Preview:

NO.                                             96-2156
STATE OF WISCONSIN                              IN COURT OF APPEALS
DISTRICT II
GENERAL STAR INDEMNITY COMPANY, A FOREIGN
CORPORATION,
PLAINTIFF-RESPONDENT-CROSS-
APPELLANT,
V.
THE BANKRUPTCY ESTATE OF LAKE GENEVA SUGAR
SHACK, INC., BY ITS TRUSTEE JOHN F.
WALDSCHMIDT, A WISCONSIN CORPORATION, AND THE
BANKRUPTCY ESTATE OF DANA MONTANA, BY ITS
TRUSTEE MICHAEL F. DUBIS,
DEFENDANTS-THIRD-
PARTY PLAINTIFFS-APPELLANTS-CROSS-
RESPONDENTS,
V.
HORIZON INSURANCE AGENCY, INC.,
THIRD-PARTY DEFENDANT-
RESPONDENT-CROSS-APPELLANT.
ERRATA SHEET
Marilyn L. Graves                                                                                         Court of Appeals District III
Clerk of Court of Appeals                                                      740 Third Street
P.O. Box 1688                                                                  Wausau, WI                 54403-5784
Madison, WI                                     53701-1688
                                                                               Jennifer Krapf
Court of Appeals District I                                                    Administrative Assistant
                                                633 W. Wisconsin Ave., #1400                              119 Martin Luther King Blvd.
Milwaukee, WI                                   53203-1918                     Madison, WI   53703




NO.   96-2156
Peg Carlson                                                                                                        James A. Baxter
Chief Staff Attorney                                                                                               Mitchell, Baxter, O’Meara &
                                                                                    119 Martin Luther King Blvd.   Mathie, S.C.
Madison, WI   53703                                                                                                111 E. Wisconsin Ave., Ste. 1650
                                                                                                                   Milwaukee, WI   53202-4808
Court of Appeals District II
2727 N. Grandview Blvd.                                                                                            Rebecca E. Leair
Waukesha, WI                                                                        53188-1672                     Mitchell, Baxter, O’Meara & Mathie
111 E. Wisconsin Ave., Ste. 1650
Court of Appeals District IV                                                        Milwukee, WI   53202-4808
119 Martin Luther King Blvd.
Madison, WI   53703                                                                 Christopher T. Hale
                                                                                    Hale and Lein, S.C.
Hon. James L. Carlson                                                               205 E. Wisconsin Ave., #300
Walworth County Courthouse                                                          Milwaukee, WI   53202
P.O. Box 1001
Elkhorn, WI   53121-1001                                                            K. Scott Wagner
Hale & Lein, S.C.
205 E. Wisconsin Ave., #300
Milwaukee, WI   53202
PLEASE  TAKE  NOTICE  that  the  attached  opinion  is  to  be
substituted in its entirety for the above-captioned opinion which was released on
November 12, 1997.
Dated this 17th day of December, 1997.
2




COURT OF APPEALS
DECISION
NOTICE
DATED AND FILED
This opinion is subject to further editing. If
published, the official version will appear in the
bound volume of the Official Reports.
November 12, 1997
A party may file with the Supreme Court a
                                                                           Marilyn L. Graves         petition  to  review  an  adverse  decision  by  the
                                                                           Clerk, Court of Appeals   Court of Appeals.  See § 808.10 and RULE 809.62,
                                                                           of Wisconsin              STATS.
No.                                                  96-2156
STATE OF WISCONSIN                                   IN COURT OF APPEALS
DISTRICT II
GENERAL STAR INDEMNITY COMPANY, A FOREIGN
CORPORATION,
PLAINTIFF-RESPONDENT-
CROSS APPELLANT,
V.
THE BANKRUPTCY ESTATE OF LAKE GENEVA SUGAR
SHACK, INC., BY ITS TRUSTEE JOHN F.
WALDSCHMIDT, A WISCONSIN CORPORATION, AND THE
BANKRUPTCY ESTATE OF DANA MONTANA, BY ITS
TRUSTEE MICHAEL F. DUBIS,
DEFENDANTS-
THIRD PARTY PLAINTIFFS-APPELLANTS-
CROSS RESPONDENTS,
V.
HORIZON INSURANCE AGENCY, INC.,
THIRD PARTY DEFENDANT-
RESPONDENT-CROSS APPELLANT.




NO. 96-2156
APPEAL and CROSS-APPEAL from a judgment of the circuit court
for Walworth County:   JAMES L. CARLSON, Judge.   Affirmed in part; reversed
in part and cause remanded.
Before Brown, Nettesheim and Anderson, JJ.
ANDERSON, J.                                                                             The  bankruptcy  trustee  of  the  Lake
Geneva Sugar Shack, Inc. and its owner Dana Montana appeal and General Star
Indemnity Company (GenStar) cross-appeals from a judgment entered after a jury
trial and motions after verdict.   Montana was exonerated of the allegations relating
to  arson  and  misrepresentation,  except  for  the  claim  that  she  intentionally
misrepresented her business interruption claim of $40,000.   The trial court held
that Montana’s misrepresentation of business losses voided all coverage under an
insurance policy Montana had purchased from GenStar insuring the Sugar Shack.
Because  we  hold  that  the  evidence  does  not  rise  to  the  level  of  fraud  or
misrepresentation  contemplated  by  the  law,  we  reverse  this  portion  of  the
judgment.
Montana  also  seeks  reversal  of  the  trial  court’s  striking  the
$3,327,000  consequential  damages  award.     Assuming  without  deciding  that
Montana can receive consequential damages for GenStar’s breach of the insurance
contract, we conclude that Montana’s cross-collateralization of her three properties
2




