Submitted on Briefs: oral argument: October 29, 2018
OF DECISION OF THE COURT OF APPEALS Reported at 380 Wis.2d
184, 908 N.W.2d 502');">908 N.W.2d 502 PDC No: 2018 WI.App. 11
Circuit Court Milwaukee County L.C. No. 2013CV1685, Glenn H.
the defendant-appellant-petitioner, there were briefs filed
by Pamela J. Tillman, Esq., Michael J. Cohen, Esq., and
Meissner Tierney Fisher & Nichols S.C., Milwaukee; with
whom on the briefs were Thomas G. Drennan, Esq., and Dinsmore
& Shohl LLP, Chicago, Illinois. There was an oral
argument by Michael J. Cohen.
the plaintiff-respondent, there was a brief filed by Monte E.
Weiss, Charles W. Kramer, and Weiss Law Office, S.C., Mequon.
There was an oral argument by Monte Weiss.
PATIENCE DRAKE ROGGENSACK, C.J.
We review a decision of the court of appeals affirming the
circuit court's grant of summary judgment to Steadfast
Insurance Company (Steadfast) . Summary judgment granted
Steadfast the right to recover from Greenwich Insurance
Company (Greenwich) based on Steadfast's and
Greenwich's relationships with Milwaukee Metropolitan
Sewerage District (MMSD), who was sued for alleged negligent
inspection, maintenance, repair, and operation of
Milwaukee's sewerage system.
MMSD tendered its defense to both Steadfast and Greenwich.
Steadfast accepted the tender; Greenwich did not, claiming
that its policy was excess to Steadfast's based on its
"other insurance" clause. Steadfast disagreed and
sued Greenwich to recover the defense costs it paid to MMSD
and the attorney fees incurred in suing Greenwich to
reimburse it for those defense costs.
First, we conclude that Greenwich, who insured the risk that
United Water Services Milwaukee, LLC (United Water) would
negligently perform services for MMSD, thereby causing
damage, and Steadfast, who for a different period of time
insured the risk that Veolia Water Milwaukee, LLC (Veolia)
would negligently perform services for MMSD, thereby causing
damage, were both primary and successive insurers in regard
to MMSD, their common additional insured.
¶4 Second, we conclude that Greenwich breached
its contractual duty to defend MMSD. Third, we conclude that
Steadfast's contractual subrogation claim against
Greenwich was timely filed as it comes within the six-year
statute of limitations for contract actions.
¶5 Fourth, we conclude Steadfast had a contractual duty
to defend MMSD that was not abrogated by Greenwich's
breach of its contractual duty to defend MMSD. Therefore, we
apply a pro-rata allocation of defense costs Steadfast paid
to MMSD based on Steadfast's and Greenwich's
respective policy limits of $30 million and $20 million.
Fifth, and finally, we conclude that Steadfast is entitled to
recover attorney fees from Greenwich due to Steadfast's
stepping into the shoes of MMSD through contractual
subrogation to force Greenwich to pay defense costs.
¶6 Accordingly, we affirm the decision of the court of
appeals in part and reverse it in part.
¶7 This dispute arises out of historic rains that
occurred in Milwaukee in June 2008. Those heavy rains
overwhelmed MMSD's sewerage system, which resulted in raw
sewage backing up into more than 8, 000 homes. Lawsuits were
filed against United Water, Veolia and MMSD because of sewage
backups, alleging negligence in the repair, maintenance, and
operation of the sewerage system both before and during the
¶8 Beginning in 1998, MMSD entered into Operating
Agreements with private companies to operate and maintain its
sewerage system. United Water provided operational services
for many years. MMSD's Operating Agreement with United
Water required United Water to maintain comprehensive
liability insurance, naming MMSD as an additional insured.
United Water contracted with Greenwich for liability
insurance with the last contract of insurance beginning July
24, 2007 and ending July 24 2008; it named MMSD as an
additional insured. The Greenwich policy limits were $20
million. United Water maintains that it last provided
services under an Operating Agreement with MMSD on February
¶9 Beginning on March 1, 2008, and continuing through
the June 2008 heavy rains, MMSD contracted with Veolia to
operate and maintain its sewerage system. Their Operating
Agreement similarly required Veolia to maintain comprehensive
liability insurance, naming MMSD as an additional insured.
Steadfast provided the required insurance to Veolia, with
policy limits of $30 million.
