A Contract by Any Other Name Would … Still Be a Contract: Wisconsin Court of Appeals Enforces Breach of Contract Exclusions to Preclude Coverage for Business Competition Claim

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In Great Lakes Beverages, LLC v. Wochinski (Jan. 18, 2017), the Wisconsin Court of Appeals held that AMCO had no duty to defend or indemnify its insured against the underlying third-party tortious interference with contract claim because the breach of contract exclusions applicable to personal and advertising injury squarely applied.

As background, K-Way Systems contracted with Wochinski to purchase his company. The purchase agreement contained an asset purchase agreement, a covenant not to compete, and a supply agreement. Relations between the two parties turned sour, and Wochinski wrote to K-Way that he considered the agreement breached and, thus, rescinded or void. K-Way then sold its business to GLB Acquisition, LLC (GLBA), which filed the underlying lawsuit, seeking to enforce the non-compete and alleging that Wochinski mislabeled its products and misused trade names, resulting in unfair competition. Subsequently, GLBA sold its assets to Great Lakes Beverages, LLC, assigning Great Lakes its rights in the underlying lawsuit.

In response to GLBA’s suit, Wochinski filed a counterclaim against Great Lakes and a third-party complaint against GLBA, asserting, in pertinent part, tortious interference with contracts or prospective contracts. At the time, GLBA was covered under two insurance policies from AMCO, a “Premier Businessowners Policy” and a commercial umbrella liability policy. The policies provided personal and advertising injury coverage, subject to exclusions for injury, in pertinent part, “arising out of a breach of contract.” Relying on the exclusion, AMCO argued it was under no duty to defend or indemnify GLBA against Wochinski’s third-party complaint since the tortious interference claim arose from a contractual relationship. The circuit court held that exclusions, indeed, barred coverage.

On appeal, Wochinski argued that the breach of contract exclusions did not apply to his amended third-party complaint. He contended specifically that his claims were unrelated to K-Way’s breach of the purchase agreement claim and, hence, would still exist even if he had not entered into an agreement with K-Way. Wochinski also emphasized that he never signed a contract with GLBA. Wochinski further maintained that his tortious interference with contract claim arose in tort, not contract, as he was not directly seeking damages caused by an alleged breach of contract.

The Court of Appeals disagreed. In affirming the circuit court’s ruling, the Court of Appeals rejected Wochinski’s narrow interpretation of the phrase “arising out of.” Instead, the court acknowledged that settled Wisconsin case law affords the phrase a broad, general, and ordinarily understood meaning of “originating from, growing out of, or flowing from.” Given this broad interpretation, the court concluded that Wochinski’s tortious interference claims against GLBA necessarily arose from its breach of contract claim against him. The court reasoned that the validity of Wochinski’s allegation that GLBA tortiously interfered with his existing and prospective contracts depended on whether the non-compete agreement was still in effect, or whether it was invalidated due to K-Way’s breach. Therefore, the causal relationship between K-Way’s breach and GLBA’s tortious interference barred coverage for Wochinski’s tortious interference claim.

This decision illustrates that broad scope exclusionary language may be afforded under Wisconsin law. Coverage practitioners should be aware that bringing in tort what is fundamentally a cause of action sounding in contract may not create coverage where there otherwise would be none.