LCB, LLC v. Spectrum Brands, Inc.

1

LCB, LLC and Madison Golf and Development Group, LLC, Plaintiffs-Appellants, v. Spectrum Brands, Inc. and Allianz Global Risks U.S. Ins. Co., Defendants, General Casualty Company of Wisconsin, Defendant-Respondent.

No. 2022AP978

Court of Appeals of Wisconsin, District IV

November 30, 2023

This opinion will not be published. See Wis. Stat. Rule 809.23(1)(b)5.

APPEAL from orders of the circuit court for Dane County, No 2019CV3311 STEPHEN E. EHLKE, Judge.

Before Kloppenburg, P.J., Graham, and Nashold, JJ.

Per curiam opinions may not be cited in any court of this state as precedent or authority, except for the limited purposes specified in Wis.Stat. Rule 809.23(3).

PER CURIAM.

¶1 LCB, LLC ("LCB") and Madison Golf and Development Group, LLC ("Madison Golf") appeal, arguing that the circuit court erred in declaring, on summary judgment that their insurer, General Casualty Company of Wisconsin ("General Casualty"), does not have a duty to defend or indemnify LCB regarding counterclaims brought by Spectrum Brands, Inc. ("Spectrum") against LCB.^[1] We agree and, therefore, reverse the order granting summary judgment to General Casualty and remand for further proceedings.

BACKGROUND

¶2 At the heart of this appeal is a coverage dispute between LCB and its insurer, General Casualty, based on the following undisputed facts. The coverage dispute arises out of litigation concerning LCB's agreement to lease commercial property to Spectrum. Spectrum stored lithium on the leased premises, and the lithium exploded when it came into contact with water that entered the premises during historic flooding in August 2018.^[2] Spectrum remediated the premises, vacated the premises prior to the lease's termination date, and stopped paying rent. As will be discussed in greater detail below, LCB sued Spectrum, alleging that Spectrum negligently stored the lithium and that Spectrum breached the lease. Spectrum counterclaimed, alleging that LCB breached the lease in various respects, that LCB negligently allowed water to infiltrate the premises, and that Spectrum was constructively evicted. General Casualty moved for summary judgment declaring that it did not have a duty to defend or indemnify LCB regarding Spectrum's counterclaims. The circuit court granted General Casualty's motion.

I. The Policy.

¶3 LCB is insured through a commercial general liability policy issued by General Casualty. The policy's initial grant of coverage provides that General Casualty "will pay those sums that [LCB] becomes legally obligated to pay as damages because of … 'property damage'" that is "caused by an 'occurrence.'" Thus, the initial grant of coverage is triggered by property damage that is caused by an "occurrence," which is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."^[3] The policy states that General Casualty "will have the right and duty to defend" against any suit seeking damages that the insured would become legally obligated to pay because of property damage caused by an "occurrence."

II. The Lease.

¶4 Spectrum leased commercial space from LCB in Middleton beginning in June 2012. Spectrum used the space for battery research and development and stored lithium on the premises. LCB knew this, and the lease requires LCB to take proactive measures to prevent water infiltration: "Landlord shall cause the roof and exterior walls to be inspected annually to protect against water infiltration, it being understood that any water infiltration or leakage will cause substantial damage to Tenant." The lease also requires LCB, "at its sole cost, [to] perform such repairs as may be required to maintain, replace and keep in good repair the exterior portions and structural elements of the Demised Premises." In the event that the premises are damaged, the lease states that LCB is responsible for repairs:

If the Demised Premises and improvements therein shall be damaged or destroyed by fire or other casualty, then, Tenant shall give prompt written notice thereof to Landlord, and Landlord shall proceed with reasonable diligence to carry out any necessary demolition and shall restore, repair, replace and rebuild the Demised Premises and improvements therein as the same existed prior to the damage at Landlord's own cost and expense.

If repairs are not made, the lease allows for early termination: "If the Demised Premises Improvements are damaged by more than 60% of their aggregate value, Landlord or Tenant shall have the option of terminating the Lease rather than restoring the Demised Premises."

III. The Flooding

¶5 In August 2018, as a result of historic rainstorms in the Madison area, the leased premises flooded. When floodwaters reached the lithium stored on the premises, there was an explosion that damaged the premises and Spectrum's property located thereon. Spectrum remediated the water damage and residual mold and lithium with the understanding that Spectrum's remediation costs would either be reimbursed or amortized over time in the form of reduced rent. Spectrum alleged that LCB did not make the additional repairs necessary for Spectrum to reoccupy the premises; therefore, in January 2019 Spectrum terminated the lease and vacated the premises.

