In the

United States Court of Appeals

For the Seventh Circuit

No. 11-1232

CRAIG MILLER and NANCY MILLER,

Plaintiffs-Appellees,

v.

SAFECO INSURANCE COMPANY OF AMERICA,

Defendant-Appellant.

Appeal from the United States District Court 

for the Eastern District of Wisconsin.

No. 06-C-1021—William E. Callahan, Jr., Magistrate Judge.

ARGUED SEPTEMBER 21, 2011—DECIDED JUNE 25, 2012

Before EASTERBROOK, Chief Judge, and TINDER and

HAMILTON, Circuit Judges.

TINDER, Circuit Judge. Safeco Insurance Company of

America issued an insurance policy on a home purchased by Craig and Nancy Miller. After the Millers

discovered extensive water and mold damage on the

property, they filed a claim for the loss. Safeco denied

the claim and the Millers sued. The district court found

that the policy covered the loss, that the exclusions

didn’t apply, and Safeco acted in bad faith. We affirm.
2 No. 11-1232

I. Background

The Millers first saw the property as potential buyers

in 2003. Photographs from this time depict staining on

the exterior stucco walls. A 2004 inspection for other

potential buyers revealed serious defects with the roof

flashings and stucco sidings and recommended a mold

inspection. When the home didn’t sell, the owner made

cosmetic changes to the property and put it back on the

market. The Millers revisited in 2005 and made an offer.

In a real estate condition report, the seller indicated

that she was aware of various defects but did not

disclose faulty roof flashings or a stucco veneer system

or the possible presence of mold or water problems

indicated in the 2004 inspection report. In fact, the seller

expressly stated that she wasn’t aware of any mold or

water issues.

A home inspection report performed for the Millers

identified various defects including a “soft spot” on the

roof and recommended follow-up by a specialist. The

report also said that the stucco’s finish color was

uneven and stained, that the wood siding could be restained, that paint on the wood fascia board under the

gutters was peeling and experienced some water

damage, that water had damaged a wood sill, and that

there was possible water damage to a wood window

frame. The report recommended repairing a torn membrane on the roof and replacing foggy skylights above

the living room and kitchen sink because they had lost

their vacuum seal. The inspector also found some water

damage in the upper study and at the skylights above
No. 11-1232 3

the kitchen sink and suggested it was “possibly from

flat roof leaks.” But the report advised that the exterior

walls, chimney, grass roof, flashings, floor joists/beams

and columns, and garage walls and floor appeared

“serviceable.” The Millers retained a specialist for the

soft spot and amended their offer to reflect the defects.

The specialist didn’t indicate that the soft spot was a

significant concern and advised that repairing it would

cost no more than $1,500.

Safeco issued the Millers a homeowner’s policy on the

property on June 30, 2005. The policy went into effect the

next day when the Millers closed on the property. The

policy covered all “accidental direct physical loss to

property,” unless limited or excluded, “occurring during

the policy period.” But the Millers didn’t see the

policy’s terms until Safeco mailed them a copy of the

policy at the end of July.

Before receiving the policy and sometime after

beginning renovation of the home on July 5, the Millers

discovered severe inner wall water leaks and significant

water infiltration on three of the home’s exterior walls.

A mold specialist found that the home had “numerous

construction deficiencies that existed long before” the

Millers purchased the home that “resulted in chronic

water intrusion” damaging the interior finished walls,

insulation, external plywood sheathing, and other

aspects of the structure. The Millers filed a claim with

Safeco for the water damage, mold, and lost use of the

home. Safeco assigned a claim representative to investigate, sent a field inspector to the property to inspect, and

solicited a legal opinion on coverage from an attorney.
4 No. 11-1232

The lawyer opined that the policy may not cover

the damage because of the known loss doctrine and

the policy’s exclusions and limitations. Safeco decided

to deny the claim. Safeco wrote the Millers that their prepurchase inspection “report confirmed multiple areas

of water damage that were in need of attention” and

that the loss thus qualified as a preexisting condition

“that occurred outside of the policy period.”

