## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it
N o. 11

- 1232 C RAI G M ILLER an d N AN CY M IL LER, P la intif fs-A pp ellees , v. S A F E CO I NSURANCE C OM PANY OF A MERI CA, D ef endant-Appellant. Appeal from the United States District Court fo r the E astern Di stricto f Wisc onsin
. No . 06- C- 1021

—WilliamE. C alla han, Jr. , Magis trate Judg e.
A RG UE D S EP TE MBE R 21, 2011

— D ECI DE D J UNE 25, 2012

Be fore E A STE RB ROOK

, Chie f Judge, andT INDER and H AMILTON, C ircu it Judges. T INDER, C irc u i t Judge. S afeco I nsurance Com pany of A m erica i ssu e d an insu ran ce p oli cy on a hom e pu rc h a sed by C raig and N an cy M il ler. A fter the M il lers di sc o ve r ed ex te ns i ve wat er a nd m o l d da m ag e o n the proper ty, they fi l ed a cl ai m f or the l oss . Safeco d en ied th e cl ai m and the M i l l er s su ed. The di st r i ctc o ur t f o und th atthe pol icy c o ve r ed th e l o ss , tha t th e ex cl us i o ns d i d n ’ ta p p l y, a n d S a fe c o a c t e d i n b a d f a i th

. We a ffi r m.2 N o. 11

- 1232 I . B a c kg r o und T he M il lers first saw the p rop erty as p ote n tial bu yers i n 200 3. P h ot og ra phs f ro m thi s t i m e depi ct s tai ni ng o n the e xter i orstucco wal l s. A 20 04 in specti on f oro ther potenti albuye rs r eve al ed ser i ous defects with t h e roo f flas h i n gs an d st u c c o s id in gs an d rec om m en d ed a m old i ns pe c t i o n. Whe n the h o me di dn ’ ts e l l, the o wne r ma de co smet i c ch an g es t o the pr o per tya nd puti t ba ck on the m arke t. The M i l l er s r ev i si te d i n 2 00 5 an d m ade a n o ffer. I n a r eales tat e co nd i ti on r ep or t, the s el l eri nd i cate d that she was aware ofvar i ous defects but did not disc l ose f aul ty ro of fl ashi ngs or a stucco veneer sy st em o r th e p o s s ib l e p r e s e n c e o fmo l d o r w a t e r p r o b l e ms i nd i cated i n the 2004 i nspecti on r epor t. I n f act, the sel l er express l y s tat ed that sh e w asn’t aw ar e o fany m ol d or w ate r i ssues . A hom e insp ection rep ort p erform ed for th e M ill ers i den ti fi ed va r i o us de fec ts i nc l udi nga “ so ft spo t” o n the r o o fa n d r e c o mme n d e d f o l l o w- u p b y a s p e c i a l i s t
. T he re portal so sai d that the s tu c c o’ s fi ni sh co l orwas u n ev en and st ai ned, thatthe w oo d si ding coul d be r est aine d, tha t painto n the woo d f as ci a bo ar d unde r the gutte rs was p ee l i ng and experi enced so m e water dam age , thatwater had d am age d a wood si l l, and that ther e was poss ibl e water dam age to a w oo d w i nd ow f r a me . T h e r e p o r tr e c o mme n d e d r e p a i r i ng a t o r n me mbra ne o n the ro ofand re pla ci ng f oggy s kyl i ghts abov e the l i vi ng ro om and k i tchen si nk because they h ad lo st thei r vacuu m s eal

. The i nspectoral so f ound som e water dam age i n the up p erstud y a nd atthe sky l i ghts abov eN o. 11

- 1232 3 the k i tchen s i nk and sug ge ste d i t was “pos sibl y fro m fl at ro of lea ks. ” But the re portadvi sed thatthe exter i or wa l l s , c h i mn e y, gr a s s r o o f, fl a s h i n g s , fl o o r j o i s t s /b e a ms an d c o l umns , a nd g a r a g e wa l l s a nd fl o o r a pp e a re d “s er vi ce ab l e. ” The M i l l er s r et aine d a s pec i al i st f o r the soft sp ot and am ended thei r offerto r efl ect the defects
. The speci al i st didn’ti nd i cate tha t the s oft s pot was a sig n ifica n t c on c er n an d ad vis ed th at rep air in g it w ou ld cos t no m or e than $1, 500. S afec o i ss ue d the M i l l er s a ho m eo wner ’ s po l i cyo n the p rop erty o n J une 3 0, 2 00 5. The po l i cywenti nt o e ffec t th e ne xtda y w he n the M i l l er s cl o se d o n the pr o per ty
. The policy c ove re d al l “a cci dental di re ct physi call oss to pr o per ty, ” unl es s l i m i te d or exc l ude d, “ o cc ur r i ngdur i ng th e po l i cype r i o d. ” Butthe M i l l er s d i dn’ t se e th e po l i c y ’ s t e r ms u n t i l S a fe c o ma i l e d th e m a c o p y o ft he pol i cy at the e nd o fJ uly

