Kutchera v. State Farm Fire & Cas. Co.

560 F.Supp.3d 1242

Steven KUTCHERA, Plaintiff,

v.STATE FARM FIRE AND CASUALTY COMPANY, Defendant.¹

20-cv-930-jdp

United States District Court, W.D. Wisconsin.

Signed September 15, 2021

Justin Franklyn Wallace, Travis Yang, Sean Adam Bukowski, Mayer, Graff & Wallace, LLP, Manitowoc, WI, for Plaintiff.

Sarah Anne Zylstra, Tanner Jean-Louis, Boardman & Clark LLP, Madison, WI, for Defendant.

OPINION and ORDER

JAMES D. PETERSON, District Judge

This case arises out of a homeowner's policy that plaintiff Steven Kutchera bought from defendant State Farm Fire and Casualty Company. In 2020, Kutchera submitted a claim to State Farm under that policy, alleging that his garage collapsed because of the weight of ice and snow on the roof. State Farm denied the claim on the ground that Kutchera had been using the garage for business purposes, so it was excluded from coverage.

Kutchera concedes that he was using his garage to repair cars for money during the relevant policy period. But he contends that the damage to his garage was unrelated to any car repair work that he was doing, so State Farm was prohibited from denying coverage under Wis. Stat. § 631.11(3), which applies when there is "a failure of a condition" or a "breach of a promissory warranty." State Farm contends that the business-use clause is an exclusion, not a warranty or a condition, so § 631.11(3) doesn't apply.

Kutchera asserts claims for breach of contract, bad faith, and a violation of Wis. Stat. § 628.46 for untimely payment of an insurance claim. He moves for summary judgment on the breach of contract claim, Dkt. 18; State Farm moves for summary judgment on all three claims, Dkt. 42.²

The court will grant State Farm's motion for summary judgment and deny Kutchera's. The clause at issue is written as an exclusion, not a warranty or a condition. Kutchera argues for an expansive reading of the terms "warranty" and "condition" to encompass any use restriction on a property. Kutchera's view has some appeal, but it has not been adopted by the Wisconsin courts, it would significantly expand the scope of § 631.11(3), and it would encourage insureds to purchase the wrong policy for properties used as a business. For these reasons, and those discussed below, the court isn't persuaded that § 631.11(3) applies to the business-use clause. Kutchera's other arguments challenging the scope and validity of the business-use clause also fail. Accordingly, State Farm is entitled to summary judgment on the breach-of-contract claim. Kutchera's other claims are contingent on the success of his contract claim, so those claims fail as well.

BACKGROUND

The following facts are undisputed.

In spring 2014, Kutchera purchased real property with a garage that was approximately two miles from his residence in Three Lakes, Wisconsin. Kutchera purchased a homeowner's policy with an off-premises structures endorsement, which would afford coverage for the garage.

In fall 2014, Kutchera began running an automobile service center out of the garage. He contacted State Farm to buy an insurance policy for the garage, but State Farm told him that it didn't provide insurance for "automotive-type repair." Dkt. 63, ¶ 20. So Kutchera bought a business policy for "Kutchera LLC" from another insurance company, with an annual premium of $2,590.

In September 2017, Kutchera cancelled his business policy. He contacted State Farm again, stating that he had "basically closed" the service center and needed insurance on the garage for "personal use." Id. , ¶ 29. His homeowner's policy still included an off-premises structures endorsement, so no additional policy was needed.

State Farm issued Kutchera a homeowner's policy for March 2019 to March 2020. It included an off-premises structures endorsement with the following language:

We also cover other structures owned by you, not located on the residence premises, used by you in connection with the residence premises.

a. This coverage does not apply to any structure:

(1) being used as a dwelling;

(2) intended for use as a dwelling when originally built;

(3) not permanently attached to or otherwise forming a part of the realty;

(4) used either completely or in part for business purposes; or

(5) rented or held for rental unless rented to a person who is a tenant of the dwelling or rented for use solely as a private garage.

The annual premium for the policy, including the endorsement, was $844.

In January 2020, Kutchera reported to State Farm that the roof on his garage had collapsed as a result of the weight of accumulated ice and snow. A claim adjuster visited the garage and observed that there was a hydraulic car lift inside. But Kutchera told the adjuster that he closed the garage in 2017.