The Millers sued Safeco in federal court on diversity

jurisdiction for breach of the insurance contract and bad

faith. On the Millers’ motion for summary judgment,

the court held that Safeco was precluded from raising

the policy’s exclusions because it didn’t notify the

Millers of the exclusions until after they discovered the

damage. The court however found questions of fact on

whether the policy covered the loss. After holding a

bench trial, the court found that the policy covered the

loss and awarded $485,100.64 in damages. The court

found after another bench trial, this time on the bad

faith claim, that Safeco lacked a reasonable basis

for denial and that Safeco demonstrated a reckless disregard for its lack of a reasonable basis thus entitling

the Millers to damages resulting from Safeco’s bad

faith, but the court denied the Millers’ request for

punitive damages. The court later granted the Millers’

motion to amend the judgment to reflect additional

prejudgment interest.

II. Analysis

Because Safeco’s appeal does not contest the district

court’s factual findings, and challenges only its legal
No. 11-1232 5

conclusions, our review is de novo. E.g., Johnson v.

West, 218 F.3d 725, 729 (7th Cir. 2000). The parties agree

Wisconsin law applies so we use Wisconsin’s threestep process to determine coverage: (1) the policy must

first make an initial grant of coverage; and (2) if so, we

look at whether an exclusion precludes coverage; and

(3) if an exclusion applies, we look to see whether an

exception reinstates coverage. Am. Family Mut. Ins. Co. v.

Am. Girl, Inc., 673 N.W.2d 65, 73 (Wis. 2004). We construe

the policy as it “would be understood by a reasonable

person in the” Millers’ position but we will not interpret

the policy to provide coverage for risks Safeco did not

contemplate or underwrite and for which it did not

receive premiums. Id.

A. Coverage

The Safeco policy covers any “accidental direct

physical loss” to the Millers’ home. Sep. Appx. at 36. The

policy does not define “accidental,” but Wisconsin’s

Supreme Court, when faced with the undefined term

“accident” in a policy, turned to various dictionaries

to interpret “accident” as “an event or condition

occurring by chance or arising from unknown or

remote causes” or “an event which takes place without

one’s foresight or expectation.” Am. Girl, 673 N.W.2d at 76.

An unexpected “result” is not an accident unless “the

means or cause” is “accidental.” Id. Thus, the court held,

a loss is accidental when neither “the cause nor the

harm was intended, anticipated, or expected.” Id. By

this definition, the district court did not err in finding
6 No. 11-1232

that the loss was accidental because the parties to the

insurance contract did not intend, anticipate, or expect

the means or the cause of the direct physical loss to

the property.

Safeco argues that the policy did not cover the loss

because of the lack of a fortuitous extraneous happening

during the policy period. See Glassner v. Detroit Fire &

Marine Ins. Co., 127 N.W.2d 761, 764 (Wis. 1964) (“An ‘allrisk’ policy is a promise to pay for loss caused by a fortuitous and extraneous happening, but it is not a

promise to pay for loss or damage which is almost

certain to happen because of the nature and inherent

qualities of the property.”); Kraemer Bros., Inc. v. U.S. Fire

Ins. Co., 278 N.W.2d 857, 861 (Wis. 1979) (noting that “a

defect in the design and construction of insured

property is inherent in that property, rather than an

‘external cause,’ and therefore” not included within the

policy). Safeco believes that because the home’s inherent

nature (a bad construction) caused the damage, the loss

wasn’t fortuitous. We noted in Lucterhand v. Granite

Microsystems, Inc., that the term “accident” reflects the

fortuity principle, 564 F.3d 809, 812 (7th Cir. 2009), but

this just means that when a damage’s cause is unexpected, and therefore accidental, it is also fortuitous, id.

at 812-13. And as the district court found, neither

party knew about or contemplated the damage’s cause

before the policy’s issuance. See Am. Girl, 673 N.W.2d at 76

(finding coverage because “[n]either the cause nor the

harm was intended, anticipated, or expected”); Wis.