. Befo re r ecei vin g the pol i cy and som eti m e a fter beginn ing renov ation of the h om e on July 5, the M il lers di sc o ve r ed sev er e i nne r wal l wat erl ea k s an d s i g ni fi ca nt w ate r i nfi l tr ati on o n thr ee ofthe hom e’ s e x te ri orwall s. A m o l d s pec i al i stf o und tha t the h o m e ha d “ numer o us co ns tr uct i o n de fi ci en ci es tha t ex i st ed l o ngb efo r e” the M illers p u rc h as ed th e h o m e t h at “re su lte d in c h ro n ic w ate r i ntrusi on” dam agi ng the i nteriorfi ni shed w al l s, i nsul ati on, exte rnalpl ywood s heathi ng, and other aspects o fthe stru c ture
. The M i l l er s fi l ed a c l ai m with S afec o f o r the wat erda m ag e, mol d, a nd l o stuse o fthe h om e. S afeco as si gned a cl ai m r epres entat i ve to i nv es tig at e, s en t a fi el d i ns p ect o r t o the pr o per tyt o i ns pec t, a nd sol i ci ted a l ega l o pini on o n cov er age from an a tto rney .4 N o. 11

- 1232 The l aw ye r opi ned that the pol i cy m ay not cove r th e damag e be ca use o f th e k no wn l o ss do ct r i ne a nd the pol i cy’ s excl usi ons and l i m i tat i ons. S afeco deci ded to deny the cl ai m . S afeco wrote the M i llers that thei r prepu rchas e inspecti on “repor t co nfi rm ed m ult i ple ar eas o fwat erda m ag e th atwer e i n n ee d o fa tt en ti o n” a nd that the l oss thus qual i fi ed as a p re ex i sti ng co nd i ti on “t h at oc c u rre d ou ts id e o f th e p olic y p er iod .” The M i l l er s s ued Safeco i n federa l co urt on d ive rs i ty j uri sdic ti on f orbr each o fthe i nsurance contr act and bad f ai th. On the M i l l er s’ m oti on f or sum m ar y jud gm ent, th e co urt hel d tha t S afec o was pr ec l ude d fr o m r ai sing th e po l i cy’s e xc l us i o ns b ec au se i t di dn’ t no ti fy the M i ll ers o fthe e xc l us i o ns unt i l a fte r the y di sc o ve r ed th e dam age . The c ourthoweverf ound qu est i ons off act on w hetherthe pol i cy cove re d the lo ss. A fterhol ding a be nc h t r i al, the c o urt found tha t th e po l i cyc o ve r ed th e loss and aw ard ed $485,1 0 0 .6 4 in da m ages. Th e cou rt f ound after a notherbench t ri al, thi s t i m e o n the bad fait h cla im , th at Sa fec o lac ke d a rea so n ab le b as is f ordeni aland that Saf eco dem onst ra ted a re ckl ess di sr eg ar d f o r i ts l ac ko fa r ea so nabl e ba si s th us e ntitl i ng the M i l l er s t o dam age s r esul ti ng fro m S afeco ’ s ba d f ai th, but the c ourtden ied the M i l l er s’ r equest f or pu ni ti ve dam age s. The co urt l ate r gr anted the M i l l er s’ m oti on to am end the j ud gm ent t o re fl ect add i ti onal prej ud gm ent inter est
.
II . A n alysis Because S afeco ’ s a pp ealdoes notco ntestth e d i str i ct cour t’ s f actualfi nd i ngs, and c h all enges o nl y i ts l ega lN o. 11

- 1232 5

c on c lu sio n s, ou r re vie w i s d e n ov o. E.g
. , Johns on v. West, 21 8 F
. 3d 725, 72 9 ( 7th Ci r. 20 00)
. The part i es agr ee W i sco nsi n l aw appli es so w e use W i sco nsi n ’s t h re este p proce ss to deter m i ne co ver age : ( 1) the pol i cy m ust fi r s tma k e a n i n i t i a l g r a n to fc o v e r a g e ; a n d ( 2 ) i fso , we l o o k a t wh e th e r a n e x c l u s i o n p r e c l u d e s c o v e r a g e ; a nd ( 3 ) i f a n e xc l us i o n a pp l i e s , we l o o k t o s e e whe ther an ex c ep tio n rein st at es co ve ra ge . Am . F am i l y M ut
. Ins . Co. v. A m . Girl, Inc. , 67 3 N
. W
. 2d 65 , 73 ( W i s. 20 04 )
. W e con str ue th e p olic y a s it“w ou ld be u n d er st oo d by a re as on ab le perso n i n the” M illers ’ p osi ti on but w e wil l noti nter pret the pol i cy to provi de cov er ag e f orr i sks S afeco di d not conte m pla te orunderw ri te and fo r w h ich it did not re c eiv e p re m iu m s. Id.

