Kenneth C. Burgraff, Sr. v. Menard, Inc.

2016 WI 11
SUPREME COURT OF WISCONSIN
CASE NO.: 2013AP907
COMPLETE TITLE: Kenneth C. Burgraff, Sr. and Linda Burgraff,
Plaintiffs-Respondents,
v.
Menard, Inc.,
Defendant-Appellant-Cross Petitioner,
Millers First Insurance Company,
Defendant-Respondent-Petitioner,
Walmart Stores, Inc. Associates Health and
Welfare Plan,
Defendant.
REVIEW OF A DECISION OF THE COURT OF APPEALS
(Reported at 356 Wis. 2d 282, 853 N.W.2d 574)
(Ct. App. 2014 – Published)
PDC No. 2014 WI App 85
OPINION FILED: February 24, 2016
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: September 17, 2015
SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Eau Claire
JUDGE: Michael A. Schumacher
JUSTICES:
CONCURRED:
CONCUR & DISSENT: ROGGENSACK, C.J., ZIEGLER, J., concur and
dissent. (Opinion Filed)
NOT PARTICIPATING: GABLEMAN, R.G.BRADLEY, J.J., did not
participate.
ATTORNEYS:
For the defendant-respondent-petitioner, there were briefs
by John C. Possi and Mueller, Goss & Possi, S.C., Milwaukee, and
oral argument by John C. Possi.
For the defendant-appellant-cross-petitioner, there were
briefs by Jeffrey S. Fertl, and Hinshaw & Culbertson LLP,
Milwaukee, and oral argument by Jeffrey S. Fertl.
2
2016 WI 11
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2013AP907
(L.C. No. 2011CV270)
STATE OF WISCONSIN : IN SUPREME COURT
Kenneth C. Burgraff, Sr. and Linda Burgraff,
Plaintiffs-Respondents,
v.
Menard, Inc., FILED
Defendant-Appellant-Cross Petitioner,
FEB 24, 2016
Millers First Insurance Company,
Diane M. Fremgen
Clerk of Supreme Court
Defendant-Respondent-Petitioner,
Walmart Stores, Inc., Associates Health and
Welfare Plan,
Defendant.
REVIEW of a decision of the Court of Appeals. Affirmed and
cause remanded to the circuit court for a determination of
damages.
¶1 ANN WALSH BRADLEY, J. Petitioner, Millers First
Insurance Company ("Millers First"), seeks review of a published
decision of the court of appeals that reversed the circuit
No. 2013AP907
court's order for summary judgment.1 The circuit court
determined that Millers First no longer had a continuing duty to
defend Menard after the plaintiff, Kenneth Burgraff
("Burgraff"), reached a settlement with Millers First for its
proportionate share of the plaintiff's claim. In reversing, the
court of appeals concluded that Millers First had a continuing
duty to defend and that it breached the duty when it withdrew
its defense of Menard following the Burgraff settlement.
¶2 Millers First argues that its "limits of liability for
this coverage" were exhausted when it settled with Burgraff for
$40,000 because that amount represented its maximum proportional
liability for Burgraff's claim. Once it satisfied its
proportionate share of Burgraff's claim, Millers First contends
it had no further duty to defend Menard even though it had not
paid its full $100,000 limit of liability.
¶3 We conclude, under the terms of the policy, Millers
First was required to provide a defense for Menard until it paid
its $100,000 limit of liability. Like the court of appeals, we
determine that Millers First breached its duty to defend when it
withdrew its defense of Menard following the settlement with
Burgraff.
¶4 Cross-petitioner, Menard, Inc., seeks review of that
part of the court of appeals opinion that affirmed a judgment of
1
Burgraff v. Menard, Inc., 2014 WI App 85, 356 Wis. 2d 282,
853 N.W.2d 574 (affirming and reversing orders of summary
judgment entered by the circuit court for Eau Claire County,
Michael A. Schumacher, J., presiding).
2
No. 2013AP907
the circuit court determining that Menard's $500,000 self-
insured retention qualified as "other applicable liability
insurance" under the Millers First policy's "other insurance"
clause. The court of appeals concluded that Menard's self-
insured retention was "other insurance" pursuant to this court's
decision in Hillegass v. Landwehr, 176 Wis. 2d 76, 499 N.W.2d
652 (1993).
¶5 Menard argues that its self-insured retention does not
constitute "other insurance" under the Millers First policy's
"other applicable liability insurance" clause. It contends that
because it is a permissive user of Burgraff's vehicle, this case
involves a dispute between a self-insured party and its own
insurer and is governed by Brown County v. OHIC Ins. Co., 2007
WI App 46, 300 Wis. 2d 547, 730 N.W.2d 446.¶5 We agree with
the court of appeals that Hillegass, and not Brown County,
controls the outcome of this case. Like the court of appeals,
we determine that Menard's self-insured retention is "other
applicable liability insurance" under the Millers First policy's
"other insurance clause."