Elec. Power Co. v. Cal. Union Ins. Co., 419 N.W.2d 255, 258

(Wis. Ct. App. 1987) (a “latent injury, unknown and
No. 11-1232 7

unknowable” when coverage began “must, at least, be

covered by an insurer on the risk at the time it manifests” because that satisfies insureds’ “very reasonable

expectations” (quoting Keene Corp. v. Ins. Co. of N. Am., 667

F.2d 1034, 1044 (D.C. Cir. 1981))).

Safeco next argues that the district court wrongly used

the continuous trigger theory to determine the date of

harm based on the policy’s language limiting coverage

to “losses occurring during the policy period.” Wisconsin

applies, along with the majority of courts, the continuous

trigger theory to determine the date of injury in

cases where the exact date of harm is uncertain and

potentially occurring over several policy periods. See

Soc’y Ins. v. Town of Franklin, 607 N.W.2d 342, 346 (Wis. Ct.

App. 2000) (adopting the continuous trigger theory to

find that an injury “occurs continuously from exposure

until manifestation” (quoting Michael G. Doherty, Allocating Progressive Injury Liability Among Successive Insurance Policies, 64 U. Chi. L. Rev. 257, 261 (1997))). Safeco

asks us to carve out an exception and hold, despite a

dearth of Wisconsin caselaw, that the continuous trigger

theory should only apply in third-party coverage

cases because the questions presented in third-party

cases (e.g., which policy should defend and indemnify

against environmental contamination claims spanning

multiple policy periods?) aren’t present in first-party

property damage claims. We aren’t inclined to adopt an

approach that lacks support from Wisconsin’s caselaw,

but even if we did, Safeco’s cases in support of its

position adopted a manifestation theory for determining liability when a latent progressive condition
8 No. 11-1232

causes property damage. See Winding Hills Condo. Ass’n

v. N. Am. Specialty Ins. Co., 752 A.2d 837, 840 (N.J. Super.

Ct. App. Div. 2000); Prudential-LMI Com. Ins. v. Superior

Court, 798 P.2d 1230, 1246-47 (Cal. 1990). Given the

finding that the loss manifested during the policy

period, the result would be the same.

Safeco maintains that because the district court found

that the property was a total loss when the Millers discovered the problem, the water leakage and mold

growth couldn’t have caused any direct physical loss to

the property during the policy period. But the point at

which the property became a total loss mattered for

determining whether the Millers took appropriate steps

to mitigate the damages, not whether the “accidental

direct physical loss to” the home occurred “during the

policy period.” That the degree of damage put the home

beyond repair doesn’t mean water leakage wasn’t still

causing further direct physical loss to the property

during the policy period.

Safeco asks us to adopt the approach in Leafland GroupII, Montgomery Towers Ltd. Partnership v. Insurance Co. of

North America to determine coverage. 881 P.2d 26, 28-29

(N.M. 1994) (no coverage for a property’s diminished

value caused by asbestos because property’s value diminished before the policy went into effect). Given that

Wisconsin law provides a straightforward path for interpreting this policy, we won’t clutter the matter by discussing another jurisdiction’s approach to different

policies and claims.
No. 11-1232 9

B. Exclusions

Safeco argues that the district court erred in finding that

its failure to inform the Millers of the exclusions before

they discovered the damage precluded Safeco from

raising the exclusions. Wisconsin law provides that an

insurer cannot rely on a policy’s exclusions when it fails

to inform the insured of those terms. Kozlik v. Gulf Ins.

Co., 673 N.W.2d 343, 348 (Wis. Ct. App. 2003). If an

insurer does “not provide the insured with a copy of the

policy or some other documentation of its terms,” the

“insurer may not deny coverage based on an exclusion

in the policy.” Id. Allowing an insurer to take premiums

“and then deny liability based on an exclusion of which

the insured was not aware because the insurance

company had not informed him or her of the exclusion

or given him or her the means to ascertain its existence” would be unjust. Id. at 349.