A . Cov er age The Sa f eco pol i cy cove rs any “acc i dental di re ct phy si ca l l o ss ” to the M i l l er s’ ho m e. S ep. Appx. a t 36
. The p oli cy d o e s not d efi ne “acc iden tal, ” bu t W iscons in’s Sup rem e C ou rt, w he n faced w ith th e un d efi ne d term “acci dent” in a pol i cy, tur ned to var i ous di cti onar i es to i nter pret “acci dent” as “a n eve nt o r condi ti on occur ri ng bychance orar i si ng fro m unknown o r r emot e ca us es ” o r “ anevent whi cht ak es pl ac e wi th o ut one’ s f or esi ght o r expectat i on. ” A m . Girl , 673 N
. W
. 2d at 76. An une xpe ct ed “r esult” is no t ana cc i den t unl es s “the m eans orcause ” i s “ acci dental

. ” Id. T hu s , the c o ur th e l d, a l o ss i s ac ci den ta l whenne i the r “ th e ca us e no r the harm w as i ntended, anti ci pated, o r expected. ” Id. By th i s defi ni ti o n, the di st r i ctc o ur t di d no t er r i n fi ndi ng6 N o. 11

- 1232 th atthe l o ss was a cc i den ta l b eca us e th e par ti es t o the i nsurance contr act did noti ntend, anti ci pate, o r expect the m eans orthe c au se of the di re ct physi call oss to the pr oper ty. Safeco ar gues that the pol i cy did notco verthe l oss becau se o fthe l ac ko fa f o r tu i to us e xt r an eo us ha ppen i ng d u rin g t h e p olic y p er iod

. See G la ssner v. D etroit F ire & M ar i neIns . Co. , 12 7 N .W .2d 76 1, 76 4 (W is. 19 64 ) (“A n ‘allrisk’ policy i s a prom ise to pay for lo s s c a u s ed by a for

tui tous and extra neous ha p p en i ng, but i t i s no t a prom i se to pay f orl oss o r dam age wh i ch i s a l m ost ce r ta i n t o ha ppenb ec au se o fthe na tu r e and i nhe r en t q u alit ies of th e p ro p er ty .”); K raem er B ros. , Inc . v. U .S. Fire Ins . Co. , 27 8 N
. W
. 2d 857, 86 1 ( W i s. 19 79) ( noti ng tha t “ a defe ct in the desi gn and co nstr uction of i nsured pr op erty i s inherenti n that proper ty, r atherthan an
‘ ex te r na l c au se , ’ a nd the r efore ” no t i nc l ude d wi th i n the po l i cy )
. S afeco be l i ev es tha t be ca us e th e ho m e’ s i nhe r en t nature ( a ba d constr ucti on) cause d the dam age , the l oss was n’ t f o r tu i to us . W e no te d i n Lucte rha nd v. G ranit e M icrosy st em s, Inc. , tha t th e te r m “ ac ci den t” r efl ec ts the f o r tu i typr i nc i pl e, 5 64 F
. 3d 80 9, 8 12 ( 7th C ir. 2 00 9) , b ut th i s j us t m ea ns that when a damag e’ s ca us e i s une xp ec te d , an d th er efo re ac c id en ta l, it is a lso fort u ito u s, i d. at 812- 13. A nd as the d ist ric t co urt f ound, nei ther party kne w ab o uto r c o nt e mpl a t e d the da mag e ’ s c a us e b efo re th e p olic y’s iss u an c e. See A m . Girl , 67 3 N
. W
. 2d at 76 ( fi ndi ngcovera g e be ca us e “[ n] ei th erthe c au se no r the h ar m w as in te n d ed , an tic ip at ed , o r e x p ec te d ”); Wis. Ele c. PowerCo. v. Cal
. U ni on Ins . Co. , 41 9 N .W .2d 25 5, 25 8 ( W i s. Ct
. App. 1 98 7) ( a “l at en t i nj ur y, un kno wn an dN o. 11

- 1232 7 unknow abl e” w hen cov er age b eg an “m ust, atl eas t, be c ov er ed by an ins u re r on th e ris k a t t h e t im e itm an ifes ts ” b ec au s e t h at sa tis fies ins u re d s’ “ ve ry rea so n ab le expectat i ons” ( quoti ng Ke e n eC o rp . v . In s . Co
. o f N. A m. , 66 7 F.2d 103 4, 1044 ( D
. C
. Cir. 1981))). Safeco next ar gues that the di str i ct c ourtwrongl y use d the c onti nuous tr i gge r theo ryto deter m i ne the date of harm bas ed on the pol i cy’s l anguage l i m i ti ng co ver age to “los se s o c c u rrin g d u rin g th e po licy p er iod .” W isc on sin appl i es , a l o ngwi ththe maj o r i tyo fc o ur ts , the c o nt i nuo us tr igg e r t h eo ry to d et er m in e t h e d at e o f inju ry in ca se s wher e th e ex act dat e o fha r m i s unc er ta i n a nd p ot en ti a l l y oc c u rrin g ov er se ve ra l p olic y p er iod s. See Soc’y Ins. v. To w n of Frank li n , 60 7 N
. W
. 2d 342, 34 6 ( W i s. Ct. A pp . 20 00) ( adopti ng the co ntin u ou s t ri gge r theo ryto fi nd that an inj ur y “ o ccu rs con tinu ou sly from exp osu re u n til m an ifes ta tio n ” (q u o t i n g M ich ae l G . D oh er ty , A ll oc at i ng Prog r e s s i veInj ury L i ab i l i ty Am ong Su cc e s s i veInsura nc e P o licies , 6 4 U
. Chi. L. Rev. 25 7, 26 1 ( 1997 ) ) )
. S afeco ask s us to car ve out an exce pti on a nd hol d, d espi te a dearth ofW i sco nsi n case l aw , thatthe continu ou s t ri gge r theo rysho uld o nl y a pp l y in thir d-party c ove ra ge case s be cau se the quest i ons prese nted i n thi rd- party case s (e. g., w hich policy shou ld d efend and i nd em nify ag ains t en vi r o nm en ta l co nt ami na ti o n c l ai m s spa nni ng m ult i ple pol i cy p eri ods?) ar en’ t pr ese nt i n fi rs t- party proper ty dam age cl ai m s. W e a re n’ti ncl in ed to adopt an a p p r o a c h th a tl a ck s s u p p o r tfr o m Wi s c o n s i n ’ s c a s e l a w, but ev en if w e di d, Safeco ’ s ca ses i n supp or t o fi ts p ositi on ad op ted a m an ifestat ion t h e ory forde term i n in g l i abi l i ty w hen a l ate nt pro gr ess i ve condi ti on8 N o. 11