NO. 96-2156
was not reasonably foreseeable by GenStar.   Accordingly, we affirm this portion
of the judgment.1
GenStar has raised numerous claims in its cross-appeal.   In sum, we
affirm that portion of the judgment in which the trial court changed the jury’s
answer that Montana had concealed or misrepresented a material fact regarding
the fire at the Sugar Shack because it was inconsistent with its earlier answer that
Montana did not directly cause or solicit the fire.   Although we do not view the
two questions as inconsistent, we conclude that Montana’s concerns about the well
pump are not material.   We further conclude that the evidence supports the jury’s
findings of mistake and of an agency relationship.   Because we find no additional
errors in the  trial court’s holdings, we affirm the judgment on the remaining
issues.
FACTS
In  July                                                                                            1989,  Montana  purchased  a  commercial  lines  insurance
policy from GenStar covering the Sugar Shack, a tavern and male dance club
owned by Montana, for approximately $10,000.    On February 16,  1990, a fire
damaged the Sugar Shack.   Montana filed claims for the building, the contents and
business  interruption  with  the  assistance  of  Sarasohn  &  Company,  a  public
insurance adjusting company.
1   Because we reverse the judgment on the jury’s finding of misrepresentation, we will
not address Montana’s remaining arguments on the avoidance clause and the erroneous jury
instructions.   In addition, our conclusion that Montana is not entitled to consequential damages
also disposes of GenStar’s arguments on cross-appeal regarding consequential damages; Gen
Star’s argument on setoffs was undeveloped.   See Sweet v. Berge,  113 Wis.2d  61,  67,  334
N.W.2d 559, 562 (Ct. App. 1983) (if a decision on one point disposes of an appeal, we will not
decide other issues raised); Fritz v. McGrath, 146 Wis.2d 681, 686, 431 N.W.2d 751, 753 (Ct.
App.  1988)  (appellate court does not consider arguments broadly stated but not specifically
argued).
3




NO. 96-2156
GenStar denied coverage and filed a declaratory judgment action
alleging that the policy was void for any or all of the following reasons:                            (1)
Montana misrepresented the presence of sprinklers, alarmed fire extinguishers and
emergency  lighting  on  the  premises  in  applying  for  coverage;                                  (2)  Montana
violated the protective safeguards endorsement;  (3) Montana committed arson;
and (4) Montana misrepresented the amount of damages resulting from the fire in
the submission of her claim to GenStar.   Montana counterclaimed for breach of
contract,  defamation  and  interference  with  contract.    She  filed  a  third-party
complaint against Horizon Insurance Company, Martin D. Wolfinsohn d/b/a JAS
Insurance Services (JAS Insurance) and Richard Oleneck, as agents of GenStar,2
for breach of contract in obtaining insurance and for negligence in procuring
insurance for the Sugar Shack; and she filed a third-party complaint against Mike
McNichols,  individually,  and  as  a  claim  manager  for  Frontier  Adjusters  of
Milwaukee for defamation and for interference with a contract.    GenStar filed
cross-claims for indemnity and/or contribution against JAS Insurance, Oleneck,
Frontier and McNichols.
GenStar moved for summary judgment.   The trial court only granted
partial summary judgment to GenStar on Montana’s defamation claim; all other
motions  were  denied.3    The  case  finally  went  to  trial  in  March  1996.    The
2   Oleneck failed to answer the third-party complaint.   JAS Insurance filed a motion for
default judgment against Oleneck which the court granted in August 1992.   In addition, JAS
Insurance’s insurer, General Insurance of America, was added as a party in November 1992.
3   Frontier and McNichols moved for summary judgment and JAS Insurance moved for
partial summary judgment as well.   In March 1993, Montana settled with and agreed to dismiss
JAS Insurance, and its insurer, General Insurance, from the case.    JAS Insurance’s default
judgment against Oleneck was not dismissed.   In addition, Frontier’s and McNichols’ summary
judgment motions were denied in March 1993.   In April 1993, Harbor Insurance Company, the
liability carrier for Frontier was added as a party.   In July 1993, Montana settled with Frontier,
Harbor  Insurance  and  McNichols.    In  exchange  for                                               $50,000,  the  defamation  and  tortious
interference with contract claims were dismissed.
4




NO. 96-2156
remaining parties were GenStar, Horizon, Montana and the Sugar Shack.   The jury
found that Montana did not commit arson and that she did not tell Oleneck that the
Sugar Shack had a sprinkler system.   The jury also determined that Oleneck and
JAS Insurance were agents of GenStar; that their representation to GenStar that the
Sugar Shack was sprinklered and alarmed was not made with intent to deceive, but
that GenStar relied on their representation and it was material to the risk of the
policy GenStar insured; and that the lack of operating sprinkler and alarm systems
contributed to the fire loss.
The   jury   further   determined   that   the   protective   safeguards
endorsement was included in the policy as a result of a mistake by Oleneck, JAS
Insurance  and  Horizon  Insurance.                                                     The  jury  also  found  that  Montana
misrepresented information she submitted to GenStar that related to the business
interruption claim and the cause of the fire.    The jury concluded that GenStar
breached  its  contract  and  awarded  Montana  approximately                           $260,000   in
compensatory damages and $3,327,000 in consequential damages.
The parties filed motions after verdict.   GenStar also filed a motion
for a new trial based on newly discovered evidence.   The trial court changed the
jury’s answer that Montana misrepresented the cause of the fire from  “yes” to
“no.”   The court further determined that because of Montana’s misrepresentation
of a material fact with respect to her business interruption losses, the policy was
void and there was no coverage under the policy.   The court further struck the
jury’s consequential damages award because those damages were not foreseeable
as a matter of law at the time the policy was issued.   All other motions by GenStar
and Montana were denied.   Judgment was entered.   Montana appeals and GenStar
cross-appeals.   Additional facts will be included within the body of the decision as
necessary.
5