Safeco argues that Wisconsin’s prohibition against

creating coverage through estoppel implicitly overrides

this principle. See Shannon v. Shannon, 442 N.W.2d 25, 33-34

(Wis. 1989) (insurer cannot waive coverage clauses via

litigation conduct). But Wisconsin’s rule that an

insurer cannot preclude coverage based on exclusions

unknown to the insured doesn’t rest on estoppel. Safeco’s

failure to provide the Millers with the exclusions goes

to the legal question of whether the exclusions were

part of the agreement in the first place. Safeco failed

to tell the Millers about the exclusions—whether by

delivering the policy or by any other means—until after

the Millers discovered the damage. And just as an
10 No. 11-1232

insurer couldn’t amend a policy’s terms to exclude a

loss after the insured discovers that loss, an insurer

cannot refuse coverage by pointing to an exclusion that

the insured didn’t know about until after the insured

discovered the loss. Gross v. Lloyds of London Ins. Co.,

358 N.W.2d 266, 271 (Wis. 1984) (insurer’s failure to

provide insured with “exclusionary language until

after the accident” meant insurer couldn’t rely on it);

Roeske v. Diefenbach, 249 N.W.2d 555, 559-60 (Wis. 1977)

(insurance contract limited to terms “expressed and

agreed upon by” the parties; if insurer wants “to incorporate the provisions of their usual policies . . . such provisions must be specifically brought to” insured’s attention). Safeco cannot deny coverage based on exclusions

it failed to tell the Millers about until after they discovered the damage.

C. Bad Faith

For their bad faith claim, the Millers had to show an

“absence of a reasonable basis for denying benefits” and

“the defendant’s knowledge or reckless disregard of the

lack of a reasonable basis.” Anderson v. Cont’l Ins. Co., 271

N.W.2d 368, 376 (Wis. 1978). Showing an absence of a

reasonable basis is an objective test (that is “a reasonable insurer could not have denied” the claim), whereas

showing reckless disregard is a subjective test. Weiss v.

United Fire & Cas. Co., 541 N.W.2d 753, 757, 762 (Wis. 1995).

Safeco doesn’t ask us to revisit the district court’s

specific factual findings leading to its conclusion that

the company’s review of the Millers’ claim was cursory
No. 11-1232 11

at best, that it lacked a reasonable basis for denying

the Millers’ claim, and that it demonstrated a reckless

disregard for its lack of a reasonable basis, see Short

Appx. at 53, and the Millers do not appeal the denial of

their request for punitive damages, id. at 60-61. Rather,

Safeco argues that had it been allowed to rely on the

exclusions, there wouldn’t have been coverage and

without a finding of coverage, Wisconsin law holds

that there can be no bad faith. See Brethorst v. Allstate Prop.

& Cas. Ins. Co., 798 N.W.2d 467, 482 (Wis. 2011). But as

stated above, Safeco’s failure to provide the policy’s

terms to the Millers before they discovered the

damage meant the exclusions were not part of the

policy when the Millers discovered the damage. See Part

II.B. Safeco cannot now avoid a bad faith finding based

on exclusions that were not part of the policy when

the Millers discovered the damage.

Safeco maintains that a bad faith finding was improper

because the coverage issue was at least “fairly debatable.”

See Mowry v. Badger State Mut. Cas. Co., 385 N.W.2d 171,

181-82 (Wis. 1986) (reversing on bad faith because

insurer properly investigated and didn’t recklessly

ignore or disregard important facts). But Safeco’s basis

for denial rested, as the district court found after a threeday trial, on rather dubious justifications. Short Appx.

at 53. First, Safeco asserted that the damage was a preexisting condition the Millers knew about, precluding

coverage under the known loss doctrine. No one contests

the finding that the damage was in existence before

closing. Yet, as found below, there was no evidence the

Millers knew about it until after closing. The Millers’
12 No. 11-1232

inspector identified water issues but nothing alerting to

problems with the “water infiltration” that caused the

damage; a closer look would have revealed this “important” distinction. Id. at 45-46. Second, Safeco pointed to

the four months between discovery and the Millers’

filing of their claim as justifying denial. But the

Millers didn’t sit on their claim; rather, they took this

time to prepare their claim by contacting an attorney

and having professionals assess the damage. Critically,

Safeco couldn’t explain how the delay caused it prejudice. Id. at 49-50. Third, Safeco believed that the

