Water Well Solutions Service Group Inc., Plaintiff-Appellant-Petitioner
Consolidated Insurance Company, Defendant-Respondent.
OF A DECISION OF THE COURT OF APPEALS (Reported at 365 Wis.2d
223, 871 N.W.2d 276) (Ct. App. 2015 – Published) PDC
No: 2015 WI App. 78
COURT WAUKESHA COUNTY L.C. 2014CV254, JAMES R. KIEFFER JUDGE.
the plaintiff-appellant-petitioner, there were briefs by
Timothy M. Hansen, Charles J. Crueger, James B. Barton, and
Hansen Reynolds Dickinson Crueger LL, and oral argument by
Timothy M. Hansen.
the defendant-respondent, there was a brief by William J.
Katt, Christina A. Katt, Corey J. Wright and Wilson Elser
Moskowitz Edelman & Dicker, LLP, and oral argument by
William J. Katt.
REBECCA G. BRADLEY, J.
In this duty to defend case, Water Well Solutions Service
Group Inc. (Water Well) asks us to reverse the court of
appeals' decision affirming the Waukesha County Circuit
Court's summary judgment decision in favor of
Consolidated Insurance Company, Water Well's insurer.
Applying the longstanding four-corners rule used to determine
whether a complaint triggers the duty to defend, see
Doyle v. Engelke, 219 Wis.2d 277, 284, 580 N.W.2d
245 (1998), both the circuit court and the court of appeals
concluded that Consolidated did not breach its duty to defend
Water Well. In response, Water Well argues this court should
craft an exception to the four-corners rule allowing courts
to consider extrinsic evidence when an insurer has
unilaterally decided that no duty to defend exists based on
exclusions in the insurance policy.
Specifically, we are asked to decide whether this court
should allow admission of extrinsic evidence under a limited
exception to the four-corners rule in cases where (1) the
policy provides an initial grant of coverage based on facts
alleged in the complaint, (2) the insurer denies a duty to
defend its insured based on the application of specific
policy exclusions but without seeking a coverage
determination from a court, and (3) the insured asserts that
the underlying complaint is factually incomplete or
ambiguous. We are further asked to determine, absent an
exception to the four-corners rule, whether a court should
compare the four corners of the complaint to the entire
insurance policy, including exclusions and exceptions, or if
the court's review is limited to comparing the complaint
to the terms of the policy governing the initial grant of
coverage. We confirmed in Marks v. Houston Cas. Co.,
2016 WI 53, ¶¶61-76, __ Wis.2d __, __ N.W.2d __,
that under the four-corners rule the entire policy must be
examined, including the coverage-granting clauses,
exclusions, and exceptions to any applicable
exclusions. Thus, we also decide whether any
exclusions in Consolidated's policy apply.
We affirm the court of appeals and hold that Consolidated did
not breach its duty to defend Water Well. First, we reject
Water Well's request to craft a limited exception to the
four-corners rule, which has long endured to the benefit of
Wisconsin insureds. We are not persuaded that an exception to
this rule is necessary. Second, as we explain in Marks, __
Wis.2d __, ¶¶61-76, released today in conjunction
with this decision, the four-corners rule requires a court to
compare the complaint to the terms of the entire insurance
policy in determining whether the duty to defend is
triggered. Thus, we reject Water Well's argument that the
court's comparison is limited to reviewing the insurance
policy's granting clause. The longstanding four-corners
comparison rule applies in all duty to defend cases,
including cases such as this one where the policy provides an
initial grant of coverage, the insurer made a unilateral
decision to refuse to defend based on specific policy
exclusions, and the insured asserts the underlying complaint
is factually incomplete or ambiguous. Finally, after
comparing the four corners of the underlying complaint to the
terms of the insurance policy at issue, we conclude that the
"Your Product" exclusion applies to preclude
coverage. As a result, Consolidated did not breach its duty
to defend Water Well and is entitled to summary judgment as a
matter of law; therefore, we affirm.