- 1232

c au se s p ro p er ty d am ag e. See Winding H il ls Co ndo. Ass’ n v. N
. Am
. Sp e ci al ty Ins . Co. , 75 2 A .2 d 837, 840 (N
. J. Sup er. C t. A p p . D iv. 20 00 ); P r ude nt i al

- LM ICom
. Ins . v. Su pe r i or Co urt, 7 98 P. 2d 12 30 , 1 24 6- 47( Cal

. 1 99 0)
. Gi ve n the fi n d in g that the l oss m ani fest ed duri ng the pol i cy peri od, the re sul t would be the sam e. S afec o mai nt ains tha t be ca us e th e di st r i ctc o urt f o und that the pr oper ty w as a t ota l l oss wh en the M i l l er s di sc ov er ed th e p ro b lem , th e w at er lea ka ge an d m old gr owth coul dn ’ t hav e ca used any dir ect physi call oss to th e p ro p erty du ri ng the pol i cy peri od. But the poi nt at w hi ch the proper ty becam e a to tall oss m att er ed f or de t e r mi ningwh e the r the Mi l l e r s t o o ka pp r o pr i a t e s t e ps to m i ti gat e the dam age s, notwh etherthe “a c c id ental di r e c tp h y s i c a l l o s s t o ” th e h o me o c c u r r e d “ d u r i n gthe p o l i c y p e r i o d

. ” T h a t th e d e g r e e o fd a ma g e p u tth e h o me b ey on d rep air d oe sn ’t m ea n w a te r lea ka ge w as n ’t s till causi ng furtherdi re ct physi call oss to t h e property du r i ngthe p o l i c y p e r i o d. S afeco asks us t o a do pt th e appr o ac h i n Le af l and Grou pII , M ontgom e ry Towers Lt d. Par t ne rs hip v . Ins uranc eCo. of N or t h Am e r i ca to deter m i ne cove ra ge. 881 P. 2d 26 , 28-29 ( N
. M
. 19 94) ( no co ver age f ora proper ty’ s di m i ni shed va l ue ca us ed by as be st o s be ca us e pr o per ty ’ s va l ue di m i ni shed bef or e the pol i cy w ent into effect)
. Giv en that W i sc o ns i n l aw pr o vi des a s tr ai g ht f o r war d pa thf o r i nter preting thi s pol i cy, we w on’ t cl utterthe m att erb y di scus singa no th erj ur i sdi ct i o n’ s ap p ro ac h t o di ffer en t pol i ci es and cl ai m s.N o. 11

- 1232 9 B . E x c l us i o ns Safeco ar gues that the di str i ct courter re d i n fi nd i ng tha t its f ail ure to i n fo rm the M il lers ofthe ex clusion s before they disc ove re d the dam age pre cl ud ed Sa feco fro m r a i s i ng the e xc l us i o ns . W i s c o ns i n l a w pr o v i de s tha t a n insurer cannot re l y on a pol i cy’ s excl usi ons w hen i t fa ils to info rm th e i n s u r ed of th os e t er m s. Ko z likv. G ulf In s. Co. , 67 3 N
. W
. 2d 343, 34 8 ( W i s. Ct. A pp . 20 03). If an insu rer do es “ no t pr o vi de th e i ns ur ed wi tha c o py o fthe po l i cyo r s o m e o th er doc um en ta ti o n o fi ts t er m s, ” th e “i nsurerm ay not d en y c ove ra ge base d on an e xcl usi on in the pol i cy. ” Id. A l l o w i n ga n i n s u r e r t o t a k e p r e m i u ms “and then deny l i abi l i ty base d on an ex c lusi on o fwh i ch th e i nsured was not aw ar e be cause the insurance com pany had n ot in for m ed hi m o r her ofthe excl usi on orgi ven hi m o r her the m eans to asce rt ain its exi ste n c e” w ou ld be u nj u st
. Id. at 349. Safeco ar gues that W i sco nsi n’s p ro hibi ti on a gai nst cre ati ng co ver age thr ough e sto pp eli m plic i tl y o ver ri des th is p rin c ip le. Se eSh ann on v. Sh ann on , 442 N
. W
. 2d 25, 33

