Rural Mutual Insurance Company v. Secura Insurance, A Mutual Co., 2015AP1864-FT (slip op. Feb. 3, 2016)
Rural Mutual resolved question over whether an insurer can enforce a condition subsequent in a policy which neither increased the risk to the insurer nor contributed to the loss. The Wisconsin Court of Appeals, consistent with Wis. Stat. §631.11(3), held that Secura could not enforce its promissory warranty, when the alleged breach of that warranty did not increase the risk or contribute to the loss.
Rural Mutual arose out of the structural failure of a barn during a storm. The barn belonged to Rural’s insured, Dandy Veal. The barn was being built by Forest Construction. Secura Insurance issued a builder’s risk policy to Forest Construction, LLC that included the Dandy Veal barn. The failure of the barn occurred during a pause in construction. During the pause, Dandy Veal stored some cows in the barn, using less than 18% of its capacity. No cows were injured in the barn’s structural failure.
After the barn’s failure, Secura learned that Dandy Veal had stored cows in the barn. It denied coverage using a provision in its policy which denied coverage when the barn was occupied in whole or in part. Rural Mutual then paid under its policy and brought its subrogation / indemnification action.
In the Trial Court, Secura relied on its coverage provision. Rural Mutual argued that the provision was a promissory warranty since it required the existence of a condition, non-occupancy, after the inception of the policy. Rural Mutual argued that, as a promissory warranty, it was unenforceable under Wis. Stat. §631.11(3) since the presence of the cows in the barn neither increased the risk nor contributed to the loss.
The Court of Appeals agreed with Rural Mutual’s position. It concluded that Secura’s provision met the definition of a promissory warranty. It also concluded that the presence of the cows neither increased the risk nor contributed to the loss. Accordingly, it reversed the trial court.