In 2009, Waukesha Water Utility (Waukesha) contracted with
Water Well to perform work on Well #10, an existing well
located in the City of Waukesha. Waukesha hired Water Well to
remove an existing pump, install a new pump, and complete
reinstallations of the pump. In February 2011, the well pump
unthreaded from a pipe column and fell to the bottom of the
Argonaut Insurance Company,  Waukesha's insurer, filed
suit against Water Well in federal district court.
Argonaut's complaint alleged that "Water Well, its
agents, employees and representatives" were negligent in
the installation and reinstallations of the well pump and
that "Water Well, its agents, employees and/or
representatives" breached their contractual obligations.
Specifically, Argonaut's complaint alleged that the well
pump "unthreaded and separated from the pipe column,
" which "caused the Well Pump, including the motor,
to fall to the bottom of the approximately 1910-foot-deep
well." Argonaut asserted that Water Well failed to
install two setscrews, "which allowed operating torques
and vibrations to cause the Well Pump to rotate and unthread
from the pipe column and caused the Well Pump to fall to the
bottom of the well." Argonaut sought $300, 465.48 in
subrogated damages. We set forth pertinent paragraphs of
Argonaut's complaint in our analysis.
Water Well was insured under a Commercial General Liability
Primary Policy (CGL policy) with Consolidated at the time the
alleged damages occurred. Water Well tendered its defense to its
insurer, Consolidated, in the action initiated by Argonaut.
The parties do not dispute that the CGL policy provides an
initial grant of coverage. However, Consolidated denied Water
Well's defense tender stating it had no duty to defend or
indemnify Water Well under the CGL policy because the
"Your Work" and the "Your Product"
exclusions applied and removed coverage for the damages
alleged in Argonaut's complaint.
After Consolidated refused to defend Water Well in the
Argonaut action, Water Well obtained counsel, incurred
attorney's fees and costs, and eventually settled with
Argonaut for $87, 500. Water Well then filed suit against
Consolidated, alleging that Consolidated breached its duty to
defend Water Well in the underlying action initiated by
Argonaut. Water Well also alleged that Consolidated acted in
bad faith when it refused to provide a defense.
The Waukesha County Circuit Court granted Consolidated's
motion for summary judgment after considering cross-motions
for summary judgment. It determined that under applicable
Wisconsin case law, a court must compare the four corners of
the complaint to the terms of the entire insurance policy
when deciding whether an insurer breached its duty to defend
its insured. The circuit court concluded that this comparison
encompassed the policy's coverage provisions and
exclusions, but not extrinsic evidence Water Well offered in
support of its assertion that its subcontractor's work on
preexisting pipes triggered coverage under the
policy. Based on a comparison of the four corners
of the complaint and the terms of the entire policy, the
circuit court determined that the allegations in the Argonaut
complaint fell under both the "Your Product" and
the "Your Work" exclusions. Therefore, it concluded
that "there is no covered claim and therefore there was
no duty to defend."
The court of appeals affirmed in a published decision.
Water Well Sols. Serv. Grp. Inc. v. Consol. Ins.
Co., 2015 WI App. 78, ¶1, 365 Wis.2d 223, 871
N.W.2d 276. The majority's reasoning mirrored the circuit
court's: it reviewed the four corners of Argonaut's
complaint, compared the complaint to the terms of the entire
insurance policy, and concluded that both the "Your
Work" and the "Your Product" exclusions
eliminated coverage. Id., ¶¶6-7, 10, 13,
We granted Water Well's petition for review.
STANDARD OF REVIEW
We independently review a grant of summary judgment using the
same methodology of the circuit court and the court of
appeals. Blasing v. Zurich Am. Ins. Co., 2014 WI 73,
¶21, 356 Wis.2d 63, 850 N.W.2d 138. Summary judgment is
appropriate when there is no genuine dispute of material fact
and the moving party is entitled to judgment as a matter of
law. Wis.Stat. § 802.08(2) (2013-14);
Blasing, 356 Wis.2d 63, ¶21.
