2024 Wisconsin Insurance Case Law Update

Every year, Quarles & Brady LLP's Insurance Recovery Team compiles a list of important decisions by Wisconsin state and federal courts addressing insurance issues. Our goal is to keep you informed of developments and help you anticipate what the future may bring. For additional information, please reach out to any member of Quarles' Insurance Recovery Team.

Badgerland Restoration & Remodeling, Inc. v. Federated Mut. Ins. Co., 2024 WI App 36, 412 Wis. 2d 806, 8 N.W.3d 877

Gregerson v. Auto-Owners Insurance Co., 2024 WL 4297667 (W.D. Wis. Sept. 26, 2024)

Badgerland Restoration and Gregerson both relate to the amount of insured loss under property insurance policies. Badgerland involves hail damage to a commercial property and Gregerson fire damage to a home, but both turn on the insurer’s rejection of a demand for an appraisal of the loss as permitted under each policy.

In Badgerland, the policyholder operated a funeral home that was damaged by hail, and the insurer’s adjuster estimated the replacement cost at $58,311.21. Following receipt of that estimate, the policyholder contracted with the plaintiff to repair the roof, with two key contractual provisions highlighted by the Court of Appeals:

• All work to be complete as per allowed Replacement Cost Value Scope of loss plus any approved supplements; and
• Agreed contract amount between BRR [the plaintiff] & H/O INS CO. $58,311.21 plus any approved supplements.

The roofing contract did not define “supplements.” After completing the work, the plaintiff submitted an invoice in the total amount of $110,972.50, which the insurer refused to pay. After the insurer refused to pay, the plaintiff sent a written Request for Appraisal, invoking the policy’s appraisal clause and naming its own appraiser as required by the policy. The insurer denied plaintiff’s right to an appraisal, and, after the policyholder assigned the claim, plaintiff sued for breach of contract. Before the Circuit Court, the insurer moved to dismiss the complaint for failure to state a claim, which was granted. The plaintiff appealed.

On its way to reversing, the Court of Appeals summarized the law related to appraisals, reiterating Wisconsin case law as far back as the 1880s. As the Court of Appeals noted, “[a]ppraisal clauses have long been included in property insurance policies,” and “are also ubiquitous” in virtually every property insurance policy for both homeowners and corporations. If one party invokes the appraisal process, the other party is required to participate, except for very narrow exceptions. Appraisal clauses may be invoked before or after the work is completed. The Court of Appeals easily found that plaintiff had stated a claim for breach of contract because the insurer refused to honor the appraisal clause.

The insurer raised three defenses, all of which the Court of Appeals rejected: 1) there was no “dispute,” because the insured accepted the initial valuation of the loss; 2) the policyholder waived the appraisal; or 3) the policyholder was estopped from invoking the appraisal. The Court of Appeals rejected all of these arguments, in part because of the procedural history of the case (dismissed before discovery and the merits), but also because non-Wisconsin case law states the appraisal clause may be invoked after the repair work is done.

As a published Wisconsin case, Badgerland clarifies Wisconsin law and supports policyholders’ rights to an appraisal of their losses under the ubiquitous appraisal provisions in property policies.

Gregerson is, in some respects, the flipside of Badgerland. The policyholders in Gregerson sustained substantial fire damage to their home, and although the insurer agreed to pay for repairs totaling $186,845.78, the policyholders’ contractor indicated the structure was so compromised it was a total loss and needed to be razed. The details of the subsequent negotiations are disputed, but there is no dispute the insurer did not invoke the appraisal provision prior to the policyholder filing suit. Yet, early in the proceedings the insurer moved to compel an appraisal, which the Court ultimately denied. Specifically, the Court analyzed Wisconsin law stating that if the insurer has “ample opportunity” to request an appraisal before suit, it cannot “invoke the appraisal clause” after litigation commences. Farmers Auto. Ins. Ass’n v. Union Pac. Ry. Co., 2009 WI 73, 319 Wis. 2d 52, 768 N.W.2d 596. The Court denied the insurer’s motion to compel an appraisal, because the insurer “failed to show it did not have ‘ample opportunity’ to demand an appraisal under the policy[.]”