State Farm later obtained tax records, invoices, and other records from Kutchera showing that he was still doing business out of the garage in 2018 and 2019. His ledger showed $22,179 in gross receipts for 2019, and most of that amount was for dates during the policy period. Dkt. 50-7. In May 2020, State Farm denied Kutchera's claim because its investigation had revealed business use of the garage.

Kutchera is a citizen of Wisconsin, State Farm is a citizen of Illinois, and the amount in controversy is more than $75,000 because Kutchera alleges that he incurred at least $91,000 in damages to his garage. So the court may exercise jurisdiction under 28 U.S.C. § 1332.

ANALYSIS

State Farm contends that it is entitled to summary judgment on Kutchera's breach-of-contract claim because the undisputed facts show that Kutchera used his garage during the policy period to service cars for money, so an exclusion in his homeowner's policy for structures used for business purposes applies. Kutchera's primary argument in response is that Wis. Stat. § 631.11(3) requires State Farm to show that any business use of his garage increased the risk of loss or contributed to the loss and that State Farm has failed to make that showing. Alternatively, Kutchera contends that the business-use clause is ambiguous and that the policy's coverage for other structures is illusory.

State Farm also contends that it has met the requirement in § 631.11(3) to show that Kutchera's business use increased the risk of loss or contributed to it. But the court need not consider that argument because the court concludes that § 631.11(3) doesn't apply to the business-use clause. The court rejects Kutchera's other arguments as well.

A. Does Wis. Stat. § 631.11(3) apply to the business-use clause?

The portion of the policy at issue in this case is an endorsement for "other structures." The endorsement includes the following clause: "This coverage does not apply to any structure ... used either completely or in part for business purposes." Dkt. 63, ¶ 33. The parties dispute whether the clause is governed by Wis. Stat. § 631.11(3), which provides:

No failure of a condition prior to a loss and no breach of a promissory warranty constitutes grounds for rescission of, or affects an insurer's obligations under, an insurance policy unless it exists at the time of the loss and either increases the risk at the time of the loss or contributes to the loss.

The question is whether the clause is a "condition" or a "promissory warranty" within the meaning of the statute, as Kutchera contends, or simply an exclusion, as State Farm contends. Kutchera says that the clause is a condition or a warranty because it "requires Kutchera to refrain from business use of his garage after the policy takes effect or else he loses insurance coverage." Dkt. 54, at 2. State Farm says that the clause is an exclusion because it "does not extend coverage to structures used either completely or in part for business purposes." Dkt. 48, at 31–32.

As authorities cited by both parties indicate, the difference between a condition, a warranty, and an exclusion can be subtle and hazy. See D & S Realty, Inc. v. Markel Ins. Co. , 280 Neb. 567, 789 N.W.2d 1, 12 (2010) ("We have struggled with the chameleon-like terms ‘conditions’ and ‘exclusions.’ "); 17 Williston on Contracts § 49.111 (4th ed. 2015) ("Exclusions from or exceptions to coverage are different from warranties and conditions set forth in policies, although the two are often confused."). And this case shows how distinguishing the three terms can be difficult. The clause at issue is written as an exclusion: it states that the policy "does not apply" to structures used for business purposes. The clause isn't written as a warranty by the insured, and it isn't written in conditional language. But it easily could be, without changing its core meaning. For example, the clause could say that other structures are covered, but if the structure is used for business purposes, coverage is forfeited. Or it could say that the insured represents that he will not use the structure for business purposes. A closer look at Wisconsin case law is required to understand how Wisconsin courts have defined these terms.

There is little case law interpreting § 631.11(3), but the statute is the most recent version of a law that goes back to 1907, see Laws of Wisconsin 1907, chapter 127, and the Wisconsin Supreme Court has indicated that the meaning of the terms hasn't changed and is the same as their common-law meaning. Fox v. Cath. Knights Ins. Soc. , 2003 WI 87, ¶¶ 27–29, 263 Wis. 2d 207, 225, 665 N.W.2d 181, 189. In this case, each side relies on different Wisconsin cases to support its understanding of the terms.

State Farm relies on Bortz v. Merrimac Mutual Insurance Co. , 92 Wis. 2d 865, 286 N.W.2d 16 (Ct. App. 1979), to show the difference between a condition and an exclusion. In that case, the court considered an insurance policy that included the following language:

EXCLUSIONS SECTION II

This policy does not apply:

(g) under coverages A & B, to bodily injury to

(2) any farm employee employed in violation of law as to age, if the occurrence arises out of any power driven machine other than an automobile, ....

Id. at 869, 286 N.W.2d 16. The parties in Bo...