Wisconsin is a state of second homes — a place where people come to play in the snow by winter and water in summer, and the Hirschhorn family followed in this great tradition.

Joel and Evelyn Hirschhorn have owned a scenic Lake Tomahawk, Wis., vacation home since 1981. The Hirschhorns live in Florida and vacation in Wisconsin. Each month when the Hirschhorns were not at the Wisconsin property, they arranged for neighbors or hired cleaners to inspect and maintain the home. From 1981 until 2007, the vacation home had no evidence of bats or bat guano. “Guano” is a pretty Spanish word to mean “dung”. Bat guano specifically is defined as being composed of bat feces and urine. 

Listing

In May 2007, the Hirschhorns decided to sell the home and listed the property with a real estate broker; at that time, there was no evidence of bats. However, in July 2007, the broker noticed both evidence of bats and bat guano and contacted the Hirschhorns. The broker, in a gallant effort, attempted to remove the bats and clean the home but did not succeed. 

Smell

The Hirschhorns attempted to stay at their vacation home in August 2007 but noticed an overpowering and offensive odor coming from the home. A contractor conducted a more thorough inspection and determined that the cause of the odor was the accumulation of bat guano between the siding and walls of the home and could not guarantee that the remediation would eliminate the odor from the home. 

Demolition

The Hirschhorns, under the impression that the loss would be covered by their homeowner’s insurance policy, demolished the vacation home and decided to build a new one because it was more financially practical than spending the money to make it habitable again in November 2007.

Homeowner’s insurance policy and claim

The home was covered by a homeowner’s insurance policy issued by Auto-Owners. The policy insured the home, structures and personal property located on the insured premises. In addition, the policy included a pollution exclusion clause that excluded from coverage any “loss resulting directly or indirectly from: … discharge, release, escape, seepage, migration or dispersal of pollutants…” The policy also contained the definition of pollutants.
Three months after the demolition, Auto-Owners sent the Hirschhorns a denial letter based on the additional ground that “[bat] guano is considered a pollutant” within the policy’s pollution exclusion clause. 

Lawsuit

In May 2008, the Hirschhorns filed suit against the insurance company for the total loss of their vacation home. The crux of the complaint alleged that the home “became uninhabitable and unsalable due to the penetrating and offensive odor” and “the drapes, carpets, fabrics and fabric furnishings in the home were rendered unusable as a result of the absorption of the bat guano odor” due to the bat guano collected between the walls and siding of the home.
The insurance company argued the coverage was excluded under three separate exclusions:

• The loss resulted from “faulty, inadequate or defective maintenance,” specifically the inability of the Hirschhorns to maintain the siding. 
• The loss resulted from “vermin,” which reasonably included bats. 
• The loss resulted from the discharge of “pollutants” as defined in the policy to reasonably include bat guano. 

Court’s decision

The circuit court held that the pollution exclusion clause excluded coverage after determining bat guano qualified as a pollutant and ruled against the Hirschhorns. 

The Court of Appeals reversed the circuit court and held that the pollution clause in the policy was ambiguous. The court determined that in the policy’s definition of “pollutants”, the term “waste” was the only word that suggested bat guano. The court stated, “[W]hen a person reading the definition [of ‘pollutants’] arrives at the term ‘waste,’ poop does not pop into one’s mind.” Therefore the court held that the policy covered the loss. 

The main issue before the Wisconsin Supreme Court was whether the pollution exclusion clause in the policy excluded coverage for the loss of the home resulting from the accumulation of bat guano. In a 5-2 decision, the court ruled that the policy doesn’t cover losses from bat guano, which is a pollutant as defined under the pollution exclusion clause. 

What this means for REALTORS^®

When the seller says, “don’t tell anyone”

In Hirschhorn, the broker appropriately notified the sellers of the existence of the bats and bat guano as soon as the broker became aware of the issue. However, what would the broker be required to disclose if the seller said, “don’t say anything”?
Wis. Stat. § 452.133(1)(c) requires real estate licensees to disclose material adverse facts in writing to all interested parties in a timely manner. Wis. Stat. § 452.133(1)(c) applies to material adverse facts the party does not know about and cannot discover through reasonably vigilant observation. “Adverse fact” and “material adverse fact” are defined in Wis. Stat. § 452.01(1e) & (5g). Wis. Admin. Code § REEB 24.07(2) also requires the licensee to timely disclose information in writing to all parties to the transaction.

The listing broker’s client is the seller and therefore owes the duty of loyalty to the seller. However, whenever there is a conflict between duties owed to a client and duties owed to all parties, duties to all parties trump. If a seller is asking a broker or their agent to keep information confidential and the broker believes it to be a material adverse fact, the law requires the broker disclose the information to all interested parties in writing in a timely manner. Such information is not limited to the condition of the property; it also includes other information, for example, and that the transaction is going to be a short sale. In addition, Wis. Admin. Code § REEB 24.07(2) requires the licensee to timely disclose information in writing to all parties to the transaction, even if the client would direct the licensee not to disclose. 

There is not a state-approved form to make such a disclosure. In an effort to help facilitate the written disclosure required by law, the WRA has created the Disclosure of Material Adverse Fact form (WRA-DMAF), which is available in hard copy and in zipForm. 

In W.E.D. Development v. A.B.C. Insurance (No. 2008AP977, Ct. App. 2009) a buyer first sued the seller and listing broker claiming they both had knowledge about the existence of a bat infestation and failed to disclose its existence to the buyer. The lawsuit was mediated and settled for $40,000. The seller then sued the buyer’s broker for failing to tell them about the bat the home inspector saw in the attic. The circuit court jury found the broker liable and awarded a $57,000 judgment to the seller. The judgment was affirmed by the Court of Appeals. A more in-depth summary of this case is in the May 2009 Legal Update, “Case Law Update” at www.wra.org/LU0905. 

Use your senses

According to Wis. Admin. Code § REEB 24.07(1)(a), a licensee shall conduct a reasonably competent and diligent inspection of accessible areas of the structure and immediately surrounding areas to detect observable, material adverse facts. Wis. Admin. Code § REEB 24.07(1)(d) does state that a “reasonably competent and diligent inspection of real estate improved with a structure does not require the operation of mechanical equipment; the opening of panels, doors or covers for access to mechanical systems; or the moving of furniture, boxes or other property; nor does it require a licensee to observe areas of the property for which entry presents an unreasonable risk of injury or areas accessible only by ladder, by crawling or other equivalent means of access.”
I like to say when you walk through the property, look at it through buyer’s eyes, ears and nose. Look around, listen and take a deep breath. But as evidenced in Hirschhorn, it may not require too deep of a breath. 

Check with your broker to understand the policy on disclosing facts including those that are readily observable, such as odors, railroad tracks or high voltage lines, for example. Some companies assume that buyers visiting the property will notice everything around them, while others are not so confident in the buyers’ senses and have a practice that their agents disclose in writing to reinforce the existence of the information to the buyer.

See the October 2009 Legal Update, “Diligent Disclosure,” at www.wra.org/LU0910 and the July 2002 Legal Update, “Duty to Disclose,” at www.wra.org/LU0207, for further discussion of licensee disclosure obligations.

Cori Lamont is Director of Regulatory Affairs for the WRA.