¶10 The Greenwich policy obligated it to defend any
claim against its insureds, United Water and MMSD, as well as
to provide indemnification:
With respect to the insurance afforded by this Policy, the
Company shall defend any CLAIM against the INSURED seeking
DAMAGES to which this insurance applies, even if any of the
allegations are groundless, false or fraudulent. Defense
counsel may be designated by the Company or designated by the
¶11 In a similar fashion, the Steadfast policy gave
Steadfast "the right and duty to assume the adjustment,
defense and settlement of any 'claim' to which this
insurance applies." Steadfast's policy, which
insured Veolia and MMSD, also contained a subrogation clause,
which stated in relevant part:
In the event of any payment under this policy, we shall be
subrogated to all an "insured's" rights of
recovery against any person or organization. An
"insured" shall execute and deliver instruments and
papers and do whatever else is necessary to secure such
rights. An "insured" shall do nothing to prejudice
¶12 After MMSD tendered its defense to both Steadfast
and Greenwich, it opted to hire its own counsel. The lawsuits
were settled without MMSD paying plaintiffs' claimed
damages. Steadfast participated in MMSD's defense by
reimbursing MMSD for $1.55 million in defense costs. However,
when MMSD tendered its defense to Greenwich and Steadfast,
there was no way of knowing that settlement would be achieved
without paying something toward claimed damages.
¶13 Greenwich, who had refused MMSD's tender, had
sent MMSD a letter explaining that "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." Greenwich further argued that "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."
¶14 One year later, MMSD renewed its tender to
Greenwich. It informed Greenwich that United Water had been
named as a defendant in lawsuits that resulted from the 2008
sewage backups. Greenwich responded five months later,
acknowledging that "there may be a potential for
coverage" and requesting "additional information in
order to determine Greenwich's current coverage
obligations." After receiving the requested information,
including confirmation that MMSD had satisfied its $250, 000
self-insured retention amount, Greenwich continued to refuse
the tender of MMSD's defense. Instead, it unilaterally
determined based on its "other insurance" clause
that its policy was excess to Steadfast's $30 million
¶15 After the conclusion of the lawsuits that resulted
from the sewage backups, Steadfast sued Greenwich to recover
the $1.55 million in defense costs that it had paid to MMSD.
The circuit court granted summary judgment in favor of
Steadfast, awarding it the entire amount Steadfast paid MMSD,
as well as $325, 000 in attorney fees that Steadfast incurred
bringing this lawsuit.
¶16 The court of appeals affirmed. Steadfast Ins.
Co. v. Greenwich Ins. Co., 2018 WI.App. 11, ¶4, 380
Wis.2d 184, 908 N.W.2d 502');">908 N.W.2d 502. The court of appeals based its
decision on the following conclusions:
(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.
Id. We granted Greenwich's petition for review,
and now affirm in part and reverse in part.
Standard of Review
¶17 We review summary judgment decisions independently,
applying the same methodology as the circuit court and the
court of appeals, while benefitting from their discussions.
Dufour v. Progressive Classic Ins. Co., 2016 WI 59,
¶12, 370 Wis.2d 313, 881 N.W.2d 678.
¶18 We also review insurance contract clauses
independently of decisions of the circuit court and court of
appeals, while again benefitting from their discussions.
Wadzinski v. Auto-Owners Ins. Co., 2012 WI 75,
¶10, 342 Wis.2d 311, 818 N.W.2d 819. Therefore, whether
a party is entitled to attorney fees based on contractual
subrogation is a question of law for our independent review.
Estate of Kriefall v. Sizzler USA, 2012 WI 70,
¶16, 342 Wis.2d 29, 816 N.W.2d 853.
¶19 Determining which statute of limitations applies to
contract issues involves a question of law that we also
decide independently. Zastrow v. Journal Commc'ns,
Inc., 2006 WI 72, ¶12, 291 Wis.2d 426, 718 N.W.2d
51. And finally, the proper measure of damages for an
insurer's breach of a contractual duty to defend is
likewise a question of law that we review independently.
Newhouse v. Citizens Sec. Mut. Ins. Co., 176 Wis.2d
824, 837, 501 N.W.2d 1 (1993).
