ACCIDENTS OR OCCURRENCES
The Wisconsin Supreme Court has declared that an "accident" is an "unexpected, undesirable event" or an "unforeseen incident" which is characterized by a "lack of intention." Doyle v. Engelke, 1998 WL 331563 (Wis. June 24, 1998).
An injury will be deemed to have been "expected" if "the damages are of such a nature that they should have been reasonably anticipated by the insured." Calvert Ins. Co. v. Western Ins. Co., 874 F.2d 396, 399 (7th Cir. 1989), cited in Carney v. Village of Darien, 60 F.3d 1273 (7th Cir. 1995).
An intent to cause injury exists if the actor subjectively intends to cause injury or if injury is substantially certain to result from the actor's conduct. Gouger v. Hardtke, 482 N.W.2d 84, 88 (Wis. 1992). The intent to injure "may be actual or may be inferred from the nature of the insured's intentional act." Raby v. Moe, 450 N.W.2d 452, 455 (Wis. 1990)(armed robbery). In particular, an intent to injure will be inferred in cases where the insured's conduct was inherently injurious, such as in sex cases. See N.N. v. Moraine Mutual Ins. Co., 153 Wis.2d 84, 450 N.W.2d 445, 448 (1990); Loveridge v. Chartier, 468 N.W.2d 146, 161 Wis.2d 150 (1991)(transmission of herpes virus to sexual partner) and Whitt v. DeLeu, 707 F.Supp. 1011 (W.D. Wis. 1989).
Allegations that a landlord "wilfully disregarded" the plaintiff's rights were held to describe an "occurrence" in U.S. v. Security Management Co., 96 F.3d 260 (7th Cir. 1996).
"Insurance covers fortuitous losses and particular losses are not fortuitous if the damage is intentionally caused by the insured. Even where the insurance policy contains no language expressly stating the principal of fortuitousness, courts ruled this principle into the insurance policy to further specific public policy objectives including (1) avoiding profit from wrongdoings; (2) deterring crime; (3) avoiding fraud against insurers; and (4) maintaining coverage of a scope consistent with the reasonable expectations of the contracting parties on matters as to which no intention or expectation was expressed. Hedtcke v. Sentry Ins. Co., 326 N.W.2d 727, 738 (Wis. 1982). See also Haessly v. Germantown Mutual Ins. Co., 1997 WL 525303 (Wis. App. August 27, 1997) (whether or not injury caused by insured's failure to call for medical assistance to plaintiff until five days after original assault was expected or intended, the resulting aggravation of her injuries was not fortuitous).
Products Co. v. American Employers Ins. Co., 577 N.W.2d 386 (Wis.
App. 1998), review denied, 580 N.W.2d 690 (Wis. 1998), the
Wisconsin Court of Appeals adopted a two-part analysis for pollution cases
based on the Michigan Supreme Court's ruling in Arco. First, the
court will look to whether the discharges of pollution were intentional
or not. Only if some of the discharges were accidental will the court
proceed to the question of whether the insured subjectively expected or
intended to cause damage to the environment.
An insured's guilty plea in a criminal assault case does not collaterally estop the insured from claiming in a subsequent civil case that its conduct was negligent. Id. However, intent to injure will be inferred if the insured's criminal conduct was of such a dangerous nature as to impose a substantial threat to the safety of innocent parties.
"Willful and wanton" conduct or other forms of gross negligence are still an "occurrence." Patterson v. Western Cas. & Sur. Co., 5 Wis.2d 535, 93 N.W.2d 433 (1958).
An exclusion for intentional or criminal acts has been held to apply even to unintended injuries resulting from the insured's criminal conduct. Allstate Ins. Co. v. Peasley, 910 P.2d 483 (Wis. App. 1996).
An employee’s intent was imputed to the insured employer in Berg v. Fall, 405 N.W.2d 701 (Wis. App. 1987)(assault and battery). By contrast, where an intentional acts exclusion did not contain "arising out of" language and focused separately on the conduct of each insurer, the Wisconsin Supreme Court has found that claims for negligent supervision were covered. Doyle v. Engelke, 1998 WL 331563 (Wis. June 24, 1998).
Claims for breach of contract are not normally insurable under a general liability policy but may nonetheless require a defense by the insurer if recovery is sought on a tort theory of negligence. Jacobs v. Karls, 504 N.W.2d 353 (Wis. App. 1993). The Wisconsin Supreme Court ruled in Vogel v. Milwaukee Mutual Insurance Company, 97-2192 (Wis. July 7, 2000) that a CGL policy does not provide coverage for Diminuition in value suffered by a home as a result of the insured’s subcontractor’s defective masonry work. Further, even though certain collateral damage resulting from the work might otherwise be deemed to involve “property damage,” in view of the fact that the underlying court had determined that it was economically wasteful to repair the house given the extent of damage, the Supreme Court concluded that the damage involved neither physical injury to tangible property nor the loss of use thereof.
It is not
necessary that the insured have intended the specific injuries actually
suffered by the underlying tort claimant so long as there was some intent
to cause injury. Pachucki v. Republic Ins. Co., 278 N.W.2d 898, 903
By contrast, in Doyle v. Engelke, No. 96-0680 (Wis. June 24, 1998), the Wisconsin Supreme Court ruled that the St. Paul had a duty to defend allegations that the insured had been negligent in failing to prevent anti-abortion militants from seeking to encumber the financial assets of the plaintiff. Noting the severability of interests clause in the policy, the court took note of the fact that the claims were based on the insured's own negligence and were therefore outside the scope of a policy exclusion for intentional acts by the insured.
Court of Appeals has ruled that a liability policy that bars coverage for
all claims "arising out of" an assault and battery was sufficiently broad
to preclude coverage for claims that the bar was negligent in failing to
protect the plaintiff from assault by a bouncer. Berg v. Schultz,
526 N.W.2d 781 (Wis. App. 1994).
ALLOCATION AND SCOPE ISSUES
An insurer has standing to sue another insurer seeking contribution for defense costs. Doyle v. Engelke, 1998 WL 331563 (Wis. June 24, 1998).
The Court of Appeals ruled in Sauk County v. Employers Ins. of Wausau, 202 Wis.2d 434, 550 N.W.2d 439 (1st Dist. 1996) that even though a counterclaim alleging that the plaintiff was itself liable for the subject matter of its claim was a "suit" that must be defended, Wausau had not breached any duty to defend by paying the arbitrary amount of one-sixth of the total costs of prosecuting the case where the insured's attorneys had refused to break out their time concerning the actual defense of the counterclaim. See also Loosmore v. Parent, 613 N.W.2d 923 (Wis. Ct. App. 2000)(no duty to pay for costs of cross-claim against co-defendant).
Earlier, the Court of Appeals ruled in Grube v. Daun, 496 N.W.2d 106, 122 (Wis. App. 1992) that "apportionment of responsibility for the defense is neither practical nor desirable." the court ruled that an insurer must provide a complete defense, even if some of the claims were not covered.
In Society Insurance Company, A Mutual Company v. Town of Franklin, 607 N.E.2d 342 (Wis. App. 2000), the Wisconsin Court of Appeals ruled that a municipality could stack the limits of each policy in effect during the period that wastes had been disposed of at a landfill. The court rejected the insurer’s contention that the D.C. Circuit’s analysis in Keene limited the insured to a single policy limit for this one “occurrence.” The court declared that the anti-stacking rationale presented by the Keene court was at odds with Wisconsin law and that the insured was entitled to coverage for each policy for property damage occurring during that policy year. Because each of the policies were issued by the same insurer, the Court of Appeals left open the issue of how liability would otherwise have been allocated had there been multiple insurers.
Applying an actual injury trigger, a federal court interpreting New York law ruled that coverage for the settlement of a dentist's asbestos claim should be pro-rated through the period of the claimant's asbestos injury, rejecting the insured's "joint and several" argument. Sybron Transition Corp. v. Security Ins. Co., No. 92-C-779 (E.D. Wis. June 13, 1995), aff'd on other grounds, No. 95-4084 (7th Cir. February 27, 1997). On remand, Judge Adelman ruled that Sybron was responsible for periods of time for which it had self-insured, and that Sybron could not collect the full value of the underlying asbestos claim settlement for the policies issued prior to 1970 that lacked self-insured retentions. Transition Corp. v. Security Insurance Company of Hartford, No. 92-C-779 (E.D. Wis. August 13, 1999).
the issue of “unavailability,” the court declared in Sybron Transition
Corporation v. Security Insurance Company of Hartford, No. 92-C-779 (E.D.
