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Steadfast Insurance Co. v. Greenwich Insurance Co.

Court of Appeals of Wisconsin, District I

January 17, 2018

Steadfast Insurance Company, Plaintiff-Respondent,
Greenwich Insurance Company, Defendant-Appellant.

         APPEAL from a judgment and an order of the trial court for Milwaukee County Cir. Ct. No. 2013CV1685 MARY M. KUHNMUENCH and GLEN H. YAMAHIRO, Judges. Affirmed.

          Before Brennan, P.J., Kessler and Dugan, JJ.

          DUGAN, J.

         ¶1 This case involves issues of insurance coverage and the duty to defend involving Milwaukee Metropolitan Sewerage District (MMSD) and insurance companies, Greenwich Insurance Company and Steadfast Insurance Company, relating to the defense of lawsuits against MMSD in the wake of a June 7 and 8, 2008 rain event (the "rain event lawsuits").[1] After the rain event lawsuits were filed, MMSD tendered its defense to Steadfast and Greenwich. Steadfast accepted the tender and defended MMSD. Greenwich declined the tender and did not defend MMSD. Eventually, the rain event lawsuits settled and, as a part of the settlement, Steadfast reimbursed MMSD $1.55 million for MMSD's defense costs. Steadfast then brought the lawsuit (the "insurance lawsuit") that is the subject of this appeal against Greenwich.[2]

         ¶2 Ultimately, the trial court determined that Greenwich breached its duty to defend and, therefore, had waived its rights to raise coverage defenses, and was responsible for paying the $1.55 million for MMSD's defense and Steadfast's $325, 500 attorney fees incurred in bringing the insurance lawsuit.

         ¶3 On appeal, Greenwich argues that it did not breach its duty to defend the rain event lawsuits and did not waive its right to litigate the coverage issues. Greenwich further argues that it was entitled to summary judgment for the following reasons: (1) its policy with MMSD was excess coverage, with Steadfast's coverage being primary; (2) its policy with MMSD had a $250, 000 self-insured risk retention amount and MMSD did not establish that it had expended that amount in defending the rain event lawsuits; and (3) Steadfast's claim is barred by the one-year statute of limitations in Wis.Stat. § 893.92 (2015-16), [3] applicable to actions for contribution. Alternatively, Greenwich argues that it was entitled to an allocation of the costs as between Steadfast, Travelers and itself. In addition, Greenwich argues that Steadfast is not entitled to recover attorney fees in connection with the insurance lawsuit.

         ¶4 We conclude as follows: (1) Greenwich's policy provided primary, not excess, coverage for claims against MMSD; (2) MMSD has established that it met the $250, 000 risk retention amount by incurring $594, 302.23 in defense costs; (3) Steadfast's equitable subrogation claim is timely because the six-year statute of limitations in Wis.Stat. § 893.43 applicable to contract claims applies to Steadfast's claim, which is premised on Greenwich's breach of the duty to defend MMSD; (4) under the facts of this case, because Greenwich breached its duty to defend MMSD, Greenwich is not equitably entitled to an allocation of MMSD's defense costs; and (5) under the facts of this case, Steadfast is equitably entitled to recover attorney fees in this lawsuit. Based on our conclusions, we affirm the trial court's orders and judgments.


         ¶5 MMSD is a regional government agency that provides water reclamation and flood management services to the Greater Milwaukee area. Since 1998, MMSD has contracted with private parties to operate and maintain its sewerage system. From March 1, 1998, through February 29, 2008, MMSD contracted with United Water Services Milwaukee LLC to operate the system. From March 1, 2008, through all times relevant to this action, MMSD contracted with Veolia Water North America-Central, LLC to operate the system.

         ¶6 MMSD's agreements with United Water and Veolia, respectively, obligated each company to fully indemnify MMSD for claims arising out of the operation and maintenance of the system and to obtain insurance to cover its indemnity obligations. The agreements required that the insurance policies obtained by each company list MMSD as an additional insured. Both companies complied with those requirements.

