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  • WisBar News
    December 31, 2013

    Asbestos Exclusion Precludes Insurance Coverage for Real Estate Buyer's Losses

    Dec. 31, 2013 – The buyer in a real estate deal claims the seller unlawfully failed to disclose the presence of asbestos in the building, causing damages. Recently, the Wisconsin Supreme Court ruled the seller is not covered under an insurance policy.

    Specifically, in Phillips v. Parmelee, 2013 WI 105 (Dec. 27, 2013), the court ruled (6-0) that an asbestos exclusion clause precludes liability coverage for the buyer’s claims.

    Michael Phillips and Perry Petta, affiliated with Walker’s Point Marble Arcade Inc., alleged that Daniel Parmelee, owner of Aquila Group LLC, knew the building contained asbestos but did not disclose that information in a real estate condition report.

    Walker’s Point bought the building, and their rehab contractor, not knowing asbestos was there, dispersed it throughout the building. Eventually, the plaintiff-buyers were ordered to vacate the building, could not do business there, and lost it in foreclosure.

    Phillips and Petta sued claiming breach of contract and warranty as well as negligence in failing to disclose the presence of asbestos. The claims triggered interpretation of Parmelee’s business owner’s insurance policy with American Family.

    The circuit and appeals courts ruled the policy precluded coverage. The supreme court affirmed, concluding that “a reasonable insured would interpret the asbestos exclusion in American Family’s policy to preclude the loss alleged by the plaintiff-buyers.”

    The policy did not cover property damage with respect to any loss “arising out of, resulting from, caused by, or contributed in whole or in part from asbestos.”

    Phillips and Petta, who wanted the option of recovering from Parmelee’s insurer, argued that the exclusion clause was ambiguous and thus did not bar coverage. It said asbestos takes many forms and the policy does not define the word “asbestos.”

    The plaintiffs also said the exclusion clause should be limited to losses caused by exposure to or use of asbestos, not losses sustained by accidental dispersal.

    In addition, they said the policy does not exclude losses sustained from Parmelee’s failure to disclose the presence of asbestos. But the supreme court was not persuaded.

    “[T]he scope of the asbestos exclusion does not depend on the type of tort from which the loss arose,” Chief Justice Abrahamson wrote for the unanimous court. “Our analysis focuses on whether the loss suffered by the plaintiff-buyers is within the text of the asbestos exclusion and thus reasonably contemplated by the parties.” 

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