Roger Choinsky, Gary Finn, William Gay, David Kliss, Carol Rudebeck and Janice Weinhold, Plaintiffs,
Germantown School District Board of Education and Germantown School District, Defendants-Appellants, Employers Insurance Company of Wausau and Wausau Business Insurance Company, Intervenors-Respondents.
from a judgment of the circuit court for Washington County
No. 2013CV527: TODD K. MARTENS, Judge. Affirmed.
Neubauer, C.J., Reilly, P.J., and Hagedorn, J.
The Germantown School District and the Germantown School
District Board of Education (collectively the District)
challenge the denial of their postverdict motion seeking
attorney fees from their liability insurers. Contending that
the insurers breached their duty to defend, the District
requests its unpaid fees incurred in its defense as damages
flowing from the breach as well as its fees incurred in
establishing coverage under the equitable principles set
forth in Elliott v. Donahue, 169 Wis.2d 310, 485
N.W.2d 403 (1992). We conclude that the District fails to
provide sufficient proof and legal authority to show that the
insurers' delay in paying for a defense constitutes a
breach of their duty to defend. We also conclude that,
because the insurers agreed to pay for the District's
defense after the insurers' motion for a stay was denied,
the unique circumstances of Elliott are not present
and the insurers are not responsible for the District's
own coverage-related fees. We affirm.
On July 16, 2013, the plaintiffs, a group of retired teachers
and former employees of the District, sued the District,
asserting breach of contract, breach of implied contract,
breach of duty of good faith and fair dealing, and promissory
estoppel. The allegations arose out of the
District's 2012 discontinuation of a group long-term care
(LTC) insurance policy for active District teaching and
professional staff employees after Act 10's alterations
to collective bargaining in Wisconsin. The plaintiffs
alleged the District "knew or should have known that by
discontinuing coverage" of the LTC policy for active
employees it violated the underwriting agreement with WEA
Trust such that the plaintiffs and the members of the class
would lose LTC group coverage.
To defend against the claims, the District retained the law
firm of Buelow, Vetter, Buikema, Olson & Vliet, LLC
(Buelow). Buelow had been advising the District regarding its
potential liability for well over a year before the suit
After being served on July 31, 2013, the District tendered
the defense of the suit to Employers Insurance Company of
Wausau and Wausau Business Insurance Company (collectively
the insurers). The insurers had issued multiple
policies. One policy, for example, covered
"damages" from an "act, error or
omission" that is "negligently committed in the
'administration' of [the] 'employee benefit
Based on their review of the complaint and policies, the
insurers determined there was no coverage-essentially
contending that the District's decision to terminate the
LTC policy was a deliberate rather than a negligent act. By
letter of August 8, 2013, the insurers advised the District
of their no-coverage determination, explained the reasons for
that determination, and indicated their "intent to
intervene in the lawsuit and seek declaratory judgment with
respect to [their] obligation to defend or indemnify"
the District. To allow the District an opportunity to
respond, the insurers stated they would wait until after
August 20 before moving to intervene.
On August 20, 2013, the District advised the insurers of its
disagreement over coverage. On August 29, the insurers moved
to intervene, to bifurcate the merits from coverage, and to
stay the merits until coverage was resolved. The District had
no objection to the insurers' motions.
On December 12, 2013, the circuit court granted the motions
to intervene and bifurcate, but denied the motion to stay the
merits. The court denied the stay because it was
"concerned" with the plaintiffs' assertion that
about half of the retirees "are without LTC [and that
a]ny substantial delays serve to increase the likelihood [the
retirees] will incur the necessity of LTC [as they grow
older], all the costs involved and the personal financial
devastation that could ensue." The court believed that
"[i]t should be possible to move the case forward on all
fronts." Neither party challenges the court's denial
of the stay as an erroneous act of discretion.