Wis. January 14, 2000) that whether the insured could be held responsible
(or excused per Stonewall) depended on the answer to two questions.
First, did the insured make reasonable efforts to obtain insurance coverage
for that period? Second, was such insurance coverage available?
The mere fact that insurance coverage was unavailable for a period will
not preclude the assignability of that period to the policyholder if the
insured did not make efforts to obtain coverage. Therefore, both
questions must be answered favorably to the policyholder in order to avoid
being held responsible for such gaps.
has both an intermediate appellate court and a state Supreme Court.
Elements of a Bad Faith Claim
Unfair or deceptive consumer practices are proscribed by Wis. Stat. Ann. § 100.20 (West 1988 & Supp. 1992). Unfair claims handling by insurers is regulated under Wis. Admin. Code § INS 6.11(3) (adopted administratively).
A claim of bad faith requires proof that the insurer significantly disregarded its policyholder's interests. Warren v. American Family Mutual Ins. Co., 361 N.W.2d 724, 727 (Wis. App. 1984). Under Wisconsin law, a policyholder "must show the absence of a reasonable basis for denying benefits and the [insurer's] knowledge or reckless disregard of the lack of a reasonable basis for denying the claim." Anderson v. Continental Ins. Co., 271 N.W.2d 368 (Wis. 1978). An insured must establish that no reasonable insurer would have denied coverage for the reasons that the insurer did. James v. Aetna Life & Cas. Co., 326 N.W.2d 114 (Wis. App. 1982).
such claims, Wisconsin courts will use an objective standard for evaluating
the reasonableness of the coverage defense and a subjective standard as
to what the insured knew (or recklessly ignored). Anderson, supra;
Benke v. Mukwonago-Vernon Mut. Ins. Co., 329 N.W.2d 243 (Wis. App. 1982).
Thus, a policyholder must first establish both that there was no objectively
reasonable basis for the insurer’s denial of its claim but also that, subjectively,
the insurer understood that no such basis existed or acted in reckless
disregard of the absence of any credible basis for denying coverage.
Dechant v. Monarch Life Insurance Company 547 N.W. 2d 592 (1996) and Mills
v. Regent Insurance Company, 449 N.W. 2d 294 (Wis. App. 1989). See
also Seigel v. Allstate Ins. Co., 2000 WL 1426466 (Wis.App.Ct. 2000)(plaintiff
asserting “bad faith” must prove both the absence of an objectively reasonable
basis for denial of claim and the subjective component of the insurer’s
knowledge or reckless disregard of the absence of a reasonable basis for
Whether an insurer’s conduct was reasonable must be based on the information known to the insurer at the time of denial. Rhiel v. Wisconsin County Mutual Insurance Corporation, 568 N.W.2d 4, 8 (Wis. App. 1997). Similarly, whether a claim is fairly debatable must also take into account the law as it existed at the time the denial was made. Madsen v. Threshermans Mutual Insurance Company, 439 N.W. 2nd 607, 614 (Wis. App. 1989). The insured’s evidence must meet a clear and convincing standard. Johnson v. American Family Mutual Insurance Company, 287 N.W. 2d 729 (Wis. 1980).
The Supreme Court of Wisconsin has ruled that expert testimony is not ordinarily required to prove bad faith. Weiss v. United Fire & Cas. Co., 197 Wis.2d 365, 541 N.W.2d 753 (1995). However, the court declared that expert testimony was required in complex cases where a lay person may not determine, based on his or her own personal knowledge or experience, whether a reasonable basis existed or not. See also DeChant v. Monarch Life Ins. Co., 200 Wis.2d 559, 547 N.W.2d 592 (1996).
In the absence
of a claim for actual damages, a party cannot recover punitive damages.
Tucker v. Marcus, 418 N.W. 2d 818 (Wis. 1988); and Vasen v. Progressive
Insurance Companies, No. 99-2834 (Wis. App. August 24, 2000).
Negligent Failure to Settle
Under Wisconsin law, an insurer is obligated to use ordinary diligence to settle a claim within policy limits and may be liable for any excess verdict if it fails to do so. Alt v. American Family Mutual Ins. Co., 237 N.W.2d 706, 712 (Wis. 1976). Further, the Supreme Court ruled in Alt that the absence of an actual offer to settle within limits is not an absolute defense to liability; under appropriate circumstances the insurer may have an affirmative obligation to seek out such an offer. Id. at 710. On the other hand, an insurer need not offer its policy limits if it has a reasonable basis for disputing coverage. Mowry v. Bager State Mutual Casualty Co., 385 N.W.2d 171 (Wis. 1986). Wisconsin does not recognize a right of action for tort claimants to sue a torfeasor’s liability insurer for failing to settle within policy limits. Jadair, Inc. v. U.S. Fire Ins. Co., No. 95-1496 (Wis. App. August 12, 1998).
An insurer owes a general duty to its insured to settle or compromise a claim made against the insured. As explained by the Wisconsin Supreme Court in Mowry v. Badger State Mut. Cas. Co., 129 Wis. 2d 496, 510, 385 N.W.2d 171 (1986), this duty is implied from the terms of the contract which give the insurer the absolute control of the defense of the action against the insured. Id. Because the insured has given up something of value to the insurer-namely, the right to defend and settle a claim-the insurer is said to be in the position of a fiduciary with respect to the insured's interest in settlement of a claim. Id. at 511. The insurer has the right to exercise its own judgment in determining whether a claim should be settled or contested; but in order to be made in good faith, a decision not to settle a claim must be based on a thorough evaluation of the underlying circumstances of the claim and on informed interaction with the insured. Id. at 510. This duty gives rise to several obligations on the part of the insurer. First, the insurer must exercise reasonable diligence in ascertaining facts upon which a good faith decision to settle or not settle must be based. Id. Second, where a likelihood of liability in excess of policy limits exists, the insurer must so inform the insured so that the insured might properly protect himself. Id. Third, the insurer must keep the insured timely abreast of any settlement offers received from the victim and of the progress of settlement negotiations. Id.
This rule has been held not to apply to claims against an excess insurer that did not have an absolute right of control and was merely allowed under its policy to “associate” in the defense of the case. Sta-Rite Industries, Inc. v. Zurich Re, 1999 WL 305064 (7th Cir. May 17, 1999).
insurer may have no duty to indemnify, if it is providing a defense under
a reservation of rights, it has the duty of good faith to communicate all
offers of settlement to the policyholder and to keep the policyholder involved
in activity involving settlement. Tank v. State Farm Fire & Casualty
Co., 715 P.2d 1133, 1138 (Wis. 1986).
The Wisconsin Court of Appeals recognized a cause of action for reverse bad faith in Snap-On Tools Corp. v. First State Ins. Co., 502 N.W.2d 282 (Wis. App. 1993).
Third Party Rights of Action
The Wisconsin Supreme Court has declined to recognize a private right of action based on claimed violations of unfair trade practice statutes. Kranzush v. Badger State Mut. Cas. Co., 307 N.W.2d 256 (Wis. 1981).
Fees for Pursuing
Duty to Investigate?
An insurer has a duty to investigate, evaluate and make a good faith effort to settle a claim against its policyholder. However, an insurer may not be held liable for failing to make a settlement offer within policy limits where the plaintiffs conduct had previously made clear that such an effort would be futile. Rhiel v. Wisconsin County Mutual Ins. Corp., 568 N.W.2d 4 (Wis. App. 1997)(an insurer did not act in bad faith but terminating settlement negotiations where tort claimant’s demand was for policy limits).
