Opinion ID: 1238678
Heading Depth: 3
Heading Rank: 2

Heading: Stuart II and the Negligent Misrepresentation Claim

Text: The Goderstads' remaining argument  that the Ebertses' negligent misrepresentation claim triggers coverage  would also fall short based on Everson alone, for the reasons we have already explained. But the split opinions in Stuart II have complicated the matter. To recap, Everson held that strict-responsibility and negligent misrepresentation claims were not covered under policy language defining occurrence as an accident because the insured was alleged to have asserted a false statement and such an assertion requires a degree of volition inconsistent with the term accident. Everson, 2005 WI 51, ¶ 19, 280 Wis.2d 1, 695 N.W.2d 298. The justices' disagreement in Stuart II centered primarily on the proper way to read Everson. See Lucterhand, 564 F.3d at 814-15. The Everson decision appeared to establish a bright-line rule that the very act of making a false statement or assertion of fact  necessary to most claims for misrepresentation  was inherently repugnant to the idea of a covered accident. As we have noted, the logic of this decision precludes coverage for almost all claims of misrepresentation, or at least all those that involve an affirmative false statement or assertion as opposed to a failure to disclose. Everson, 2005 WI 51, ¶¶ 19-20, 280 Wis.2d 1, 695 N.W.2d 298. The logic of the decision probably precludes coverage for any misrepresentation based on nondisclosure as well; in the limited circumstances where the law imposes a duty to disclose, the failure to do so is treated as the equivalent of an affirmative false representation. [6] Kaloti Enters., Inc. v. Kellogg Sales Co., 2005 WI 111, ¶ 13, 283 Wis.2d 555, ¶ 13, 699 N.W.2d 205, ¶ 13 (2005). But in Stuart II, the court appears to have taken a position that is less categorical than Everson, or at least less clear. We described the competing positions of the justices at greater length in Lucterhand, 564 F.3d at 814-15, and need not repeat that discussion here. It suffices to say that only Justice Roggensack, joined in concurrence by Justice Ziegler, adhered to a bright-line interpretation of Everson. Stuart II, 2008 WI 86, ¶¶ 92-104, 311 Wis.2d 492, 753 N.W.2d 448 (Roggensack, J., concurring). Justice Bradley, joined in concurrence by Chief Justice Abrahamson, rejected that view; this was unsurprising, since they had dissented in Everson. Id. ¶¶ 72-80 (Bradley, J., concurring); Everson, 2005 WI 51, ¶¶ 434-61, 280 Wis.2d 1, 695 N.W.2d 298 (Bradley, J., dissenting). The three justices in the plurality sidestepped the debate between the concurrences, focusing instead on the purposive inducement element of the ATCP § 110.02 claim. The plurality concluded that the contractor's false representations about his qualifications and design were both volitional and (as required for a violation of ATCP § 110.02) made in order to induce the making of a home-improvement contract, and that this combination rendered the loss nonaccidental. Stuart II, 2008 WI 86, ¶ 40, 311 Wis.2d 492, 753 N.W.2d 448. Justice Bradley and Chief Justice Abrahamson joined this part of the plurality opinion, with certain provisos that are not important to the analysis here. Id. ¶¶ 70-80 (Bradley, J., concurring); see also Lucterhand, 564 F.3d at 814-15 (explaining the disagreement between the Stuart II plurality opinion and Justice Bradley's concurrence). Significantly, Stuart II involved a claim for misrepresentation in violation of ATCP § 110.02, not a claim for negligent misrepresentation. [7] Although the justices disagreed about how to interpret Everson, there is nothing in the Stuart II opinions to suggest that the holding of Everson is no longer good law. Everson held that a false assertion of fact giving rise to a strict-responsibility or negligent misrepresentation claim is not an accident for purposes of liability coverage, and that holding is fully applicable here. In their supplemental brief, the Goderstads do not contest this conclusion but maintain instead that because the Ebertses' complaint alleges nondisclosures, the negligent misrepresentation claim by definition involves an inadvertent, nonvolitional failure to