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Wisconsin Supreme Court Determines Coverage Is Available for Suit Alleging Violations of Covenant Deed Restrictions

Liebovich v. Minnesota Ins. Co., 751 N.W.2d 764 (Wis. 2008)

Liebovich was sued by his neighbors for violating a setback covenant deed restriction by building a portion of his new home too close to the Lake Geneva shore. The complaint alleged that Liebovich intentionally violated the setback restriction, and sought declaratory and injunctive relief directing removal of the offending portion of the structure, in addition to reformation of Liebovich's deed to conform to deeds for neighboring lots. Liebovich sought defense and indemnification from Minnesota Ins. Co. and from American International Ins. Co., both AIG companies (collectively, "AIG"). AIG denied coverage and defense based upon the "intentional acts" exclusion, and because the complaint did not seek money damages. Liebovich eventually lost in the underlying action, was ordered to pay $10,000 damages along with costs, and was enjoined from further covenant violation. He sued AIG for its failure to defend and indemnify, claiming breach of contract and bad faith.

In concluding that a defense and coverage duty existed, the Wisconsin Supreme Court determined that the complaint's allegations that Liebovich "interfered with the plaintiffs' interest" and that the plaintiffs were "aggrieved by" his actions were sufficient to allege injury for the purpose of triggering a duty to defend and a duty to indemnify. The high court also came to the unsurprising conclusion that the ad damnum clause's request for damages sought monetary damages sufficient to trigger the duties of defense and indemnity. Finally, the Supreme Court concluded that the intentional act exclusion was inapplicable for several reasons: the policy's general coverage of intentional offenses, as well as accidents, rendered its intentional acts exclusion ambiguous; the intentional acts exclusion requires an allegation of intent to injure, not just to act; and the intent to build a house in a manner that violates a covenant is not the same as intent to harm. Finally, the Court reiterated the preferred process in Wisconsin for an insurer to seek a decision on defense and indemnification duties by seeking a declaratory judgment or attempting to bifurcate the trial process.

Contact for more information: Noah D. Fiedler

Fifth Circuit Holds Insurer Entitled to Summary Judgment Where No Sworn Proof of Loss for Flood Damage

Marseille Homeowners Condo. Ass'n, Inc. v. Fidelity Nat'l Ins. Co., No. 07-31005, 2008 WL 4150108 (5th Cir. 2008)

In a suit in which an insured sought damages resulting from flooding caused by Hurricane Katrina, summary judgment for defendant insurer was affirmed where: (1) plaintiff failed to file a sworn proof of loss as required by the Federal Emergency Management Agency (FEMA) regulations governing Standard Flood Insurance Policies; (2) a FEMA memo issued after Katrina extending claim deadlines did not render permissive the requirement to file a proof of loss prior to filing suit; and (3) denial of a motion to alter or amend on the basis of new evidence that defendant had sought waivers of the proof-of-loss requirement in previous cases was proper where the argument could have been raised prior to the summary judgment ruling.

Contact for more information: Joseph J. DeHope, Jr.

Wisconsin Supreme Court Holds No Coverage for Intentional Battery Claim

Sustache v. American Family Ins. Co., 751 N.W.2d 845 (Wis. 2008)

The Wisconsin Supreme Court recently determined that an insurer has no duty to defend an insured under the liability coverage provisions of a homeowner's insurance policy when a plaintiff’s complaint asserts an intentional battery claim founded on allegations that the insured "without warning or provocation, punched decedent out, causing him to fall into a curb thereby causing serious injuries and ultimately death." Sustache died from injuries sustained after an altercation at an underage drinking party hosted by defendant Roman. The high court, prefacing its coverage analysis, stated that where an insurer has provided a defense, provided extrinsic evidence to the court, and the court has focused in a coverage hearing on whether the policy provides coverage for a plaintiff's claims, the four-corners rule no longer applies. Rather, the insurer's duty to continue its defense is contingent upon the court's determination that the insured has coverage if the plaintiff proves his case. Accordingly, the court determined that because the policy provided indemnity coverage for an "occurrence" or "an accident, including exposure to conditions which results in . . . bodily injury or property damage," and because Sustache's attacker allegedly "intentionally caused bodily harm," the policy did not provide coverage.