The Wisconsin Supreme Court ruled in Doyle v. Engelke, 580 S.W.2d 245 (Wis. 1998) that the plaintiff's claims for emotional distress constituted a claim for "bodily injury" (the policy definition of "bodily injury" included mental distress) despite the policy's requirement that the injury be "physical."
rulings had declared that the CGL definition of "bodily injury" only extended
to physical injury and therefore did not encompass claims for mental distress
in Richie v. American Family Mutual Ins. Co., 140 Wis.2d 51, 409 N.W.2d
146 (1987)(loss of consortium). See also Knapp v. Eagle Property
Mgt. Corp., 54 F.3d 1272 (7th Cir. 1995)(court refused to find ambiguity
in the definition of "bodily injury," holding that "bodily" modified "injury,
sickness or disease," not just "injury," and therefore did not encompass
claims for emotional distress) and U.S. v. Security Management Co., 96
F.3d 260 (7th Cir. 1996) (emotional distress from racial discrimination
did not result in any physical injuries and was therefore not a "bodily
BREACH OF POLICY CONDITIONS
Wisconsin Statute §§632.26 required that all liability policies provide that:
given by or on behalf of the insured to any authorized agent of the insurer
within this state, with particulars sufficient to identify the insured,
is notice to the insurer.
(2)Effect of failure to give notice. Failure to give notice as required by the policy as modified by sub (1) (b) does not bar liability under the policy if the insurer was not prejudiced by the failure, but the risk of nonpersuasion is upon the person claiming there was no prejudice.
An insured’s 30 month delay in giving notice of a suit was deemed to be prejudicial as a matter of law in Town of Mount Pleasant v. Hartford Accident & Indemnity Company, 2001 Wisc. App. LEXIS 6 (Dist. Two January 17, 2001).
The Seventh Circuit has ruled that this statute has equal application to a claim/notice requirement in a “claims made” policy. In Lexington Ins. Co. v. Rugg & Knopp, Inc., No. 98-2078 (7th Cir. January 14, 1999), the court agreed that Wisconsin law was uncertain in this regard and determined that the better approach was to take the conservative approach as any error could always be remedied by the legislature.
The determination of whether notice is given "as soon as practicable" is determined, not merely from the passage of time, but "upon all the facts and circumstances of the particular case." N.N. v. Moraine Mutual Ins. Co., 153 Wis.2d 84, 450 N.W.2d 445, 448 (1990). Prejudice will be presumed if the delay exceeds one year, although the insured can overcome this presumption with evidence that no prejudice resulted. Gerrard Realty Corp. v. American States Ins. Co., 89 Wis.2d 130, 277 N.W.2d 863 (1979) and Lopardo, supra (prejudice existed as a matter of law where judgment had already entered against insured in related proceeding; insurer does not have the burden of proving a negative).
In Sybron International Corporation v Security Insurance Company of Hartford, No. 99-3050 (Wis. App. March 6, 2001), the Court of Appeals ruled that a trial court erred in granting summary judgment to an insurer based on the insured’s late notice, finding that material questions of fact existed with respect to whether the insured’s failure to realize that the injuries alleged involved damage occurring over a prolonged period of time and therefore required notice to earlier carriers was reasonable or not.
Notice that an insurer receives from other sources that puts the insurer on actual notice of a claim against its policyholder will suffice. Towne Realty, Inc. v. Zurich Ins. Co., 548 N.W.2d 64 (Wis. 1996)(notice from agent of the insured). On the other hand, the Wisconsin Court of Appeals ruled in Town of Mount Pleasant v. Hartford Accident & Indemnity Company, No. 00-0480 (Wis. App. January 17, 2001) that such notice must give the insurer actual knowledge that a claim is pending against a policyholder. Thus, an insurer’s awareness of a law suit involving a different insured did not give it notice of the existence of litigation against another insured. The court rejected the insured’s contention that the Hartford had constructive notice of these claims by reason of the fact that it had been made aware of the litigation by other policyholders and, had it searched its records, might have determined that a co-defendant was separately insured by it. The court ruled that a liability insurer does not have an affirmative obligation to search its records and to clarify with every party that is sued in the case whether or not it is an insured and desires the protection of the policy.
failure to appear for trial, in breach of the cooperation clause, was held
to be prejudicial where the insured’s testimony was vital to the insurer’s
ability to defend. Dietz v. Hardware Dealers Mut. Fire Ins. Co.,
276 N.W.2d 808 (Wis. 1979)
"BROAD FORM COVERAGES"
The Wisconsin Court of Appeals has ruled in two recent decisions that pollution claims are not covered under "personal injury" policy parts. The court ruled in Production Stamping Corp. v. Maryland Casualty Co., 199 Wis.2d 322, 544 N.W.2d 584 (Wis. App. 1996) that such arguments could not be used to "trump" an absolute pollution exclusion so as to nullify its effect. In that case, the court ruled that claims for groundwater contamination clearly alleged "property damage," not "invasion of the right of private occupancy." Similarly, the court ruled in Robert E. Lee & Associates, Inc. v. Peter's Service Center, 206 Wis.2d 508, 557 N.W.2d 457 (3d Dist. 1996) that groundwater contamination resulting from overfilling of a tank at the insured's service station did not allege a claim for "wrongful entry."
Earlier, the 7th Circuit had ruled in Scottish Guarantee Ins. Co. v. Dwyer, 19 F.3d 699 (7th Cir. 1994) that claims of negligent trespass by an abutting property owner alleged a "wrongful entry" under a "personal injury" form that covers "wrongful entry into or eviction of a person from, a room, dwelling or premises that the person occupies." See also City of Edgerton v. General Cas. Co. of Wisconsin, 172 Wis.2d 518, 493 N.W.2d 768 (App. 1992), reversed on other grounds (Wis. 1994)(cost of cleaning up insured's landfill fell within "personal injury" coverage since the government was acting to protect the property rights of private citizens). But see, Royal Ins. Co. of America v. Xtra Corp., Inc., Rock No. 95-CV-43 (Wis. Cir. Ct. May 20, 1997)(holding that Court of Appeals' ruling in Edgerton is still good law and mandates coverage for personal injury).
The Seventh Circuit ruled in U.S. v. Security Management Co., 96 F.3d 760 (7th Cir. 1996) that allegations that the plaintiffs were unfairly discriminated against did not allege a claim for "wrongful invasion of the right of private occupancy" where the plaintiffs had never actually taken occupancy of the rental property. While holding that there might have been coverage if the policy had insured "wrongful invasion of the right to private occupancy," the court noted that "invasion of the right of private occupancy" required an existing occupancy in order to trigger coverage.
The Wisconsin Court of Appeals also ruled that a subsequent purchaser's suit against the insured for selling property that it had already sold to a third party failed to allege a claim for "wrongful invasion of the right of private occupancy" since the plaintiff had no legal right to occupy the premises. Petrina v. Rural Mutual Ins. Co., 201 Wis.2d 811, 549 N.W.2d 287 (Wis. App. 1996). Further, the court ruled that the plaintiff's claims arose from the insured's breach of the warranty of title and the deed of conveyance, not from their eviction from the property by court order.
Claims for "slander of title" were held to be outside the scope of "personal injury" coverage in Doyle v. Engelke, 580 S.W.2d 245 (Wis. 1998). The Wisconsin Supreme Court ruled that the policy's coverage for "libel and slander" was limited to claims for the defamation of persons and did not extend to property-based torts.
A federal district court has predicted that the Texas Supreme Court would find that allegations of trade dress infringement are a covered “advertising injury” under the offense of “misappropriation of advertising ideas or style of doing business.” Industrial Moldings Corp. v. American Manufacturers Mutual Ins. Co., 1998 WL 658652 (N.D. Tex. September 16, 1998).
A U.S. District
Court in Wisconsin has ruled that a liability insurer had a duty to defend
a sexual harassment suit based upon the "personal injury" provisions of
its policy. Even though the plaintiff's suit did not set forth a
claim for defamation, Judge Warren ruled in Bradley Corp. v. Zurich Ins.
Co., 984 F.Supp.2d 1193 (E.D. Wis. 1997) that allegations that the insured's
conduct had damaged the plaintiff's reputation would have been sufficient
to support a covered claim and that Zurich had therefore wrongfully refused
BURDEN OF PROOF
initial burden of showing that its claim is within the scope of coverage.
Kenefick v. Hitchcock, 522 N.W.2d 261 (Wis. App. 1994). The Wisconsin Court
of Appeals ruled in Just v. Land Reclamation, 445 N.W.2d 683, 151 Wis.2d
593 (App. 1989) that insured's have the burden of proving claims within
the "sudden and accidental" exception to the pollution exclusion.
