In Phillips v. Parmelee, 2013 WI 105 (December 27, 2013), the Wisconsin Supreme Court rejected the argument that a broad asbestos exclusion in a business insurance policy was ambiguous. A unanimous court ruled that a real estate seller is not covered for an alleged failure to disclose the presence of asbestos under a policy that contains a comprehensive exclusion for any loss arising out of asbestos.
Facts and Court Opinion
The coverage dispute arose out of the sale of a building by the insured, a business owner. Before purchasing the building, the seller had been informed that the heating supply ducts may contain asbestos. However, a report prepared in connection with the subsequent sale of the building contained a statement that the seller was unaware of the presence of asbestos-containing materials within the building.
After the sale, the plaintiff-buyers’ contractor undertook renovation work that resulted in the dispersal of asbestos throughout the building causing the plaintiff-buyers to be ordered to vacate the building, which was ultimately lost in foreclosure. The plaintiff-buyers asserted that the insured-seller breached its contract and warranty and was negligent for failing to adequately disclose the presence of asbestos.
The insured-seller’s Business Owners policy excluded coverage for property damage with respect to “[a]ny loss arising out of, resulting from, caused by, or contributed to in whole or in part by asbestos, exposure to asbestos, or the use of asbestos.” The plaintiff-buyers asserted that the broad language of the exclusion was ambiguous and should be narrowly construed against the insurer. The circuit court and appeals court held that the policy precluded coverage, and the Wisconsin Supreme Court agreed.
At the outset of its decision, the Wisconsin Supreme Court considered the plaintiff-buyers’ argument that the term “arising out of” was ambiguous. The plaintiff-buyers asserted that the causal nexus required by the policy’s broad phrase “any loss arising out of” asbestos should be limited to losses arising out of “exposure to” or “use of” asbestos. The plaintiff-buyers asserted that their losses arose out of the insured-seller’s failure to disclose the presence of asbestos not the “exposure to” or “use of” asbestos. The Court agreed that the phrase “arising out of” was very broad, general and comprehensive, but it rejected the assertion that this made the policy ambiguous. The Court determined that the policy was clearly intended to exclude any asbestos-related losses, regardless of the type of tort from which the loss arose.
The Court also rejected the argument that the exclusion was ambiguous because the word “asbestos” is undefined in the policy. The Court reasoned that a reasonable insured would understand that “asbestos in any form is asbestos.”
While Phillips does not break new ground, it does illustrate an onging trend in the case law: Even jurisdictions such as Wisconsin that tend to be more favorable for insureds are likely to sustain a broad asbestos exclusion – such as the one found in Phillips – that comprehensively and unambiguously excludes coverage for any asbestos-related losses, regardless of the underlying tort alleged.