NO. 96-2156
MONTANA’S APPEAL
Fraud as to Business Interruption Claim
Montana  first  argues  that  the  jury’s  finding  of   intentional
misrepresentation of her business interruption claim is not supported by credible
evidence.   At trial, Montana testified that she could bring in as much money in two
days  as  three  or  four  because  most  customers  made  reservations  rather  than
walking in the door and the expenses were condensed.   When the Illinois Sugar
Shack opened, she limited the reservations at the Lake Geneva operation to Friday
and Saturday.   Montana also explained that she had slated a “media blitz” and the
promotion of a book she had written for the spring of 1989.   Because of the delays
caused by the 1989 fire at the Sugar Shack, Montana explained that she planned to
wait until the spring of 1990 for the media blitz.   She anticipated that when her
book came out and she appeared on talk shows, it would be instant publicity and
the Sugar Shack could be open more and she could “book reservations for five
days a week which is what we fully intended to go back to, but not until the
publicity hit.”
According to the testimony of Montana’s adjuster, Steven Schwed,
he relied on some historical information and on Montana’s representation that the
club was going to be open more days than it was in the past for his projections.
Schwed testified that he made two accounting assumptions:                               (1) the average daily
sales would increase by twelve per cent and (2) the number of days in operation
would increase.   He based his average daily sales on the figures when the Sugar
Shack was open two days a week, rather than taking into account the decreased
average sales when it was open four or five days a week  ($1921 compared to
$1374).   He also stated that Montana was not involved in the calculations and that
he never went through his projections or explained how he had calculated the loss
6




NO. 96-2156
to Montana.   Schwed denied intentionally exaggerating any of the business income
loss numbers.
GenStar’s   adjuster,   John   Peters,   disagreed   with   Schwed’s
assumptions.   Peters testified that he projected a thirty-eight per cent decline in
sales at the Sugar Shack and he disagreed with Schwed’s concept of taking a
straight percentage of profit and use of a blanket percentage of sales.    Peters
testified to the differences in his calculation and those by Schwed.   He believed
Schwed’s sales projections were overstated and inconsistent with the prior history
of the business.   Peters credited the overprojection of sales on the assumption that
the Sugar Shack would be open six days in the summer of 1990 and on “creative
accounting” on the part of Schwed; “he distorted the daily calculation of sales.”
Peters also testified that the proof of loss filed after the 1989 fire was
also predicated on an increase in the number of days the Sugar Shack would be
open.   He calculated that Montana had used approximately $70,000 of the 1989
fire insurance proceeds to pay off a federal tax debt.   Peters believed that Montana
was better off financially with a fire.
According  to  Montana,  the  jury                                                      “found  fraud  not  based  upon
credible  evidence,  but  upon  the  mere  fact  that  her  opinion  was  different.”
Montana claims that a mere overvaluation, in the absence of evidence that the
purported misstatements were made knowingly and with the intent to deceive, is
not evidence of misrepresentation.   She argues that a fact finder cannot presume
fraud merely because of a discrepancy between estimates of the value of the lost
property.
Though we must sustain jury findings if they are supported by any
credible evidence, see Kimps v. Hill, 187 Wis.2d 508, 513, 523 N.W.2d 281, 284
7




NO. 96-2156
(Ct. App. 1994), a determination of whether GenStar’s evidence establishes fraud
is a question of law, see Gardner v. Gardner, 190 Wis.2d 216, 243, 527 N.W.2d
701, 710 (Ct. App. 1994).   The party making the charge of fraud must prove it by
clear and satisfactory evidence, a higher standard of proof than in the ordinary
civil action.   See State v. Walberg, 109 Wis.2d 96, 102, 325 N.W.2d 687, 691
(1982).   We review questions of law de novo.   See Gardner, 190 Wis.2d at 243,
527 N.W.2d at 710.
GenStar counters that in Wisconsin, an overvaluation in proof of loss
is competent evidence to prove fraud.   In support of this, GenStar points to Peters’
testimony that Montana’s claim was based on the unwarranted assumption that she
would be open more than two days a week and on “creative accounting.”   We
conclude that GenStar failed to produce sufficient affirmative proof that Montana
committed fraud.
First, Montana’s intention of being open for more than two days
after her anticipated “media blitz” does not constitute a present or preexisting fact.
The general rule is that no party has the right to rely upon a statement of opinion.
See Gardner, 190 Wis.2d at 244, 527 N.W.2d at 710.   “‘Ordinarily a prediction as
to events to occur in the future is to be regarded as a statement of opinion only, on
which the adverse party has no right to rely.’”   Lundin v. Shimanski, 124 Wis.2d
175, 192, 368 N.W.2d 676, 684 (1985) (quoted source omitted).
An exception to the general rule holds that a statement of opinion is
actionable if the speaker knows of facts incompatible with his or her opinion.   See
Gardner,  190 Wis.2d at  244,  527 N.W.2d at  711.    There is no evidence that
Montana knew of any facts incompatible with her opinion that the media blitz
would bring instant publicity and would allow her to book reservations for more
8