         ¶7 The June 2008 rain event overwhelmed MMSD's sewer system and more than 8, 000 homeowners reported basement sewage backups. Between February 2009 and May 2009, four rain event lawsuits were filed against MMSD. The rain event lawsuits included allegations that MMSD and Veolia were negligent in the inspection, maintenance, repair, and operation of the sewer system and diversion gates prior to and during the rain event.

         ¶8 Subsequently, the rain event lawsuits were consolidated into two separate actions. Later, United Water was named as a defendant in one of the rain event lawsuits and negligence claims, like those against MMSD and Veolia, were alleged against it.

         ¶9 On June 9, 2009, after MMSD had been sued in the rain event lawsuits, it sent a letter to both Steadfast and Greenwich tendering the defense. As noted, Steadfast, the insurer for Veolia, which had named MMSD as an additional insured, accepted the tender and defended MMSD.

         ¶10 As will be further detailed below, Greenwich, United Water's insurer, did not accept the tender, did not defend MMSD, and did not pay any amounts for defense costs, despite the fact that MMSD was named as an additional insured on the policy. In a September 23, 2009 letter, Greenwich denied coverage, stating in part, as follows:

Initially, we fail to see how [United Water] could be liable for causing a sewage backup in June 2008 when its services for MMSD terminated in February 2008. From a professional and contracting services standpoint, there is ample evidence that when [United Water] turned over operational responsibilities to Veolia and MMSD in February 2008, all systems, equipment, and machinery at the subject sewage overflow diversion chamber were functioning according to operational protocols. Thus, we can only conclude that [United Water]'s work met all professional and contracting standards of care.

         The letter also raises MMSD's satisfaction of the risk retention amounts and "other insurance" provisions as reasons for denying coverage.

         ¶11 On October 14, 2010, MMSD renewed its tender of defense. In its letter to Greenwich, MMSD noted as a basis for coverage that the plaintiffs in the rain event lawsuits had made specific allegations concerning United Water's negligence. On March 9, 2011, Greenwich responded to MMSD's renewed tender of defense, stating that there was a potential for coverage, but it reserved its rights, noting that under its "other insurance" clause, Greenwich was excess to the $250, 000 risk retention amount and any other valid insurance available to MMSD, including that through Veolia's policy.

         ¶12 On May 31, 2011, Greenwich's attorney sent another letter, acknowledging that there might be potential coverage and asking for information to determine if MMSD had satisfied the $250, 000 risk retention amount. On June 16, 2011, MMSD's attorney responded, stating that MMSD had paid its legal counsel a total of $823, 602.75 and that, clearly, MMSD had "surpassed the risk retention amount and [was] well into the liability portion of the policy." Greenwich then responded stating, "the coverage potentially provided to MMSD under the Greenwich Policy is excess of the $250, 000 deductible and the $30, 000, 000 limits provided under the Steadfast Pollution Policy." Greenwich did not provide MMSD with any defense during the rain event lawsuits.

         ¶13 The rain event lawsuits settled without MMSD or Steadfast making any payments towards the parties' claimed damages. However, Steadfast reimbursed MMSD $1.55 million towards the defense costs that MMSD paid for those lawsuits. After the rain event lawsuits settled, Steadfast filed this action against Greenwich and Travelers, seeking to recoup the monies that it had paid to MMSD for the defense costs. MMSD intervened to recoup unpaid defense costs from all the other parties.

         ¶14 As this action proceeded, the parties filed and briefed motions and cross-motions for summary judgment. Before the trial court issued any decision on those motions, Steadfast and all parties, except Greenwich, settled the case. Thus, as mentioned, the sole remaining parties to this action are Steadfast and Greenwich.

         ¶15 On May 15, 2015, the trial court issued a written decision denying Greenwich's summary judgment motion based on its determination that Greenwich had breached its duty to defend MMSD and, thereby, waived its rights to raise any coverage defense.

         ¶16 On November 13, 2015, Steadfast and Greenwich filed a stipulation stating that Steadfast had reasonably and necessarily incurred $1.55 million for MMSD's defense in the rain event lawsuits. However, they reserved their respective rights to argue what portion of the $1.55 million, if any, Steadfast should recover from Greenwich. The trial court entered an order approving the stipulation.