This case requires the court to interpret an insurance policy
to determine whether an insurer breached its duty to defend
its insured. Interpretation of an insurance contract presents
a question of law that we review de novo. Estate of
Sustache v. Am. Family Mut. Ins. Co., 2008 WI 87,
¶18, 311 Wis.2d 548, 751 N.W.2d 845.
Typical Process used in Duty to Defend Determinations
Before reaching the dispositive issue in this case, we first
set forth general principles governing interpretation of
insurance policies as well as the process typically used by
courts in duty to defend cases.
General principles: Insurance contracts
Insurance policies are contracts that generally establish an
insurer's "duty to indemnify the insured against
damages or losses, and the duty to defend against claims for
damages." Olson v. Farrar, 2012 WI 3, ¶27,
338 Wis.2d 215, 809 N.W.2d 1. We interpret insurance policies
in the same manner as other contracts--to give effect to the
intent of the contracting parties. Am. Family Mut. Ins.
Co. v. Am. Girl, Inc., 2004 WI 2, ¶23, 268 Wis.2d
16, 673 N.W.2d 65. We construe policy language as a
reasonable person in the position of the insured would
understand such language. Estate of Sustache, 311 Wis.2d 548,
Longstanding case law requires a court considering an
insurer's duty to defend its insured to compare the four
corners of the underlying complaint to the terms of the
entire insurance policy. See, e.g., id., ¶20;
Doyle, 219 Wis.2d at 284 & n.3; Grieb v. Citizens
Cas. Co. of New York, 33 Wis.2d 552, 558, 148 N.W.2d 103
(1967). The four-corners rule prohibits a court from
considering extrinsic evidence when determining whether an
insurer breached its duty to defend. Estate of Sustache, 311
Wis.2d 548, ¶27; Fireman's Fund Ins. Co. of Wis.
v. Bradley Corp., 2003 WI 33, ¶19, 261 Wis.2d 4,
660 N.W.2d 666. We have, however, consistently explained that
a court must liberally construe the allegations contained in
the underlying complaint, assume all reasonable inferences
from the allegations made in the complaint, and resolve any
ambiguity in the policy terms in favor of the insured. Estate
of Sustache, 311 Wis.2d 548, ¶21.
We use a three-step process when comparing the underlying
complaint to the terms of the policy in duty to defend
cases. Id., ¶¶22-23. First,
a reviewing court determines whether the policy language
grants initial coverage for the allegations set forth in the
complaint. Id., ¶22. If the allegations set
forth in the complaint do not fall within an initial grant of
coverage, the inquiry ends. Id. However, if the
allegations fall within an initial grant of coverage, the
court next considers whether any coverage exclusions in the
policy apply. Id., ¶23. If any exclusion
applies, the court next considers whether an exception to the
exclusion applies to restore coverage. Id. If
coverage is not restored by an exception to an exclusion,
then there is no duty to defend. See Am. Girl, Inc., 268
Wis.2d 16, ¶24. If the policy, considered in its
entirety, provides coverage for at least one of the claims in
the underlying suit, the insurer has a duty to defend its
insured on all the claims alleged in the entire suit.
Fireman's Fund Ins. Co., 261 Wis.2d 4, ¶21.
It is also well-established that an insurer's duty to
defend its insured is broader than its duty to indemnify.
Olson, 338 Wis.2d 215, ¶29. This is because the
four-corners rule dictates that the duty to defend is
determined by "the nature of the claim alleged against
the insured . . . even though the suit may be groundless,
false or fraudulent." Grieb, 33 Wis.2d at 558.
"'[T]he insurer is under an obligation to defend
only if it could be held bound to indemnify the insured,
assuming that the injured person proved the allegations of
the complaint, regardless of the actual outcome of the
case.'" Id. (quoting 29A Am. Jur.,
Insurance § 1452, at 565 (1960)(emphasis added).