NO. 96-2156
than two days a week.    GenStar’s only evidence challenging this fact is that
Montana stated the Sugar Shack would be open more than two days after the 1989
fire, but she failed to follow through with this plan.   Montana explained why the
Sugar Shack continued to operate only two days per week through 1989.   This
may  speak  to  a  past  misrepresentation  regarding  a  previous  insurance  claim;
however, it does not convert Montana’s stated intentions into statements of present
fact or preexisting fact as to GenStar’s policy.
GenStar’s claim of fraud also focuses on what it perceives to be
Montana’s overvaluation of the property.   Even though an overvaluation may be
so grossly exaggerated as to raise the presumption of fraud, it is generally agreed
that a mere overvaluation in proof of loss is not conclusive that fraud has been
committed.   See Wiesman v. American Ins. Co., 184 Wis. 523, 530, 199 N.W. 55,
58 (1924).   Rather, it must be shown that the misstatements were made knowingly
and with the intent to deceive the insurer concerning some matter material to the
insurance.   See id.   Where a party acts in good faith and with the honest belief that
the property was worth the amount claimed, an excess found by the jury will not
avoid recovery where intent to defraud is not shown.   See Stebane Nash Co. v.
Campbellsport Mut. Ins. Co., 27 Wis.2d 112, 124, 133 N.W.2d 737, 745 (1965).
“Overvaluation on one hand and wilful misrepresentation and fraud on the other
do not follow ipso facto.”   Id. at 125, 133 N.W.2d at 745.
Specifically,   GenStar   takes   issue   with   Montana’s                                “creative
accounting” methods.    What GenStar simply ignores is the fact that Montana
utilized an independent auditor to assess her loss and that the auditor’s projections
were based on his own accounting assumptions.    Montana was not consulted;
Schwed stated that he never went through his projections or explained how he had
calculated the loss to Montana.   There is no evidence that Montana knowingly
9




NO. 96-2156
submitted the proof of loss with the intent to deceive GenStar.   Rather, she sought
expert advice from an individual who utilized accounting methods which were
found  to  be  unacceptable  to  GenStar’s  auditor.     Although  the  use  of  an
independent auditor does not, by itself, immunize one from a finding of fraud, the
person claiming fraud must prove that the accused party and the auditor acted in
harmony to achieve a common end.   Such proof is lacking here.   It is evident that
GenStar’s auditor strongly disagreed with the assumptions and projections made
by  Montana’s  auditor.    This  however  does  not  rise  to  the  level  of  fraud  or
misrepresentation contemplated by the law.
Finally, we note that the competing assessments of the loss by the
respective parties are not that grossly disparate.   Montana’s adjuster projected the
actual value of the business income loss to be $60,117.89 for four months.   The
claim  under  the  policy,  however,  was  $40,000,  the  policy  limit.4    GenStar’s
adjuster  calculated  the  business  interruption  loss  at                                           $8174  for  six  months,  or
$5449.32 over four months.   The jury awarded $27,300 for four months, or $6825
per month.   Based on the Sugar Shack being open for two days per week, the daily
average sales would be projected as $1250 per day by Montana, $166 per day by
GenStar and $853.13 per day by the jury.   Overvaluation raises a presumption of
fraud in proportion to the excess.   See Stebane, 27 Wis.2d at 124, 133 N.W.2d at
745.   The comparative values of the disputed daily average sales raise only the
weakest of inferences that Montana intended to misrepresent her figures.    We
conclude  that  such  an  inference,  especially in  light  of  the  competing  equally
4   In its respondent’s brief, GenStar contends that Montana submitted a proof of loss for
business interruption for nine months, totaling $179,636.63.   This is incorrect.   The $179,636.63
figure was the amount that Montana’s adjuster projected for the actual monthly loss of business
income.   However, the claim submitted with the proof of loss was for only $40,000, the policy
limit.
10




NO. 96-2156
reasonable inferences, is insufficient to satisfy GenStar’s higher than ordinary
burden of proof.   We reverse this portion of the judgment.
Consequential Damages Award
Next, Montana contends that the trial court erred in striking the
$3,327,000 in consequential damages the jury awarded because of the foreclosure
of her properties that followed GenStar’s refusal to pay her losses.   At the time of
the  fire,  Montana  owned  the  Sugar  Shack  of  Stone  Park,  Illinois  and  three
Wisconsin properties, the Lake Geneva Sugar Shack, Sugar Legacy Arabians and
the Broad Street Property.   The three Wisconsin properties were purchased on a
land contract and were refinanced by Archie Gaudreau with the properties as
collateral.   The GenStar policy insuring the Lake Geneva Sugar Shack also named
Gaudreau as the mortgage holder.   The land contract contained a balloon payment
in the amount of  $700,000 that became due on February  14,  1990.    Montana
attempted to obtain refinancing to pay off the balloon payment; however, that fell
through.   Eventually, Gaudreau foreclosed on Montana’s three cross-collateralized
properties.
At trial, Montana sought consequential damages in an amount equal
to the assessed values of the three properties.    Montana argued that GenStar’s
breach of its contract was a substantial factor in the loss of her properties and that
she was entitled to recover damages, equal to the value of her properties, which
were the natural and probable result of GenStar’s breach.   The jury agreed and
awarded $3,327,000 in consequential damages.
On  motions  after  verdict,  the  trial  court  struck  the  jury’s
consequential damages award.   The court noted that had the loss of investment
properties been contemplated by the parties, the premium would have reflected
11