Badgerland and Gregerson both demonstrate the importance of correctly invoking the appraisal provision under property insurance policies. In Badgerland, the policyholder properly invoked the appraisal provision, leading to a breach of contract by the insurer. In Gregerson, the insurer did not properly invoke the appraisal provision, and lost that right when litigation commenced. Policyholders should be aware of the importance of this “ubiquitous” provisions—and attentive to any policy-specific language—and use these provisions to ensure they receive a fair valuation of their losses and appropriate insurance coverage.

Frankenthal Int'l, LTD v. W. Bend Mut. Ins. Co., 2024 WI App 71, __ Wis. 2d __, 15 N.W.3d 904

In Frankenthal, the Wisconsin Court of Appeals clarified the scope of a “vacancy provision” often used in commercial property insurance policies. Frankenthal hinges on whether a property owner’s efforts to lease a property may count as “customary operations” under a vacancy provision.

Frankenthal owned and leased a commercial building in Green Bay, which was insured by West Bend Mutual Insurance Company (“West Bend”). The policy at issue contained a vacancy provision. Under this provision, a building is considered “vacant” unless at least 31% of its total square footage is either:

1. Rented to a tenant and used for customary operations, or
2. Used by the building owner to conduct customary operations.

The provision states that “[i]f the building where loss or damage occurs has been vacant for more than 60 consecutive days before that loss or damage occurs,” then West Bend “will not pay for any loss or damage caused by any of the following, even if they are Covered Causes of Loss.” The list included water damage as an excluded cause.

In February 2021, a furnace malfunction in the building led to frozen and burst pipes, causing significant water damage. Frankenthal immediately filed a claim with West Bend to cover the damage caused by the burst pipe.  

When the pipe burst, the building was unoccupied, but Frankenthal maintained the building’s utilities, enforced security measures, and conducted regular inspections. Frankenthal had also actively been seeking tenants for the building. After investigating the claim, West Bend denied coverage, arguing that the building had been vacant for more than 60 consecutive days, making the damage an excluded loss under the vacancy provision.

Frankenthal hinges on whether Frankenthal’s efforts to lease the property constituted “customary operations” as defined by the policy. The Court of Appeals found that the term “customary operations” was ambiguous and was subject to more than one reasonable interpretation. Under Wisconsin law, courts must interpret ambiguous policy provisions in favor of coverage for the policyholder.

The court determined that Frankenthal’s ongoing leasing efforts, including maintaining the building in a rentable state, advertising the space, and engaging with prospective tenants, fell within the scope of its “customary operations.” The court also distinguished other cases where properties were entirely abandoned or undergoing slow renovations without any active leasing efforts.

Frankenthal serves as a crucial precedent for future vacancy provision disputes and emphasizes the importance of documenting efforts to maintain and lease vacant properties to preserve insurance coverage. The decision clarifies that a property owner’s proactive attempts to rent a building may count as “customary operations,” preventing an insurer from denying coverage based solely on a lack of tenants. Specifically, the court highlighted Frankenthal’s active management, including maintaining security, utilities, and periodic inspections, as key factors in determining the property was not vacant under the policy’s terms.

Bolger v. Massachusetts Bay Ins. Co., 2024 WI App 19, 411 Wis. 2d 517, 5 N.W.3d 893

Bolger was a published decision welcomed by policyholders thanks to the Court of Appeals’ broad reading of an exception to an exclusion in a homeowner’s policy that required the insurer to defend and indemnify against a third-party injury claim, despite those injuries occurring away from the insured property.