Water Well urges this court to establish a limited exception
to the four-corners rule that would allow it to submit
extrinsic evidence to dispute Consolidated's unilateral
decision to refuse to defend Water Well in the Argonaut suit
based on Consolidated's position that exclusions in the
policy precluded coverage. Ultimately, Water Well asks this
court to create an exception to the four-corners rule in duty
to defend cases when (1) the policy provides an initial grant
of coverage based on facts alleged in the complaint, (2) the
insurer declines to defend its insured based on the
application of specific policy exclusions but without seeking
a coverage determination from the circuit court, and (3) the
insured asserts that the underlying complaint is factually
incomplete or ambiguous. We reject Water Well's request
to create an exception to the four-corners rule.
In 1967, in Grieb, this court set forth the general rule that
courts use to determine whether an insurer breached its duty
to defend its insured. Grieb, 33 Wis.2d at 558-59.
Essentially, we rejected Grieb's argument that when an
implied duty to defend arises from a policy's indemnity
clause, the four-corners rule does not apply. Id. We
held that an insurer's duty to defend, regardless of its
origin, depends on a comparison of the four corners of the
underlying complaint to the terms of the policy, reasoning:
Whether a third-party suit comes within the coverage of this
clause [the defense-coverage clause] or an implied duty to
defend under an indemnity clause depends upon its allegations
which are referred to as a general rule as the measure in the
first instance. These allegations must state or claim a cause
of action for the liability insured against or for which
indemnity is paid in order for the suit to come within any
defense coverage of the policy unless the express defense
coverage is broader.
Id. at 557-58. After setting forth the four-corners
rule, we stated "[t]here are at least four exceptions to
the general rule determining the extent of the insurer's
duty to defend and generally the insurer who declines to
defend does so at his peril. These and allied problems are
extensively covered in Anno., Liability Insurer--Duty to
Defend, 50 A.L.R.2d 458." Grieb, 33 Wis.2d at 558. These
two sentences are the only discussion in Grieb regarding
exceptions to the four-corners rule; we did not actually
adopt or apply any of the exceptions to the four-corners rule
by this reference. Instead, we held that Grieb's
insurer had no duty to defend Grieb because the allegations
in the complaint "could not be considered as stating a
cause of action for liability for negligence, omissions,
mistakes or errors." Id. at 559. In other
words, we limited our determination of whether Grieb's
insurer breached its duty to defend Grieb to the allegations
in the four corners of the complaint: "It is not
sufficient under [the insurance] policy that the facts
alleged might under other circumstances be characterized as
acts of unintentional negligence, error, mistake or
Since Grieb, Wisconsin courts, with one deviation in Berg
v. Fall, 138 Wis.2d 115, 405 N.W.2d 701 (Ct. App. 1987),
have consistently stated that an insurer's duty to defend
its insured depends on the allegations contained in the four
corners of the complaint. E.g., Olson, 338 Wis.2d 215,
¶30 ("Wisconsin policy is clear. If the allegations
in the complaint, construed liberally, appear to give rise to
coverage, insurers are required to provide a defense until
the final resolution of the coverage question by a
court."); Estate of Sustache, 311 Wis.2d 548, ¶20
("The duty to defend is triggered by the allegations
contained within the four corners of the complaint.");
Doyle, 219 Wis.2d at 284 ("In determining an
insurer's duty to defend, we apply the factual
allegations present in the complaint to the terms of the
disputed insurance policy."); Newhouse v. Citizens
Sec. Mut. Ins. Co., 176 Wis.2d 824, 835, 501 N.W.2d 1
(1993) ("The duty to defend is triggered by the
allegations contained within the four corners of the
complaint."); Prof'l Office Bldgs., Inc. v.
Royal Indem. Co., 145 Wis.2d 573, 580-81, 427 N.W.2d 427
(Ct. App. 1998) ("[W]e believe the rule of Grieb v.
Citizens Casualty Co., 33 Wis.2d 552, 148 N.W.2d 103
(1967), and similar cases, is controlling and compels the
determination that the duty to defend is dependent solely on
the allegations of the complaint . . . .").
Despite this consistent application of the four-corners rule,
the court of appeals in Berg considered extrinsic evidence to
determine that an insurer had a duty to defend its insured.
