United States District Court, E.D. Wisconsin
STATE OF WISCONSIN LOCAL GOVERNMENT PROPERTY INSURANCE FUND, Plaintiff,
LEXINGTON INSURANCE COMPANY and THE CINCINNATI INSURANCE COMPANY, Defendants.
Stadtmueller, U.S. District Judge
lawsuit arises from a fire at the Milwaukee County courthouse
(the "Courthouse") on July 6, 2013. The parties,
various insurance companies, are litigating to determine
which of them must ultimately foot the bill for the damage it
caused. Plaintiff State of Wisconsin Local Government
Property Insurance Fund (the "Fund") was the
primary insurer and has already paid the insured, Milwaukee
County (the "County"). The Fund contracted with
Defendant Lexington Insurance Company ("Lexington")
for additional insurance should a loss exceed what the Fund
could pay. The County also obtained insurance directly from
Defendant The Cincinnati Insurance Company
("Cincinnati") for supplemental coverage for the
Courthouse. The Fund's Complaint asserts the following
causes of action divided into three counts:
1) A request for declaratory judgment that Lexington and
Cincinnati must reimburse the Fund, pursuant to their
respective insurance policies, for the amounts paid to the
2) Breach of contract against Lexington for failing to pay
the Fund's claim on its policy; and
3) Bad faith against Lexington for its failure to pay the
See (Docket #1-2 at 20-24).
11, 2017, the Fund filed a motion for summary judgment
against Lexington (but not Cincinnati) as to Counts One and
Two. (Docket #82). After seeking leave to conduct additional
discovery, Lexington filed its response without opposition
from the Fund on September 8, 2017. (Docket #145). The Fund
replied on September 22, 2017. (Docket #152). On June 15,
2017, Lexington filed its own motion for summary judgment as
to Count Three. (Docket #102). The Fund responded on July 17,
2017. (Docket #126). Lexington replied on August 4, 2017.
(Docket #138). Upon consideration of the parties'
filings, the Court must grant summary judgment to the Fund
and largely deny it to Lexington.
STANDARD OF REVIEW
Rule of Civil Procedure 56 provides that the "court
shall grant summary judgment if the movant shows that there
is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(a); see Boss v. Castro, 816 F.3d
910, 916 (7th Cir. 2016). A "genuine" dispute of
material fact is created when "the evidence is such that
a reasonable jury could return a verdict for the nonmoving
party." Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986). The Court construes all facts and
reasonable inferences in a light most favorable to the
non-movant. Bridge v. New Holland Logansport, Inc.,
815 F.3d 356, 360 (7th Cir. 2016). In assessing the
parties' proposed facts, the Court must not weigh the
evidence or determine witness credibility; the Seventh
Circuit instructs that "we leave those tasks to
factfinders." Berry v. Chicago Transit Auth.,
618 F.3d 688, 691 (7th Cir. 2010). Internal inconsistencies
in a witness's testimony "'create an issue of
credibility as to which part of the testimony should be given
the greatest weight if credited at all.'" Bank
of III. v. Allied Signal Safety Restraint Sys., 75 F.3d
1162, 1170 (7th Cir. 1996) (quoting Tippens v. Celotex
Corp., 805 F.2d 949, 953 (11th Cir. 1986)). The
non-movant "need not match the movant witness for
witness, nor persuade the court that [its] case is
convincing, [it] need only come forward with appropriate
evidence demonstrating that there is a pending dispute of
material fact." Waldridge v. Am. Hoechst Corp.,
24 F.3d 918, 921 (7th Cir. 1994).
following facts are material to the parties' motions.
They are drawn from the parties' factual briefing unless
otherwise noted. See (Docket #127, #139, #146, and
#151). For brevity's sake, the Court will present all of
the pertinent facts here and note any disputes thereof. The
appropriate standard of review will be applied in the
Court's separate analysis of each party's motion.
See infra Parts 4.1 and 4.2.
The Insurance Policies
are two policies which together form the basis of this
lawsuit. The first is the policy purchased by the County from
the Fund (the "Fund Policy"). The Fund Policy lists
the Courthouse as covered property and the County as the
insured. The Fund Policy opens with, inter alia, the
In consideration of the provisions of this policy, the
payment of premium, receipt of a statement of values,
property in the open schedule and/or contractors equipment
detail, and in accordance with the provisions of Ch. 605,
Wisconsin Statutes, the "Fund" insures those named
on the Declarations page for the coverages indicated by
amount of coverage and premium.
(Docket #85-1 at 157). The Fund Policy goes on to state that
it affords coverage for "all sudden and accidental
direct physical loss or damage except as limited or excluded
in the following sections." Id. The Fund agreed
to pay the replacement cost of any covered property, even
when that would be greater than its stated value. Id.;
see Id. at 20 (Courthouse listing on the Statement of
most insurance contracts, the Fund Policy contains a number
of exclusions. (Docket #85-1 at 162-64). Section VI catalogs
the exclusions in two subsections, A and B. Subsection A is
prefaced with the statement that "[t]he 'Fund'
will not pay for loss or damage caused directly or indirectly
by... any of the following[.]" Id. at 162.
Subsection A goes on to list various specific exclusions
under this heading:
Wear and tear[;] . . . deterioration; rust or corrosion; . .
. inherent vice, inherent or latent defect; contamination; .
. . error, omission, or deficiency in design, specifications,
workmanship or materials; . . . unless loss by a peril not
excluded in this policy results, and then the
"Fund" will be liable for only such resulting loss.