         ¶17 Thereafter, the parties filed additional summary judgment motions. On June 29, 2016, the trial court granted Steadfast's summary judgment motion, awarding judgment against Greenwich in the amounts of $1.55 million dollars as damages, and $325, 500 as attorney fees for the insurance lawsuit. This appeal followed.


         ¶18 We review a grant of summary judgment using the same standards the trial court applied in making its determination, and "accordingly, we benefit from, but need not give deference to, the analys[is] of the [trial] court[]." See State Farm Mut. Auto. Ins. Co. v. Langridge, 2004 WI 113, ¶12, 275 Wis.2d 35, 683 N.W.2d 75. When we review a grant of summary judgment, our review is de novo. See id.

         ¶19 The issues presented involve multiple questions of law, which are subject to de novo review. The interpretation of an insurance policy and the existence of coverage under the policy are questions of law that are decided de novo. See id., ¶13. The interpretation of an insurance policy to determine the scope of an insurer's duty to defend also involves a question of law that is subject to our de novo review. See Estate of Sustache v. American Family Mut. Ins. Co., 2008 WI 87, ¶18, 311 Wis.2d 548, 751 N.W.2d 845. An insurer's duty to defend its insured "is triggered by the allegations contained within the four corners of the complaint" against the insured." See Marks v. Houston Cas. Co., 2016 WI 53, ¶¶ 37, 39, 369 Wis.2d 547, 881 N.W.2d 309');">881 N.W.2d 309 (citation omitted). In analyzing whether an insurer has a duty to defend (1) "allegations in the complaint are construed liberally and all reasonable inferences are assumed, " (2) "ambiguity in the insurance policy is construed against the insurer, " and (3) "when an insurance policy provides coverage for even one claim made in a lawsuit, the insurer is obligated to defend the entire suit." Id., ¶42 (citations omitted).

         ¶20 Furthermore, "[t]he question of which statute of limitations governs a particular claim is one of law which we decide de novo." Hicks v. Nunnery, 2002 WI App. 87, ¶17, 253 Wis.2d 721, 643 N.W.2d 809 (italics added). In addition, the proper measure of damages for an insurer's breach of its duty to defend "is a question of law which this court decides independently and without deference to the lower courts." See Newhouse v. Citizens Sec. Mut. Ins., 176 Wis.2d 824, 837, 501 N.W.2d 1 (1993).


         ¶21 We address the multiple issues presented in sequence and begin by addressing whether Greenwich waived its right to litigate coverage by asserting that it did not have a duty to defend because there was no coverage under its policy with United Water. As a preliminary matter, Greenwich argues that the trial court erred in holding that, because Greenwich breached its duty to defend, Greenwich forfeited its right to litigate coverage with respect to its duty to defend.

         ¶22 Steadfast argued, and the trial court agreed, that Greenwich waived its right to litigate coverage because Greenwich had breached its duty to defend MMSD. However, on appeal, Steadfast does not make that argument. Rather, Steadfast notes that the trial court's decision was issued prior to the Wisconsin Supreme Court's issuance of Marks, 369 Wis.2d 547.[4] Thus, Steadfast implicitly concedes that, given the Marks holding, Greenwich did not waive its right to contest coverage in this case with respect to the duty to defend and the trial court's ruling to the contrary is erroneous.[5] Therefore, we address whether Greenwich's coverage defenses apply such that Greenwich had no duty to defend MMSD in the rain event lawsuits.

         Greenwich's Policy did not Provide Excess Coverage over the Coverage Provided by Steadfast's Policy Because under the Facts of this Case neither the Greenwich nor the Steadfast "Other Insurance" Provisions were Triggered

         ¶23 Greenwich argues that it did not breach its duty to defend MMSD in the rain event lawsuits because its coverage was excess over the Steadfast policy coverage. Greenwich analyzes the "other insurance" language in its policy and Steadfast's policy and concludes that the Steadfast policy provides primary coverage while the Greenwich policy provides excess coverage. Greenwich asserts that under Wisconsin law, "'other insurance' provisions are applied as written, and given full effect, in situations involving concurrent coverage." (Emphasis added.)