This finding was set aside when the Wisconsin Supreme Court invalidated
the exclusion, however (see below).
CHOICE OF LAWS
In general, Wisconsin courts apply a "grouping of contacts" approach to choice of laws questions. Absent an express choice by the parties, Wisconsin looks to the law of the state that has the most "significant contacts" with the subject matter of the insurance. Belland v. Allstate Ins. Co., 140 Wis.2d 391, 397-98, 410 N.W.2d 611, 613-14 (App. 1987); Hunker v. Royal Indemnity Co., 204 N.W.2d 897, 902 (Wis. 1973). "Contacts" to be considered include the place of contracting, the place of performance, the location of the subject matter of the contract, the place of business of the parties and the law under which the contract will be most effective. Belland; supra and Sonoco Buildings, Inc. v. American Home Assur. Co., 877 F.2d 1350 (7th Cir. 1989).
The Seventh Circuit has ruled that New York law governed the issue of whether a liability insurer owed coverage for an underlying asbestos claim, notwithstanding the fact that the claim had been settled by a written agreement among the parties which provided that the agreement would be interpreted in accordance with the law of Connecticut. In Sybron Transition Corp. v. Security Ins. Co. of Hartford, No. 95-4084 (7th Cir. February 27, 1997)No. 95-4084 (7th Cir. February 27, 1997), the court ruled that what was at issue was the interpretation of the underlying insurance policies, not the Settlement Agreement. Applying Wisconsin's "grouping of contacts" approach to conflicts of law questions, the court ruled that New York law must govern as being the state with the most significant relationship with the parties and the underlying policies. Although Hartford is a Connecticut corporation, the court noted that the policies had been issued out of Buffalo to a New York insured.
If a contract of insurance has significant contacts with Wisconsin, the law of Wisconsin will apply even if the events giving rise to liability occurred in other states. American Family Mutual Ins. Co. v. Powell, 486 N.W.2d 537, 538 (Wis. App. 1992) and Trostel & Sons Co. v. Employers Ins. of Wausau, 1996 Wisc. App. LEXIS 596 (1st Dist. May 7, 1996) rejecting law of the site approach to environmental liability claims involving a Wisconsin corporation).
In the absence
of a true conflict of laws, a Wisconsin court will apply Wisconsin law.
Wilcox v. Wilcox, 133 N.W.2d 408 (Wis. 1965)(“The law of the forum should
presumptively apply.”); and Gavers v. Federal Life Insurance Company, 345
N.W.2d 900 (Wis. App. 1984).
CONFLICTS OF INTEREST
Where a conflict
of interest exists, the insurer may either retain independent counsel of
its own choosing or should reimburse the insured for independent counsel
of the insured's choosing. American Motorist Ins. Co.
v. Trane Co., 544 F.Supp. 669, 686 (W.D. Wis. 1982). Accordingly,
where an insurer has reserved its rights to deny coverage, the insured
is free to select its own counsel. Nowacki v. Federated Realty Group,
Inc., 1999 WL 77761 (E.D. Wis. 1999).
The Wisconsin Supreme Court ruled 4-3 on June 16, 1994 that clean up costs are not covered "damages." City of Edgerton v. General Cas. Co., 184 Wis.2d 750, 517 N.W.2d 463 (1994), reversing a ruling of the Court of Appeals that had found coverage. The ruling reflected the court's ruling in School District of Shorewood v. Wausau Ins. Co., 488 N.W.2d 82 (Wis. 1992) that the cost of complying with a mandatory injunction barring future racial discrimination was not "damages." In light of Edgerton, earlier federal court rulings in Maryland Cas. Co. v. Wausau Chemical Corp., 809 F.Supp. 680 (W.D. Wis. 1992); Patz v. St. Paul Fire & Marine Ins. Co., 817 F.Supp. 781 (E.D. Wis. 1992), aff'd, 15 F.3d 699 (7th Cir. 1994) that had found coverage are of no precedential value.
however, policyholders mounted a concerted attack on Edgerton. On
March 12, 1996, two of the judges who authored the original Court of Appeals
decision in Edgerton finding coverage for clean up costs ruled in Wisconsin
Public Service Corp. v. Heritage Mutual Ins. Co., 200 Wis.2d 821, 548 N.W.2d
544 (3d Dist. 1996) and General Casualty Company of Wisconsin v. Hills,
201 Wis.2d 1, 548 N.W.2d 100 (3d Dist. 1996) that Edgerton was limited
to situations in which the insured was cleaning up its own property pursuant
to some form of injunctive order. Accordingly, the court ruled that
a PRP contribution action against a waste generator (Hills) or a claim
for indemnification by a contractor against a subcontractor (Wisconsin
PSC) sought "damages." Shortly thereafter, however, the Second District
of the Court of Appeal ruled in Kohler Co. v. Employers Ins. of Wausau,
549 N.W.2d 285 (2d Dist. 1996) that Superfund claims against a property
owner for the cost of investigating cleaning up its landfill are not "damages"
under a general liability policy. The court rejected Kohler's contention
that language in Allstate's umbrella policy indemnifying the insured for
"damages and expenses" created broader coverage that was at issue in City
of Edgerton, holding that the coverage only extended to expenses connected
to legal damages. Accord, Nor-Lake, Inc. v. Aetna Casualty &
Surety Co., 201 Wis.2d 810, 549 N.W.2d 286 (3d Dist. 1996). But see,
General Cas. Co. v. The Getzen Co., 1996 WL 786637 (Wis. App. September
12, 1996)(allowing coverage for clean up costs under umbrella policy as,
even though these costs were not "damages," they were "sums" within the
insured was obligated to pay by reason of liability "imposed upon the insured
The Appeals Court has since ruled that Hills does not mandate coverage for the clean up of third party landfills if, as in Edgerton, the insured’s liability is based upon a direct demand against it by the U.S. EPA or the WDNR. Amcast Industrial Corp. v. Affiliated FM Ins. Co., 584 N.W.2d 218 (Wisc. App. 1998).
In Hydrite Chemical Co. v. Aetna Casualty & Surety Co., 582 N.W.2d 423 (Wis. App. 1998) the Court of Appeals ruled that corrective measures demanded by the USEA pursuant to the insured's RCRA hazardous waste license were not "damages" even though some of the clean up involved groundwater contamination and damage to neighboring properties.
Power & Light Co. v. Century Indemnity Co., 130 F.3d 787 (7th Cir.
1997), the insured sought recovery for $1.65 million to be paid to the
purchaser of the insured's property in exchange for the purchaser's agreement
to waive any claims against it in connection with groundwater contamination
on the property. The court distinguished between sums that an insured
is obligated to pay because of the legal duty and damages that an insured
must pay to a third party. Judge Posner declared that the insured's
clean up liability is the operator of an MGP site was not converted into
damages merely because it had received a letter from the municipality where
the site was located declaring that the insured had a clean up obligation.
"The fact that someone reminds you that you have a duty to clean up a site
does not convert your clean up expense into legal damages." Further,
the court refused to find that such expenses could be converted into covered
"damages" by delaying long enough until the polluter was sued by a third
party to compel it to clean up a site. Comparing such tactics to
"murdering heir" cases, Judge Posner opined that it would be against public
policy to allow recovery in such circumstances.
On remand, the Wisconsin Court of Appeals ruled in Sauk County v. Employers Ins. of Wausau, 2000 Wis. App. LEXIS 1212 (Dist. One, December 19, 2000) that a trial court erred in ruling that a polluter was not entitled to Ind. Coverage under a liability policy for the settlement of counterclaims brought against it by various PRPs who are also alleged to have contaminated its landfill. The court declared that even though the insured had not paid any money to settle these cases, it might nonetheless be entitled to indemnity for any other consideration that it had given up to effect these settlements and therefore remanded the case back to the Circuit Court to determine the monetary value of any consideration that had been given up by the insured.
A federal district court has ruled that costs incurred by a policyholder to clean up pollution pursuant to state and federal environmental statutes are sums for which insureds are "legally obligated," even in the absence of any law suit or governmental enforcement actions against them. Maryland Casualty Co. v. Wausau Chemical Corp., 809 F.Supp. 680, 696 (W.D. Wis. 1992).