During this period, activity on the merits was minimal and
the case remained in the pleading stages. In this regard, on
August 20, 2013, the District moved to dismiss the
plaintiffs' action. After briefing was completed by the
last week of September, the parties awaited decisions on the
District's motion to dismiss and the insurers' motion
to intervene, bifurcate, and stay. The inactivity on the
merits from late September to mid-December is reflected in
the invoice submitted by Buelow, which shows an average of
about thirty-five minutes of legal services per week (seven
hours over twelve weeks).
On December 19, 2013, the insurers filed a complaint for
declaratory relief regarding their coverage duties. The
District also sought declaratory relief with a subsequent
On December 30, 2013, the insurers moved for summary judgment
contending they owed no duties to defend and indemnify the
District. In their brief, the insurers stated that, as a
consequence of the denied request for a stay, they had
"agreed to provide a defense under a reservation of
rights until the coverage issues are decided." By letter
of January 14, 2014, to the District, the insurers reiterated
that they "will provide [the District] with a full
defense against the claims alleged in the lawsuit"
subject to a reservation of rights, including their
"right to seek reimbursement of defense costs paid in
this action in whole or in part to the extent permitted by
applicable law." Noting that the District wanted to keep
Buelow as its defense counsel, the insurers approved use of
the firm "provided an agreement can be reached on the
hourly rates" and requested Buelow's fee schedule.
On April 30, 2014, the District amended its cross-claim
against the insurers, asserting breach of the duty to defend
for having failed to reimburse the District for merits fees
paid to Buelow. The insurers denied the allegations of a
Before this suit, Buelow had worked with the insurers in a
number of other matters and had agreed in the course of that
work to comply with the insurers' litigation and billing
guidelines. Buelow and the insurers reached an agreement by
June 2014 regarding Buelow's hourly rates in this case.
They also reached some agreement at an unknown point
regarding use of the guidelines, but the District contends
the agreement did not necessarily apply to services rendered
before the insurers agreed to defend.
At the insurers' request, Buelow resubmitted invoices for
services rendered from July 16, 2013, through November 30,
2013, in the amount of $70, 685.16. Upon review, the insurers
made deductions for violations of the guidelines and then
paid $47, 129.50.
For services rendered from December 1, 2013, through April
30, 2014, the insurers approved and agreed to pay $55, 221.98
of $72, 568.87. According to the insurers, deductions again
were made for guideline violations.
The guidelines contain an appeal process by which Buelow may
ask for reconsideration of any deductions made by the
insurers. The insurers note that Buelow had not filed an
appeal of any deductions. The District asserts, however, that
Buelow did not agree to having the guidelines, including its
appeal process, apply retroactively for invoices issued
before the insurers agreed to provide a defense.
In July 2014, the circuit court denied the insurers'
summary judgment motion. Noting that the suit was
"procedurally … still at its beginning
stages," the court concluded that there were disputes of
material fact regarding what led to the termination of the
LTC coverage that could not be resolved "at least at
this stage of the litigation."
The coverage issue went to a jury trial in April 2016. The
jury found that the District's conduct resulting in the
termination of the LTC policy was a negligent act. In
addition to moving for a judgment on the verdict that the
insurers must indemnify the District in the event it was
found liable, the District moved for its unreimbursed merits
fees of about $50, 000 due to the insurers' alleged
breach of their duty to defend and for the attorney fees the
District incurred in securing its right to a defense and
establishing coverage pursuant to Elliott. The
circuit court granted the motion in part and denied it in
part. The court upheld the jury's finding and concluded
the insurers would have to indemnify the District if found
liable. However, without directly addressing the unreimbursed
merits fees, the court rejected the District's argument
that the insurers breached their duty to defend. Because the
insurers followed a court-approved procedure to resolve the
coverage dispute, the District was not entitled to the fees
it incurred relating to coverage.
As of June 22, 2016, the insurers allege they have paid $260,
021.32 in fees and costs for the defense of the District,
which apparently does not include the $55, 221.98 they had
agreed to pay for the services rendered from December 2013
through April 2014.
The merits case went to a jury trial in June 2017, resulting
in a verdict for the District. Thus, there is no issue as to
indemnity for the claims against the District. Nor is there a
dispute about the insurers' payment of the District's
defense fees for ...