¶6 Accordingly, we affirm the Court of Appeals and remand
to the circuit court for a determination of damages.
I.
¶7 The relevant facts of this case are not in dispute.
Kenneth Burgraff was injured when a Menard employee loaded
materials onto Burgraff's trailer using a forklift. Burgraff
sued Menard for damages.
3
No. 2013AP907
¶8 Burgraff's vehicle and trailer were insured under an
automobile insurance policy issued by Millers First. The
declaration page provides for a $100,000 per person bodily
injury liability limit. Its insuring agreement states:
We will pay damages for "bodily injury" or "property
damage" for which any "insured" becomes legally
responsible because of an auto accident. Damages
include prejudgment interest awarded against the
"insured." We will settle or defend, as we consider
appropriate, any claim or suit asking for these
damages.
¶9 The insuring agreement also addresses Millers
First's duty to defend:
In addition to our limit of liability, we will pay all
defense costs we incur. Our duty to settle or defend
ends when our limit of liability for this coverage has
been exhausted. We are not obligated to provide
defense after we have paid our limits of liability in
settlement of claims or suits. We have no duty to
defend any suit or settle any claim for "bodily
injury" or "property damage" not covered under this
policy.
¶10 Further, the Millers First policy contains the
following "other insurance" clause:
If there is other applicable liability insurance, we
will pay only our share of the loss. Our share is the
proportion that our limit of liability bears to the
total of all applicable limits. However, any
insurance we provide for a vehicle you do not own
shall be excess over any other collectible insurance.
¶11 Menard contended that it was entitled to coverage
under the Millers First policy as a permissive user of
Burgraff's vehicle and tendered defense of Burgraff's claim to
Millers First. See Blasing v. Zurich Am. Ins. Co., 2014 WI 73,
4
No. 2013AP907
356 Wis. 2d 63, 850 N.W.2d 138. Millers First agreed to defend
Menard subject to a reservation of rights, but later conceded
that it had a duty to defend, agreeing that Menard was entitled
to coverage under Burgraff's automobile policy.
¶12 Menard was also insured for excess coverage under a
commercial general liability policy issued by CNA. The excess
policy had a liability limit of $500,000. CNA's policy
contained an "other insurance" clause that provides:
4. Other Insurance
If other valid and collectible insurance is
available to the insured for a loss we cover
under Coverages A or B of this Coverage Part, our
obligations are limited as follows:
. . .
b. Excess Insurance
(1) This insurance is excess over:
(a) Any of the other insurance, whether
primary, excess, contingent or on any
other basis:
. . .
(iv) If the loss arises out of the
maintenance or use of aircraft, "autos"
or watercraft . . .
(3) When this insurance is excess over other
insurance, we will pay only our share of the
amount of the loss, if any, that exceeds the
sum of:
(a) The total amount that such other
insurance would pay for the loss in the
absence of this insurance; and
5
No. 2013AP907
(b) The total of all deductible and self-
insured amounts under all that other
insurance.
. . .
c. Method of Sharing
If all of the other insurance permits
contribution by equal shares, we will follow this
method also. Under this approach each insurer
contributes equal amounts until it has paid its
applicable limit of insurance or none of the loss
remains, whichever comes first.
If any of the other insurance does not permit
contribution by equal shares, we will contribute
by limits. Under this method, each insurer's
share is based on the ratio of its applicable
limit of insurance to the total applicable limits
of insurance of all insurers.
¶13 CNA's policy also includes a self-insured retention
endorsement as follows:
In consideration of the premium charged, it is
agreed that the limits of insurance for [] the
coverages provided by this policy . . . will
apply excess of a self-insured retention
(hereinafter referred to as the Retention
Amount)[.]
¶14 The "retention amount" is $500,000 per occurrence.
Under the self-insured retention endorsement, Menard is required
to pay the first $500,000 worth of damages and defense costs
arising from an occurrence.
¶15 Millers First moved for partial summary judgment on
the grounds that Menard's $500,000 self-insured retention
qualified as "other applicable liability insurance" under the
Millers First policy's "other insurance" clause. It asked the
6
No. 2013AP907
circuit court to declare that under the "other insurance"
clause, Millers First's share of any verdict or settlement would
be one-sixth of the total $600,000 liability limits of the two
policies combined.2 This amount represents the Millers First
policy's $100,000 limit of liability added to Menard's $500,000
self-insured retention amount. The circuit court granted
Millers First's motion.