- 34 (W is. 19 89 ) (in su re r c an n otw aiv e c ov er ag e c lau se s v ia l i ti gat i on con d u ct)
. But W i sco nsi n’s r ule thatan i ns ur er c anno t pr ec l ude c o ve r ag e ba se d o n e xc l us i o ns un kn ow n to th e in su red d oesn ’t rest on estop p el. Safeco’s f ai l ure to provi de the M i l l er s with the excl u si ons goe s to the l egal qu estion of w he th e r t h e exc lusions w ere part ofthe agr eem ent in the firs t pla ce. S afeco f ai l ed to te l l the M i l l er s ab o utthe e xc l us i o ns

— whe the r by del i ve r i ngth e p o l i cyo r b y a ny o th ermean s

— unti l after the M i l l er s di sc ove re d the dam age . A nd j ust a s a n10 N o. 11

- 1232 i nsurerco uldn’ t a m end a pol i cy’ s t er m s t o excl ud e a l oss after the i nsured disc ove rs that l oss , an insur er cannot re fus e c ov er age by poi nti ng to an e xcl usi on that the insured di dn ’ t know abo ut unti l afte r the insured d isc ov er ed th e los s. Gro s s v . L l o y d s o f L o n d o n Ins . Co. , 358 N
. W
. 2d 266, 27 1 ( W i s. 19 84) ( in su re r’ s f ai l ure to p ro vid e in su re d w ith “e x c lu s i o n ar y la n gu ag e u n til after the ac cid en t” m ean t insu rer could n’t rely on i t); R oeskev . D ie

fe nbach , 24 9 N
. W
. 2d 555, 55 9- 60 ( W i s. 19 77) ( i ns ur an ce c o nt r act l i m i te d t o t er m s “e xpr es se d a nd agr eed upon by” the parti es; ifi nsurerwants “to i ncor porate the provi si ons of thei r usual pol i ci es . . . such p ro visi o ns mustb e spe ci fi ca l l y b r o ug htt o ” i ns ure d’ s at te nti o n)
. S afec o c an no t den y c o ve r age b as ed o n e xc l us i o ns i t f ai l ed to te l l the M i l l er s ab ou t unti l aftertheydi scove re d the dam age .
C . Bad Faith Forthei r bad f ai th cl ai m , the M i l l er s had to sho w an “abs en ce ofa r ea so nabl e ba si s f o r de ny i ngb en efi ts ” an d “the de f en dant’s knowl edg e o r r ec k l es s di sr eg ar d o fthe l ack ofa re aso nabl e ba si s. ” Anders on v. Cont ’ l Ins . Co. , 27 1 N
. W
. 2d 368, 376 (W is. 1978). Show ing an absen ce of a r ea so nabl e ba si s i s ano bj ec ti ve test ( th ati s “a r ea so nabl e insurerco uld nothave deni ed” t he cl ai m ) , wh er eas sh ow in g r e c k les s d isr eg ar d is a s u b j ec tiv e t es t. We i s s v. U ni t e d F i r e& Cas
. Co. , 541 N
. W
. 2d 753, 757, 762 (W is. 1995). Safeco doe sn ’t ask us to revisit th e d istri ct cou rt’s speci fi c f actualfi nd i ngs l eadi ng to i ts concl usion that th e com p an y’s review of th e M il lers ’ claim w as cu rsoryN o. 11

- 1232 11 atb es t, tha t i t l ac k ed a reaso nabl e ba si s f o r de ny i ng the M i l l er s’ cl ai m , and that i t dem onst ra ted a re c kl ess d isr eg ar d for i t s l ac k of a rea so n ab le b as is, see Short A pp x. at53 , and the M i l l er s do n ot a pp ealthe denia l o f th eir req u es t fo r p u n itiv e d am ag es , id. at 60

- 61
. Rat he r, S afec o a r g ue s th atha d i t be ena l l o w ed to r el y o n the ex cl us i o ns , the r e woul dn’ t have be enc o ve r ag e an d wi tho uta fi nd i ngo fc o v e r a g e , Wi s c o ns i n l a w h o l ds th at th er e ca n b e no ba d fait h

. Se eB r e t hors tv. A l l s t at ePr op. & Cas
. Ins . Co. , 79 8 N
. W
. 2d 46 7, 482 ( W i s. 20 11)
. But as state d above, Safeco’s f ailure to provid e the policy’s te r m s to the M i l l er s bef ore the y di sc o ve r ed th e damag e m ea ntthe e xc l us i o ns wer e no t par t o fthe p olic y w h en th e M illers d isc ov er ed th e d am ag e. See Part I I
. B. Safeco cannotnow avoi d a b ad f ai th fi nd i ng ba sed on e xcl usi ons that w er e no t par t of the pol i cy w hen the M i l l er s di sco ver ed the dam age . Safeco m aintains thata bad f ai th fi nd i ng was i m proper b ec au se th e cov er ag e issu e w as at lea st “fa irly d eb at ab le.” Se eM owryv. Badge rSt at eM ut. C a s. Co. , 38 5 N
. W
. 2d 171, 181- 82 ( W i s. 19 86) ( rever si ng o n bad f ai th be cause in su re r p ro p er ly in ve st iga te d an d d id n ’t re c kle ss ly ign or e o r d isr eg ar d im p or ta n t fa c ts ). B u t Sa fec o’s ba sis f ordeni alr es te d, as the di str i ct c ourtf ound aftera thre ed ayt r i al, o n r athe r dub i o us j us ti fi ca ti o ns . S ho r t Appx. at5 3. F i r st, S afec o a ss er te d tha t the da m ag e was a pr ee xi st i ngc o ndi ti o n the M i ll er s k ne w ab o ut, pr ec l udi ng cove r a g e u nd e r the kno wn l o s s do c t r i ne . No o ne c o nt e s ts th e find ing tha t the da m age w as in existen ce before cl o sing . Ye t, a s f o und b el o w, the r e w as no evi den ce the M i l l er s knew abo ut i t unti l aftercl osing. The M i l l er s’12 N o. 11

