On June 22, 1999, in Smith v. Katz, the Wisconsin Supreme Court held the West Bend Mutual Insurance Company ("West Bend") did not have a duty to defend or indemnify its insured, Philip A. Giuffre, for strict responsibility and negligent misrepresentation claims arising out of the sale of land. In 1991, Giuffre sold unimproved land to the plaintiffs. In 1993, plaintiffs began to construct the foundation for their house. During the excavation process, they discovered underground springs on the property. Plaintiffs alleged the springs caused delay and extra costs in constructing the house, and cracks in the foundation walls once the house was completed. Plaintiffs sued, among others, Guiffre, alleging breach of warranty, intentional misrepresentation, strict responsibility misrepresentation, and negligent misrepresentation.
The court based its no coverage determination on two grounds. First, the court found the complaint failed to allege "property damage" within the meaning of the policy. In order for "property damage" to exist, there must be either physical injury to tangible property, or a loss of use of tangible property that is not physically injured. The court found plaintiffs alleged only economic loss and not "property damage." Because the complaint failed to allege "property damage," the court found there was no coverage under the West Bend policies.
Second, the court found a lack of causation precluded coverage. In order for there to be coverage, the alleged occurrence must cause the "property damage." Without ruling on the issue of whether a misrepresentation could constitute an "occurrence," the court held that even assuming there was "property damage" and an "occurrence," there was no causal nexus between the insured's alleged misconduct and the damages claimed. Since the alleged misrepresentations did not cause the groundwater pressure or cracks in the concrete foundations, West Bend did not have a duty to defend or indemnify its insured on this ground as well.
This case can be located on the Internet at http://www.courts.state.wi.us/html/sc/96/96-1998.HTM. If you would like more information concerning this case or other coverage issues, please contact HeidiL. Vogt at (414)227-1253 or vogt@cf-law.com.