, we must 
consider 
"the 
facts 
and 
circumstances 
disclosed 
by 
the 
particular record" in a given case.  State ex rel. General 
Motors Corp. v. City of Oak Creek, 49 Wis. 2d 299, 319, 182 
N.W.2d 481 (1971).   
¶13 In this case, the policy at issue was filed with the 
original pleadings presented to the circuit court.  This policy 
was also available to the court of appeals and is part of the 
record before this court.  Both West Bend's and Giuffre's briefs 
to this court addressed the issue of whether the alleged 
No. 96-1998 
 
8 
property damage occurred within the policy period.  In addition, 
Giuffre's counsel was given an opportunity at oral argument to 
respond to West Bend's argument that the policy period did not 
cover the time when the alleged property damage occurred.  
Further, Giuffre's counsel acknowledged at oral argument that he 
was "fully aware that this court has the ability to address 
issues raised for the first time on appeal if it chooses to." 
¶14 In considering the facts and circumstances of this 
case, we are satisfied that West Bend's argument that the 
property damage was not within the policy period does not raise 
any new genuine issues of material fact.  Giuffre's counsel does 
not dispute that the alleged property damage took place after 
the construction of the home began in March of 1993.   This 
court has a complete record from which to decide the issue 
raised.  We apply the date of the alleged property damage to the 
language of the insurance policy to decide, as a matter of law, 
whether West Bend has a duty to defend and indemnify Giuffre.  
Because we are presented with an issue of law that can be 
disposed of "based upon a consideration of the record," State v. 
Conway, 34 Wis. 2d 76, 83, 148 N.W.2d 721 (1967), we conclude 
this is an appropriate instance in which to exercise our 
discretion and address an issue raised for the first time on 
appeal.  Accordingly, we consider whether the alleged property 
damage occurred within the policy period of the only West Bend 
insurance policy that is part of the record in this case. 
¶15 The relevant language of Section 1 of the West Bend 
insurance policy states: 
 
COVERAGE A.  BODILY INJURY AND PROPERTY DAMAGE 
LIABILITY 
No. 96-1998 
 
9 
 
1.  Insuring Agreement. 
 
a.  We will pay those sums that the insured 
becomes legally obligated to pay as damages 
because of  . . . "property damage" to which 
this insurance applies.  We will have the 
right and duty to defend any "suit" seeking 
those damages. 
 
 . . .  
 
b.   This insurance applies to  . . . "property 
damage" only if: 
 
 
(1)  The . . . "property damage" is caused 
by  
 
 
an "occurrence" that takes place in the  
"coverage territory;" and 
 
(2)  The . . . "property damage" occurs  
during the policy period. 
(emphasis supplied).  The declarations page of the insurance 
policy at issue states that the policy period is from September 
12, 1990, to September 12, 1991.  Therefore, the property damage 
alleged in the Smiths' complaint would have had to occur, or 
take place,4 during the 12-month period between September 12, 
1990, and September 12, 1991. 
¶16 As stated, the four claims alleged in the Smiths' 
complaint 
against 
Giuffre 
include 
breach 
of 
warranty, 
intentional 
misrepresentation, 
strict 
responsibility 
                     
4 "Occur" as used in Section I.1.b.(2) is not defined within 
the insurance policy provisions.  Insurance policy terms should 
be given their "common and ordinary meaning which they have in 
the minds of the average layman."  Kremers-Urban Co. v. American 
Employers Ins., 119 Wis. 2d 722, 740, 351 N.W.2d 156 (1984) 
(citation omitted).  To discern the plain meaning of an 
insurance policy term, we may seek guidance from a recognized 
dictionary.  See Holsum Foods v. Home Ins. Co., 162 Wis. 2d 563, 
568, 469 N.W.2d 918 (Ct. App. 1991).  The American Heritage 
Dictionary of the English Language 1251 (3d ed. 1992), defines 
"occur" as "[t]o take place" or "come about." 
No. 96-1998 
 