Contact for more information: Noah D. Fiedler

Hinshaw Attorneys Prevail in Eleventh Circuit Consent Judgment Suit

Zurich American Ins. Co. v. Frankel Enterprises, No. 07-14694, 2008 WL 2787704 (11th Cir. 2008)

Hinshaw attorneys Ronald Kammer, Sina Bahadoran and Maureen Pearcy prevailed in the United States Court of Appeals for the Eleventh Circuit in a case that has significant implications for consent judgments in Florida. The Eleventh Circuit agreed that the insured is not entitled to coverage for a $1.8 million consent judgment because it breached the policy's cooperation provision by settling without rejecting the defense and without obtaining the insurer's consent. The fact that the insurer may have partially denied indemnity coverage was irrelevant because the insurer was nonetheless defending under reservation of rights.

Contact for more information: Ronald Kammer, Sina Bahadoran or Maureen Pearcy

Wisconsin Supreme Court Holds Construction Defects Were Not Occurrences

Stuart v. Weisflog's Showroom Gallery, Inc., 753 N.W.2d 448 (Wis. 2008)

In this case, the Wisconsin Supreme Court concluded that the damages caused by Weisflog were not covered by the CGL insurance policy because the misrepresentations were not accidental "occurrences" within the meaning of the policy, and because property damage arising out of Weisflog's work is excluded from coverage. The Stuarts entered into a contract with Weisflog for a sizable home remodeling project. Four years after construction, the Stuarts discovered numerous problems with the construction and sued Weisflog and its insurance company, alleging misrepresentation, statutory violations, breach of contract and negligence.

After a jury verdict in favor of plaintiffs, and subsequent to various appeals and remands, the issue of coverage of the misrepresentation claim was brought to the Supreme Court. The Court concluded that the "defendants' intent to induce at the time they engaged in misrepresentation, not their ability to predict the exact result of their actions, is the key to determining whether their conduct was accidental," and therefore denied coverage. The high court also addressed the argument that the rule of concurrent risks required coverage of the damages caused by multiple concurrent risks, including the misrepresentations and negligence, concluding that the "your work" exclusion applied to bar coverage. Three justices concurred in the outcome, one writing to emphasize her opinion that a "volitional" and an "intentional" misrepresentation were synonymous. The other two justices took issue with the majority's conclusion that intent to deceive is part of a volitional act, arguing that only the act of communication itself must be volitional, regardless of the veracity of the communication's content. In addition, the two concurring justices concluded that the economic loss doctrine applied barring the negligence claims, mooting the issue of coverage under a concurrent risk analysis.

Contact for more information: Noah D. Fiedler

Eleventh Circuit Holds That Surplus Lines Insurers Must Comply With Filing Requirements Under 627.410

CNL Hotels & Resorts, Inc. v. Twin City Fire Ins. Co., No. 07-12706, 2008 WL 3823898 (11th Cir. 2008)

In this case, Twin City Fire Insurance Company attempted to rely on a policy endorsement to deny coverage to its insured. The insured argued that the endorsement was void because it had not been approved by the state. Twin City replied that it was a surplus lines insurer that did not need its forms filed and approved. In its holding, the United States Court of Appeals for the Eleventh Circuit disagreed with the insurer based on the Florida Supreme Court's decision in Essex Insurance Co. v. Zota, 985 So.2d 1036 (Fla. 2008). The Eleventh Circuit ruled that surplus lines insurers must comply with the filing requirements under 627.410 or their forms could be voided.

Contact for more information: Ronald Kammer or Sina Bahadoran