- 1232 i nspectori denti fi ed w ate r i ssues but nothing a l er ti ng to pr o bl ems wi ththe “ wat eri nfi l tr at i o n” tha t caus ed th e d am age; a cl o s e r l ook w ou ld h ave reve aled this “im p orta n t” d ist in c tio n . Id. at 45- 46. S eco n d , Safe co poi nted to the four m onths between di sco ver y a nd the M i l l er s’ fi l i ngo fthe i r c l ai m a s j us ti fy i ngde ni al

. Butthe M illers d id n ’t s it on t h eir cla im ; rat h er , th ey to ok th is ti m e t o prepar e thei r cl ai m by cont acting an att or ney and havi ng pro f essionals as ses s the dam age . Cri ti cal l y, S afec o c o ul dn’ t ex pl ain h o w the de l ayc au se d i t pr ej ud ice
. Id. a t 49

- 50
. Thi r d, S afec o b el i ev ed th atthe M i l l er s f ai l ed to pr o tect th e ho m e afte r di sc o ve r y . But th e M i l l er s di d whatthe y c o ul d t o mit i g at e th e damag es a nd eveni fthe y c o ul d ha ve do ne mor e, the hom e was al re ady a tot all oss. Sa feco al so never ex pl aine d, e i th eri n its clai m s fi l e o r a t tr i al, whatthe M illers co u ld h av e d on e d iffer en tly

. Id. at 5 0. Safeco al so poi nt ed to the pol i cy’ s e xcl usi ons as a ba si s f or d en ial. B u t Sa fec o n ev er sh ow ed w h e r e it ev er ac tu ally re l i ed on the excl usi ons. S afeco “cl utter ed” the cl aim fi le w ith langu age fr o m th e exc lusions bu t tha t d idn ’t m ea n it rea so n ab ly in ve st iga te d or c o n s i d er ed th eir appli cabi l i ty. I nd eed, the cour t co nsi dered i t “ ra ther i ni quit ous forS afeco . . . to r el y upon ba ses thatw er e no t f ai rl y c onsi dered o r re aso nabl y a sse rt ed as re aso ns f or d en yin g t h e” cla im
. Id. at 51- 52. Giv en thatS afeco does no t sh o w w he r e th e di st r i ctc o ur t er r ed i n de bun k i ng i ts r easons fo r de ny i ngthe M i l l er s’ c l ai m , we ha ve no basi s f orfi nd i ng the co ver age i ssue f ai rl y deba tabl e.N o. 11

- 1232 13 D . Reconsi dera t i on Safeco ar gues that the di str i ct c ourtabuse d its disc re ti on i n a llow ing the M i l l er s t o use a Rule 59 ( e) m oti on to advance a new arg um ent about w h en the i nter est cal culat ion sho uld be gi n. Court s m ay gr ant Rul e 5 9( e) m o ti o ns “ to a l te r o r a m en d the jud gm en t i fthe mova nt prese nts ne w l y di sco ver ed evi de n c e that was not avai l abl e a t the ti m e o ftrial ori fthe m ova nt poi nts t o evi dence i n the re cor d that c l early es tabl i shes a m ani fest er ro r ofl aw o r f act. ” In re P ri nce, 85 F. 3d 314, 3 24 ( 7th Ci r . 1 9 9 6 )
. Th i s r ul e “ e nab l e s the c o ur t t o c o r r e c t i ts own er ro rs and thus a voi d unn eces sar y a p p ellat e pr ocedures. ” M or o v . Sh e l l O i l Co. , 91 F. 3d 872, 876 (7th Cir. 1996 )
. But such m oti ons are “not appropri ate l y use d to advance a rgum ents ortheo ri es that coul d and s h ou ld have been m ade befo re the dist ri ct c ourtr endered a jud gm en t, or t o p re s e n t ev id en c e t h at w as av aila b le ear l i er . ” L B C r e d i tC o rp . v . R e s o l u t i o n Tr u s tC orp. , 4 9 F
. 3d 1263 , 1 2 67 (7th C ir. 1995) (int erna l citations om itted ). W e ent r u s t R ule 59(e) dec isi ons to the d istri ct cou rt’s sound j u d gm en t and wil l o nl y r eve rs e f oran abuse o f d isc re tio n . Id