The policyholders’ son and his friend were driving a utility terrain vehicle (“UTV”) away from the insured residence, driving instead on another property owned by the policyholder but that was not included on the relevant policy issued by Massachusetts Bay Insurance Company (“MBIC”). An accident followed, with the passenger bringing claims against the policyholders and MBIC under Wisconsin’s direct action statute.

The MBIC policy excluded coverage for injuries arising out of the UTV but also contained an exception that reinstated coverage for third-party claims if they occur when the UTV is being “[u]sed to service an insured’s’ residence.” The coverage question boiled down to whether the exception was ambiguous such that MBIC should be required to defend and indemnify the policyholders. The Court of Appeals, affirming the circuit court, found the exception to be susceptible to at least two different interpretations, and thus required MBIC to have duties to both defend and indemnify against the claim.

The mechanics and reasoning behind the decision may be more informative than the court’s eventual interpretation of the exception at hand, although it was a matter of first impression and will no doubt be cited in any analogous cases going forward.

Another insurer in the case first followed one of the judicially-preferred options to an insurer at the outset of a case (as explained in Water Well Solutions Services Group, Inc. v. Consolidated Insurance Co., 2016 WI 54) by successfully moving to bifurcate coverage proceedings and stay merits litigation pending a decision regarding the insurers’ duty to indemnify the policyholder. MBIC then used the opportunity to move for a declaratory judgment that the UTV exclusion applied and removed any duty to defend or indemnify the policyholder. The circuit court denied the motion, finding the exception to the exclusion ambiguous, and required MBIC to defend and indemnify the policyholder. Then, prior to a scheduled jury trial, MBIC stipulated to a judgment that would be conditioned on the outcome of its appeal on the declaratory judgment motion.

The court of appeals went on to affirm the circuit court decision following a de novo review. The resulting decision sets out a thorough application of longstanding policy interpretation and confirms several important things for policyholders. Chief among these are confirmations of the venerable rules that the four-corners rule of comparing the allegations in the complaint to the terms of the policy are all that may be considered in considering whether a duty to defend arises and that all ambiguities are resolved in favor of coverage.

Cincinnati Ins. Co. v. Ropicky, 2024 WL 5220615 (Wis. Ct. App. Dec. 26, 2024)

Ropicky involves a homeowners insurance claim that has been pending since 2018 and is now the subject of two different decisions from the Wisconsin Court of Appeals. During a storm in May 2018, the homeowners noticed water entering through walls on the home’s main level. Subsequent investigations found gaps due to construction defects in several areas of the home, which had allowed water to infiltrate and cause extensive damage, including wet/dry rot. Ultimately, the homeowners submitted a claim for $1,030,300 to their insurer. Relying on the policy’s construction defect and fungi exclusions, the insurer paid a just a little over $12,000.

The Wisconsin Court of Appeals agreed with the homeowners that the construction defect exclusion applied to just a very small portion of the claim. This was because the policy included an ensuing loss exception. While the construction defect exclusion eliminated coverage for the costs of repairing the construction defects (i.e., closing the gaps that allowed water to infiltrate), the ensuing loss exception meant that costs to repair damages resulting from the construction defect could be covered.

The Court next examined how the policy’s various fungi provisions impacted the claim. The policy had a fungi exclusion with several notable features: (1) it applied to damage caused by wet or dry rot; (2) it included an anti-concurrent cause of loss provision; and (3) it did not apply to the extent the policy included additional coverage for losses caused by fungi or wet/dry rot. On that point, the policy did, indeed, have an endorsement with additional coverage for fungi and wet/dry rot loss, but it was limited to $10,000. The insurer argued that these provisions limited its coverage for this claim to $10,000. The Court of Appeals disagreed, ruling that the fungi exclusion was rendered completely inapplicable by the inclusion of the additional coverage for fungi and wet/dry rot losses (not just inapplicable to the extent of the $10,000 additional coverage). But the exact impact of that ruling is in question because the Court of Appeals also suggested that a $10,000 limit applies to losses caused in whole or in part by fungi or wet/dry rot, which would seemingly give the insurer the outcome it sought after all. 