Berg, 138 Wis.2d at 123. In Berg, Robin Berg alleged that
James Fall punched him in the face. Id. at 117.
Fall's insurer, State Farm Insurance Company, was joined
as a defendant in the suit. Id. at 116. The central
issue before the court of appeals was whether the State Farm
policy, which excluded coverage for "bodily injury
'expected or intended by the insured, '" applied
where Fall claimed he acted in self-defense when he punched
Berg. Id. at 117. The court of appeals held that (1)
summary judgment was improper because a material fact--
whether Fall acted in self-defense--was disputed and (2)
"that a privileged act of self-defense is not excluded
from coverage by State Farm's policy language."
Id. at 119-20. The court of appeals concluded that
State Farm had a duty to defend Fall even though Berg's
complaint did not allege that Fall acted in self-defense.
Id. at 122. While the court of appeals cited Grieb
and the general rule--that the duty to defend is determined
by reference to the four corners of the underlying
complaint--it held that "[b]ecause the record shows
facts sufficient to support an inference that Fall acted
reasonably in self-defense, summary judgment was
inappropriate and State Farm owes him a duty of
defense." Id. at 123 (footnote omitted). By
relying on extrinsic evidence, the court of appeals in Berg
departed from the well-established four-corners rule.
We recognized this in Doyle when we soundly rejected an
assertion, based on Berg, suggesting a court should look
beyond the four corners of the complaint to determine whether
an insurer had breached its duty to defend. Doyle, 219 Wis.2d
at 284 n.3. A year later, citing our footnote in Doyle, we
again declined to recognize an exception to the four-corners
duty to defend rule. Smith v. Katz, 226 Wis.2d 798,
815-16, 595 N.W.2d 345 (1999).
In Sustache v. Am. Family Mut. Ins. Co., the court
of appeals considered whether any exception to the
four-corners rule existed in Wisconsin given that (1) Grieb
referenced "at least four exceptions" to the four
corners rule, id., 33 Wis.2d at 558, (2) the court
of appeals in Berg relied on extrinsic evidence to determine
an insurer's duty to defend its insured, and (3) this
court rejected an invitation to rely on Berg in Doyle and
Smith, but did not explicitly overrule Berg's reliance on
extrinsic evidence. Sustache v. Am. Family Mut. Ins.
Co., 2007 WI App. 144, ¶¶11-13, 15-16, 303
Wis.2d 714, 735 N.W.2d 186 aff'd sub nom. Estate of
Sustache v. Am. Family Mut. Ins. Co., 2008 WI 87,
311 Wis.2d 548, 751 N.W.2d 845. The court of appeals
explained "the dilemma in this case goes beyond the
tension between Doyle/Smith and Berg. If we should hold that
the supreme court has tacitly overruled Berg, it remains that
Grieb, a supreme court opinion, is still on the books, and no
court of appeals or supreme court opinion has ever called
Grieb into question." Sustache, 303 Wis.2d 714,
¶17. The court of appeals concluded that it was required
to follow this court's most recent decisions regarding
the application of the four-corners rule in duty to defend
cases. Id., ¶19. It concluded that our opinions
in Doyle and Smith "tacitly overruled . . . [our]
recognition of the exceptions to the four-corners rule in
Grieb. From that it logically follows that Doyle and Smith
have also tacitly overruled Berg." Sustache, 303 Wis.2d
714, ¶19. It concluded: "In sum, the four-corners
rule is the law in Wisconsin when measuring an insurer's
duty to defend, and the rule knows no exceptions until the
supreme court unequivocally holds otherwise."
We now unequivocally hold that there is no exception to the
four-corners rule in duty to defend cases in Wisconsin. This
position is consistent with long-standing precedent,
including Grieb. Our passing reference in Grieb to "at
least four exceptions to the general rule, " 33 Wis.2d
at 558, should not be read as an adoption of any exception to
the four corners rule. Rather, by citation to the American
Law Reports, this passage in Grieb merely recognized that
exceptions exist in other jurisdictions. That Grieb did not
adopt any exceptions to the four-corners rule is further
supported by the fact that Grieb never specifically
enumerated or described any exception to the four-corners
rule. Furthermore, our analysis in Grieb plainly reveals that
we did not consider extrinsic evidence; rather, we applied
the four-corners rule to conclude that the allegations
against Grieb in the taxpayer's suit did not fall within
the coverage provided by the insurance policy at issue.