NO. 96-2156
such coverage.   The premium indicated such coverage was not foreseeable.   The
court concluded that the “loss of investment properties due to a loss of cash flow
… [is] not foreseeable damages for the breach of a contract.”
On appeal, Montana argues that Wisconsin, like most jurisdictions,
allows the award of consequential damages in breach of contract actions and that
the jury determined that her losses were foreseeable and should not be disturbed.
We disagree.
We  will  assume,  without  deciding,  that  Montana  can  receive
consequential  damages  for  GenStar’s  breach  of  the  insurance  contract.5
Nevertheless, the amount of damages Montana is entitled to is limited to such
damages as are the natural and probable consequences of the breach and were
within contemplation of the parties when the contract was made.   See Thurner
Heat Treating Co. v. Memco, Inc., 252 Wis. 16, 25, 30 N.W.2d 228, 232 (1947).
The damages must “flow directly and necessarily from the breach of contract, and
must be reasonably foreseeable at the time the contract was made as a probable
result of the breach.”   Reiman Assocs., Inc. v. R/A Adver., Inc., 102 Wis.2d 305,
321, 306 N.W.2d 292, 300 (Ct. App. 1981).
5   We recognize that case law contains some anomalous references to consequential damages for
breach of an insurance contract.   The supreme court in Newhouse v. Citizens Security Mutual
Insurance Co.,  176 Wis.2d  824,  839,  501 N.W.2d  1,  7  (1993), concluded that an excess
judgment can result from an insurer’s breach of its duty to defend in the absence of bad faith.
Newhouse, however, fails to provide guidance as to whether consequential damages are available
in a breach of contract case not involving a third party.    Also, in Heyden v. Safeco Title
Insurance Co., 175 Wis.2d 508, 518, 498 N.W.2d 905, 908 (Ct. App. 1993), overruled on other
grounds by Weiss v. United Fire & Casualty Co., 197 Wis.2d 365, 382, 541 N.W.2d 753, 759
(1995), this court expressed no view as to what portion of the claimed damages, if any, would
have been recoverable in the breach-of-contract action as consequential damages.   These cases
provide little guidance.
12




NO. 96-2156
We conclude as a matter of law that the cross-collateralization of
Montana’s investment properties and coverage thereof in the case of a breach were
not contemplated by the parties when the contract was made.    GenStar’s fire
insurance policy insured against the loss of the Sugar Shack and its contents.
There is no evidence that GenStar had any knowledge at the time of contracting of
the relationship of the additional properties.   In fact, Montana’s $10,000 premium,
allegedly in exchange  for  $3,327,000 in cross-collateralized property, strongly
suggests that the risk of such liability was never contemplated by the parties.6   We
hold that under no circumstances could GenStar’s policy be transformed into an
insurance  policy  which  was  intended  to  cover  the  additional,  unrelated  and
collateral  investment  dealings  of  Montana.     We  affirm  this  portion  of  the
judgment.
GENSTAR’S CROSS-APPEAL
Change of Jury’s Answer
GenStar first argues that the trial court erred in changing the jury’s
answer finding that Montana had misrepresented or  concealed a  material fact
concerning the cause of the fire from “yes” to “no.”   The trial court changed the
jury’s answer at motions after verdict.   The court determined that the jury’s answer
that Montana was not an arsonist but that she concealed a material fact as to the
cause of the fire was inconsistent and the “answer to number one prevails over 12
as to cause of fire being incendiary, and Montana being involved.”   The court also
found that there was insufficient evidence to sustain the answer.   The court noted
that “there was complete disagreement by the parties involved as to the cause of
6   RESTATEMENT (SECOND) OF CONTRACTS § 351 cmt. f (1981), states that an extreme
disproportion between the loss and the price charged by the party whose liability for that loss is in
question suggests that it was not intended to cover the risk of such liability.   Montana’s $10,000
premium for over $3,000,000 in liability implies no coverage by GenStar.
13




NO. 96-2156
the fire and how it happened and who did it.   So I don’t think there’s any evidence
to show that that was a fraudulent answer, absent a finding that she was involved.”
The trial court entered an order to change the verdict “on the ground
of insufficiency of the evidence.”   See § 805.14(5)(c), STATS.                                      “[W]hen the court
changes an answer in the jury’s special verdict, or otherwise overturns a jury
finding, we defer to the verdict by applying the traditional any-credible-evidence
standard ….”   Foseid v. State Bank of Cross Plains, 197 Wis.2d 772, 787, 541
N.W.2d 203, 209  (Ct. App. 1995).                                                                    “[I]f there is any credible evidence which,
under any reasonable view, fairly admits of an inference that supports a jury’s
finding, that finding may not be overturned.”   Id. at  782,  541 N.W.2d at  207.
Nevertheless, “‘[a] jury cannot base its findings on conjecture and speculation.’”
Id. at 791, 541 N.W.2d at 210 (quoted source omitted).   We agree with the court’s
changing the answer.7
Montana  testified  that  as  she  was  driving  to  the  fire,  she  was
concerned that a short in the well pump, which she did not have replaced, might
have caused the fire.   She stated that when she arrived at the Sugar Shack she was
told it was arson; she did not think it was important to tell David Halvorson, the
fire investigator, about the well pump because he had already concluded that she
had committed arson.   Montana’s fire expert, Patrick Kennedy, also testified that
GenStar’s fire investigator, Gerald Haffner, came to a premature conclusion of
arson and owner involvement in the fire.   The proof of loss indicated that the cause
and origin of the loss were unknown to the insured.
7   We do not see the inconsistency in the two questions.   The first question pertained to
Montana’s possible role as an arsonist or one who solicited arson.   Question twelve focused on
whether Montana misrepresented an important fact regarding the cause of the fire on her proof of
loss.   Montana could have intentionally misrepresented a material fact about a potential cause of
the fire without being an arsonist.
14