         ¶24 By contrast, Steadfast argues that we need to determine whether any "other insurance" provision is triggered by the facts in this case before we examine the language in the policies regarding "other insurance." We agree.

         ¶25 "Other insurance" provisions are triggered when (1) two or more insurance policies, (2) insure the same risk and the same interest, (3) for the benefit of the same person or entity, and (4) during the same time period. Plastics Eng'g Co. v. Liberty Mut. Ins. Co., 2009 WI 13, ¶¶48-49, 315 Wis.2d 556, 759 N.W.2d 613. Further, the provisions do not apply to successive insurance policies. See id.

         ¶26 In Plastics, the Wisconsin Supreme Court held that "'[o]ther insurance' refers only to two or more policies insuring the same risk, and the same interest, for the benefit of the same person, during the same period." See id. (citation and one set of quotation marks). Plastics further explains that, "[t]he purpose of an 'other insurance' clause is to define which coverage is primary and which coverage is excess between policies…. 'Other insurance' clauses govern the relationship between insurers, and they do not affect the right of the insured to recover under each concurrent policy." Id. (citations and one set of quotation marks omitted). Moreover, it states that "'[w]henever there are two policies that apply to the same insured at the same time, the issue of which policy must pay first-or which is primary and which is excess-is dealt with by other insurance clauses.'" Id. (citation omitted). Additionally, "[t]he accepted meaning of 'other insurance' provisions does not include application to successive insurance policies." Id. (emphasis added).

         ¶27 In Plastics, the court concluded that the requisite conditions, before an "other insurance" provision would apply, were not satisfied. It stated that "[t]he issue is not which of two or more policies pays first because the Liberty Mutual policies are not concurrent policies between competing insurers that apply to the same time period." Id., ¶49.

         ¶28 The Plastics holding controls in this case. First, the policies do not insure the same party. Greenwich's policy insured United Water with respect to United Water's conduct in operating and maintaining MMSD's system. It did not insure against any conduct by Veolia in operating the system. Likewise, Steadfast's policy insured Veolia with respect to Veolia's conduct in operating and maintaining MMSD system. It did not insure against any conduct by United Water in operating the system. Additionally, the policies do not provide coverage for the same time period. Greenwich provided coverage for United Water's operation and maintenance of MMSD's system from March 1, 1998, until February 29, 2008. As of March 1, 2008, Veolia took over the operation and management of the system. The policies are successive, not concurrent. They do not cover the same time period.

         ¶29 By contrast, Greenwich argues that the "other insurance" provisions were triggered in this case, citing Schoenecker v. Haines, 88 Wis.2d 665, 674, 277 N.W.2d 782 (1979), and Oelhafen v. Tower Insurance Co., 171 Wis.2d 532, 536-37, 492 N.W.2d 321 (Ct. App. 1992). We do not find Greenwich's argument persuasive. In Schoenecker, the court expressly stated that "[b]ecause both policies provided concurrent coverage absent contract provisions relating to 'other insurance, ' it is necessary to analyze the 'other insurance' provision of each policy." Id., 88 Wis.2d at 669. However, unlike Schoenecker, this action involves successive coverage, not concurrent coverage.

         ¶30 Oelhafen involved review of the trial court's apportionment of four insurers' respective obligations to pay portions of a personal injury action settlement in excess $900, 000 against the insured boat owners and operators. Id., 171 Wis.2d at 534-35. On appeal, the four insurers challenged the trial court's apportionment of the insurers' liability for the settlement, which had directed each of the three primary insurers to pay the policy limit and the fourth insurer, the issuer of "a true umbrella policy, " to pay "only any excess liability not paid by the other insurers." Id. at 535-36. We noted that all four policies had an "other insurance" provision and the parties had agreed that the provisions applied, but they were repugnant to each other. See id. at 536. Thus, we held that under Wisconsin law, none of the 'other insurance" provisions would be enforced. See id. Moreover, Oelhafen does not address when an "other insurance" provision is triggered. See id. The action also involved concurrent, not successive, coverage among the insurance policies. See id. at 535. Again, this action involves successive policies, not concurrent policies.