¶20 The issues in this case all stem from
Greenwich's insurance contract with United Water and
Steadfast's insurance contract with Veolia. Each policy
listed MMSD as an additional insured. Therefore, the
following general principles of contract interpretation guide
our initial discussion. Wadzinski, 342 Wis.2d 311,
¶21 Our general task in contract interpretation is to
determine and carry out the parties' intentions.
Preisler v. Gen. Cas. Ins. Co., 2014 WI 135,
¶18, 360 Wis.2d 129, 857 N.W.2d 136. The parties'
intentions are presumed to be expressed in the language of
the contract. Wadzinski, 342 Wis.2d 311, ¶11.
Where the language of a contract is unambiguous and the
parties' intentions can be ascertained from the face of
the contract, we give effect to the words they employed.
Estate of Kriefall, 342 Wis.2d 29, 521. However, if
the policy terms are ambiguous, we construe the policy from
the perspective of a reasonable insured. Wadzinski,
342 Wis.2d 311, ¶11.
¶22 Greenwich and Steadfast issued comprehensive
liability insurance policies, which their Operating
Agreements with MMSD required. As a general matter, liability
policies insure risks that are dependent on various
circumstances that cause insureds to obtain insurance
coverage. Couch on Insurance § 101:3 (3rd ed.
1999) . Stated otherwise, risk is the "type of liability
the insurer agreed to provide coverage for under the terms of
the policy." Id. There is a causal connection
between risk and loss. Id. That is, when the insured-for
risk occurs, the insurer indemnifies for the resulting-loss
(damages) in accord with the policy provisions. Id.
Insurance policy clauses "may come into conflict"
when two or more policies cover the same risk for the same
period of time. Id., § 219:2.
¶23 In the context presented herein, Greenwich's
policy insured the risk that United Water's conduct in
managing the Milwaukee sewerage system during the policy
period would be negligent, thereby causing damage to a third
party. As an "additional insured" under
the Greenwich policy, MMSD's risk was that it would be
responsible in money damages for a third party's damage
caused by United Water's negligence.
¶24 Steadfast's policy insured the risk that Veolia
would negligently manage the Milwaukee sewerage system during
the policy period, causing damage to a third
party. As an "additional insured" of
Steadfast, MMSD's risk was that it would be responsible
in money damages for a third party's damage caused by
Veolia's negligence. The plain language of both the
Greenwich policy and the Steadfast policy obligated insurers
to indemnify and defend their named insureds and MMSD against
claims of damage caused by the negligence of their named
insureds. To clarify further, while United Water was not
providing services at the time of the flooding, it was
alleged that its services during an earlier time when it was
managing the MMSD system were a cause of the resulting
¶25 "Other insurance" clauses may be raised in
disputes between two insurance companies about whose policy
is primary and therefore must pay first and whose policy is
excess, also referred to as successive insurance, and pays
subsequent to the primary payment. Plastics Eng'g Co.
v. Liberty Mut. Ins. Co., 2009 WI 13, ¶48, 315
Wis.2d 556, 759 N.W.2d 613');">759 N.W.2d 613. To explain further, policies may
be concurrent, i.e., cover the same time period and risk, or
successive, i.e., cover different time periods and risks.
However, "other insurance" clauses do not apply
unless two policies are concurrent. Id. "The
accepted meaning of 'other insurance' provisions does
not include application to successive insurance
policies." Id. If the "other
insurance" clauses cannot be used to establish a primary
and an excess insurer, then "neither insurer is given
priority over the other and each contributes toward the loss
pro rata." Oelhafen v. Tower Ins. Co., 171
Wis.2d 532, 536-37, 492 N.W.2d 321 (Ct. App. 1992) (citing
Schoenecker v. Haines, 88 Wis.2d 665, 672, 277
N.W.2d 782 (1979)).
¶26 As we have explained, concurrent insurance is
required before "other insurance" clauses are
triggered. Two insurance policies cannot be concurrent unless
they insured "the same risk, and the same interest, for
the benefit of the same person, during the same period."
Plastics Eng'g, 315 Wis.2d 556, ¶48
(quoting Douglas R. Richmond, Issues and Problems in
"Other Insurance," Multiple Insurance, and
Self-Insurance, 22 Pepp. L. Rev. 1373, 1376-82 (1995)).
