MADISON, Wis. (Legal Newsline) - The Wisconsin Supreme Court has affirmed a circuit court's ruling that despite purchasers' initial ignorance to asbestos-wrapped ducts on their new property, the asbestos exclusion in an insurance company's policy precluded coverage.
Judge Timothy M. Witkowiak of the Milwaukee County Circuit Court ruled that intervening defendant American Family Mutual Insurance Company had no duty to defend or indemnify the defendant-sellers with respect to allegations from the plaintiff-buyers.
"In the circuit court and the court of appeals proceedings, American Family argued that there was no initial grant of coverage under the policy," the opinion stated. "The issue of coverage is not before us. The only issue presented is whether the asbestos exclusion in the American Family Business Owners policy issued to the defendant-sellers precludes coverage for the losses that the plaintiff-buyers claim."
The original case was filed by Michael D. Phillips, Perry A. Petta and Walkers Point Marble Arcade, known as plaintiff-buyers, against Daniel G. Parmelee and Aquila Group LLc, known as defendant-sellers. American Family Mutual Insurance Company was granted permission to intervene as a defendant.
According to the opinion, issued last month, the defendant-sellers had an apartment building inspected prior to purchasing the property, which revealed that the building's heating supply ducts likely contained asbestos.
So, they obtained a Business Owners policy from American Family to insure the building and then put the property up for sale.
Defendant Parmelee also completed a Real Estate Condition Report in order to sell the property, which contained a statement saying the defendant-sellers "were not aware of the presence of the asbestos or asbestos-containing materials on the premises."
When the plaintiff-buyers purchased the building, a contractor cut through the asbestos-wrapped ducts, dispersing the toxins.
They filed a lawsuit against the defendant-sellers alleging breach of contract/warranty and negligence for failing to fully disclose the condition of the building, including the asbestos-wrapped ducts. They further argue that dispersing the asbestos rendered the building uninhabitable, so the tenants were ordered to leave the building. Without tenants, the plaintiff-buyers could no longer finance the property, which was later lost in foreclosure.
On appeal, the Supreme Court was required interpret American Family's insurance policy to determine whether the building should have been covered in the event of financial loss due to asbestos.
"We interpret the policy's language according to its plain and ordinary meaning, as understood by a reasonable person in the position of the insured," the opinion states.
The court began by looking at the initial grant of coverage to determine if the insurance policy provides coverage, which was moot as the case does not involve a question of initial grant of coverage.
The court followed by evaluating whether the policy's exclusions preclude coverage.
Lastly, the court looked to see if the coverage was withdrawn by an exclusion and determined if an exception to that exclusion possibly reinstated coverage.
"Our review is focused only on interpreting the asbestos exclusion to determine whether it precludes coverage," the opinion stated. "No other exclusion is before us. No exceptions to the asbestos exclusion are involved."
According to the insurance policy, the asbestos exclusion provision states that insurance does not apply to property damage with respect to loss from asbestos or reduction in real estate value due to asbestos contamination. It also doesn't apply to loss "arising out of" the request that the presence of asbestos be identified. The policy also makes it clear that the insurance company is not obligated to share damages in the event of loss due to asbestos.
The plaintiff-buyers argued that the exclusions are ambiguous because asbestos has a variety of forms and meanings, but the word "asbestos" is undefined in the policy. However, the court disagreed.
"A reasonable person in the position of the insured would not interpret the word 'asbestos' to limit the clause to certain types of asbestos," the opinion states. "To a reasonable insured reading this policy, asbestos in any form is asbestos."
However, the court did agree that the words 'arising out of' are broad, general and comprehensive, but argued that there are still limits to their meaning.
"The words 'arising out of' used in an automobile liability insurance policy 'are commonly understood to mean originating from, growing out of, or flowing from, and require that there be some causal relationship between the injury and the risk for which coverage is provided,'" the opinion says.
The court also agreed with the plaintiff-buyers that wording of the exclusion indicates a causal relationship between the loss and the asbestos. However, the causal nexus is between the loss claimed and the asbestos rather than the loss claimed and the dispersal of asbestos throughout a building, which is the case here.
The plaintiff-buyers argue that they would never have purchased the property had they known about the possibility of asbestos, further alleging that the defendant-sellers' negligence is not covered by the exclusion.
"The exclusion's language concerns the loss itself arising out of asbestos," the opinion states. "Our analysis focuses on whether the loss suffered by the plaintiff-buyers is within the text of the asbestos exclusion and thus reasonably contemplated by the parties."
"In sum, we are persuaded that a reasonable insured would interpret the asbestos exclusion in American Family's policy to preclude the loss alleged by the plaintiff-buyers."
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