act rather than a volitional false statement of fact. They argue that a negligent failure to disclose material facts qualifies as a nonvolitional act under Stuart II and is therefore an accident for purposes of coverage under their insurance policies. The problem with this argument is that negligent misrepresentation by nondisclosure has not been recognized as a tort in Wisconsin. See Kaloti, 2005 WI 111, ¶ 13 n. 3, 283 Wis.2d 555, 699 N.W.2d 205 (We have never held that a claim for strict responsibility for misrepresentation or negligent misrepresentation can arise from failure to disclose.). [8] The foundational and oft-cited case of Ollerman v. O'Rourke Co. specifically declined to adopt a negligent misrepresentation-by-nondisclosure claim, 94 Wis.2d 17, 288 N.W.2d 95, 112 (1980); Ollerman's endorsement of a limited species of liability for nondisclosure pertained to the tort of intentional misrepresentation, id. at 99-107. Negligent misrepresentation by nondisclosure is a claim of questionable heritage and has been soundly rejected in some jurisdictions. [9] See, e.g., Martin v. Ohio State Univ. Found., 139 Ohio App.3d 89, 742 N.E.2d 1198, 1209 (2000) (A negligent misrepresentation claim does not lie for omissions: there must be an affirmative false statement.); Binette v. Dyer Library Ass'n, 688 A.2d 898, 903 (Me.1996); Richey v. Patrick, 904 P.2d 798, 802 (Wyo.1995); Matthews v. Kincaid, 746 P.2d 470, 471 (Alaska 1987). We recognize, of course, that an insurer's duty to defend is determined on the basis of arguable, as opposed to actual, coverage. Estate of Sustache, 2008 WI 87, ¶ 20, 311 Wis.2d 548, 751 N.W.2d 845. It is the nature of the alleged claim that is controlling, even though the suit may be groundless, false, or fraudulent. Id. Perhaps this rule is (or should be) different for claims that lack any basis in the law; if the only claim even arguably supporting coverage must be dismissed as legally insufficient, dismissal of that claim may be appropriate during the coverage phase of the litigation. That is how the district court handled the negligence claim here, and we see nothing improper in this approach. See supra note 3. Regardless, the Goderstads still cannot prevail. Even assuming for the sake of argument that a negligent misrepresentation by nondisclosure claim were cognizable in Wisconsin and that such a claim involved acts that are sufficiently nonvolitional under Stuart II to count as an accident, the American Family policies limit coverage to property damage, and the misrepresentations alleged here did not cause property damage. It is well established in Wisconsin that misrepresentations generally do not cause property damage; they cause pecuniary or economic loss. Everson, 2005 WI 51, ¶ 39, 280 Wis.2d 1, 695 N.W.2d 298; Smith v. Katz, 226 Wis.2d 798, 595 N.W.2d 345, 352-54 (1999); see also WISCONSIN JURY INSTRUCTIONS  CIVIL 2400 (Law Note discussing the benefit of the bargain and out of pocket measures for damages in intentional, strict-responsibility, and negligent misrepresentation cases). Stuart II was perhaps an anomalous exception. There, the contractor's misrepresentations about his qualifications and design were coupled with negligence in the performance of the remodeling contract; the jury heard evidence and awarded damages based on numerous items of damage to the home. Stuart II, 2008 WI 86, ¶¶ 52-54, 311 Wis.2d 492, 753 N.W.2d 448. Damages were assessed in a lump sum, and the jury was asked to apportion the damages between the ATCP § 110.02 misrepresentation and negligence claims. The supreme court in Stuart I, however, threw out the apportionment, so there was no distinction in the measure of damages as between the two claims. 2008 WI 22, ¶¶ 25-31, 308 Wis.2d 103, 746 N.W.2d 762. This case is different. Although the complaint describes many defects in the home the Goderstads sold to the Ebertses, the Goderstads' alleged misrepresentations did not cause those defects. The injury caused by the misrepresentations was purely pecuniary or economic; because of the misrepresentations, the home was worth less than the Ebertses paid for it. For this additional reason, there is no coverage. American Family has no duty to defend the Goderstads.