The case now reverts back to the trial court to apportion damages between those caused by fungi or wet/dry rot and those attributable solely to other causes. Sometimes the wheels of justice turn slowly.

Ceme-Tube LLC v. Chroma Color Corp., 2024 WL 3584677 (W.D. Wis. July 30, 2024)

Probst Group, LLC v. Colony Insurance Co., 2024 WL 4679222 (W.D. Wis. Nov. 5, 2024)

Two decisions issued less than 100 days apart by the same court (albeit different judges) illustrate the nuance inherent in insurance claims involving faulty workmanship claims. Both cases involved alleged faulty workmanship in the design and/or manufacture of a product and virtually identical language in the insurance policies. Despite these similarities, the cases produced very different outcomes. 

Probst Group involved agricultural digesters, which are large airtight tanks that break down manure and food waste. Probst Group was a general contractor that hired subcontractors to design and install digester covers. Shortly after installation, holes, rips, tears, and leaks developed in the covers’ membrane material. The covers ultimately had to be replaced and Probst Group sought coverage from its liability insurer.

Ceme-Tube involved concrete forming tubes. The supplier of the colorant for the tubes allegedly used insufficient UV protectant, which caused the tubes to degrade prematurely. The colorant supplier sought coverage from its liability insurers.

Both decisions focused on whether the claims involved property damage caused by an occurrence (i.e., an accident). Under Wisconsin law, faulty workmanship in and of itself is not an occurrence/accident but faulty workmanship can lead to an occurrence/accident that causes property damage. In Probst Group, the policyholder apparently failed to articulate an intervening cause of damage other than the faulty workmanship of designing and manufacturing the covers. The Court therefore ruled there was no insurance coverage for the claim.

Conversely, the policyholder in Ceme-Tube argued that repeated UV exposure degrading the tubes was an intervening occurrence/accident that caused the property damage. The Court ruled that this distinction could be enough for a reasonable jury to find in favor of the policyholder. Accordingly, the Court dismissed the insurers’ summary judgment motions and allowed the litigation to proceed.

For policyholders, these decisions illustrate the importance of anticipating potential coverage issues and crafting a consistent narrative to address those issues. An ounce of preparation is worth a pound of cure.

McLaughlin v. Gaslight Pointe Condo. Ass'n, LTD, 2024 WI App 30, 412 Wis. 2d 140, 8 N.W.3d 115

McLaughlin focuses on an underlying property damage dispute between several condominium owners and their condo association. The condo owners claimed their association failed to properly or timely maintain the condo building’s exterior, leading to water ingression and eventual rot and mold in their individual units. The condo owners’ suit triggered a number of coverage disputes between the condo association and its insurer under both general liability and errors and omissions policies.  

After the trial court denied coverage to the association, the Wisconsin Court of Appeals addressed these coverage issues in a comprehensive published decision. Under the condo association’s general liability policies, the dispute primarily concerned whether there was an “occurrence” or “accident” that gave rise to property damage that triggered coverage. The Court of Appeals also considered whether several exclusions barred coverage for (1) property damage for property owned by an insured; (2) personal property in the care, custody and control of an insured; and (3) property damage caused by mold.

The Court of Appeals first addressed whether the condo association’s failure to properly repair and/or defer maintenance that led to water ingression triggered an occurrence under the general liability policy. The carrier argued that the condo association’s conduct was both intentional and deliberate in nature and bound to lead to both water intrusion and eventual property damage. As deliberate, volitional conduct, the carrier argued no accident occurred necessary to trigger coverage. However, relying on recent precedent, including the Wisconsin Supreme Court’s 5 Walworth holding and the Court of Appeals’ Riverback Farms decision, the Court of Appeals indicated that a policyholder’s initial deliberate actions in failing to maintain the property may not matter, if such conduct were to set in motion a chain of events that caused unforeseen or unexpected consequences, such as property damage. Under such circumstances, an occurrence would take place that triggers initial overage. Here, the Court of Appeals found the eventual water damage to the property was not expected.