NO. 96-2156
The day of the fire, McNichols, who works for Frontier Adjusters,
an independent insurance agency that investigates, evaluates and attempts to settle
insurance claims for insurance companies, was hired by GenStar to investigate the
Sugar Shack claim.   McNichols was contacted by Halvorson, who informed him,
“off the record,” that “it appeared that [the Sugar Shack fire] may have been an
arson cover up.”   Halvorson gave McNichols names of possible people to contact
and specific questions to ask.   McNichols then hired a cause and origin expert,
Haffner,  to  conduct  an  examination  of  the  property  the  next  day.    Haffner’s
opinion was that the fire was of incendiary origin, that there appeared to be a
keyed entry and that the fire started in the men’s bathroom.   McNichols conveyed
this information to GenStar.   GenStar’s investigation focused on Montana.
We conclude that GenStar failed to set forth facts establishing that
Montana’s concerns about the well pump were material to its investigation at all.
William Costello, GenStar’s claim manager, stated that by Saturday, the day after
the fire, GenStar had confirmed that it was an incendiary fire.    Thereafter the
investigation centered on Montana.    There is no evidence that GenStar asked
Montana her opinion about a possible cause of the fire—GenStar believed arson
was the cause.   Even if Montana had told GenStar, she most likely would have
been disregarded; GenStar was not interested in exonerating Montana.   GenStar
has not put forth any evidence that even suggests the focus of its investigation was
on anything other than arson committed by Montana.8
8                                                                                         It  is  evident  from William Costello’s,  GenStar’s  claim manager,  testimony that
Montana was in a no-win situation.  He had the following colloquy on cross-examination:
Q:   Part of your conclusion that Miss Montana swore falsely …
was when she was asked if she was involved in this arson, she
said no right?
A:  That’s correct.
15




NO. 96-2156
We also question whether Montana’s suspicion that a short in the
well pump’s circuitry might have played a role in the fire is a misrepresentation of
a material fact.   Even if GenStar learned that the well pump circuitry had started
the fire, it still would have been obligated to provide coverage under its policy.
Montana’s  failure  to  disclose  her  suspicions  would  not  invalidate  the  policy;
therefore,  it  could  not  be  material.    Accordingly,  we  affirm  the  trial  court’s
changing answer twelve from “yes” to “no.”
Jury Instructions Relating to McNichols
GenStar next argues that the trial court erred in:  (1) refusing to
instruct the jury that anything McNichols said or did could not be considered in
determining whether GenStar breached the policy; and  (2) failing to apportion
damages because there was a combination of a breach of contract and McNichols’
tort that together caused Montana’s losses.
Montana charged GenStar, Frontier and McNichols with defamation
and interference with contract.   Prior to trial, Montana reached a settlement and
release with McNichols and Frontier.  The release specifically provided in part:
Q:   [S]he was asked if she was the arsonist and she answers yes,
are you going to provide coverage?
A:  No.
Q:  And if she answers no, are you going to provide coverage?
A:  Given the facts of this, no.
Q:   So that there was no answer there that she could have given
without General Star declining coverage, correct?
A:   Not necessarily.… [S]he could refuse to submit a proof of
loss under oath.…   She [could] refuse [the examination under
oath] also.
Q:   Then one of the reasons for declining coverage would be the
failure to cooperate with                                                                    [GenStar] and take an examination
under oath, wouldn’t it have been?
A:  Yes.
Q:  And if she had failed to submit a sworn proof of loss, another
reason would have been the failure to submit a sworn proof of
loss, correct?
A:  That’s correct.
16




NO. 96-2156
In consideration for the payment of the sum of [$50,000]
… [Montana and the Sugar Shack] hereby fully and forever
release,  acquit,  and  discharge                                                                  [McNichols,  Frontier  and
Harbor  Insurance]                                                                                 …  from  any  and  all  liability  now
accrued or hereafter to accrue on account of any and all
claims or causes of action which the Releasors now or may
hereafter have against the Releasees for any and all injuries,
losses, and damages … whether sounding in either contract
or tort or any other form of damages ….
This is a release of the persons and entities specifically
designated herein.… Releasors fully reserve any and  all
rights or cause of action against every other person and
entity ….   This Release and settlement is not intended to
extinguish any claims which exist in favor of the Releasors
against                                                                                            [GenStar],   excepting   only   those   claims   of
defamation or tortious interference with contract arising as
the  result  of  vicarious  or  imputed  liability that  may  be
ascribed  to  [GenStar]  as  a  result  of  any conduct  of  the
Releasees.9
At trial, GenStar sought instructions directing the jury that GenStar
may not be found responsible for anything which McNichols or Frontier said or
did in the adjustment of the claim for insurance and in apportioning damages
between  McNichols  and  GenStar.     The  trial  court  determined  that  both
instructions, as drafted, were too broad.   Only if GenStar narrowed the instructions
to defamation of character and tortious interference of contract by McNichols was
the court willing to include either instruction.    GenStar chose not to include a
narrower version of the instructions.  GenStar now seeks review of this decision.
A circuit court has broad discretion when instructing a jury as long
as the instruction fully and fairly informs the jury of the rules and principles of law
applicable to the particular case.   See Nowatske v. Osterloh, 198 Wis.2d 419, 428,
543 N.W.2d 265, 268 (1996).   An appellate court must consider the instructions as
9   GenStar will find no solace in the release.   GenStar is only released from vicarious
liability  for  defamation  and  interference  with  contractthe  only  claims  lodged  against
McNichols.
17




NO. 96-2156
a whole to determine whether the challenged instruction or part of an instruction is
erroneous.   See id. at 429, 543 N.W.2d at 268.
We  conclude  that  the  trial  court’s  rejection  of  the  proposed
instructions was proper.    As the court noted, the release only pertained to the
defamation and tortious interference with contract claims; it specifically did not
release the contract and other claims against GenStar, vicarious or otherwise.   The
evidence clearly established that McNichols was acting as the agent of GenStar
and any statements McNichols made concerning insurance coverage were imputed
to GenStar.
Moreover, the damages here are an indivisible injury arising from a
breach of contract.   The breach of contract stands and falls on its own.   The tort
actions were dismissed; Montana did not proceed on the tort theories.    Thus,
GenStar’s analogy to successive tortfeasors simply does not wash.   We are being
asked to apportion blame for Montana’s injuries between a tortfeasor and a party
to a contract.   However, McNichols was acting as GenStar’s agent; it follows then
that one question was sufficient to address whether GenStar breached the contract.
This claim was clearly not released.   We conclude that the trial court’s rejection of
the proposed instructions was not an erroneous exercise of discretion.   We affirm.
Protective Safeguard Provision
GenStar also argues that it would never have issued the policy if
there were no sprinkler or alarm systems in the building and it should not be liable
for the loss.   GenStar contends that the testimony of an underwriter, Jose Marques,
supports its position of no liability.   Marques testified that if he had known from
the beginning that the Sugar Shack did not have sprinklers or alarms, “[he] could
have said [he] wasn’t prepared to write it or [he] could have said that [he] wanted
18