Id. at 559. We overrule any language in Berg
suggesting that evidence may be considered beyond the four
corners of the complaint in determining an insurer's duty
to defend its insured.
We have applied the four-corners rule, without exceptions, in
duty to defend cases for so long because it generally favors
Wisconsin insureds. The rule ensures that courts are able to
efficiently determine an insurer's duty to defend, which
results in less distraction from the merits of the underlying
suit. Also, the four-corners rule supports the policy that an
insurer's duty to defend is broader than its duty to
indemnify. Estate of Sustache, 311 Wis.2d 548,
¶20. That is because "[i]t is the nature of the
claim alleged against the insured which is controlling even
though the suit may be groundless, false or fraudulent."
Grieb, 33 Wis.2d at 558. Adherence to "[t]he
four-corners rule 'ensure[s] that insurers do not
frustrate the expectations of their insureds by [prematurely]
resolving the coverage issue in their own favor[.]'"
Olson, 338 Wis.2d 215, ¶32 (quoting Baumann v.
Elliot, 2005 WI App. 186, ¶10, 286 Wis.2d 667, 704
N.W.2d 361) (brackets in original). Without the four-corners
rule, insurers would be incentivized to outright refuse to
defend their insureds and hope that the facts later revealed
that no coverage existed. Olson, 338 Wis.2d 215, ¶32.
The end result of strict adherence to the four-corners rule
is that "the insurer may have no duty to defend a claim
that ultimately proves meritorious against the insured
because there is no coverage for that claim. Conversely, the
insurer may have a clear duty to defend a claim that is
utterly specious because, if it were meritorious, it would be
covered." Smith, 226 Wis.2d 798, ¶20.
The four-corners rule ultimately favors insureds in another
way. Even if a plaintiff's first complaint does not
contain allegations that trigger the duty of a
defendant's insurer to defend, a plaintiff has both the
opportunity and the incentive to file an amended complaint
when discovery results in additional facts that, if alleged
in an amended complaint, would trigger a duty to defend:
"[I]f a complaint does not allege a covered claim, the
true facts will come out in discovery. Sooner or later those
facts will be alleged in an amended complaint because the
plaintiff will want coverage for the defendant-insured. When
that happens, the duty to defend is triggered." Sheila
M. Sullivan et al., Anderson on Wisconsin Insurance Law
§ 7.27 at 29 (7th ed. 2015).
Water Well asserts that strictly applying the four-corners
rule encourages insurers to refuse to defend insureds in
close cases. We disagree. We continue to strongly encourage
insurers to follow one of the judicially-preferred approaches
rather than make a unilateral determination to refuse to
defend an insured. See Liebovich v. Minnesota Ins.
Co., 2008 WI 75, ¶55, 310 Wis.2d 751, 751 N.W.2d
764. For example:
(1) An insurer may request a bifurcated trial on the issue of
coverage and move to stay all proceedings on liability until
a coverage determination is made. Id.; Elliot v.
Donahue, 169 Wis.2d 310, 318, 485 N.W.2d 403 (1992).
Under this approach, "the insurance company runs no risk
of breaching its duty to defend." Newhouse, 176
Wis.2d at 836.
(2) An insurer may enter into "a nonwaiver agreement in
which the insurer would agree to defend, and the insured
would acknowledge the right of the insurer to contest
coverage." Grube v. Daun, 173 Wis.2d 30, 75,
496 N.W.2d 106 (Ct. App. 1992), overruled on other grounds,
Marks, __ Wis.2d __, ¶75. An insurer may also proceed
under a reservation of rights under which the insured
provides and controls its own defense, but the insurer
remains liable for incurred legal costs. Id.