The Court of Appeals reasoned that the occurrence analysis must focus on foreseeability—that is, whether the ultimate damages (including continuing damages)—were expected, not whether the original conduct giving rise to the damages was deliberate or volitional. In this way, the McLaughlin case further minimizes and distinguishes the misguided volitional act “doctrine” that courts had developed in certain prior Wisconsin case law such as Stuart, Everson, and Schinner, which courts had used to limit what conduct may constitute an occurrence. McLaughlin therefore takes another step in the right direction by confirming coverage applies even as to deliberate conduct that produces unexpected damage.

The Court of Appeals also addressed the “owned property exclusion.” The carrier argued that the owned property exclusion applied because the condo owners, in addition to the association, itself, qualified as insureds under the policy. If the owners were insureds, the owned property damage exclusion would be triggered to exclude coverage for damage to their property. This question turned on the type of legal entity that the association was as well as the policy’s definition of insured. In deciding that the exclusion was inapplicable, the Court of Appeals found the condo owners were not insureds and the association did not own the particular damaged property at issue, thus avoiding the exclusions’ application.

Addressing the separate mold exclusion, the Court of Appeals found that the record was incomplete to determine if the mold exclusion applied to bar all claimed damages. While the Court of Appeals acknowledged that mold was one component of the claimed property damage at issue, it would not necessarily exclude all damages at issue in the claim, particularly rot.

Finally, the Court of Appeals tackled the association’s separate errors and omissions coverage. The errors and omission coverage at issue covered actual compensatory damages as a result of the association’s negligent acts, errors and omissions or breach of duty. However, this policy also contained an exclusion for property damage claims. 

The condo association argued that since the owners’ losses were not just property damage but also out-of-pocket expenses, such as attorney fees for bringing the action and past condo fee payments, the exclusion should not apply to those particular losses. However, the Court of Appeals held that neither the attorneys fees nor condo fees would qualify as compensatory damages that the owners could recover in the first place. All other damages were property damage barred by the policy’s property damage exclusion; thus, the Court of Appeals found no coverage under the errors and omissions policy.     

City Gas Co. v. Hartford Accident & Indemnity Co., 2024 WL 2774927 (E.D. Wis. May 20, 2024) and 2024 WL 2781939 (E.D. Wis. May 30, 2024)

Two decisions from the Eastern District of Wisconsin in the same case (1) reaffirmed the expansiveness of “arising out” language in policies; and (2) re-emphasized that the statute of limitations does not start to run until the amount of a loss is determined, not necessarily when an insurer denies coverage. Both decisions also addressed issues related to occurrences and policy limits.

City Gas Company filed lawsuits against its former insurers—Hartford Accident & Indemnity Company, TIG Insurance Company (formerly Ranger Insurance Company), and Travelers Casualty and Surety Company (formerly Aetna Casualty and Surety Company)—seeking coverage for costs associated with environmental investigation and remediation of a manufactured gas plant site in Antigo, Wisconsin. The contamination at the site stemmed from City Gas' operations from 1909 to 1949, with ongoing pollution issues detected by the Wisconsin Department of Natural Resources starting in the 1990s.

Arising Out Of Language. TIG contended there was no coverage for the property damage stemming from the manufactured gas plant because that site was not an insured premises under the policy, there was no connection to any of the insured premises, and the activity at the manufactured gas plant site decades earlier. Based on the “arising out of” language in the grant of coverage, however, the Court found the facts before it supported a plausible argument that there was a causal relationship between its insured premises and the former manufactured gas plant site as there was evidence of steps taken at the insured sites to manage the uninsured site and the property damage stemming from it that had been continually occurring.