Circuit has ruled in a housing discrimination case that fines paid to the
federal government pursuant to a consent order were not "damages" although
sums paid to representatives of the damaged class were. U.S. v. Security
Management Co., 96 F.3d 760 (7th Cir. 1996).
DECLARATORY JUDGMENT ACTIONS
There is no
affirmative requirement that an insurer itself immediately commence an
action for declaratory relief in every case. Carney v. Village of
Darien, 60 F.3d 1273 (7th Cir. 1995). "All that is required of the
insurer is to seek a court's determination on the coverage issue, instead
of refusing to defend based solely upon its own determination of coverage."
Professional Office Buildings, Inc. v. Royal Ind. Co., 427 N.W.2d 427,
431 (Wis. App. 1988).
Under Wisconsin law, when the insurance company is not named in the underlying action, the insurance company has the option of intervening in the underlying action or initiating a separate declaratory judgment action to resolve the coverage dispute
recover their fees for litigating coverage claims against their liability
insurers. Scottish Guarantee Ins. Co. v. Dwyer, 19 F.3d 699 (7th Cir. 1994);
Towne Realty, Inc. v. Zurich Ins. Co., 534 N.W.2d 886 (Wis. App. 1995),
rev'd on other grounds, 548 N.W.2d 64 (Wis. 1996). However, attorneys'
fees incurred by a policyholder in responding to a declaratory judgment
action commenced by the insurer have been held not to be "reasonable expenses
incurred" at the request of the insurer within the Supplementary Payments
provision of standard general liability policies. Elliott v. Donahue, 485
N.W.2d 403 (Wis. 1992).
On the other
hand, the Wisconsin Court of Appeals has refused to find that an insurer’s
right of equitable subrogation extends to the recovery of attorney’s fees
in the event of a successful prosecution of an indemnification claim against
an insurer that refused to provide coverage for a mutual policyholder.
Riccobono v. Seven Star, Inc., No. 98-2652 (Wis. App. March 21, 2000).
Relying on the Wisconsin Supreme Court’s ruling in Elliott, the court declared
that an insurer was not entitled to DJ fees even if it prevailed in an
action for declaratory judgment noting that the insurer was better able
to insure the costs of litigation and that the insurer had provided no
benefit to the insured which would justify recovering the costs of litigation
from the policyholder.
have a direct right of action by statute.
In State of Wisconsin v. Hydrite Chemical Co., No. 96-1780 (Wisc. App. May 7, 1998) (1998 Wisc. App. LEXIS 585), the Court of Appeals ruled that insurers in a pollution coverage dispute could not rely upon the "at issue" or "common interest" doctrines to compel their insured to disclose privileged communications between the policyholder and its defense counsel.
DUTY TO DEFEND
The duty to defend is measured by comparing the allegations within the four corners of the complaint with the terms of the insurance policy. Radke v. Fireman’s Fund Ins. Co., 577 N.W.2d 366 (Wis. 1998). Contrariwise, the insurer’s duty is not determined by reference to extrinsic sources of evidence. Elliott v. Donahue, 473 N.W.2d 155 (Ct. App. 1991); Grube v. Daun, 496 N.W.2d 106, 122 (Wis. 1992) and Newhouse v. Citizens Security Mut. Ins. Co., 501 N.W.2d 1, 5 (Wis. 1993). In Doyle v. Engelke, 580 S.W.2d 245 (Wis. 1998), the Wisconsin Supreme Court refused to look beyond the scope of the "four corners" of the complaint in assessing whether the insurer had a duty to defend.
If any theory of liability alleges a covered claim, the insurer must provide a defense to the entire suit. School District of Shorewood v. Wausau Ins. Co., 488 N.W.2d 82, 88 (Wis. 1992) and Doyle v. Engelke, 580 S.W.2d 245 (Wis. 1998).
An insurer that refuses to defend does so at its own peril and may be held to have waived its right to later challenge coverage if it is later held to have wrongfully refused to defend. Professional Office Buildings, Inc. v. Royal Ind. Co., 427 N.W.2d 427, 429 (Wis. App. 1988).
The Wisconsin Supreme Court has ruled that a liability insurer's duty to defend does not arise until it receives notice from its insured, even if the insured's letter is not expressly worded as a tender of defense. The court reversed the Court of Appeals' finding that pre-tender costs may be recoverable where emergency action was required before notice could practically be given to the insurer. Towne Realty, Inc. v. Zurich Ins. Co., 548 N.W.2d 64 (Wis. 1996). The Court of Appeals has since ruled in Town of Mount Pleasant v. Hartford Accident & Indemnity Company, No. 00-0480 (Wis. App. January 17, 2001) that pre-tender costs were in breach of the voluntary payment prohibition in a GL policy even if the insured had given notice as soon as it learned of the existence of the policy in question.
The Wisconsin Court of Appeals has ruled that the standards applicable to determining when a defense is “tendered” should not be stricter when the policyholder happens to be an insurance company or an otherwise sophisticated policyholder. Loosmore v. Parent, No. 00-0027 (Wis. App. May 31, 2000).
A liability insurer's duty to defend terminates upon payment of its policy limit. Novak v. American Family Mutual Ins. Co., 515 N.W.2d 504 (Wis. App. 1994).
An insurer who wrongfully refuses to defend a suit against its insured is liable to the insured for the natural consequences of the breach, including sums expended in payment or settlement of the claim, defense costs (including attorneys’ fees and expenses), court costs, and any other costs incurred because of the refusal of the insurer to defend. U.S. Fire Ins. Co. v. Green Bay Packaging, Inc., 66 F.Supp.2d 987, 998 (E.D. Wis. 1999).
Wisconsin courts have ruled that it is against public policy to require insurers to obtain the consent of their insureds to settle claims. United Capital Ins. Co. v. Bartolotta's Fireworks Co., Inc., 546 N.W.2d 198 (Wis. App. 1996).
Wisconsin Supreme Court ruled in Towne Realty, Inc. v. Zurich Ins. Co., 548 N.W.2d 64 (Wis. 1996) that the cost of prosecuting various counterclaims were not covered defense costs.
clean up claim (PRP) letter held not to be a "suit" in City of Edgerton
v. General Cas. Co. of Wisconsin, 184 Wis.2d 750, 517 N.W.2d 463 (1994).
However, in Sauk County v. Employers Ins. of Wausau, 202 Wis.2d 434, 550
N.W.2d 439 (1st Dist. 1996), the First District ruled that a counterclaim
alleging that the plaintiff was itself liable for the subject matter of
its claim was a "suit" that must be defended. Accord, Robert E. Lee
& Associates, Inc. v. Peter's Service Center, 206 Wis.2d 508, 557 N.W.2d
ESTOPPEL AND WAIVER
For equitable estoppel to arise, there must be action or inaction by the party against whom the estoppel is asserted and detrimental alliance on the action or inaction by the party seeking estoppel. Gonzalez v. Teskey, 465 N.W. 2d 525 (Wis. App. 1990) and New Hampshire Insurance Company v. Timblin, No. 99-2471 (Wis. App. November 8, 2000).
An insurer that breaches its duty to defend but fails to bring an action for declaratory relief to resolve its claimed coverage obligations may be estopped to later dispute the extent of its indemnity obligation for the underlying claims. Professional Office Buildings, Inc. v. Royal Indemnity Co., 427 N.W.2d 427, 431 (Wis. App. 1988) and Grube v. Daum, 496 N.W.2d 106, 123 (Wis. App. 1992). In these cases, the Court of Appeals has ruled that an insurer may not unilaterally determine the scope of its coverage obligations and simply walk away from its insured. Rather, it must either (1) enter into a non-waiver agreement with its policyholder in which the insurer would agree to defend but the insured would acknowledge the right of the insurer to contest coverage; (2) may request a bifurcated trial or a declaratory judgment so that the coverage issue may be addressed separately by a court in advance of the liability claims; or (3) must at least give the insured notice of intent to reserve rights so that the insured can pursue its own defense without being subject to the control of the insurer but may still recover legal fees incurred for the defense.
