In Phillips, et al. v. Parmelee, et al., – N.W.2d –, 2013 WL 6818145 (Wis. Dec. 27, 2013), the Supreme Court of Wisconsin affirmed trial and appellate court decisions in favor of an insurer arguing that an asbestos exclusion in a Business Owners policy precluded coverage for an accidental release of asbestos in an apartment building.
Phillips arises out of a real property transaction in which the sellers did not disclose the presence of asbestos in the subject property. The buyer’s pre-sale inspection report, however, indicated that certain heating ducts likely contained asbestos. Following the sale, the buyers commenced renovations resulting in an accidental release and dispersal of asbestos throughout the building. As a result, the building was rendered uninhabitable and ultimately lost in foreclosure.
The buyers filed an action against the sellers in Wisconsin state court seeking damages for, among other things, breach of contract and warranty and non-disclosure of defective conditions – including failure to disclose the presence of asbestos. American Family Mutual Insurance Company (“American Family”) intervened seeking a declaration of no coverage based on an asbestos exclusion in the defendants’ Business Owners policy.
The lone issue on appeal was whether the asbestos exclusion in the policy precluded coverage for the damages sought by the buyers. The buyers argued that the exclusion was ambiguous because asbestos is not defined in the policy, and the exclusion’s “arising out of” language should be interpreted broadly to require a causal connection between the damages and the release of asbestos. The buyers argued that a prior appellate court decision was controlling, where the court had found that an asbestos exclusion did not preclude coverage for damages arising out of an accidental release of asbestos, because the exclusion did not provide that coverage was excluded for damages arising out of the “unknowing or accidental” release of or dispersal of asbestos.
The court agreed that a causal connection was required, but contrary to the buyer’s argument, the court found that the loss arose out of the dispersal of asbestos. The court also rejected the buyer’s ambiguity argument as to the word asbestos – because asbestos in any form is asbestos. Moreover, the court distinguished the prior appellate court decision, finding that the exclusion at issue in that case was narrower that the American Family exclusion, which included “broad, comprehensive language including a wide range of asbestos related losses.”