Millers failed to protect the home after discovery. But

the Millers did what they could to mitigate the

damages and even if they could have done more, the

home was already a total loss. Safeco also never

explained, either in its claims file or at trial, what the

Millers could have done differently. Id. at 50. Safeco

also pointed to the policy’s exclusions as a basis for

denial. But Safeco never showed where it ever actually

relied on the exclusions. Safeco “cluttered” the claim

file with language from the exclusions but that didn’t

mean it reasonably investigated or considered their

applicability. Indeed, the court considered it “rather

iniquitous for Safeco . . . to rely upon bases that were not

fairly considered or reasonably asserted as reasons for

denying the” claim. Id. at 51-52. Given that Safeco does

not show where the district court erred in debunking

its reasons for denying the Millers’ claim, we have no

basis for finding the coverage issue fairly debatable.
No. 11-1232 13

D. Reconsideration

Safeco argues that the district court abused its discretion in allowing the Millers to use a Rule 59(e) motion

to advance a new argument about when the interest

calculation should begin. Courts may grant Rule 59(e)

motions “to alter or amend the judgment if the movant

presents newly discovered evidence that was not

available at the time of trial or if the movant points to

evidence in the record that clearly establishes a manifest

error of law or fact.” In re Prince, 85 F.3d 314, 324 (7th

Cir. 1996). This rule “enables the court to correct its

own errors and thus avoid unnecessary appellate procedures.” Moro v. Shell Oil Co., 91 F.3d 872, 876 (7th Cir.

1996). But such motions are “not appropriately used

to advance arguments or theories that could and should

have been made before the district court rendered

a judgment, or to present evidence that was available

earlier.” LB Credit Corp. v. Resolution Trust Corp., 49 F.3d

1263, 1267 (7th Cir. 1995) (internal citations omitted).

We entrust Rule 59(e) decisions to the district court’s

sound judgment and will only reverse for an abuse of

discretion. Id.

The district court’s use of its discretion in granting

the Millers’ Rule 59(e) motion fixed an error that, similar

to the water that seeped into the Millers’ home, slipped

into the case. With the Millers waiting for the $485,100.64

Safeco owed them under the policy nearly twenty

months after the district court found coverage, and more

than four years after first filing their claim, the Millers

asked for a finding that Safeco owed them interest
14 No. 11-1232

Wis. Stat. § 628.46(1) provides in relevant part: “Unless 1

otherwise provided by law, an insurer shall promptly pay every

insurance claim. A claim shall be overdue if not paid within

30 days after the insurer is furnished written notice of the fact

of a covered loss and of the amount of the loss. If such written

notice is not furnished to the insurer as to the entire claim,

any partial amount supported by written notice is overdue if

not paid within 30 days after such written notice is furnished

to the insurer. Any part or all of the remainder of the claim

that is subsequently supported by written notice is overdue

if not paid within 30 days after written notice is furnished to

the insurer. Any payment shall not be deemed overdue when

the insurer has reasonable proof to establish that the insurer

is not responsible for the payment, notwithstanding that

written notice has been furnished to the insurer.”

under a state law that requires insurers to pay interest

on overdue claims. R. 116 at 2-3. The law, Wis. Stat.

§ 628.46(1), entitles insureds to interest 30 days after the

insurer receives notice of the claim but exempts claims

“when the insurer has reasonable proof to establish that

the insurer is not responsible for the payment.” With 1

the bad faith trial pending, the Millers argued that the

coverage finding (on May 30, 2008) eliminated any possibility that Safeco could argue that it had reasonable

proof after that date that it wasn’t responsible on the

claim but they maintained the bad faith trial could “establish that Safeco lacked reasonable proof to deny their

claim even well before” the coverage determination. R.

