The Supreme Court of Wisconsin ruled yesterday that a construction company’s builder’s risk policy issued by Assurance Company of America (“Assurance”) applied to cover a fire loss at a home under construction, even though the prospective purchasers of the home were residing in the home at the time of the fire and had already recovered from their homeowner’s policy.
The case arises from a June 28, 2007 fire that damaged a high-end custom-built home being built by Fontana Builders, Inc. (“Fontana”). At the time of the fire, construction was nearly complete. Fontana’s president and sole shareholder James Accola intended to purchase the home from Fontana upon completion and had already moved in and had secured a homeowner’s policy from Chubb when the fire occurred. After the fire, Mr. Accola and his wife filed a claim with Chubb, for which Chubb paid $1.5 million.
Thereafter, Fontana sought approximately $1.4 million from Assurance. Assurance denied coverage, citing, among other things, a policy provision stating that coverage would end “[w]hen permanent property insurance applies.” The trial court allowed the jury to determine whether the Accolas’ Chubb policy constituted “permanent property insurance” that applied to the loss, and the court admitted evidence of the Accolas’ settlement with Chubb despite the fact that Chubb admitted no liability in the settlement. The jury found the Chubb policy to be “permanent property insurance” that applied to the loss, and the trial court ordered that the Assurance policy afforded no coverage for the loss. The Court of Appeals of Wisconsin affirmed.
The Supreme Court of Wisconsin reversed and held that policy interpretation was for the trial court, not the jury. The Court also held that the termination provision was ambiguous because the term “applies” as used in that provision, was reasonably susceptible to more than one meaning. Read the policy’s termination provision together with the remainder of the policy, the court concluded that the provision applied only when the builder’s interest in the property was covered by other permanent property insurance. The court noted that the Accolas’ interest in the property was distinct from the interest insured under the Chubb policy, since no permanent property insurance applied to Fontana’s interest. Significantly, the court noted that its holding would serve to protect builders positioned similarly to Fontana, whose coverage otherwise might otherwise be held to have lapsed due to the actions of unrelated third parties.