27 The Greenwich and Steadfast policies were primary with
regard to each company's respective insurance of United
Water and Veolia. The policies were primary and successive in
regard to insuring MMSD's risk of damage because each
policy relied on the negligence of a different insured, whose
alleged negligence occurred during a different period of
time, i.e., while that primary insured was maintaining the
sewerage system. Stated otherwise, Greenwich would owe MMSD
only if the negligence of United Water caused damages for
which MMSD was held responsible and Steadfast would owe MMSD
only if the negligence of Veolia caused damages for which
MMSD was held responsible. Accordingly, we do not interpret
the terms of the "other insurance" clauses because
under the undisputed facts as set out above, Greenwich's
"other insurance" clause provided successive
insurance to MMSD.
¶28 In addition, the duty to defend is broader than the
duty to indemnify. Acuity v. Bagadia, 2008 WI 62,
¶52, 310 Wis.2d 197, 750 N.W.2d 817 (explaining that the
duty to defend arises from allegations in the complaint,
while the duty to indemnify is dependent on fully developed
facts). Furthermore, when an insurance policy provides
potential coverage for one claim alleged in a lawsuit, the
insurer must defend the entire suit, even when the claims are
groundless. Fireman's Fund Ins. Co. of Wis, v.
Bradley Corp., 2003 WI 33, ¶21, 261 Wis.2d 4, 660
N.W.2d 666. Accordingly, two insurance policies that insure
separate and distinct risks may nevertheless become
implicated in the same lawsuit, causing the two insurers to
defend the same loss in the form of their mutual
insured's alleged liability for damages and defense
Greenwich Breached Its Duty To Defend
¶29 We have established a procedure for an insurance
company to follow when it disputes coverage. Wis.
Pharmacal Co., LLC v. Neb. Cultures of Cal., Inc., 2016
WI 14, ¶18, 367 Wis.2d 221, 876 N.W.2d 72 (explaining
that an insurer may avoid breaching its duty to defend by
requesting a bifurcated trial on the issues of coverage and
liability, with liability determined after coverage has been
established); Newhouse, 176 Wis.2d at 836 (stating
that the insurer should request a bifurcated trial on the
issues of coverage and liability when coverage is disputed) .
An insurer who fails to follow this procedure risks breaching
its duty to defend if its coverage determination was wrong.
Id. at 837.
¶30 Alternatively, an insurer may choose to reject the
insured's tender of defense based on its determination
that the claim is not covered under the policy. However, it
does so at its own risk. Marks v. Houston Cas. Co.,
2016 WI 53, ¶41 n.21, 369 Wis.2d 547, 881 N.W.2d 309. If
the insurer is wrong about its potential coverage obligation,
it "is guilty of a breach of contract which renders it
liable to the insured for all damages that naturally flow
from the breach." Id. (citing
Newhouse, 176 Wis.2d at 837) . Finally, as mentioned
earlier, an insurer has a duty to defend the entire lawsuit
"when an insurance policy provides [potential] coverage
for even one claim made in a lawsuit." Fireman's
Fund Ins. Co., 261 Wis.2d 4, ¶21.
¶31 In this case, Greenwich did not seek a judicial
determination of its coverage obligations, nor did it pay any
amount toward MMSD's defense costs. Instead, it chose to
rely on its own unilateral determination that its policy was
excess to Steadfast's. As we have explained,
Greenwich's unilateral determination was erroneous;
Greenwich's policy provided potential coverage for a
claim made in lawsuits based on sewage backups. Therefore,
Greenwich breached its duty to defend, and it is responsible
for all damages that naturally flow from the breach.
Marks, 369 Wis.2d 547, ¶41 n.21.
Steadfast's Contractual Subrogation Claim
¶32 Steadfast asserts that it has a contractual
subrogation claim against Greenwich due to its payment of
$1.55 million in defense costs and Greenwich's failure to
provide a defense. Greenwich asserts that if Steadfast has a
claim, it sounds in contribution, not subrogation. Greenwich
further asserts that the time has passed in which to bring a
¶33 Subrogation is the "substitution of one party
for another whose debt the party pays, entitling the paying
party to rights, remedies, or securities that would otherwise
belong to the debtor." Dufour, 370 Wis.2d 313,
¶15. "The doctrine of subrogation enables an
insurer that has paid an insured's loss ... to recoup
that payment from the party responsible for the loss."
Id. (citations omitted). The insurer "steps
into the shoes" of its insured and pursues the legal
rights or claims to ...