In Fontana Builders, Inc. v. Assurance Co. of America, the Wisconsin Supreme Court recently considered an insurance dispute featuring intricate facts and presenting a procedural puzzle. It may well be, as Justice Rebecca Bradley suggests in her separate opinion, that the outcome is motivated at least partially by a sense that the facts in this case suggest “‘substantial mischief.’” Fontana, 2006 WI 52, ¶101 (Bradley, J., concurring). But that suspicion alone does not account for the Court’s departure, without acknowledgement or explanation, from procedural norms.

Fontana is a construction company specializing in custom luxury homes. Fontana’s business model is to secure a site, begin building a home, and then find a buyer, to whose specifications Fontana customizes the finishing touches. Until the buyer takes title at closing, Fontana holds the mortgage and is protected by a builder’s risk insurance policy.

This case involves a home Fontana was building in Lake Geneva. The home was the largest and most luxurious Fontana had ever built. Fontana’s president and sole shareholder, James Accola, agreed to purchase the house. He and his family would live there, and Fontana could showcase the home as a means of generating additional sales.

Before Fontana finished building the house, Accola obtained a temporary occupancy permit and moved in. Fontana continued to do interior finishing work on the house. In preparation for closing, which had not yet occurred, Accola obtained a homeowner’s insurance policy on the property. One week later, late on a summer night in 2007, rags that a Fontana employee had used for staining wood and then left in the garage to dry spontaneously combusted. The resulting fire caused extensive damage.

Accola filed a claim under his homeowner’s insurance. Fontana filed a separate claim under its builder’s risk policy. Accola and his insurer eventually reached a settlement, whereby Accola received a check for $1.5 million—less than the full value of the homeowner’s policy—while the insurer refrained from admitting that the homeowner’s policy applied. Fontana’s insurer, Assurance Company of America (“Assurance”), denied the builder’s claim, arguing that coverage under the builder’s risk policy terminated when Accola’s homeowner’s policy took effect.

Fontana responded to these developments by suing Assurance for breach of the builder’s risk policy and for acting in bad faith by declining Fontana’s claim under that policy. The circuit court reviewed the builder’s risk policy in 2009 and determined that the fire damage fell within the policy Assurance had written. In 2010, the circuit court held a bifurcated jury trial to determine the damages due to Fontana for Assurance’s breach and then to determine liability and damages on the bad-faith claim. The jury awarded Fontana more than $2.6 million in damages.

Assurance appealed. In 2011, the Wisconsin Court of Appeals held that the trial court was wrong to determine as a matter of law that the builder’s risk policy provided coverage. According to the court of appeals, the issue of whether the builder’s risk policy remained in effect on the night of the fire presented a question of fact that needed to be resolved by a jury, considering both the policy language and extrinsic evidence, including the existence of Accola’s homeowner’s policy. On that basis, the court of appeals vacated the jury verdict and remanded for a new trial. Fontana filed a petition seeking Wisconsin Supreme Court review of the appellate decision, but the Supreme Court denied Fontana’s petition in 2012.

On remand, the circuit court held a new trial. Over Fontana’s objection, the jury heard not only about the existence of Accola’s homeowner’s policy, but also about the settlement between Accola and his insurer. The jury found that the fire damage was within the scope of the homeowner’s policy and therefore that the builder’s risk policy did not apply. When Fontana appealed, the court of appeals affirmed the jury verdict, noting that the circuit court had proceeded as the prior appellate decision had directed. Fontana filed another petition for review, and this time the Wisconsin Supreme Court took the case.

This is where things get really odd. The Supreme Court reversed the decision below. But in doing so it held “that the court of appeals in this case misapplied the extrinsic evidence rule by allowing the jury to resolve the dispute over the proper application of the Assurance policy’s language to the facts.” Id., ¶41. Whether the Assurance policy applied to the fire damage, the Court explained, “was not an appropriate question for the jury,” id., ¶49, in light of “the longstanding principle that interpretation of insurance contracts generally presents a question of law for the court,” id., ¶69. After construing the Assurance policy itself and determining that the policy covered the fire damage, the Court “reverse[d] the decision of the court of appeals and remand[ed] to the circuit court for a determination” of damages. Id.

But look carefully at what the Supreme Court decided. It did not reverse a logical flaw that first came to light in the court of appeals ruling affirming the second jury trial, nor did it find fault with a specific aspect of how the circuit court managed the second jury trial. Instead, it reached back into the case and reversed the court of appeals’ 2011 decision that the circuit court should not have interpreted the builder’s risk policy as a matter of law and should instead let the jury weigh in. That is, the Supreme Court did last week what it could have done—and what Fontana asked it to do—in 2012.

Under principles of issue preclusion, when the Supreme Court denied Fontana’s petition to review the first court of appeals decision, the legal principles in that decision became binding upon the remainder of the litigation between these parties. See, e.g., Aldrich v. Labor & Ind. Rev. Comm’n, 2012 WI 53, ¶¶88-89, 341 Wis. 2d 36, 814 N.W.2d 433. In Fontana, however, it does not seem that Assurance raised issue preclusion as a defense. Perhaps the Court saw no need to raise the issue in light of Assurance’s silence.

Neither did anyone raise the related law-of-the-case doctrine. The Supreme Court’s prior denial of Fontana’s petition for review cemented the legal determinations reached in the 2011 court of appeals decision as the law of the case, which is binding for the remainder of the litigation. However, the Supreme Court has expressed that it is beyond the reach of the law-of-the-case doctrine. See, e.g., Roth v. Lafarge Sch. Dist. Bd. of Canvassers, 2004 WI 6, ¶12, 268 Wis. 2d 335, 677 N.W.2d 599. And the Court’s explanation for why it is not constrained by that doctrine, even in circumstances where “review of the earlier decision was not sought,” applies with equal force to a case like Fontana, where the Court denied discretionary review of an appellate decision, later granted a separate request for discretionary review, and now wishes to correct the appellate decision made years prior. Univest Corp. v. Gen. Split Corp., 148 Wis. 2d 29, 37-38, 435 N.W.2d 234 (Wis. 1989).

Yet, the propriety of the Supreme Court’s actions notwithstanding, it seems odd that, without so much as mentioning the procedural issues, the Court reached back through years of litigation history (not to mention effort, expense, and uncertainty) to restore the circuit court’s initial legal determination from 2009. Compounding this oddness, the Court remanded to the circuit court for calculation of the damages due to Fontana. See Fontana, 2016 WI 52, ¶69. The Court offers no explanation why, if the circuit court’s original interpretation of the insurance policy was correct all along, the initial jury verdict based on that interpretation does not provide the proper measure of damages.

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