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Insurable Interests - Insights on Insurance Law

Wisconsin Supreme Court confirms that interpretation of policy language is ordinarily an issue of law for the court

house fireWisconsin insurance coverage cases frequently recite the maxim that the interpretation of insurance policy language presents a legal issue for the court (rather than a jury) to resolve. This principle was challenged in Fontana Builders v. Assurance Company of America

In that case, Fontana Builders purchased builders risk insurance coverage through Assurance Co. of America for a home project. That policy stated that coverage ended when “permanent property insurance applies.” James Accola, Fontana’s president and the prospective purchaser of the home, purchased property insurance from Chubb Insurance Co. on the home and its contents. A fire subsequently occurred, damaging the property.

Fontana tendered the loss to Assurant, who denied coverage, contending that coverage had terminated since Mr. Accola had acquired property insurance. Fontana ultimately filed suit. The trial court submitted the issue of whether the property insurance acquired from Chubb was “permanent property insurance,” to the jury. The jury concluded that it was, thereby terminating the builder’s risk coverage. An appeal was filed.

The Wisconsin Supreme Court reversed. The court first considered whether the proper interpretation of the builder’s risk policy was an issue for the jury to resolve, or a legal issue for the court. The court noted that prior Wisconsin authority seemed to permit use of extrinsic evidence to interpret insurance policies and that, when such evidence is considered, a jury issue is presented. The court ultimately held, however, that “interpretation of an insurance contract becomes a question for the jury only when necessary to resolve factual disputes about the parties’ understandings at the time they entered into the contract.” Conversely, when a dispute turns upon application of the policy language to a set of underlying facts, only a legal issue is presented and the court must interpret the policy as a matter of law. Since the parties did not argue that they had different understandings of the policy language when the policy was issued, the interpretation of the language in this case presented a pure question of law for the court. 

Turning to the proper interpretation of the policy termination provisions, the court noted that those provisions addressed situations where the builder’s interest in the property changes. The court noted that Fontana Builders and Mr. Accola had different interests in the property. Fontana’s interest was in the building materials, the finished structure and value added by its work, while Mr. Accola’s interest was in the home as its future owner. Since Mr. Accola’s purchase of property insurance to protect his interest in the property did not affect Fontana Builder’s interest in the property, the provision referring to “permanent property insurance” did not apply and the policy did not terminate when Mr. Accola purchased his policy. The case was remanded for determination of Fontana Builder’s remaining damages.

This case serves as a useful reminder to courts and coverage litigators that the interpretation of policy language to undisputed facts presents a purely legal issue that judges can and should resolve on summary judgment. In contrast, a trial is only proper to resolve disputed contentions regarding intent of the parties at the time the policy was obtained. 

March 29, 2017

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