         ¶31 In its initial brief, Greenwich also relies upon Riccobono v. Seven Star, Inc., as supporting its argument. See id., 2000 WI.App. 74, ¶13, 234 Wis.2d 374, 610 N.W.2d 501. In Riccobono, this court held that both insurance policies covered the same parties for the same risks stating as follows: "[c]onsequently, we agree with the trial court that both insurance policies provide coverage for the same parties and the same risk, and an interpretation of the 'other insurance' clauses found in the policies was necessary to resolve the dispute." Id., ¶10. Rather than supporting Greenwich's argument, Riccobono supports Steadfast's argument that an "other insurance" provision only applies when both policies provide coverage for the same parties and the same risk. See id., ¶13.

         ¶32 Interestingly, Greenwich's reply brief also relies upon Riccobono as supporting its argument that the "other insurance" provision can be applied even when insurance policies provide coverage for different risks. However, Greenwich's initial brief correctly stated that the Riccobono court had "rejected arguments advanced by [the insurer that it had determined to be primary] that the policies were issued to different named insureds, and covered different risks." See id. Indeed, Riccobono's holding was based on its determination that the concurrent policies covered the same parties and the same risks. See id., ¶10. Therefore, the "other insurance" provisions were triggered. See id., ¶¶10-12. Those are not the facts of this case. Riccobono does not support Greenwich's argument; it supports Steadfast's.

         ¶33 In its reply brief, Greenwich also cites Acuity v. Chartis Specialty Insurance Co., 2015 WI 28, 361 Wis.2d 396, 861 N.W.2d 533');">861 N.W.2d 533, as supportive of its argument that the "other insurance" provision can be applied even when insurance policies provide coverage for different risks. However, Acuity addressed only whether the Chartis policy covered the claims in the underlying case, not whether the Acuity policy also covered the claims. See id., ¶4. Both Acuity and Chartis issued liability policies to the Dorner, Inc. construction company. See id., ¶2. The Acuity policy was a Comprehensive General Liability (CGL) policy. Id. The Chartis policy was a Contractors' Pollution Liability (CPL) policy. Id. Acuity defended and indemnified Dorner in four lawsuits, seeking redress for bodily injury and property damage. Id., ¶3. The lawsuits arose from a natural gas-fueled explosion and fire that occurred after Dorner's employees damaged an underground natural gas pipeline during an excavation project. Id. Acuity sought recovery from Chartis, asserting that the Chartis policy provided coverage for Dorner in the lawsuits. Id.

         ¶34 Our supreme court stated that it would address the following three arguments regarding Chartis's obligations under its policy to defend and indemnify Dorner: (1) whether the escaped gas was a pollution condition, see id., ¶39; (2) if the escaped gas was a pollution condition, whether the bodily injury and property damage were caused by the pollution condition, see id., ¶40; and (3) whether concurrent coverage was possible under both Acuity and Chartis's policies, see id., ¶41. We interpret Greenwich's appellate argument as relying on the third Acuity argument. See id., ¶41. However, the Acuity facts and the court's ruling distinguish Acuity from this case.

         ¶35 First, the facts involved the same insured (Dorner) engaging in the same conduct (excavating an underground gas line) that caused the injuries. See id., ¶¶2-3. Unlike Acuity, the rain event lawsuits assert separate claims against United Water and Veolia, where each operated the sewage system at different times. Additionally, the two insurers had different primary insureds, Greenwich insured United Water and Steadfast insured Veolia. Further, each policy named MMSD as an additional insured, but only for the conduct of United Water in the Greenwich policy and only for the conduct of Veolia in the Steadfast policy. Each policy excluded coverage for MMSD for its own conduct.

         ¶36 Acuity did not address any issues regarding "other insurance" or excess coverage and did not make any rulings about Acuity's CGL policy. See id., ¶101. Rather, the court noted at the outset that "[t]he dispute in the instant case revolves around the insurance companies' different interpretations of Chartis's duties and obligation to the insured under Chartis's CPL policy." Id., ΒΆ4. The court only concluded that the ...

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