(3) Finally, an insurer may choose to provide an initial
defense and seek a declaratory judgment on
coverage. Liebovich, 310 Wis.2d 751, ¶55.
While these procedures are not absolute requirements, we
strongly encourage insurers wishing to contest liability
coverage to avail themselves of one of these procedures
rather than unilaterally refuse to defend. A unilateral
refusal to defend without first attempting to seek judicial
support for that refusal can result in otherwise avoidable
expenses and efforts to litigants and courts, deprive
insureds of their contracted-for protections, and estop
insurers from being able to further challenge coverage.
An insurer also has the option to "[d]eny the tender of
defense and state the grounds for deciding that the complaint
does not trigger any obligation to defend under the
policy." Sheila M. Sullivan et al., Anderson on
Wisconsin Insurance Law § 7.54 at 51 (7th ed. 2015). If,
however, an insurer chooses this option "it does so at
its own peril." Elliot, 169 Wis.2d at 321. By
declining to defend an insured, an insurer opens itself up to
a myriad of adverse consequences if its unilateral duty to
defend determination turns out to be wrong. For example, an
insurer that breaches its duty to defend is liable for all
costs naturally flowing from the breach. Newhouse, 176 Wis.2d
at 837; Maxwell v. Hartford Union High Sch. Dist.,
2012 WI 58, ¶¶55-56, 341 Wis.2d 238, 814 N.W.2d 484
(explaining that a breach of the duty to defend results in
damages naturally flowing from that breach, but does not
expand coverage). This liability is not limited to policy
Damages which naturally flow from an insurer's breach of
its duty to defend include: (1) the amount of the judgment or
settlement against the insured plus interest; (2) costs and
attorney fees incurred by the insured in defending the suit;
and (3) any additional costs that the insured can show
naturally resulted from the breach.
Newhouse, 176 Wis.2d at 838. Liability for costs and
attorneys fees may potentially be greater than what the
insurer would have paid had it defended its insured in the
first instance because an insurer that refuses to defend its
insured cedes control of the defense to its insured and is
liable for all reasonable expenses. Patrick v. Head of
the Lakes Co-op Elec. Ass'n, 98 Wis.2d 66, 72-23,
295 N.W.2d 205 (1980) ("As long as [the] defense is
reasonable and coverage is found, the insurer must pay for
In addition, an insurer that breaches its duty to defend its
insured places itself at risk that its insured will pursue a
successful first-party bad faith action against it. See
Anderson v. Cont'l Ins. Co., 85 Wis.2d 675, 687,
271 N.W.2d 368 (1978) (recognizing the intentional tort of
bad faith); Brethorst v. Allstate Prop. & Cas. Ins.
Co., 2011 WI 41, ¶5, 334 Wis.2d 23, 798 N.W.2d 467
(holding that a breach of contract is a prerequisite for a
first-party bad faith claim levied against an insurer). In a
successful first-party bad faith action against an insurer,
an insured may recover punitive damages. See Weiss v.
United Fire & Cas. Co., 197 Wis.2d 365, 393, 541
N.W.2d 753 (1995).
In sum, we follow our long-standing precedent that
duty-to-defend cases are governed by the four-corners rule,
with no exceptions.
Consolidated's duty to defend Water Well originates from
the CGL Policy, under which Consolidated "will have the
right and duty to defend the insured against any
'suit' seeking [bodily injury or property] damages.
However, [Consolidated] will have no duty to defend the
insured against any 'suit' seeking damages for
'bodily injury' or 'property damage' to which
this insurance does not apply." Wisconsin courts
determine whether an insurer breached its duty to defend its
insured by comparing the four corners of the underlying
complaint to the terms of the insurance policy. See Doyle,
219 Wis.2d at 284. Water Well argues that if this court does
not recognize any exception to the four-corners rule, then it
should limit consideration of the policy to only those terms
governing an initial grant of coverage. Consistent with
Marks, we reject this argument. In Marks, we held that in
duty to defend cases a court must compare the four corners of
the complaint to the ...