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Anderson v. Kayser Ford, Inc.

Court of Appeals of Wisconsin, District IV

February 7, 2019

Jody Ann Anderson, Plaintiff,
v.
Kayser Ford, Inc., Defendant-Appellant, Regent Insurance Co., Intervenor-Respondent.

          APPEAL from an order of the circuit court for Dane County No. 2015CV493: PETER C. ANDERSON, Judge. Reversed.

          Before Sherman, Blanchard, and Fitzpatrick, JJ.

          BLANCHARD, J.

         ¶1 Jody Ann Anderson initiated this lawsuit against Kayser Ford, Inc. Kayser's insurer, Regent Insurance Company, intervened, in part to try to establish that Regent has no duty to defend Kayser. Kayser appeals an order of the circuit court dismissing Regent from the suit and declaring that Regent has no duty to defend Kayser at this time. We reverse the order because we conclude that Regent has a continuing duty to defend Kayser. The duty continues because Regent cannot establish as a matter of law that no theory of liability in Anderson's complaint may yet obligate Regent to indemnify Kayser, and the circuit court did not determine that Regent has no arguable indemnification liability on any claim in the complaint.

         BACKGROUND

         ¶2 Anderson commenced this lawsuit based on allegations arising from her purchase of a used car from Kayser. Details regarding Anderson's allegations against Kayser do not matter to the arguments presented on appeal. It is important, however, to differentiate among the four claims made by Anderson in the operative complaint, in particular between Count One and Count Four:

• Count One: Fraudulent representations in violation of Wis.Stat. § 100.18 (2017-18);[1]
• Count Two: Statutory and code violations based on various provisions in Wis.Stat. § 218.0116;
• Count Three: Violations of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301, and Wis.Stat. §§ 402.314, 402.315; and
• Count Four: Willful violation of purchase contract and disclosure requirements under various provisions of Wis.Stat. § 218.0116 and state administrative code provisions.[2]

         ¶3 At all pertinent times, Kayser was a named insured on a policy of insurance with Regent. Called a Garage Policy, it includes a Garage Coverage Form as modified by a Select Auto Dealers Additional Coverages Endorsement. We summarize applicable policy language in the Discussion section below. It is sufficient for background purposes to understand that the policy contains an express contractual right and duty of Regent to defend Kayser in any suit for identified "damages."

         ¶4 After Kayser alerted Regent regarding Anderson's claims, Regent initially defended Kayser. Regent then successfully moved to intervene in this suit. Regent requested an order stating that it has no obligation to indemnify Kayser on any claim and therefore has no duty to defend Kayser. The court bifurcated the suit. The first stage would resolve whether Regent has an arguable obligation to indemnify Kayser on any claim. The second stage would resolve the merits of Anderson's claims.

         ¶5 In the first stage of litigation, the court ruled on summary judgment that, assuming that Anderson were to prevail on the merits, Regent would have an arguable obligation to indemnify Kayser on one of the four claims, Count One, but not on the other three claims. This set of summary judgment decisions regarding Regent's arguable obligations to indemnify Kayser did not result in a final judgment that could be appealed as of right, and no party filed a petition with this court seeking leave to appeal. See Wis. Stat. § 808.03(1)-(2) ("Appeals as of right") ("Appeals by permission.").

         ¶6 In the second stage of litigation, the court made a separate set of summary judgment decisions, this time on the merits of Anderson's claims. The court ruled that trial is needed on only Count Four, dismissing the other three claims on the merits. As with the ruling on the duty to indemnify, the court's partial summary judgment decisions on the merits did not result in a final judgment that could be appealed as of right, and again no party filed a petition seeking leave to appeal the partial summary judgment rulings on the merits.

         ¶7 To summarize, the court determined that the Garage Policy created an arguable obligation of Regent to indemnify Kayser for the allegations in Count One, but only Count One, and separately dismissed Count One in a merits summary judgment decision. This left only a trial on the merits of Count Four, for which the court ruled there was no arguable obligation to indemnify.