NO. 96-2156
two  or  three  times  the  premium.”    Montana  then  would  have  had  to  decide
whether she wanted to pay for the coverage.
Montana  defended  this  claim  on  the  ground  that  the  protective
safeguard provision was included due to mistake.   Montana testified that Oleneck
asked her specifically if the Sugar Shack had sprinkler or alarm systems and she
specifically told him “no, it did not.”   According to Montana, their conversation
went as follows:                                                                          “[H]e says, do you have sprinkler system?   I said no.   Well,
why—do you know you could get your premium cheaper if you had sprinkler
system?   I says, Rich, I don’t have sprinkler systems.”   When Montana confronted
Oleneck, he did not remember why the endorsement was included and thought he
might have confused the Lake Geneva Sugar Shack with the Illinois Sugar Shack
which did possess a sprinkler system.
The  special  verdict  asked  whether  the   protective  safeguard
endorsement was included in the policy as a result of a mistake by Oleneck, JAS
Insurance, Horizon, GenStar and/or Montana.   The jury attributed the mistake to
Oleneck, JAS Insurance and Horizon.   Accordingly, the policy was reformed to
delete  the  protective  safeguard  endorsement  from  it  and,  ultimately,  the  jury
determined that GenStar breached the contract and was liable to Montana for
damages.
Again,                                                                                    “if  there  is  any  credible  evidence  which,  under  any
reasonable view, fairly admits of an inference that supports a jury’s finding, that
finding may not be overturned.”   Foseid, 197 Wis.2d at 782, 541 N.W.2d at 207.
The jury determines the weight and credibility of testimony.   See Nowatske v.
Osterloh,                                                                                 201  Wis.2d                                                      497,   511,   549  N.W.2d   256,   261   (Ct.  App.   1996).
Apparently, the jury found Montana’s testimony that the inclusion of the provision
19




NO. 96-2156
was  a  mistake  to  be  credible.    This  finding  is  supported  by  the  evidence;
accordingly, we affirm.
Claims for Indemnity or Contribution
Interdigitated with the above argument, GenStar also asserts claims
for indemnification or contribution against JAS Insurance and Oleneck with whom
Montana had previously settled.    GenStar argues that but for the action of the
agents it would not have issued the policy and would not be liable to Montana.
Therefore, GenStar is entitled to indemnification, and, as a matter of law, the trial
court was required to have the jury apportion blame between those responsible for
the mistake.   We disagree.
This argument assumes that there can be apportionment between
culpable parties in a breach of contract case.   GenStar does not cite any authority
for this proposition.   This argument further presupposes that the injury here—the
breach of  contract—was successive as in the nature of  successive tortfeasors.
However, it was not.   Rather, the breach was a single injury.   Although the breach
may have been caused by the collective acts of various parties, it was nevertheless
a single injury.   We affirm the trial court’s denial of the proposed instruction.
Jury’s Finding of Agency
GenStar next questions whether JAS Insurance and Oleneck were
GenStar’s agents or Montana’s brokers.   GenStar first contends that the trial court
erred in denying its motion for summary judgment.    GenStar had argued that
neither  JAS  Insurance  nor  Oleneck  was  GenStar’s  agent;  rather,  they  were
Montana’s brokers and she must bear the consequences of their actions.   Montana,
however, maintained that both JAS Insurance and Oleneck were GenStar’s agents.
20




NO. 96-2156
Factual disputes such as this are inappropriate for disposition at the summary
judgment stage.   See § 802.08, STATS.
In addition, GenStar challenges the jury’s factual finding that JAS
Insurance and Oleneck were its agents.   GenStar maintains that Horizon submitted
the  application,  bound  coverage  and  issued  the  policy  and  that  neither  JAS
Insurance nor Oleneck had a contract with GenStar or was authorized to bind
coverage for GenStar.
The evidence before the jury suggests otherwise.   The binder lists
JAS Insurance as the producer and is signed by Wolfinsohn as the “authorized
representative.”   Wolfinsohn also testified that he received authorization to bind
coverage from the president of Horizon Insurance who is unquestionably an agent
of  GenStar.    Montana’s expert testified that  Horizon gave  Wolfinsohn verbal
power  to  bind  coverage.    GenStar’s  expert  agreed  that  Horizon  could  give
Wolfinsohn authority to issue the binder, but chose not to believe Wolfinsohn’s
representation.
“[I]f there is any credible evidence which, under any reasonable
view, fairly admits of an inference that supports a jury’s finding, that finding may
not be overturned.”   Foseid,  197 Wis.2d at  782,  541 N.W.2d at  207. The jury
determines the weight and credibility of testimony.   See Nowatske, 201 Wis.2d at
511,                                                                                    549  N.W.2d  at  261.    We  conclude  that  these  relationships  constituted
21




