In 5 Walworth, LLC v. Engerman Contracting, Inc. (2023 WI 51), the Wisconsin Supreme Court held that three insurers were not entitled to summary judgement on their duty to defend several companies under the terms of their commercial general liability policies.

Facts

5 Walworth hired Engerman Contracting to build an in-ground swimming pool complex. Engerman subcontracted with Downes Swimming Pool Company for the project, and Otto Jacobs Company supplied the concrete mixture for the project. 5 Walworth later discovered leaks in the pool complex, which persisted despite multiple attempts by Downes to repair the leaks over several years. An engineering report found that poor installation caused cracking and leakage that would continue to worsen.

5 Walworth hired a different contractor to demolish and reconstruct the pool. The company sought damages for the demolition and reconstruction, filing suit against the contractor Engerman (for breach of contract, breach of implied warranty, and negligence), subcontractor Downes (for negligence), and their commercial general liability (CGL) insurers. Downes and Engerman filed claims against Otto Jacobs (and its insurer) for allegedly supplying inferior concrete. Each defendant’s insurer moved for summary judgement, arguing that the insurers did not have a duty to indemnify or further defend the companies under their CGL policies.

Decision

In a 5-2 decision (Justice Hagedorn, joined by Justices Walsh Bradley, Dallet, and Karofsky, with Justice Roggensack concurring), the court held that none of the three insurers were entitled to summary judgement on the issue of liability coverage. Each insurer argued that the problems related to the pool did not constitute “property damage” caused by an “occurrence” as defined by the terms in their policies.

The court overruled portions of its decision in Wisconsin Pharmacal Company, LLC v. Nebraska Cultures of California, Inc., which, according to this court, “wrongly stated that ‘property damage’ must be to ‘other property’ for purposes of determining an initial grant of coverage in a CGL policy. It then improperly imported the integrated systems analysis [from tort law] to determine if ‘other property’ was damaged.”

Instead, the court held, “the proper approach is the one we laid out in [American Family Mutual Insurance Company v. American Girl, Inc.] and multiple other cases: our task is to interpret and apply the language of the insurance policy. … We first examine if the policy makes an initial grant of coverage, then analyze if any exclusions preclude coverage, and finally, review if any exceptions to a particular exclusion reinstate coverage.”

The court concluded that the insurers were “not entitled to summary judgment because a trier of fact could conclude there is ‘property damage’ caused by an ‘occurrence’ as those terms are defined in” each insurer’s CGL policy. The court characterized its decision as a “return to [a] contract-focused analysis.”

Concurring Opinion

In a concurring opinion, Justice Roggensack disagreed with the majority’s interpretation of case law, including Pharmacal, arguing that the court erred in relying “entirely on American Girl, which decision was a sea change in judicial interpretations of ‘property damage’ in a CGL policy.” The concurring opinion concluded “that the facts are as yet too undeveloped to determine each of the coverage defenses” and agreed with the court’s holding that summary judgement in favor of the insurers was inappropriate.

Partial Dissent

In a partial dissent, Chief Justice Ziegler (joined by Justice R. Bradley) argued that Engerman’s insurer, West Bend Mutual Insurance Company, did not have a duty to defend because Engerman “knew of the property damage at issue in this case prior to the policy period with West Bend,” thereby precluding coverage under the policy’s known-loss provision. The partial dissent agreed with the court that Pharmacal should be overruled and that the other two insurers were not entitled to summary judgement.