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Haley v. Kolbe & Kolbe Millwork Co. Inc.

United States District Court, W.D. Wisconsin

August 25, 2016

MARY HALEY and MICHAEL HALEY, LESLIE BANKS and JAMES HAL BANKS, ANNIE BUINEWICZ and BRIAN BUINEWICZ, TERRANCE McIVER AND JEAN ANN McIVER, SUSAN SENYK, CHRISTIAN SENYK, GARY SAMUELS, PATRICIA GROOME, MATTHEW DELLER, RENEE DELLER and MARIE LOHR, on behalf of themselves and all others similarly situated, Plaintiff,
v.
KOLBE & KOLBE MILLWORK CO., INC., Defendant, and FIREMAN'S FUND INSURANCE COMPANY and UNITED STATES FIRE INSURANCE COMPANY, Intervenor Defendants.

          OPINION AND ORDER

          BARBARA B. CRABB District Judge.

         Owners of windows made by defendant Kolbe & Kolbe Millwork Co, Inc. brought this proposed class action in which they challenged the quality of the windows that they purchased. In orders dated March 25, 2016, and June 7, 2016, I denied plaintiffs' motion for class certification and concluded that defendant was entitled to summary judgment on the claims of the individual plaintiffs. Dkt. ## 524 and 544.

         The only remaining dispute relates to defendant's insurance coverage and specifically, United States Fire Insurance Company's contention that it should be relieved of its duty to defend. Although I denied United States Fire's and Fireman's Fund Insurance Company's earlier motions for summary judgment on the same issue in an order dated November 2, 2015, dkt. #376, United States Fire says that the relevant law and facts have changed since then. (Fireman's Fund has not joined United States Fire's motion or filed its own.) After I ruled in favor of defendant on the merits of plaintiffs' claims, I directed both United States Fire and defendant to tell the court whether they believed the issue of insurance coverage was moot. Dkt. #544. Because the parties agree that the motion would not be moot if plaintiffs file an appeal and plaintiffs have appealed the judgment, dkt. #562, I will consider the merits of United States Fire's renewed motion for summary judgment. (Although United States Fire did not seek leave of court to file a second summary judgment motion, as required by the Preliminary Pretrial Conference Order, dkt. #29, at 2, defendant has not objected to the motion, so I will consider it.)

         Having reviewed the parties' briefs, I am persuaded that the Wisconsin Supreme Court's recent decision in Wisconsin Pharmacal Co., LLC v. Nebraska Cultures of California, Inc., 2016 WI 14, 367 Wis.2d 221, 876 N.W.2d 72, a case decided after this court's original summary judgment opinion, relieves United States Fire of its duty to defend in this case. Accordingly, I am granting its renewed motion for summary judgment.

         Also before the court is United States Fire's motion for leave to file supplemental authority in support of its renewed motion for summary judgment. Dkt. #552. In particular, United States Fire says that Marks v. Houston Casualty Co., 2016 WI 53 (June 30, 2016) provides additional support for its argument that its duty to defend has been extinguished. Because I do not need to consider Marks, I am denying this motion as unnecessary.

         OPINION

         The policy in dispute provides coverage for “property damage” that is caused by an “occurrence.” The policy defines “property damage” as follows:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.

         In addition, the policy has an exclusion for “property damage to your product arising out of it or any part of it.” Dkt. #84-2.

         In their complaint, plaintiffs sought four types of damages: (1) damage to the windows themselves and the cost of replacing them; (2) damages caused during the replacement of windows (which the parties refer to as “get to” and “rip and tear” costs); (3) consequential damages to plaintiffs' homes such as stained walls and buckled plaster caused by problems such as leaking windows; and (4) diminution in home value. In the November 15, 2015 order, I agreed with United States Fire that the exclusion for “damage to your product” applied to plaintiffs' claims for damage to the windows themselves, the cost of replacing them and damages caused during the replacement of windows. However, I concluded that United States Fire had failed to show that damage to plaintiffs' homes was excluded from coverage. Because an insurer has a duty to defend so long as there is potential coverage on any of the plaintiffs' claims, Fireman's Fund Insurance Co. v. Bradley Corp., 2003 WI 33, ¶ 21, 261 Wis.2d 4, 660 N.W.2d 666, I denied United States Fire's motion for summary judgment. I did not need to consider whether diminution in home value is covered by the policy.

         In its renewed motion for summary judgment, United States Fire relies on two new developments that have occurred since I denied its motion for summary judgment. First, United States Fire says that a new case, Wisconsin Pharmacal Co., LLC v. Nebraska Cultures of California, Inc., 2016 WI 14, 367 Wis.2d 221, 876 N.W.2d 72, requires the conclusion that its policy does not provide coverage for damage to plaintiffs' homes. Second, United States Fire says that, even if the policy does provide such coverage, my decision to preclude one of plaintiffs' experts from testifying requires the conclusion that plaintiffs could not recover that type of damages. Because I agree with United States Fire's first argument, I need not consider the second.

         With respect to Wisconsin Pharmacal, United States Fire argues that the case made it clear that the “integrated systems rule” applies to the interpretation of insurance policies and that, if the rule is applied in this case, the policy at issue does not provide coverage for any damage to plaintiffs' homes caused by defendant's windows. Dkt. #532 at 11. The “integrated system rule” comes from the economic loss doctrine, which limits a plaintiff's right to use tort theories to recover damages for a defective product. Digicorp, Inc. v. Ameritech Corp., 2003 WI 54, ¶ 35, 262 Wis.2d 32, 662 N.W.2d 652. Although courts have provided several reasons for precluding tort recovery in that situation, those reasons essentially can be reduced to one: allowing a dissatisfied purchaser to recover under tort for a defective product would undermine contract law because it would permit buyers to obtain more than they bargained for. Sunnyslope Grading, Inc. v. Miller, Bradford and Risberg, Inc., 148 Wis.2d 910, 916, 437 N.W.2d 213, 215 (1989).

         The economic loss doctrine does not limit claims for damages caused by a defective product to property other than the product itself, Northridge Co. v. W.R. Grace & Co., 162 Wis.2d 918, 925-26, 471 N.W.2d 179, 181 (1991), so one dispute that can arise in cases about defective products is whether the plaintiff is trying to recover damages for the product itself or for “other property.” This is where the integrated systems rule comes in. Under that rule, the economic loss doctrine applies to “[d]amage by a defective component of an integrated system to either the system as a whole or other system components.” Wausau Tile, Inc. v. County Concrete Corp., 226 Wis.2d 235, 249, 593 N.W.2d 445, 452 (1999). In other words, damage to any part of an “integrated system” is treated as damage to the product itself rather than to “other property.” In Wisconsin Pharmacal, the supreme court considered the extent to which the integrated systems rule should apply in the context of ...


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