NO. 96-2156
sufficient evidence supporting the jury’s findings that both JAS Insurance and
Oleneck were GenStar’s agents.   We affirm.10
Evidentiary Rulings
GenStar argues that the trial court erred in refusing to grant a new
trial  because  of  errors  in  instructions  and  admission  of  evidence.    GenStar
challenges the trial court’s refusal to instruct the jury that in answering the arson
question it should not consider the failure of authorities to criminally prosecute
Montana.    Genstar further questions the trial court’s allowing the evidence of
GenStar’s failure to return the unused portion of Montana’s premium when it
canceled the policy.
Even  if  it  is generally  accepted  in  courts  throughout  the  United
States  that  evidence  of  nonprosecution  or  even  acquittal  in  a  criminal  arson
proceeding is inadmissible in a civil suit arising out of the same event, Montana
did not attempt to introduce this evidence; nor did she argue that she was not
responsible for the fire based on the authorities’ failure to prosecute her.    She
vehemently denied committing the arson, despite any suspicions to the contrary.
Rather,  GenStar  elicited  the  testimony,  over  objections,  of  the  criminal
investigation and the fact that Montana had never been charged with arson.
10                                                                                                   GenStar’s   argument   that   Oleneck   and   JAS   Insurance/Wolfinsohn   were
“intermediaries” under § 628.02, STATS., is equally unavailing.   Section 628.02(1)(b)7m states
that “[a] person who acts solely as an agent, as defined in s. 616.71(1)” is not an intermediary.
Section 616.71(1), STATS., defines an agent as “one who solicits the purchase of service contracts
… or transmits for another any such contract, or application therefor, to or from the company, or
acts or aids in any manner in the delivery or negotiation of such contract, or in the renewal or
continuance thereof.”   Oleneck negotiated and delivered the contract and JAS Insurance aided in
the transmission of the contract and actually bound coverage.  We conclude that Oleneck and JAS
Insurance were agents acting on behalf of GenStar and not intermediaries working on behalf of
Montana.
22




NO. 96-2156
We agree with Montana on two points.   If error occurred, GenStar’s
counsel invited it and we will not review invited error.   See Shawn B.N. v. State,
173 Wis.2d 343, 372, 497 N.W.2d 141, 152 (Ct. App. 1992); cf. Zindell v. Central
Mut. Ins. Co., 222 Wis. 575, 582, 269 N.W. 327, 330 (1936) (appellant cannot
complain of error induced by appellant).   We also agree that the situation here is
quite different from one where the judge rules evidence of  nonprosecution is
inadmissible because it may mislead the jury.   Here, however, GenStar sought an
instruction for the jury to ignore evidence which it obtained from its witness about
the authorities’ unwillingness to prosecute Montana for arson.   We affirm the trial
court’s refusal to instruct the jury that it should not consider the fact that Montana
had not been criminally prosecuted for arson.
GenStar’s second argument fails as well.   GenStar complains that the
trial court erroneously allowed testimony that GenStar had cancelled the policy
without giving the required statutory notice and that GenStar failed to return any
unearned premium.   The trial court allowed Wolfinsohn to testify that GenStar’s
cancellation notice did not give the requisite ten-day notice.   See § 631.36(2)(b),
STATS.   Montana explained that she had paid the premium before the cancellation
date, but GenStar refused to reinstate the coverage.   Montana also stated that she
was entitled to a refund of her payment, but that she never received a refund.
GenStar now maintains that this evidence was irrelevant, that it may
have confused the jury as to whether GenStar breached its contract and that it was
therefore prejudicial.   Evidentiary rulings, particularly relevancy determinations,
are  left  to  the  discretion  of  the  trial  court.    When  we  review  a  trial  court’s
discretionary decision, we consider only whether the trial court properly exercised
its discretion, regardless of whether we would have made the same ruling.   See
State v. Smith, 203 Wis.2d 288, 295, 553 N.W.2d 824, 827 (Ct. App. 1996).
23




NO. 96-2156
Montana’s theory of the case was that GenStar had decided from the
beginning to deny her claim because GenStar believed the fire was due to arson.
The evidence, according to Montana’s theory of the case, further demonstrated
GenStar’s wrongful conduct towards Montana.   We see no error in the trial court’s
evidentiary ruling; accordingly, we affirm.
Request for New Trial
Lastly, GenStar maintains that it is entitled to a new trial on the basis
of newly discovered evidence of Montana’s continuing interest in Sugar Legacy
Arabians.    Motions  for  a  new  trial  based  on  newly  discovered  evidence  are
submitted to the sound discretion of the trial court.   See State v. Terrance J.W.,
202 Wis.2d 496, 500, 550 N.W.2d 445, 447 (Ct. App. 1996).   We will affirm the
trial court’s exercise of discretion as long as it has a reasonable basis and was
made in accordance with accepted legal standards and the facts of record.  See id.
The  trial  court  may  grant  a  new  trial  based  on  newly
discovered evidence only if the following requirements are
met:                                                                                    (1) the evidence was discovered after trial;  (2) the
moving party was not negligent in seeking the evidence; (3)
the evidence is material to an issue in the case;  (4) the
evidence is not merely cumulative to the evidence that was
introduced at trial; and (5) it is reasonably probable that a
different result would be reached at a new trial.
Id.
On motions after verdict,   GenStar alleged that Montana asserted, in
a totally separate eviction action, a continuing interest in Sugar Legacy Arabians
which was inconsistent with her stance at trial that she had lost Sugar Legacy as a
result of GenStar’s failure to pay the claim.   The trial court denied the motion.
The court concluded that the grounds for GenStar’s motion—Montana’s interest in
the farm as the intended beneficiary of a lease/option to purchase—arose after this
24




NO. 96-2156
case.   GenStar’s attorney agreed that the court “may be right,” but that he had not
had time to do discovery on the question.   The basis of GenStar’s motion for a
new trial was based on speculation.   Again, we see no error in the trial court’s
exercise of discretion in denying GenStar’s motion for a new trial.
Costs are denied to both parties.
By the Court.—Judgment affirmed in part; reversed in part and cause
remanded.
Recommended for publication in the official reports.
25

Download 11170.pdf

Wisconsin Law