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Published: April 15, 2008
written by Jerry Deschane
A new decision by the Wisconsin Supreme Court will require remodeling contractors to be extra vigilant about what they say to their customers. The Court has awarded a Brookfield couple double-damages plus attorneys fees because the remodeling contractor obtained the job by misrepresentation. The "misrepresentation" in this case was a statement made by the contractor that he understood the building code, but then built an addition that included code violations. The decision, known as Stuart versus Weisflog's Showroom Gallery, expands the reach of Wisconsin's onerous, if well-intended, consumer protection regulations.
The facts: A Job That Went Badly
In 1995, Robert Stuart and Lin Farquhar-Stuart hired Weisflog's Showroom Gallery, Inc. to draw plans for an addition to their home. Under a separate contract, the Stuart's hired Weisflog to perform the work, which included a spa room and other new living spaces. The total remodeling project was worth $278,000.
In 2001, Robert Stuart's foot broke through the floor in the spa room. An inspection revealed rotten flooring and numerous other problems. The spa portion of the project had to be torn down and rebuilt at a cost of roughly $96,000. And then the attorneys moved in.
The Stuart's sued Weisflog for negligence, breach of contract, and for violating Wisconsin's remodeling/consumer protection regulations known as ATCP 110. As the case wound its way along, the Stuarts dropped the breach of contract claim. Eventually, a jury ruled that Weisflog was guilty of negligence and of violating ATCP 110. The jury awarded Stuarts $95,000, and said 75 percent of the award was for negligence, while 25 percent was for the ATCP 110 violation. The court awarded attorneys fees that amounted to roughly one-third of the 25 percent award. The Stuart's appealed, claiming that the award should have been doubled, and that the attorneys' fees were far less than the actual cost.
The Law: It No Longer Means What You Thought It Meant
Before the impact of this decision can be fully understood, a short tutorial would be helpful on the difference between damages caused by a remodeler's negligence, versus those caused by a violation of ATCP 110. The damages that may be awarded in a negligence case are only those actually incurred. Attorneys' fees are not usually allowed.
Damages covered by ATCP 110 are handled differently. Because the law is meant to deter shady dealings by home improvement contractors, ATCP 110 contains financial incentives for the homeowner to sue. Those incentives include the possibility of winning double damages, plus the contractor has to pay the home owner's attorneys' fees. The Wisconsin Courts have described ATCP 110 as encouraging Wisconsin citizens to act as an army of Attorney Generals, protecting vulnerable citizens from ruthless home improvement contractors.
What's the difference between negligence and an ATCP 110 claim? Thanks to this Supreme Court case, it's no longer clear. In the past, ATCP 110 covered fraud, misrepresentation, non-payment, delays, and other violations of the business relationship between the consumer and the remodeler. Damages caused by shoddy workmanship were usually considered negligence. The jury verdict in this case clearly separated the two, assigning 75 percent of the damages to shoddy workmanship and 25 percent to misrepresentation.
The Supreme Court threw out the distinction made by the jury, ruling that the builder's misrepresentation about his knowledge of the building code was the "core" that drove the entire transaction, and therefore, the entire damage claim should be subject to ATCP 110. The practical result is that the $96,000 jury award becomes a $192,000 award. The amount of attorneys' fees to be paid by the remodeler will also go up, although that part of the case was sent back the Circuit Court to be reviewed again.
The Lesson: Build a Good House, and Mind Your Promises
Remodelers have chafed for years under the paperwork-intensive ATCP 110. The regulation seems filled with traps for otherwise-innocent contractors. It requires clearly-worded contracts, change orders, and a host of other consumer protections. What it never used to address was poor workmanship. That has apparently changed. As a result of this decision, the financial risks for a remodeler in losing a lawsuit have literally doubled.
After this week's decision, a home owner with a beef about a project will scrutinize every contract, brochure, or cocktail napkin (not that you write contracts on cocktail napkins, right?), to find that one statement about building "the best" home, or the "latest technology," and will drag that nugget into court, hoping to double down. How should remodelers respond? With well-worded and straightforward contracts. While ATCP 110 does seem to be a paperwork burden, following its dictates will give you some protection. Keep the relationship between the remodeler and the customer clear, and in writing. Unfortunately, since the Supreme Court's decision apparently expands the definition of misrepresentation, no matter how professional a home improvement contractor acts, any mistake may open that contractor up to the punitive damages under ATCP 110.
One More Thought: Read Your Insurance Policy
A second Weisflog case will be announced soon by the Supreme Court that could have an equally staggering financial impact on the industry. Shortly after the Stuart's filed suit, Weisflog's insurance company was in court as well, arguing that their coverage was not intended to address the double-damages and attorneys fees of ATCP 110. The company lost at the appeals court (which, in this case is good for the contractor), but has appealed to the Supreme Court. If the company wins, it means ATCP 110 damages are not covered by a standard Commercial General Liability policy. That means remodelers are directly at risk. If the company loses, however, be prepared to see changes in how insurance companies write their CGL policies in the future.
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