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Auto-Owners Insurance Co. v. City of Appleton

Court of Appeals of Wisconsin

August 29, 2017

Auto-Owners Insurance Company, Plaintiff-Appellant,
City of Appleton, Defendant-Respondent, Lowell McLarty and Carol McLarty, Defendants.

         APPEAL from an order of the circuit court for Outagamie County: No. 2015CV1072 MARK J. MCGINNIS, Judge. Affirmed.

          Before Stark, P.J., Hruz and Seidl, JJ.

          HRUZ, J.

         ¶1 Auto-Owners Insurance Company appeals an order denying its motion for an injunction prohibiting the razing of Lowell and Carol McLartys' home following a garage fire. While unclear, it appears Auto-Owners argues the raze order in this case was invalid because the relevant provisions of the raze order statute, WIS . STAT . § 66.0413 (2015-16), [1] do not authorize a building damaged as a result of a sudden fire to be razed. Auto-Owners also argues the raze order was unreasonable because the home could be repaired at a reasonable cost, the raze order was issued as a result of the insured's inquiry to the municipality, and the building inspector did not personally inspect the premises before issuing the raze order. Finally, Auto-Owners contends that smoke and water damage remediation must be excluded when calculating a building's "cost of repair." We reject each of Auto-Owners' arguments, primarily because they are unsupported by the statute's plan language and evident purpose, and because they produce an absurd result. Accordingly, we affirm.


         ¶2 On August 26, 2015, the McLartys' residence in Appleton caught fire. It is undisputed the fire caused structural damage to the attached garage. There was also non-structural damage throughout the home, including water damage from the fire suppression efforts and smoke damage. The property was insured by Auto-Owners, with a policy limit of $287, 500. The McLartys notified Auto-Owners of the fire the day after it occurred. They did not live in the residence following the fire.

         ¶3 The McLartys contacted a damage restoration company, ServPro, which provided a quote in early October 2015 for "[fire restoration] of garage/main floor/second story/ related to the fire in garage." The estimate for such restoration was approximately $130, 600. The following day, ServPro contacted the McLartys with a revised estimate of approximately $112, 850 for a reduced scope of work that included "rebuild only[, ] not … cleaning & demo & smoke sealing."

         ¶4 The City's inspection supervisor, Kurt Craanen, testified that, as a matter of routine, he was notified of the fire the day after it occurred. Craanen did not take any action based on that report. However, after the McLartys received the ServPro estimate, their attorney contacted Craanen and notified him that the costs to repair the home were considerably more than half the home's value. The McLartys' attorney requested information regarding whether the City would issue a raze order for the building, as repairs appeared presumptively unreasonable under Wis.Stat. § 66.0413(1)(c), given the cost of repairs as compared to the home's value.

         ¶5 Craanen requested a copy of the ServPro estimate from the McLartys' attorney. After reviewing the estimate, Craanen reviewed property records showing the building's assessed value was approximately $124, 000.[2]Pursuant to the raze order statute, Craanen concluded repairs were not reasonable. On October 8, 2015, he issued an order requiring that the McLartys' residence be razed within thirty days. Auto-Owners received a copy of the raze order on October 14.

         ¶6 Auto-Owners objected to the raze order. Razing the home would result in a total loss, requiring payment of the homeowner policy limits pursuant to the valued policy law, Wis . Stat . § 632.05.[3] At Auto-Owners' request, the City stipulated to extend the time within which to raze the home, allowing the McLartys until February 1, 2016. In the interim, Auto-Owners commenced this action by filing a motion pursuant to Wis.Stat. § 66.0413(1)(h) seeking a restraining order prohibiting the razing of the McLartys' residence. Auto-Owners asserted the raze order was unreasonable and demanded it be allowed to repair the residence. Auto-Owners also challenged Craanen's conclusion that repairs were unreasonable, noting the ServPro estimate included approximately $76, 500 in repairs for smoke remediation, which amount Auto-Owners asserted was not to be considered when calculating the cost of repair under the raze order statute.

         ¶7 The circuit court held a temporary injunction hearing, at which Craanen was the only witness to testify. Craanen testified the City does not often issue raze orders, but he estimated he had personally ordered three in the past for fire damage, including one in August 2015. Craanen determined the fire had rendered the McClartys' residence "out of repair" under Wis.Stat. § 66.0413(1)(b)1., based on the fact the home required at least $112, 000 in repairs and needed to be brought up to code. Craanen did not visit the McLartys' property until after he had issued the raze order, nor did he independently verify that the McLartys' repair estimate was correct.[4]

         ¶8 The parties presented argument following Craanen's testimony. Auto-Owners claimed the McLartys' home was not "out of repair" because the statute only applies to conditions persisting over a long period of time, and a sudden fire does not qualify. Auto-Owners also challenged the raze order as unreasonable and arbitrary, based on: (1) Craanen's broadly defining "out of repair" as meaning "out of code, " which in Auto-Owners' view left too much discretion to the City; and (2) Craanen's failure to independently inspect the property. Auto-Owners also argued that smoke and water damage remediation should not be considered in determining the feasibility of repairs, and that the raze order statute should not be interpreted "as a way [for an insured] to obtain an insurance windfall." The City asserted that the McLartys' home satisfied each of the statutory criteria for the raze order to issue, and that the raze order was not unreasonable or arbitrary.

         ¶9 The circuit court denied Auto-Owners' motion at a subsequent hearing. The court specifically found Craanen credible and that he had acted professionally and in good faith when issuing the raze order. The court concluded that, following the fire, the McLartys' residence was "out of repair" under the raze order statute, and that the home was rendered uninhabitable. The court also determined it was unreasonable to repair the home given the estimated cost of repairs compared to the home's value. Consequently, the court concluded Auto-Owners had not satisfied its burden of showing that the raze order was unreasonable, and it also concluded that the City had not acted arbitrarily. The court then entered a written order formally denying Auto-Owners' motion. Auto-Owners now appeals.[5]


         ¶10 As an initial matter, we note that any issues involving the obligations of the McLartys and Auto-Owners pursuant to their insurance policy are not before us. Rather, the parties to this appeal are Auto-Owners and the City of Appleton, and the issue is whether the City justifiably issued the raze order in this case. Auto-Owners' arguments in that regard primarily focus on interpreting the raze order statute, Wis.Stat. § 66.0413.

         ¶11 Statutory interpretation presents a question of law, which we review de novo. Seider v. O'Connell, 2000 WI 76, ¶26, 236 Wis.2d 211, 612 N.W.2d 659. We begin with the statute's language; if that language yields a plain meaning, we ordinarily stop the inquiry. State ex rel. Kalal v. Circuit Court for Dane Cty., 2004 WI 58, ¶45, 271 Wis.2d 633, 681 N.W.2d 110. Language in a statute is generally given its common, ordinary and accepted meaning. Id. We interpret the language "in the context in which it is used; not in isolation but as part of a whole; in relation to the language of surrounding or closely-related statutes; and reasonably, to avoid absurd or unreasonable results." Id., ¶46.

         ¶12 Wisconsin Stat. § 66.0413 governs a municipality's authority to raze buildings within its jurisdiction.[6] Under the relevant subdivision here, a governing body, building ...

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