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Choinsky v. Germantown School District Board of Education

Court of Appeals of Wisconsin, District II

February 20, 2019

Roger Choinsky, Gary Finn, William Gay, David Kliss, Carol Rudebeck and Janice Weinhold, Plaintiffs,
v.
Germantown School District Board of Education and Germantown School District, Defendants-Appellants, Employers Insurance Company of Wausau and Wausau Business Insurance Company, Intervenors-Respondents.

          APPEAL from a judgment of the circuit court for Washington County No. 2013CV527: TODD K. MARTENS, Judge. Affirmed.

          Before Neubauer, C.J., Reilly, P.J., and Hagedorn, J.

          NEUBAUER, C.J.

         ¶1 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.

         FACTUAL BACKGROUND

         ¶2 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.[1] 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.[2] 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.[3]

         ¶3 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 commenced.

         ¶4 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.[4] One policy, for example, covered "damages" from an "act, error or omission" that is "negligently committed in the 'administration' of [the] 'employee benefit program.'"

         ¶5 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.

         ¶6 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.[5]

         ¶7 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.

         ¶8 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).

         ¶9 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 cross-claim.

         ¶10 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.

         ¶11 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.[6] The insurers denied the allegations of a breach.

         ¶12 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.

         ¶13 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.[7] Upon review, the insurers made deductions for violations of the guidelines and then paid $47, 129.50.

         ¶14 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.

         ¶15 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.

         ¶16 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."

         ¶17 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.

         ¶18 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.

         ¶19 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 ...


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