         ¶8 Shortly before the scheduled trial, Regent filed a "pre-trial motion" in which it argued that it should be dismissed from this suit. The basis for dismissal would be that the court had determined that Regent has no arguable obligation to indemnify Kayser on Count Four, the only claim to survive the court's summary judgment decisions on the merits, and therefore "Regent can have no duty to defend or duty to pay legal defense costs in this case." To clarify, Regent's motion did not ask the circuit court to revisit its coverage ruling on Count One. Instead, Regent asked the court to dismiss Regent from this suit, based on the court's prior rulings referenced above, because they established that Regent has no duty to defend Kayser at the trial on Count Four.

         ¶9 Kayser did not dispute for purposes of resolving the motion that Regent could have no obligation to indemnify Kayser on Count Four if Anderson were to prevail at trial on Count Four. However, Kayser argued, Regent has "the duty to defend the entire suit," which "continues until the final termination of the litigation, including the appellate process." This is so, Kayser contended, because the circuit court's summary judgment ruling dismissing Count One "is not a final appealable judgment and Regent has not settled" the claim in Count One.

         ¶10 The circuit court granted Regent's motion on the ground that "there is no coverage for" the claim in Count Four and therefore Regent has "no duty to defend [Count Four] at this time." On this basis, the court entered an order dismissing Regent from the lawsuit "on the merits and with prejudice," ruling that Regent "has no duty to indemnify, no ongoing duty to defend, and no duty to pay legal defense costs incurred by Kayser … in this case."

         ¶11 Kayser appeals only this order dismissing Regent from the suit based on the absence of a duty to defend. The order is final as to Regent, and therefore appealable as of right, because it dismisses the entire matter in litigation as to Regent. Neither party has appealed, cross appealed, or petitioned for leave to appeal any other ruling of the circuit court, notably the court's rulings that Regent has an arguable obligation to indemnify for Count One and its dismissal on summary judgment of all claims in Count Four.

         DISCUSSION

         ¶12 This appeal involves interpretation of an insurance policy to determine the scope of an insurer's duty to defend its insured, which presents questions of law that we review de novo. See Water Well Sol. Serv. Group, Inc. v. Consolidated Ins. Co., 2016 WI 54, ¶12, 369 Wis.2d 607, 881 N.W.2d 285. We also interpret case law addressing the duty to defend, which presents further questions of law that we review de novo. See State v. Walker, 2008 WI 34, ¶¶12-13, 308 Wis.2d 666, 747 N.W.2d 673.

         ¶13 We first briefly address pertinent policy language. As part of that discussion, we explain that we reject as undeveloped one argument that Regent makes in support of the circuit court's challenged order, purportedly based on policy language. We then turn to the primary issue, whether Regent's duty to defend continues or has ended under the circumstances here. We explain why we conclude that Regent has a continuing duty to defend Kayser in this suit until it can be concluded as a matter of law that Regent could have no obligation to indemnify Kayser.

         I. POLICY LANGUAGE

         ¶14 We construe policy terms as they would be understood by a reasonable insured. Sustache v. American Family Mut. Ins. Co., 2008 WI 87, ¶19, 311 Wis.2d 548, 751 N.W.2d 845.

         ¶15 The following is pertinent policy language that addresses claims of the type made in Count Four:

PRIOR DAMAGE DISCLOSURE LIABILITY
SECTION II - LIABILITY COVERAGE is changed by adding the following:
We [Regent] will pay all sums you [Kayser] legally must pay as "damages" caused by an "Insured" solely because of an error or omission in complying or failing to comply with any federal, state or local statute, code or ordinance pertaining to disclosure of prior damage to "autos" you sold.
1. We have the right and duty to defend any "suit" asking for these damages. However, we have no duty to defend "suits" on account of an error or omission not ...

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