. T he di st r i ctc o ur t’ s us e o fi ts di sc r et i o n i n g r an ting the M i l l er s’ R u le 59(e) m oti on fi xed an er ro r that, si m i l ar to the w ate r that see ped i nto the M i l l er s’ hom e, slip ped i nto the c ase . W i th the M i l l er s waiti ng f orthe $485 , 100. 64 Safeco o w ed them under the pol i cy near ly tw enty m ont hs after the d istri ct cou rt found cove r a ge, an d m ore th an f ou r y e a r s after first fil ing the ir claim , the M il lers ask ed f ora fi nd i ng tha t S afec o ow ed them i nter est14 N o. 11

- 1232

W is. Stat. § 6 28 .46(1) pro v id es in relev an t pa rt: “U nless 1 otherwise prov ided by law, an i nsurer s hall prom ptly pay every insu ran ce claim

. A claim shall b e ov erd u e i f n o t pa id w ithin 30 day s afterthe i nsurer i s furnis hed w ri tten noti ce ofthe f act of a covered l oss and of the am ount of the los s. If su ch w ri tt en n o t i c e i s n o tfu r n i s h e d t o th e i n s u r e r a s t o th e e n t i r e c l a i m, an y p artia l am ou nt su p p or ted b y w r i t t e n no tice is ov erd u e if not paid w ithin 30 da ys afters uch w ri tt en noti ce is furnis hed to th e insu rer. A ny p art o r all of the rem ain d er o f the claim thati s s ub sequ en t l y s uppor t ed by wri t t enno t i c e i s ove rdue if no t pa id w ithin 30 d ay s a ft e r w r i tten n otice is furn ished to the i ns ur e r . An y pa ymen ts ha l l n otbe de e m e d o ve r due whe n the ins urer has reas onab le proof to e st ablis h thatthe ins urer is not r es p onsible f or the paym ent, notw ithst and ing that w ri tt en n o tic e h a s b ee n fu rn ish ed to th e i n su re r.” und era sta te l aw thatr equi re s ins u re rs to pay i nter est on ove rdue cl ai m s. R. 116 at 2- 3. The l aw , W i s. St at. § 62 8. 46 ( 1) , e nt i tl es i ns ur eds t o i ntere st3 0 day s afte r the i n s u r e r r e c e i v e s n o t i c e o fth e c l a i m b u te x e mp t s c l a i ms “w hen the i nsurerhas re aso nabl e pr oo fto es tabli sh that the insureri s no t r esponsibl e f orthe paym ent. ” W i th 1 th e ba d f ai tht r i alpe nding, the M i l l er s ar g ue d tha t th e cove ra ge fin d in g ( on M ay 30, 20 08) el i m i nated any possib ility th at Sa f e c o co u ld arg u e t h at it h ad rea so n ab le pr o o fa fte r tha t dat e th ati t was n’t respo ns ibl e o n the cl ai m but they m ai ntai ned the b ad f ai th tr i alco uld “e stablish th at Sa fec o lac ke d rea so n ab le p ro oft o d en y t h eir cl ai m even w el l b efo r e” the c o ve r ag e det er m i na ti o n. R. 116 at 3. Thi s m eant, acc or ding to the M i l l er s, thatS afeco owed them i nter eston t h e $485, 100. 64 sta rt i ng atl east as e ar l y a s 30 da ys afte r the c o ve r ag e fi ndi ng . At the e ndN o. 11

- 1232 15 ofthe b ad f ai th tr i al, the M i l l er s a ske d that the i nter est c a l c ul a t i o n b e g i n 3 0 da y s a ft e r the da y S a fe c o denie d c ov er ag e (A p r i l 17, 200 6) b ec au se Sa fec o e m p loy ee te st im ony es ta bl i shed that Safeco di d not hav e the “r easonab l e pr oo f ” r equi re d by § 62 8. 46( 1) atthatti m e. R. 15 8 at 17- 18. The co urt f ou nd thatthe M i l l er s di dn ’ t hav e evid en ce th at th ey gave Safeco n ot ic e o f th e ent ire $4 85 , 10 0. 64 fi g ur e be f o r e th e co ve r ag e fi ndi ng, b ut note d that the M i l l er s g ave Safeco not i ce in t hei r i ni ti al c laim s le tt er of $3 15 ,84 0 in rep air s a n d $ 3 ,0 3 0 in m ont hly hou sing cost s. T he cou rt, as i t e xp lai ne d l ater, unde r st o o d the M i l l er s to b e as k i ngf o r i nt er es t o n the enti re $4 85, 100. 64 sta rt i ng 30 days aft erthe denia l o f t h e ir claim

. Th e cou rt thu s foun d that the M il lers w ere enti tl ed to i nter esto n th e $485, 100. 64 beginning 30 days afterthe cove ra ge fi nd i ng. S hor t Ap px. at 59- 60. The M i l l er s fi l ed a Rule 59( e) m oti on to re spond to the c ourt ’ s o rderto supplem ent thei r c laim f orm or tga ge i nter estdam age s, Doc. 16 8 a t 2

- 4, but al so used i t t o add re ss the c ourt ’ s fi nd i ng s o n w hen i nter estbeg an accr uingand on wha t am ount. The M i l l er s co nceded th ey co u ld n ’t re c ov er int er es t o n th e $ 4 85 ,10 0.6 4 u n til th e cov er ag e f i n d i n g, id. at 5, bu t note d that the cou rt re cogni zed theyga ve Safeco not i ce o fa cl ai m f or $3 15 ,84 0 p lu s $ 3,0 30 in m on th ly h ou sin g c o s t s in th eir i n i t i al c laim s le tt er . Id. a t4

