STRUCTURAL DEFECT

Structural Defects Do Not Constitute Property Damage.

Dohm sold buildings and land to Benjamin for condominium conversion in 1980.  The structures were build on a landfill and had begum to settle even prior to the sale.  Several years later, Benjamin discovered the defects and sued Dohm for negligent misrepresentation.

At the time of the sale, Dohm was insured by CIGNA under a general liability policy [the edition cannot be determined].  CIGNA initially provided a defense to Dohm under a reservation of rights, but withdrew the defense after a motion for summary judgment by Dohm was unsuccessful.  Dohm obtained counsel to defend the action and filed a third-party complaint against CIGNA concerning its denial of coverage.  The trial court found in favor of CIGNA on a motion for summary judgment.

The Wisconsin Court of Appeals affirmed.  It found that the causes of action alleged against Dohm were for negligent misrepresentation and “strict responsibility misrepresentation” concerning structural defects.  Accordingly, the damages alleged were for economic loss only and did not constitute property damage.  The court pointed out that the allegations of Benjamin’s complaint did not assert that the misrepresentations caused property damage, but rather that Benjamin suffered economic losses as to the value of the property from Dohm’s misrepresentations.

Dohm also contented that the alleged damages constituted property damage under that portion of the definition providing coverage for loss of use of non-damaged tangible property.  The court disagreed, finding that none of the property damage was caused by Dohm’s negligent acts but was caused by the structural defects.

The court also found that CIGNA did not breach its contractual duty to defend. It therefore did not waive its right to contest coverage by withdrawing its defense without seeking a prior judicial determination of coverage as the court had stayed the liability proceeding pending the coverage appeal.  The court also found that Dohm was not entitled to attorney fees for prosecuting the action against CIGNA, as he had not proved that coverage existed under CIGNA’s policies.

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