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Rich Products Corp. v. Zurich American Insurance Co.

June 12, 2002

RICH PRODUCTS CORPORATION, PLAINTIFF-APPELLANT,
v.
ZURICH AMERICAN INSURANCE COMPANY, DEFENDANT-APPELLEE.



Appeal from the United States District Court for the Eastern District of Wisconsin. No. 95 C 968--Rudolph T. Randa, Judge.

Before Flaum, Chief Judge, Bauer, and Harlington Wood, Jr., Circuit Judges.

The opinion of the court was delivered by: Harlington Wood, Jr., Circuit Judge.

ARGUED MARCH 1, 2002

This case has been here before. See Rich Products Corp. v. Kemutec, Inc., 241 F.3d 915 (7th Cir. 2001). The first time the district court on cross motions for summary judgment had partially decided the case by granting in part and denying in part some of each motion. The district court also granted Rich Products Corporation's ("RPC") motion for leave to assert claims against Zurich American Insurance Company ("Zurich"), as the insurer of Kemutec, Inc., the distributor who sold RPC the defective machinery, pursuant to WIS. STAT. §§ 632.24 and 803.04(2)(a), which allow a direct action against insurers for damages caused by negligence. The case was certified to us under Fed. R. Civ. P. 54(b). The district court then dismissed RPC's tort claims leaving only RPC's breach of express and implied warranties claims in the district court. As Wisconsin law must be applied, we relied on the Wisconsin Economic Loss Doctrine explained by the Wisconsin Supreme Court in Daanen & Janssen, Inc. v. Cedarapids, Inc., 573 N.W.2d 842 (Wis. 1998), and affirmed, leaving only RPC's warranty claims to be resolved in the district court.

Since that time there has been additional activity in the district court on motions by Zurich which thereafter resulted in the dismissal of various counts against Zurich. The district court further made it clear that "if Kemutec is to be held liable at all, it is for breach of implied warranties . . . ." In the present successive appeal, RPC concedes that it now has only its warranty claims left. Kemutec maintains it has no insurance coverage to satisfy RPC's warranty claims, is insolvent, and intends to file bankruptcy if RPC pursues its warranty claims. All of this is unfair, RPC asserts.

This opinion will answer these concerns.

ANALYSIS

We will take each of the issues separately as stated by RPC.

Issue No. 1:

Do WIS. STAT. §§ 632.24 and 803.04(2)(a), which allow a direct action against insurers for damages caused by negligence, allow a direct action to proceed where the formal negligence claims have been dismissed, but the property damage suffered by RPC was caused by negligence and the remaining warranty claims are based on that negligence?

The Wisconsin statutes cited by plaintiff do not favor the result plaintiff urges in a direct action against Zurich. The relevant portion of WIS. STAT. § 803.04(2)(a) provides, "(2) Negligence actions: insurers. (a) In any action for damages caused by negligence, any insurer . . . is by this section made a proper party defendant in any action brought by plaintiff in this state on account of any claim against the insured." (Emphasis added.)

This statute, as it is captioned, is a negligence section applicable to insurers which permits insurers to be joined in a case where a claim is alleged against the insured, but the section unambiguously is limited to damage claims caused by negligence. Implied warranty claims, as this case involves, do not constitute a negligence action for damages. In Wisconsin, warranty claims and negligence claims are not to be intertwined as RPC urges. See Sunnyslope Grading, Inc. v. Miller, Bradford & Risberg, Inc., 437 N.W.2d 213, 215-18 (Wis. 1989) (discussing breach of warranty, negligence, and the economic loss doctrine). Our case, United States v. Ettrick Wood Products, Inc., 916 F.2d 1211 (7th Cir. 1990), cited by RPC, is not apropos as it raised a Rule 54(b) issue. Our task is to follow the Wisconsin statutes, not to try to judicially amend them. See DNR v. Wisconsin Power & Light Co., 321 N.W.2d 286, 288 (Wis. 1982).

RPC also cites Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc., 93 Cal. Rptr. 2d 364, 379 (Cal. Ct. App. 2000), to support its theory that the absence of a negligence claim against the insurer is not fatal to recovery where there is a warranty claim. Although there are some factual similarities, California does ...


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