Id. Subsection B opens with the same language as
Subsection A, but also includes the following sentence:
"Such loss or damage is excluded regardless of any other
cause or event contributing concurrently or in any sequence
to the loss or damage." Id. at 163. This is
known as an "anti- concurrent cause" provision.
See Am. Fam. Mut. Ins. Co. v. Schmitz, 793 N.W.2d
111, 113-14 (Wis. Ct. App. 2010).
second relevant policy is that between Lexington and the Fund
(the "Lexington Policy"). Lexington issued its
policy to the Fund in March 2013. It describes the covered
perils as "all risks of direct physical loss or damage .
. . except excluding equipment breakdown and as further
described in the approved policy form." (Docket #76-1 at
5) (capitalization altered). The overall liability limit was
$100 million and had a $1.8 million deductible. Id.
at 4-5. The Lexington Policy also has a section on
"sublimits" on coverage, which states that
"equipment breakdown" is not covered. Id.
at 14-15. The term "equipment breakdown" is not
defined in the Lexington Policy. Various other exclusions,
including those for internet malfunctions, data corruption,
terrorism, boilers and machinery, and mold are all present in
the Lexington Policy, and each includes an anti-concurrent
cause provision. The Lexington Policy expressly incorporates
and follows the form of the Fund Policy, meaning that the
same coverages and exclusions are present in both contracts.
Id. at 3, 22-34. This is referred to in the industry
as a "follow form" provision.
The Loss Event
6, 2013, the Courthouse-an enormous eleven-story building and
the hub of many County governmental offices beyond the
judiciary-was damaged. The County made a claim on the Fund
Policy the very next day. Brynn Bruijn-Hansen
("Bruijn-Hansen"), the manager of the Fund, toured
the Courthouse soon after. She observed what appeared to be
fire-related damage in the basement and smoke damage in the
upper floors of the building. During her tour, Bruijn-Hansen
saw smoke on the third floor and smelled it as high as the
Fund concluded that coverage was available for the damage
because it was due to a sudden and accidental direct physical
loss, resulting at least arguably from a covered peril. This
determination included potential coverage under the
"resulting loss" language of the Subsection VI.A
exclusions. The Fund determined that the level of coverage
for this loss was replacement cost. The County provided a
sworn statement of loss indicating the replacement cost for
the damaged property was more than $19 million. Because the
claim was arguably covered, Bruijn-Hansen followed the
procedures dictated by the applicable statute (discussed
further below) and certified the loss to the Wisconsin
Department of Administration for payment. To date, the Fund
has paid a total of more than $18 million to the County.
denies that the claim was even arguably covered because of an
additional exclusion in Section VI.A, which excludes loss
from "[e]lectrical or mechanical breakdown including
rupture or bursting caused by centrifugal force."
(Docket #85-1 at 163). Lexington further maintains that the
Fund's investigation was cursory and that Bruijn-Hansen
was not qualified to determine the cause of the loss. It
questions how Bruijn-Hansen could have made a determination
for coverage and amount without waiting for the opinions of
the Fund's retained experts.
approving the County's claim, the Fund simultaneously
made a claim on the Lexington Policy. The Fund gave Lexington
notice of its claim on July 8, 2013. In connection therewith,
the Fund provided Lexington with a sworn proof of loss
statement. Upon receipt of the claim, Lexington retained a
number of consultants to commence its investigation. The
investigation, described in greater detail below, resulted in
a determination that Lexington would not cover the Fund's
The Parties' Positions on Cause and Origin
to addressing the specifics of the denial, it is helpful to
know what the parties' positions are with respect to the
underlying merits of the Fund's claim. Both the Fund and
Lexington engaged numerous experts to evaluate the source of,
and damage caused by, the events of July 6, 2013. The
Fund's investigation placed blame on a fire, which then
caused smoke damage throughout the Courthouse. According to
the Fund's experts, an electrical capacitor in the
basement failed and ruptured. The capacitor failed because
its insulation degraded, having been in place for three years
beyond its twenty-year expected lifespan. The combustible oil
inside, Wemcol, ignited, generating heat and smoke. The fire,
and the overvoltage resulting from the loss of the first
capacitor, caused adjacent capacitors to also fail. This
burned their Wemcol, as well as various other nearby
combustibles like cable insulation. The fire also created
electrical arcing between metal components of the capacitors.
The fire theory is consistent with the observations of first
responders to the event, who smelled smoke and saw it coming
from air ducts. It is also supported by the Fund's expert
testimony on smoke spread, which states that the observed
smoke damage fits a Wemcol fire much more closely than an
electrical arcing event. The smoke particulate generated by a
Wemcol fire could have covered millions of square feet within
agrees that the capacitor failed and ruptured, but its
experts have differing opinions on the precise cause and
resulting damage. They believe the capacitor rupture was
caused by an electrical failure, which raised the internal
pressure of the capacitor beyond what it could withstand. The
resultant explosion caused mechanical damage to other
electrical components nearby. This in turn created an
electrical arc which ignited plasma at approximately 5, 000
degrees Fahrenheit. The arc propagated around the electrical
components, melting and vaporizing some of them. This also
released some particulate matter around the area. The
electrical arcing event was sustained for approximately
eighteen minutes. Lexington attributes the length of the
event to a failure in the electrical failsafe systems within
the Courthouse. Only when the electrical utility's
protective measures activated did the arcing event end. Thus,
Lexington's experts attributed the entire event to two
electrical equipment failures, one in the capacitors, and the
other in the failsafe mechanism. As to the resulting damage,
Lexington's smoke dispersion expert says that very ...