Statute of Limitations. Hartford contended that City Gas Company’s claims were barred by the statute of limitations because it argued the clock started ticking when coverage was denied over fifteen years before City Gas Company filed its suit. City Gas Company argued that the clock did not start until it actually suffered out-of-pocket expenses in the form of remediation costs it had to pay four years before it filed suit. The Court focused on the distinction between the duty to defend and duty to indemnify, noting that the duty to indemnify does not arise until the liability of the policyholder is determined. Because there was insufficient evidence before the Court to definitively determine when that occurred, the Court denied Hartford’s motion for summary judgment, noting that although it had denied coverage earlier, it expressly stated that it would reconsider its earlier decision from over fifteen years ago if City Gas Company came forward with new evidence, which it did when it came forward with new policies.

Occurrence. TIG and City Gas Company disputed whether the application of Wisconsin’s contiguous trigger jurisprudence would supersede the excess policies definition of “occurrence.” Although the excess policy was a 3-year policy sitting atop of three one-year policies, the Court held the plain language of the excess policy said the limit applied per occurrence and the harm here was continuous in nature, resulting in only a single occurrence. In noting that the policy controlled, the Court stated City Gas Company confused the difference between determining which policies are triggered and determining what constitutes an occurrence or the number of occurrences that have taken place.

Policy Limits. Hartford and City Gas Company also disputed whether the policy limits should be applied across the entirety of the policy periods or on an annualized basis. Although there was language in the policy that arguably supported both interpretations, the Court focused on the fact that there had only been a single occurrence under the terms of the policy. As a result, the Court applied the occurrence limit which resulted in the limits being applied across the entire policy period. Although other courts from other jurisdictions had adopted City Gas Company’s interpretation, because there was no Wisconsin equivalent the Court declined to adopt that approach because it would involve ignoring the plain language of the policy.

Luebke-Jones v. State Farm Fire & Casualty Co., 2024 WL 5056378 (W.D. Wis. Dec. 10, 2024)

This case highlights a procedural rift between state and federal courts in Western Wisconsin: bifurcation and stay of bad faith claims. Wisconsin courts sometimes favor it. The Western District does not.

In Luekbke-Jones a homeowner’s contractor advised that her roof had hail damage, but State Farm denied coverage based on two inspections showing only wear and tear and sun exposure. The homeowner filed in Dane County Circuit Court for breach of contract and bad faith. State Farm removed to the Western District on diversity jurisdiction and then sought to bifurcate and stay the bad faith claims, only to be denied.

The Court was sensitive to the risk of unfair prejudice to the insurer but preferred to rely on other tools—privilege logs, firewalls, in camera inspections—to avoid prejudice without engendering unnecessary delay. The Court was likewise sensitive to jury confusion but, again, preferred to let summary judgment play out and revisit bifurcation before trial so that, if possible, both claims could be heard by the same jury in the same week. 

While the motions for bifurcation and stay were pending, the plaintiff missed her expert disclosure deadline. While uncertainty about pending motions was a “weak” excuse since she would need an expert either way, the Court nevertheless granted an extension because it was “loath” to have the outcome turn on a procedural misstep prompted, in part, by defendant’s discovery motions that it should have known would be denied.

Taken together, these rulings read as a rebuke against procedural gamesmanship in bad faith litigation, or at least, as consistent application of the procedure we have come to expect from the Western District.

For more information, contact your Quarles attorney or a member of our Insurance Recovery Team:

• Patrick Nolan / 414-277-5465 / patrick.nolan@quarles.com
• Brandon Gutschow / 414-277-5745 / brandon.gutschow@quarles.com
• Joe Poehlmann / 414-277-5763 / joseph.poehlmann@quarles.com
• Patrick Proctor-Brown / 414-277-5611 / patrick.proctor-brown@quarles.com
• Alex Shortridge / 414-277-5443 / alexandra.shortridge@quarles.com
• Hannah Schwartz / 414-277-5551 /  hannah.schwartz@quarles.com
• Nathan Oesch / 414-277-5120 / nathan.oesch@quarles.com