An insurer will not be estopped to dispute coverage if it obtains a determination of its coverage obligations before the trial of the liability claims against its insured. It may do so either through a separate proceeding for declaratory relief or, if sued in the same action as the claim against its insured, by bifurcating the claims and obtaining a stay of the liability action until the coverage issues are resolved. Mowry v. Badger State Mut. Cas. Co., 385 N.W.2d 171, 180-81 (Wis. 1986). In Mowry, the Wisconsin Supreme Court ruled that an insurer was not in breach of its claimed defense obligation by refusing to defend a claim where the issue of coverage was "fairly debatable." Accord, Kenefick v. Hitchcock, 522 N.W.2d 261 (Wis. App. 1994). However, unless the insurer moves to stay the liability claims, it may still be liable for the insured's attorneys fees (including the cost of the coverage claims, even where the claims are "fairly debatable." Elliott v. Donahue, 485 N.W.2d 403, 406 (Wis. 1992).
The U.S. Court of Appeals for the Seventh Circuit has reversed a lower court's ruling that an insurer that wrongfully refused to defend should be automatically liable for any settlement that the insured entered into. In Hamlin, Inc. v. Hartford Accident & Indemnity, 86 F.3d 93 (7th Cir. 1996), Judge Posner declared that this sort of "punitive" rule would result in an undeserved "windfall" to policyholders in cases where the insurer's denial had not impaired the insured's ability to defend itself, particularly where there was scant likelihood that the claims were, in fact, covered.
Court of Appeals has since ruled in Radke v. Fireman's Fund Ins. Co., 1998
WL 40115 (Wis. App. February 4, 1998) that an insurer may still owe indemnity
as consequential damages flowing from its refusal to defend, if the refusal
to defend was not based upon a "fairly debatable" coverage position.
An excess insurer's payment obligations do not arise until the underlying policy limits are exhausted. In the Mater of the Ancillary Liquidation of Mission Ins. Co., 502 N.W.2d 887 (Wis. App. 1993). An earlier federal court ruling in American Motorists Ins. Co. v. Trane Co., 544 F.Supp. 669, 692 (W.D. Wis. 1982) that an excess insurer might be obligated to defend where a primary insurer denies coverage, whether or not the primary policy actually applies or not, was criticized by the Mission court as not accurately reflecting Wisconsin law.
In Teigen v. Jelco, 367 N.W. 2d 806 (Wis. 1985), the Wisconsin Supreme Court ruled that a primary insurer’s policy obligations were discharged by the purchase of a structured settlement. Even though the premium for the settlement was less than the full policy limits, the benefits to which the plaintiff would ultimately have been entitled exceeded the policy limits. The court therefore ruled that the policy limit was exhausted by settlement and that the insurer had no continuing defense obligation.
The underlying limits must be exhausted by the payment of covered damages. See, e.g., Davis v. Allied Processors, Inc., 1997 WL 644292 (Wis. App. October 21, 1997)(insured could not arbitrarily assign award of punitive damages to primary policy to exhaust limits and obtain coverage for compensatory damage award where umbrella policy excluded coverage for punitive damages).
An excess insurer may be held liable for refusing to accept the defense of a policyholder upon exhaustion of the underlying coverage. For example, in U.S. Fire Ins. Co. v. Green Bay Packaging, Inc., 66 F.Supp.2d 987, 998 (E.D. Wis. 1999), the insurer issued an excess liability policy. Upon exhaustion of the primary policy, the insured made a claim for defense with respect to an underlying libel and slander suit. The insurer denied coverage, a decision with which the District Court disagreed. The court held that there was a duty to defend and that the insurer had breached that duty. In a self-sustained colloquy, the court asked itself: “What consequences flow from a breach of the duty to defend?”. The court replied: “one of the natural consequence of [the insurer’s] breach is the award of attorney’s fees against the insured in the underlying matter; also included are the insured’s costs and attorneys fees in defending the underlying matter, and, finally, the insured’s costs and attorneys fees in defending the declaratory judgment action between the insured and the insurer.”
to defend and the duty to indemnify (that is to say, the duty to pay the
insurance claim) are not co-extensive, and the former, being triggered
by arguable as distinct from actual coverage and determined by what the
complaint says rather than by the actual facts underlying the claim of
liability, is broader.” Hamlin, Inc. v. Hartford Acc. & Ind.
Co., 86 F.3d 93, 94 (7th Cir. 1996), cited in Emerson Electric Co. v. Just
In Time, Inc., No. 00-0952 (Wis. App. January 17, 2001).
NUMBER OF OCCURRENCES
In American Motorists Ins. Co. v. Trane Co., 544 F.Supp. 669 (W.D. Wis. 1982) aff'd, 657 F.2d 146 (7th Cir. 1984), the federal court held that all damage at a particular plant flowing from the common failure of the insured's heat exchangers was one "occurrence." Aggregating language in the grant of coverage achieved a similar result for a series of transformer breakdowns in Arneson Foundry, Inc. v. Continental Ins. Co., 158 Wis.2d 728, 463 N.W.2d 880 (App. 1990).
Despite the insured's argument that its environmental liabilities had multiple causes, including a plume of contamination and its negligent handling of waste, a trial court held that the pollution was only a single "occurrence" in Sunnyside Seed Farms, Inc. v. Refuse Hideway, Inc., Dane No. 91-CV-4264 (Wis. Cir. Ct. April 6, 1993).
Successive auto collisions were held to involve a single "occurrence" under a "cause" test in Olsen v. Moore, 202 N.W.2d 235 (Wis. 1972). Similarly, where a bicyclist was first injured by a collision with the insured's truck and then was injured again as the truck driver backed up, the court held that the diverse acts of negligence all involved a single "occurrence" in Welter v. Singer, 376 N.W.2d 84 (Wis. App. 1985).
Court of Appeals ruled in Danielson v. ABC Insurance Company, 2000 WL 1848486
(Wis. App. December 19, 2000) that a plaintiff was only entitled to a single
“occurrence limit” notwithstanding separate theories of liability with
respect to the insured’s negligent entrustment of his vehicle.
clauses are to be reconciled if at all possible so as to give intent to
the parties’ contracting intent. Faltersack v. Vanden Boogaard 158
N.W.2d 322 (Wis. 1968) and Hagopian v. General Casualty Company of Wisconsin,
No. 98-3522 (Wis. App. March 21, 2000).
Wisconsin was among the first states to uphold the pollution exclusion and to give "sudden" a temporal meaning. However, in 1990, the Wisconsin Supreme Court ruled in Just v. Land Reclamation, Ltd., 155 Wis.2d 737, 456 N.W.2d 570 (1990) that the exclusion was ambiguous and did not eliminate coverage for gradual pollution.
More recently, the Seventh Circuit has ruled in Patz v. St. Paul Fire & Marine Ins. Co., 15 F.3d 699 (7th Cir. 1994) that the "accidental" exception to the pollution exclusion is ambiguous in its failure to clearly distinguish between intentional acts that are meant to release pollutants into the environment and indirect discharges, as where wastes are placed into a "container." the court concluded that the intentional placement of waste into a "container" was not excluded and therefore ruled that the direct placement of liquid wastes into a clay-lined landfill was "accidental" since the insured had not meant for the pollutants to escape from the landfill.
Under Wisconsin law, the term "arising out of" has been given a very broad and comprehensive meaning including "originating from, growing out of, or flowing from and require only that there be some causal relationship between the injury and the risk for which coverage is provided." Garcia v. Regent Ins. Co., 41 N.W.2d 660, 663 (Wis. App. 1992).
In general, Wisconsin courts have given a broad application to “absolute” exclusions. In Peace v. Northwestern National Ins. Co., 596 N.W.2d 429 (Wis. 1999), the court extended the exclusion to lead poisoning claims, declaring that lead was a “solid irritant or contaminant” and therefore a “pollutant.” Further, the court declared there had plainly been a “discharge” of the lead chips or dust since the child would otherwise not have been injured. Justice Abrahamson dissented, claiming that the conflicting case law around the country was a sufficient basis for finding ambiguity. Justice Crooks took a harder tone, accusing the majority of committing an “assault on child victims of lead poisoning” by depriving them of insurance proceeds to pay their losses.
