After their purchase, however, Ms. Miller and Mr. Agoudemos alleged that they experienced raw sewage backing up into their basement. They said that they contacted Roto-Rooter to respond to the situation, and they were told by a Roto-Rooter representative that Roto-Rooter had diagnosed the defect when Mr. Mardak had owned the property and had advised Mr. Mardak of the problem. According to Ms. Miller and Mr. Agoudemos, the defect only could be corrected by “saw cutting and jack hammering the basement floor, foundation and front yard and replacing the defective sewer components,” which would be expensive. They sought to recover damages of approximately $92,000.

AMCO Insurance Company, which had issued a commercial general liability (“CGL”) insurance policy to Mr. Mardak, sought a court order that its policy did not cover Mr. Mardak in the action brought by Ms. Miller and Mr. Agoudemos, which, among other things, asserted a cause of action for negligent misrepresentation.

AMCO filed a motion for summary judgment. The trial court granted summary judgment to AMCO, and the dispute reached the Wisconsin appellate court.

The AMCO Policy

The AMCO policy defined:

occurrence

as:

an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

It defined:

property damage

as:

[p]hysical injury to tangible property

or the:

[l]oss of use of tangible property that is not physically injured.

The appellate court affirmed.

In its decision, the appellate court first noted that the complaint by Ms. Miller and Mr. Agoudemos did not assert a claim for physical injury to the property or the loss of use of tangible property in the basement and was “devoid of any such claim.” Indeed, the appellate court observed, the complaint by Ms. Miller and Mr. Agoudemos did not allege any property damage that had occurred as a result of the alleged misrepresentation and the only claim put forth by Ms. Miller and Mr. Agoudemos was for monetary damages to correct the alleged defective sewer lateral.

The appellate court then found that the complaint by Ms. Miller and Mr. Agoudemos failed to allege an “occurrence” or that any “occurrence” had caused the property damage. It declared that “there was no accident” and that Mr. Mardak's excuse for failing to advise the buyers of a defect was because he did not believe the sewer lateral was a defect but, rather, believed that it was simply a maintenance issue. In the appellate court's view, his belief, whether reasonable or not, was “not an accident.”

The appellate court noted that Ms. Miller and Mr. Agoudemos alleged that Mr. Mardak had made a false statement to them and in the Real Estate Condition Report – but it said that Mr. Mardak's alleged false statement required “a degree of volition inconsistent with the term accident.” Moreover, it continued, the measure of damages awarded to a party who successfully litigated a claim for negligent misrepresentation was the difference between the fair market value of the property at the time of the sale and the amount actually paid, or the “out-of-pocket” rule; thus, it stated, the damages alleged in a claim for misrepresentation were for economic loss and were “pecuniary in nature” and did “not constitute property damage.”

Accordingly, the appellate court ruled, AMCO's policy did not cover the negligent misrepresentation cause of action set forth in the complaint by Ms. Miller and Mr. Agoudemos and the insurer had no duty to defend Mr. Mardak or to indemnify him with respect to their claims.

The case is Miller v. Mardak, No. 2015AP206 (Wisc. Ct.App. April 5, 2016).