Insurer must defend property damage.

Byline: David Ziemer

A buyer's allegation of "pecuniary damage" from undisclosed defects in a residence is sufficient to constitute "property damage," invoking a duty to defend on the part of the broker's insurer, the Wisconsin Court of Appeals held on July 30.

John J. & Lynne L. Droegkamp purchased a residence from James F. & Susan M. Langdon. Timothy Michelic acted as the real estate broker in the transaction, and at all times relevant to this matter was employed by Realty Executives.

American Southern is Michelic's and Realty Executives' errors and omissions insurer. The policy excludes coverage for intentional acts, but not for negligent ones. The policy also contains a standard exclusion for "bodily injury, sickness, disease or death of any person or physical injury to or destruction of or loss of use of tangible property."

The Droegkamps alleged eight causes of action against the Langdons, Michelic and Realty Executives, including strict liability misrepresentation, negligent misrepresentation, and negligence. American Southern intervened, arguing that it had no duty to defend.

Waukesha County Circuit Court Judge J. Mac Davis granted the motion, and Michelic and Realty Executives appealed. The court of appeals affirmed in part and reversed in part, in a decision by Judge Harry G. Snyder.

Intentional Torts

The court agreed with the circuit court that the following counts alleged in the complaint were not covered by the policy: (1) breach of contract (warranty); (2) intentional misrepresentation; (3) statutory misrepresentation pursuant to Wis. Stat. secs. 895.80 and 943.20(1)(d); and (4) fraudulent misrepresentation pursuant to Wis. Stat. sec. 100.18.

For each count, the court concluded that an intentional act was alleged, and pursuant to the exclusion against coverage for intentional acts, those counts were not covered under the policy.

Causation

For the remaining claims, however, the intentional acts exclusion did not apply; the question was whether the exclusion for bodily injury or physical injury to property did. In each case, the court concluded that the exclusion was inapplicable.

Discussing the strict liability misrepresentation claim, the court concluded, "Exclusion F excludes coverage for bodily injury or physical injury to tangible property. While this may apply to some claimed damage, the Droegkamps also allege pecuniary damage, damage not excluded by the policy."

Discussing the negligent misrepresentation claim, the court reasoned...