The exclusion has not been applied in all cases, however. In 1997, the Supreme Court ruled in Donaldson v. Urban Land Interests, Inc., 564 N.W.2d 728 (Wis. 1997) that sick building claims resulting from the occupants’ inhalation of elevated levels of carbon dioxide that had built up in a building owing to the failure of recirculating systems to operate properly did not constitute "contamination" or "pollution" since the levels were "foreign" to a safe environment. The Supreme Court held that a reasonable policyholder would not have understood exhaled carbon dioxide from ordinary respiratory processes as falling within the scope of the exclusion. The court took note of the fact that, unlike the list of pollutants set forth in the exclusion, exhaled carbon monoxide is universally present and generally harmless in all but the most unusual instances and, indeed, is a necessary and natural part of life.
The Supreme Court also ruled in 1997 that an exclusion for clean up costs incurred pursuant to a directive to the named insured, has been held inapplicable to a Direct Action suit by a contractor against a sub-contractor's liability insurer seeking indemnification for clean up costs resulting from the insured's negligent cutting of a fuel line pursuant to a hold harmless clause in the parties' contract. In Wisconsin Public Service Corp. v. Heritage Mutual Ins. Co., 200 Wis.2d 821, 548 N.W.2d 544 (3d Dist. 1996), aff'd, 561 N.W.2d 726 (Wis. 1997), the Supreme Court affirmed the ruling of the Court of Appeals that the exclusion did not apply where the directive was to a party other than insured; further, the Court of Appeals had held that the insured's liability did not arise from the WDNR directive but, rather, flowed from its construction contract.
Several earlier intermediate appellate cases had upheld the exclusion in a variety of circumstances . Production Stamping Corp. v. Maryland Casualty Co., 199 Wis.2d 322, 544 N.W.2d 584 (Wis. App. 1996). Pollution resulting from off-site operations was held subject to an "absolute" pollution exclusion in American States Ins. Co. v. Skrobis Painting and Decorating, Inc., 182 Wis.2d 445, 513 N.W.2d 695 (Wis. App. 1994). The Wisconsin Court of Appeals rejected the insured's effort to find a "latent ambiguity" in the drafting history of the exclusion, holding that the sole issue governing its application was whether property damage had resulted from a spill of pollutants, regardless of the theory of liability upon which recovery was sought. In Kenefick v. Hitchcock, Sauk No. 92 CV 109 (Wis. Cir. Ct. July 20, 1993), aff'd on other grounds, 522 N.W.2d 261 (Wis. App. 1994), a trial court held that the exclusion barred coverage for leaking tanks at the insured's gas station.
In two cases, however, the Court of Appeal has limited the exclusion to claims where the injury was caused by a toxic characteristic of the discharged substance. For instance, in Beahm v. Pautsch, 180 Wis.2d 574, 510 N.W.2d 702 (1993) the Court of Appeals refused to apply the exclusion to an auto accident resulting from the insured's burning of grass, holding that it was the opaque nature of the smoke, not any toxic property, that caused the resulting bodily injuries. See also Guenther v. City of Onalaska and Villages Mutual Ins. Co., 1998 Wisc. App. LEXIS 1340 (Wis. App. November 19, 1998)(“water damage” fromsewage back-up not excluded).
The Wisconsin Court of Appeals has ruled that a farmer's suit against a prior property owner for clean up costs that the plaintiff incurred after a manure pit collapsed property were excluded as involving "waste material" within the scope of a pollution exclusion in the farmowner's policy. However, in Norks v. American Family Mutual Ins. Co., No. 95-1065 (Wisc. App. May 9, 1996), the Fourth District ruled that the exclusion did not apply to the cost of rebuilding the pit itself.
Court of Appeals has refused to find that an absolute pollution exclusion
in one part of a policy should bar coverage for a claim arising under a
different coverage part. Robert E. Lee & Associates, Inc. v. Peter's
Service Center, 206 Wis.2d 508, 557 N.W.2d 457 (1996).
Under pre-1973 policies, a reduction in property value resulting from the incorporation or installation of a defective product furnished by the insured constitutes "property damage" whether or not it results in physical damage to the structure as a whole. Sola Basic Industries, Inc. v. U.S. Fidelity & Guaranty Co., 90 Wis.2d 641, 280 N.W.2d 211 (1979)(diminished value of factory caused by malfunctioning transformer was "property damage").
The presence of a defective component that affect the value of property is not itself "property damage" under post-1973 policies if it has not resulted in physical harm to third party property. American Motorists Ins. Co. v. Trane Co., 544 F.Supp. 669, 687 (E. Wis. 1982), aff'd, 718 F.2d 842 (7th Cir. 1983).
Lost profits suffered by a retailer due to the application of incorrect bar codes have been held not to set forth any “physical injury to tangible property” or other claim for loss of use that might constitute “property damage.” The Wisconsin Supreme Court has ruled in Wisconsin Label Corporation v. Northbrook Property & Casualty Insurance Company, 607 N.E.2d 276 (Wis. 2000) that economic loss suffered by the plaintiff due to the mislabeling of UPC codes on the insured’s product did not result in any physical injury that would constitute “property damage” under the policies. Even though the products were improperly labeled, neither the products nor their packaging suffered any physical damage. The court found the Seventh Circuit’s Eljer analysis to be factually distinguishable as, unlike the defective plumbing systems at issue in that case, the labels were not “defective components,” nor could any such defect ever pose a risk of physical injury in the future. Finally, the court refused to adopt the insured’s view that diminution in value alone supported a claim based on “loss of use.” The court concluded that diminution in value caused by incorporation of a defective product does not constitute “property damage” under post-1973 policies unless it is the result of “physical injury” or “loss of use” and is not a separate basis for claiming coverage.
In light of Wisconsin Label, the Wisconsin Court of Appeals ruled that claims for breach of contract based upon the fact that the plaintiff’s products had to be recalled and refitted owing to the inadequacy of a component manufactured by the insured were claims for economic loss outside the scope of coverage under a CGL policy. In Emerson Electric v. Just In Time, No. 00-0952 (Wis. App. January 17, 2001), Division III ruled that these economic loss claims fail to allege “property damage.” Further, the court refused to find that the actions implied physical damage to property other than the insured’s component. “Damage by a defective component of an integrated system to either the system as a whole or other system components is not damage to ‘other property’ which precludes the application of the ‘economic loss doctrine’” as it was set forth by the state Supreme Court in Wausau Tile, Inc. v. County Concrete Corp, 593 N.W.2d 445 (Wis. 1995).
that the insured violated the copyright in certain architectural drawings
did not allege a claim for “loss of use” or other “property damage.”
In Rhein Building Co. v. Gehrt, 21 F.Supp.2d 896 (E.D. Wis.
1998), Judge Curran noted that a copyright is a form of intangible
intellectual property, not “tangible property.”
law, it is against public policy to provide coverage for the consequences
of assaults or criminal conduct. See Hagen v. Gulrud, 442 N.W.2d
570, 573 (Wis. App. 1989) and N.N. v. Moraine Mutual Ins. Co., 450 N.W.2d
445, 449 (Wis. 1990). However, public policy does not bar coverage
where the criminal conduct was incidental to the accident. Becker
v. State Farm Automobile Ins. Co., 1998 WL 270152 (Wis. App. May 28, 1998)
(auto accident caused by speeding following convenience store holdup was
the product of recklessness, not the earlier criminal actions).
Punitive damages are only available if the defendant acts with malice or recklessness. Wangen v. Ford Motor Co., 97 Wis.2d 260, 267, 294 N.W.2d 437, 442 (1980). In Arneson Foundry, Inc. v. Continental Ins. Co., 158 Wis.2d 728, 463 N.W.2d 880 (App. 1990), the Court of Appeals ruled that the standard to be applied to a first party insurer was whether coverage had been denied on a "fairly debatable" basis.