IV. The Ensuing Litigation.

¶6 LCB sued Spectrum in November 2019. LCB alleged that Spectrum negligently stored the lithium and that Spectrum breached the lease agreement. LCB sought to recover for lost rent and for damages to the leased premises. LCB also sued its insurer General Casualty, alleging that General Casualty breached the terms of LCB's insurance policy by failing to pay LCB pursuant to the policy for the losses that LCB suffered as a result of the flooding and explosion, including lost rent and damages to the building and improvements.

¶7 Spectrum counterclaimed against LCB, alleging that LCB breached the lease by failing to provide dry space, clean up the premises after the flooding and explosion, and carry the required insurance. Spectrum also alleged that LCB negligently allowed water to infiltrate the premises and that LCB constructively evicted Spectrum. Spectrum sought to recover damages for the cost of remediating the premises and for property damage caused by the floodwaters, as well as damages resulting from Spectrum's interrupted business operations.

¶8 General Casualty moved for summary judgment declaring that it does not have a duty to defend or indemnify LCB regarding Spectrum's counterclaims. The circuit court granted the motion, concluding that there was no "occurrence" under the policy so as to provide an initial grant of coverage. Specifically, the court determined that there was no "accident" because "the potential damage was completely anticipated." As evidence that the damage was anticipated, the court noted that "Spectrum negotiated a lease with special provisions specifically to prevent the problem which occurred." For the same reason, the court also concluded that General Casualty has no duty to defend because "this is a breach-of-contract case[,] not a negligence or accident case covered by the term 'occurrence.'"^[4]

¶9 LCB appeals.

DISCUSSION

¶10 There are two issues on appeal. The first is whether Spectrum's counterclaims allege that LCB is legally obligated to pay for property damage that was caused by an "occurrence," thereby triggering General Casualty's duty to defend LCB against Spectrum's claims. The second is whether, if General Casualty does have a duty to defend, we should determine the scope of General Casualty's duty to indemnify.

¶11 We conclude that Spectrum's counterclaims against LCB do allege an "occurrence" that triggers General Casualty's duty to defend. However, we do not address General Casualty's duty to indemnify because doing so before LCB's liability has been determined would be premature.

I. Standard of Review.

¶12 "Summary judgment is properly granted if there is no genuine issue of material fact in dispute and the moving party is entitled to judgment as a matter of law." American Fam. Mut. Ins. Co. v. American Girl, Inc., 2004 WI 2, ¶22, 268 Wis.2d 16, 673 N.W.2d 65; see also Wis. Stat. § 802.08(2) (2021-22).^[5] We review a decision granting summary judgment de novo. See American Girl, 268 Wis.2d 16, ¶22.

¶13 The interpretation of an insurance policy is a question of law that we likewise review de novo. Badger Mut. Ins. Co. v. Schmitz, 2002 WI 98, ¶50, 255 Wis.2d 61, 647 N.W.2d 223. We interpret insurance policies as they would be understood by a reasonable person in the position of the insured. American Girl, 268 Wis.2d 16, ¶23.

II. General Casualty's Duty to Defend.

¶14 Under the policy, General Casualty has a duty to defend LCB against claims involving property damage caused by an "occurrence." The parties dispute whether Spectrum's counterclaims allege an "occurrence" that triggers General Casualty's duty to defend.^[6] We conclude that they do.

¶15 The Commercial General Liability (CGL) policy that General Casualty issued to LCB, like most insurance policies, imposes two main duties: a duty to indemnify LCB against damages, and a duty to defend LCB against claims for damages. See Johnson Controls, Inc. v. London Mkt., 2010 WI 52 ¶28, 325 Wis.2d 176, 784 N.W.2d 579. The duty to defend is broader than the duty to indemnify, and "arises when there is arguable, as opposed to actual, coverage under the policy." Id., ¶29. "An insurer has a duty to defend an insured in a third-party suit if the allegations contained within the four corners of the complaint, would, if proved, result in liability of the insurer under the terms of the insurance policy." Wausau Tile, Inc. v. County Concrete Corp., 226 Wis.2d 235, 266, 593 N.W.2d 445 (1999). "[...