10
misrepresentation, and negligent misrepresentation.  The breach 
of warranty claim is  premised upon warranties allegedly made by 
Giuffre under the terms of the Smiths' offer to purchase the 
vacant lot.  Each of the three misrepresentation claims is 
premised upon representations and/or omissions by Giuffre prior 
to and at the time of the sale of the vacant lot.  On March 23, 
1993, almost two years after Giuffre sold the vacant lot to the 
Smiths, the Smiths contracted with Katz to build a home.  It was 
after Katz began excavating soil on the lot in preparation for 
building the foundation that the underground springs were 
discovered.   
¶17 As stated, the West Bend insurance policy covers 
"property damage" that was caused by an "occurrence."  The 
Smiths claim that the "property damage" is the damage to their 
foundation wall and the diminished value of their property.5  The 
underlying "occurrences" that caused this damage, they assert, 
are Giuffre's alleged misrepresentations and the groundwater 
existing on the land. 
¶18 Any doubt about an insurer's duty to defend an insured 
in a third-party suit should be resolved in favor of the 
insured.  See Elliott v. Donahue, 169 Wis. 2d 310, 321, 485 
N.W.2d 403 (1992).  However, even assuming for purposes of 
argument that the Smiths sustained "property damage" caused by 
an "occurrence" as defined in accord with the policy provisions, 
the property damage did not take place until some time after the 
                     
5 Giuffre asserts that the Smiths' claim of diminished 
property value is the diminished property value of the improved 
property.  He contends that the Smiths' "damages were not 
present at the time of the sale, and only occurred much later." 
 Petitioner's brief at 25.   
No. 96-1998 
 
11
construction of the home began on March 23, 1993.  The policy 
period ended on September 12, 1991.  Therefore, the alleged 
property damage did not occur within the policy period as is 
required under Section I.1.b.(2).6  Accordingly, West Bend has no 
duty to defend and indemnify Giuffre for any sums he may be 
legally obligated to pay to the Smiths.7 
¶19  The only insurance policy in the record before this 
court does not impose a duty on West Bend to defend and 
indemnify  Giuffre.  However, reference was made in the briefs 
and at oral argument to the effect that Giuffre may have 
obtained an additional insurance policy or policies from West 
Bend that may provide coverage for the property damage alleged 
by the Smiths in their complaint.  Therefore, we remand this 
case so that the circuit court may make further inquiry 
regarding whether West Bend issued a policy of insurance to 
Giuffre covering the period in which the property damage 
allegedly occurred.  If an applicable policy exists, the circuit 
court should consider the language of that policy to determine 
                     
6 But Cf. Kremers-Urban, 119 Wis. 2d at 739. (Under the 
applicable insurance policy, "[a]lthough the event or accident 
[the occurrence] which causes the bodily injury [or property 
damage] must occur during the policy period, there is no 
provision that bodily injury [or property damage] must result 
during that period."). 
7 Given our holding that the property damage did not occur 
within the policy period, it is unnecessary for us to consider 
whether the coverage provisions of the insurance policy impose a 
duty on West Bend to defend and indemnify Giuffre, or whether 
the "premises you sell" exclusion to the coverage provisions, or 
any other policy exclusion, applies. 
No. 96-1998 
 
12
whether West Bend has a duty to defend and indemnify Giuffre on 
the claims filed against him by the Smiths.8   
C. 
¶20 In sum, we exercise our discretion to decide whether 
the alleged property damage in this case occurred during the 
period for which the insurance policy in the record provided 
coverage.  We conclude that because the property damage took 
place at some point in time after March 23, 1993, and the 
insurance policy provisions state that the property damage must 
have occurred between September 12, 1990, and September 12, 
1991, West Bend has no duty to defend and indemnify Giuffre for 
the breach of warranty and misrepresentation claims filed by the 
Smiths.  We affirm the court of appeals' decision because the 
alleged property damage did not occur within the policy period. 
 We remand to the circuit court for a determination of whether 
another West Bend insurance policy exists which requires West 
Bend to defend and indemnify Giuffre. 
By the Court.—The decision of the court of appeals is 
affirmed and the cause is remanded. 
 
                     
8 We recognize that there may be a request in the future 
asking this court to revisit some of the issues raised.  Without 
the language and coverage period of an applicable West Bend 
insurance policy in the record, we are unable to resolve such 
issues now.