Claims For Fraudulent And Negligent Misrepresentation Do Not Trigger A Duty To Indemnify And Defend Under An Insurance Policy Covering An "Occurrence"
EBERTS v. GODERSTAD (June 29, 2009)
The Goderstads sold their large, vintage Wisconsin home to the Ebertses for $1.85 million. Within months of their occupancy, they began to notice significant defects. The Ebertses brought a seven count complaint in the district court. American Family Mutual Insurance Company, the Goderstad’s insurer, reserved its rights, appointed counsel, and moved to intervene to protect its interests. The district court concluded that none of the claims were covered under any of the Goderstad’s policies. It granted summary judgment to American Family and certified its judgment under Rule 54 (b). The Goderstads appeal.
In their opinion, Judges Ripple, Williams and Sykes affirmed. The Court noted that American Family has a duty to defend if the allegations of the complaint raise the possibility of coverage. The Goderstads have four policies, each of which insures against “property damage” caused by an “occurrence,” an “occurrence” being defined as an “accident.” On appeal, the Goderstads argue that two of the allegations of the Ebertses’ complaint trigger coverage – fraudulent misrepresentation and negligent misrepresentation. The Court looked to the Stuart case in Wisconsin, which had been decided by the court of appeals shortly after the district court ruled and decided by The Wisconsin Supreme Court shortly after oral argument in the Seventh Circuit. The unanimous decision in Stuart effectively disposed of the Goderstad’s argument with respect to fraudulent misrepresentation. The court reversed the court of appeals and held that a fraudulent misrepresentation claim by definition has a degree of volition inconsistent with “accident.” With respect to negligent misrepresentation, the Court blocked both avenues attempted by the Goderstads. First, the Court held that Wisconsin law predating and unaffected by Stuart held that negligent misrepresentation was not covered by a policy insuring against an “accident.” Next, the Court held that the Goderstad’s attempts to get around that principle by arguing that theirs was a non-disclosure claim failed because Wisconsin does not recognize such a tort. Finally, the Court noted that the Goderstads suffered no “property damage” as defined in the policy and was not entitled to a defense for that reason as well.