116 at 3. This meant, according to the Millers, that Safeco

owed them interest on the $485,100.64 starting at least

as early as 30 days after the coverage finding. At the end
No. 11-1232 15

of the bad faith trial, the Millers asked that the interest

calculation begin 30 days after the day Safeco denied

coverage (April 17, 2006) because Safeco employee testimony established that Safeco did not have the “reasonable proof” required by § 628.46(1) at that time. R. 158

at 17-18. The court found that the Millers didn’t have

evidence that they gave Safeco notice of the entire

$485,100.64 figure before the coverage finding, but

noted that the Millers gave Safeco notice in their initial

claims letter of $315,840 in repairs and $3,030 in

monthly housing costs. The court, as it explained later,

understood the Millers to be asking for interest on the

entire $485,100.64 starting 30 days after the denial of

their claim. The court thus found that the Millers were

entitled to interest on the $485,100.64 beginning 30 days

after the coverage finding. Short Appx. at 59-60.

The Millers filed a Rule 59(e) motion to respond to

the court’s order to supplement their claim for mortgage

interest damages, Doc. 168 at 2-4, but also used it to

address the court’s findings on when interest began

accruing and on what amount. The Millers conceded

they couldn’t recover interest on the $485,100.64 until

the coverage finding, id. at 5, but noted that the court

recognized they gave Safeco notice of a claim for

$315,840 plus $3,030 in monthly housing costs in their

initial claims letter. Id. at 4-5 & n.4 (emphasizing portion

of Wis. Stat. § 628.46(1) deeming overdue “any partial

amount supported by written notice” not paid within

30 days). The Millers acknowledged that they didn’t

appreciate the “rigidity” of the 30-day period but

believed that a proper interpretation of the Wisconsin
16 No. 11-1232

law required Safeco pay interest on their initial claim

for $315,840 plus $3,030 in monthly housing costs

starting 30 days after their initial claim. Id. at 6-7.

The court granted the motion, finding that the

Millers weren’t presenting “entirely new arguments,” or

“a new legal theory,” but an argument they “could have

previously made.” Short Appx. at 69-70. Yet, as the

district court acknowledged, the Millers weren’t

required to make this argument earlier because prejudgment interest is “encompassed within the merits of the

underlying action,” making it a matter appropriately

within the district court’s discretion on a Rule 59(e)

motion. Id. at 70-71 (quoting Osterneck v. Ernst & Whinney,

489 U.S. 169, 176 (1989)). The Millers could have been

clearer, id. at 69, but the court didn’t believe they

should “be penalized for wrongly computing prejudgment interest before judgment was entered,” id. at 71.

Safeco argues that the district court erred in allowing

the Millers to use the Rule 59(e) motion to present a

new argument “to complete presenting” their case. First

State Bank of Monticello v. Ohio Cas. Ins. Co., 555 F.3d 564,

572 (7th Cir. 2009) (district court “entitled to conclude

that raising the issue of prejudgment interest for the

first time in a Rule 59(e) motion” improper). But unlike

First State Bank, the Millers weren’t completing their

case’s presentation; they were simply correcting an

error that “crept into the proceeding.” Short Appx. at 66

(quoting Sosebee v. Astrue, 494 F.3d 583, 589 (7th Cir.

2007)). Safeco also argues that the district court abused

its discretion because its grant of the motion along with
No. 11-1232 17

its finding that the Millers “could have previously made”

the argument, Short Appx. at 70, conflicted with the rule

that Rule 59(e) motions may not be used to make arguments “that could and should have been made before

the district court rendered a judgment.” LB Credit Corp.,

49 F.3d at 1267 (emphasis added). But in its focus on

the finding that the Millers could have made the argument earlier, Safeco ignores that the district court found

that this was not an argument the Millers had to make

earlier. Short Appx. at 70-71 (citing Osterneck, 489 U.S. at

175-76 & n.3). Given the deference we entrust district

courts on Rule 59(e) motions, and that such motions

are appropriately used to fix errors, Moro, 91 F.3d at

876, we are not going to find efforts to arrive at the

right answer on the interest calculation an abuse of discretion merely because the Millers took the court on

a circuitous route to get there.

III. Conclusion

We AFFIRM the district court’s judgment.

6-25-12