- 5 & n
. 4 ( e mpha s i z i ngp o r t i on ofW i s. S tat
. § 628. 46( 1) deem in g ove rdue “a ny par ti al am ou n t s u p p or te d by w rit te n n ot ice ” n otp aid w ith in 30 d ays). T he M il lers acknow ledge d that they did n’t appr ec i at e th e “r i g i di ty” ofthe 3 0- daype r i o d b ut b elie ve d t h at a p ro p er int er p re ta tio n of th e W isc on sin16 N o. 11

- 1232 law req u ire d Sa fec o p ay int er e s t o n th eir init ial c laim f or$3 15, 840 plus $3 ,030 i n m onthl y ho usi ng co sts st ar tin g 3 0 d ay s a fte r th eir init ial c laim

. Id. at6- 7. The c o u r tg r a n t e d th e mo t i o n, fi n d i n gth a tt he M i l l er s weren’ t pr ese nti ng “e nti re l y new ar gum ents, ” o r “a new l ega l theo ry, ” but an ar gum ent they “ coul d have pr ev i o us l y made. ” S ho r t Appx. a t 69- 70. Ye t, a s th e d istri ct cou rt ackn ow ledge d , the M i l l ers w eren ’t re quir ed to m ake thi s a rgum ent e ar l i erbec ause prej ud gm en t i n t e r e s t i s “ e n c o mpa s s e d wi th i n th e me r i t s o ft he u n d er lyin g a c t i o n ,” m ak in g it a m at te r ap p ro p ria te ly w i thi n the dist ri ct c ourt ’ s di scr eti on on a R ule 59 ( e) m ot ion
. Id. at 70- 71 ( quoti ng O sterneckv . E rnst & W hin ney, 489 U
. S. 16 9, 17 6 ( 1989 ) )
. T h e M iller s co uld have bee n c lea re r, id. at 69, but the c ou rt d id n’tbel i eve they shoul d “be penal i zed f orwr on gly co m pu ti ng prej ud gm ent inter estbefor e j ud gm ent was e nter ed, ” id. at 71. S afec o a r g ue s th atthe di st r i ctc o ur t er r ed i n a l l o wi ng the M i l l er s t o use the Rul e 5 9( e) m oti on t o prese nt a n ew arg u m en t “ to co m p let e p re se n tin g” th eir ca se . First St at e Bank of M ont i ce l l o v. O hi o Cas. Ins . Co. , 55 5 F
. 3d 564, 5 7 2 ( 7 th Ci r . 20 0 9 ) ( di s t r i c tc o ur t“ e nt i t l e d t o c o nc l ud e th atraisingthe i ss ue o fpr ej udg m en t i nt er es t f o r the fi rs t t i m e in a Rul e 5 9( e) m oti on” im p ro p er )
. But unli ke Fi rs tSt at eBank, the M i l l er s w er en’ t com ple ti ng th eir case ’ s pr e s e nt a t i o n; the y we r e s i mpl y c o r r e c t i ngan er ro r that “cr ept i nto the pr oce ed ing. ” S hor t Ap px. at 66 ( quoti ng Sos e b e ev. As t r ue, 4 94 F
. 3d 58 3, 5 89 ( 7th Ci r. 2007 ) )
. S afeco al so ar gues that the di str i ct c ourtabuse d i ts disc re ti on be cause its g ra n t o fthe m oti on a l ong w i thN o. 11

- 1232 17 i ts fi nd i ng that the M i l l er s “ coul d have pre vi ousl y m ade” the a r g ume nt, S ho r tApp x . at 70 , con flict ed w ith th e ru le th atRul e 59 ( e) mo tio ns may no t be us ed to make a r g um ents “that cou l d a nd s hou l d h ave been m ad e before the di str i ct c ourtr endered a j ud gm ent. ” LB Cre di t Corp. , 49 F. 3d at 1267( em phasi s a dd ed). Bu t in i ts f ocus on the fi nd i ng tha t the M i l l er s cou l d h ave m ade the argum en t ea r l i er, S afec o i g no r es that t he di st r i ctc o ur t f o und th at t hi s was notan a rgum ent the M i l l er s h a dt o ma ke ear l i er . S hor t Ap px. at 70- 71 ( ci ti ng Ost e r n e ck, 4 89 U
. S. at 175- 76 & n. 3)
. Giv en the d efer ence w e e ntrustdi str i ct co ur ts o n Ru l e 59 ( e) m oti o ns , a nd tha t su chmot i o ns ar e a p p ro p ria te l y u se d to fix e rro rs , M o ro , 91 F. 3d at 87 6, we ar e no t g o i ngt o fi nd e ff o r ts to a r r i ve a t th e ri ght a nsw ero n the i nter estcal c u lat ion an abuse ofdi scre ti on m er el y b ecause the M i l l er s t oo k th e c ou rto n a ci rcui tous ro ute t o getther e.

I I I . Concl usio n W e A FFIRM the dist ri ct c ourt ’ s j ud gm ent.

6- 25- 12