Wisconsin permits coverage for punitive damages on the basis that they fall within the policy coverage for "all sums." Koehring v. American Mutual Ins. Co., 564 F.Supp. 303 (E.D. Wis. 1983) and Brown v. Maxey, 124 Wis.2d 426, 369 N.W.2d 677 (1985).
does not allow punitive damages to be awarded in the absence of an award
of actual damages. Tucker v. Marcus, 418 N.W.2d 818 (Wis. 1988) and
Vasen v. Progressive Insurance Companies, No. 99-2834 (Wis. App. August
STANDARDS FOR POLICY INTERPRETATION
Insurance policies are governed by the same rules as ordinary contracts. Wisconsin Label Corporation v. Northbrook Property & Casualty Insurance Company, 607 N.E.2d 276 (Wis. 2000).
When construing an insurance policy, words are to be given their plain and ordinary meaning. City of Edgerton v. General Casualty Co., 517 N.W.2d 463, 476 (Wis. 1994). A recognized dictionary may be used to discern the plain meaning of the policy's language. Holsum Foods Division of Harvest State's Corporative v. Home Ins. Co., 469 N.W.2d 918, 921 (Wis. App. 1991) and Sentry Ins., a Mutual Co. v. Jim Piontek Trucking, Inc., 1997 Wisc. App. LEXIS 148 (Dist. 3 February 18, 1997).
The terms of an insurance policy are only ambiguous if they are fairly susceptible of more than one construction. Maas v. Ziegler, 492 N.W. 2d 621 (1992). The fact that policy terms are complex or cumbersome does not necessarily mean that they are ambiguous. Heater v. Fireman’s Fund Insurance Company, 141 N.W. 2d 178 (Wis. 1966).
"Reasonable expectations" doctrine endorsed in Gross v. Lloyds of London, 358 N.W.2d 266, 270 (Wis. 1984). Thus, insurance policies are to be interpreted in accordance with "what a reasonable person in the position of the insured would have understood the words to mean." If a policy provision is capable of more than one meaning or if a term is otherwise ambiguous, it will be interpreted in the manner that furthers coverage. Drought v. Nawrocki, 444 N.W.2d 65 (Wis. App. 1989).
Under Wisconsin law, a court must apply an objective test to measure how a reasonable person standing in the shoes of the insured would understand the meaning of a particular policy term. Milbrandt v. Huber, 440 N.W.2d 807, 813 (Wisc. App. 1989).
The Wisconsin Supreme Court ruled in School District of Shorewood v. Wausau Ins. Co., 168 Wis.2d 390, 484 N.W.2d 314 (1992), rev'd on other grounds, (Wis., August 27, 1992) that insurance terms are not to be given a "technical" meaning. The court stated that its long-standing standard was to (1) give effect to the intentions of the parties; (2) give meaning to each word and phrase in the policy; (3) give policy terms their plain and ordinary meaning; (4) adopt the meaning that a lay person would use, not the insurer's own understanding; (5) resolve ambiguity in favor of the insured but (6) if no ambiguity exists, merely to apply the terms of the policy.
Wisconsin Statute Section 631.36(5) requires that when an insurer “offers or purports to renew the policy but on less favorable terms,” the insurer must notify the policyholder of the new terms 60 days prior to the renewal date to give the insured adequate time to make alternative arrangements. In addition, the notice must include a statement of the policyholder’s right to cancel. If the insurer fails to follow the notice requirements then, as a general rule, it must “continue the policy for an additional period of time equivalent to the expiring term and at the same premium and term of the expiring policy. Sukala v. Heritage Mutual Insurance Company, No. 99-1339 (Wis. App. November 9, 2000).
A policy term is not made ambiguous merely because the parties disagree as to its meaning. Garriguenc v. Love, 226 N.W.2d 414, 417 (Wis. 1975); U.S. Fire Ins. Co. v. Ace Baking, 476 N.W.2d 280, 282 (Wis. App. 1992).
Neither waiver nor estoppel can serve as a basis for creating coverage that did not previously exist. Shannon v. Shannon, 150 Wis.2d 434, 442 N.W.2d 25 (1989).
"To win the
reformation of an insurance contract, the insured must prove that there
was a prior oral agreement between the parties which, through mistake or
negligence, the written policy does not express, although it was intended
to so state." International Chiropractors Ins. Co. v. Gonstead, 71
Wis.2d 524, 528-29, 238 N.W.2d 725 (1976). A mistake is mutual and warrants
reformation "when the insured makes statements to an agent concerning coverage
and the agent understands but by mistake causes a policy to be issued that
does not contain the requested coverage." Scheideler v. Smith &
Assocs., 206 Wis.2d 480, 486, 557 N.W.2d 445 (Ct. App. 1996).
THEORIES OF ALTERNATIVE LIABILITY
liability has for the most part been rejected by Wisconsin courts, particularly
in cases where the number of potential defendants was so great that the
assumption that all the defendants jointly controlled the risk of injury
was weak. Collins v. Eli Lilly & Co., 342 N.W.2d 37 (Wis. 1984)(DES)
and Lillge v. Johns-Manville Corp., 602 F.Supp. 855 (E.D. Wis. 1985)(asbestos).
However, in Collins, the Wisconsin Supreme Court adopted a novel theory
of "risk contribution" that requires only proof that (1) the plaintiff's
mother took DES; (2) DES caused the plaintiff's subsequent injuries;
(3) the defendant produced or marketed the type of DES taken by the plaintiff's
mother; and (4) the defendant's conduct in producing or marketing DES constituted
a breach of a legally recognized duty to the plaintiff. The court
held further that the defendants would have the burden of proving that
they did not produce or market DES during the time of plaintiff's exposure
or in the relevant geographic market area. The court ruled that the
plaintiff could recover all damages from the one defendant, or in the situation
where there are multiple defendants, the plaintiff should recover from
each their proportionate share of liability under principles of comparative
TRIGGER OF COVERAGE
Coverage is triggered by the date of injury, not the insured's negligent acts. See Smith v. Katz, 1998 WL 279273 (Wis. June 2, 1998) (damage occurs when groundwater damages home, not when seller made alleged misrepresentations concerning soil conditions).
As yet, the Wisconsin Supreme Court has not adopted a "trigger" for most latent injury claims. The court did rule in Kremers-Urban Co. v. American Employers Ins. Co., 119 Wis. 2d 722, 351 N.W. 2d 156 (1984) that coverage for DES claims was "trigger" under pre-1966 policies by the "act" or event giving rise to the insured's liability (ie. ingestion of drug). Notwithstanding the fact that the court distinguished later policy forms, which require that the injury take place during the policy, Kremers Urban was relied on by the U.S. Court of Appeals for the 7th Circuit in Lund v. American Motorists Ins. Co., 797 F.2d 544 (7th Cir. 1986) as supporting a general rule that coverage is triggered by the date of the insured's negligent act, not the time of the resulting damage. Accordingly, claims arising out of the negligent design of a building roof were covered, even though the roof collapsed after the policy had expired. Earlier, in American Motorists Ins. Co. v. Trane Co., 544 F.Supp. 669 (W.D. Wis. 1982) aff'd, 657 F.2d 146 (7th Cir. 1984), the federal court had found that liability claims based upon by malfunction of the insured's heat exchangers were triggered when damage "actually appears."
In Society Insurance Company, A Mutual Company v. Town of Franklin, 607 N.W.2d 342 (Wis. App. 2000), the Wisconsin Court of Appeals ruled that a municipality could stack the limits of each policy in effect during the period that wastes had been disposed of at a landfill. The court rejected the insurer’s contention that coverage was limited to the year of “manifestation,” declaring that Wisconsin follows the continuous trigger theory of coverage. “It is the time of the injury, not the time of the occurrence, that determines which policies are triggered.”
Court of Appeals also ruled in Hagopian v. General Casualty Company of
Wisconsin, No. 98-3522 (Wis. App. March 21, 2000) that a suit by plaintiffs
who purchased the insured’s property and later discovered leak and moisture
problems allegedly attributable to improper insulation and inadequate ventilation
of the attic, failed to set forth a claim for coverage under a policy issued
after the date of the closing. The court ruled that the policy “does
not cover the claim for negligent construction of the garage because the
property damage was alleged to have resulted prior to the policy period.”
York law, a federal court has adopted an "injury in fact" trigger for an
asbestos bodily injury claim in Sybron Transition Corp. v. Security Ins.
Co., No. 92-C-779 (E.D. Wis. June 13, 1995), aff'd on other grounds, No.
95-4084 (7th Cir. February 27, 1997).