¶16 During mediation, Millers First settled Burgraff's
claim for $40,000. The settlement agreement between Burgraff
and Millers First agreed to "fully discharge Miller First
Insurance Company and one-sixth of any liability that Menard,
Inc. may have to [] Burgraff." Menard did not settle with
Burgraff at mediation.
¶17 Subsequently, Millers First moved for summary judgment
on the grounds that it no longer had a duty to defend Menard
because it had fully satisfied its duty to pay one-sixth of any
verdict or settlement. Again, the circuit court granted Millers
First's motion.
¶18 Menard moved to bifurcate and stay the trial on the
merits of Burgraff's claim pending resolution of the coverage
2
Apparently the parties agreed that Burgraff's damages
would not exceed $600,000. The jury ultimately awarded the
plaintiffs damages in the amount of $345,396.07, which was
further reduced due to the jury's finding of contributory
negligence.
7
No. 2013AP907
issues on appeal. Millers First took no position on Menard's
motion to bifurcate and stay. The circuit court denied Menard's
motion and the case proceeded to trial.3
¶19 On appeal, Menard argued: (1) its self-insured
retention was not "other insurance," and (2) Millers First had a
continuing duty to defend Menard because Millers First settled
with the plaintiff for less than its $100,000 limit of
liability. The court of appeals affirmed the circuit court's
determination that Menard's self-insured retention was "other
insurance" and reversed the circuit court's determination that
Menard no longer had a duty to defend. Burgraff v. Menard,
Inc., 2014 WI App 85, ¶¶2-3, 356 Wis. 2d 282, 853 N.W.2d 574.
II.
¶20 In this case we are asked to review the circuit
court's grant of summary judgment. We review grants of summary
judgment independently, applying the same methodology employed
by the circuit court. Belding v. Demoulin, 2014 WI 8, ¶13, 352
Wis. 2d 359, 843 N.W.2d 373. Summary judgment is appropriate if
"there is no genuine issue as to any material fact and [] the
3
The circuit court's decision on Menard's motion to
bifurcate and stay was affirmed by the court of appeals. That
issue is not before us.
8
No. 2013AP907
moving party is entitled to judgment as a matter of law." Wis.
Stat. § 802.08(2) (2013-2014).4
¶21 Here there is no genuine issue of material fact.
Therefore, we focus on the terms of the parties' insurance
policies, which are contracts for insurance. Construction of an
insurance policy presents a question of law, which we review
independently of the determinations rendered by the circuit
court and the court of appeals. Folkman v. Quamme, 2003 WI 116,
¶12, 264 Wis. 2d 617, 665 N.W.2d 857.
¶22 This court follows the well-established rules of
insurance contract interpretation. Insurance policies are
interpreted as they would be by a reasonable person in the
position of the insured. State Farm Mut. Auto. Ins. Co. v.
Gillette, 2002 WI 31, ¶28, 251 Wis. 2d 561, 641 N.W.2d 662.
"[B]ecause the insurer is in a position to write its insurance
contracts with the exact language it chooses——so long as the
language conforms to statutory and administrative law——ambiguity
in that language is construed in favor of an insured seeking
coverage." Froedtert Mem'l Lutheran Hosp. v. Nat'l States Ins.,
2009 WI 33, ¶43, 317 Wis. 2d 54, 765 N.W.2d 251; see also First
Am. Title Ins. Co. v. Dahlmann, 2006 WI 65, ¶41, 291 Wis. 2d
156, 715 N.W.2d 609.
III.
4
All subsequent references to the Wisconsin Statutes are to
the 2013-14 version unless otherwise indicated.
9
No. 2013AP907
¶23 We address first the argument raised by Menard's
cross-petition because it is foundational to our subsequent
discussion. Menard contends that the court of appeals erred
when it determined that Menard's self-insured retention
qualifies as "other applicable liability insurance" under the
Millers First policy's "other insurance" clause.
¶24 A self-insured retention obligates the insured to pay
the first level of loss before excess insurance coverage is
applied to the claim. Menard's CNA insurance policy consisted
of a self-insured retention of $500,000, with an additional
$500,000 in excess coverage provided by CNA.
¶25 If Menard's self-insured retention is not "other
applicable liability insurance," then it would be treated as
excess coverage——not primary coverage. Thus, Menard asserts
that Millers First's $100,000 limit of liability would have to
be exhausted before Menard had any responsibility to pay
Burgraff's claim.
¶26 As is the case here, an insured may have more than one
insurance policy that provides coverage for the same risk.
Coverage is either primary or excess. Primary insurance
coverage provides "first-dollar" coverage up to the policy's
limit of liability. See Arnold P. Anderson, Wisconsin Insurance
Law § 11.12 (7th Ed. 2015). Excess insurance coverage attaches
only after a predetermined amount of primary insurance coverage
has been exhausted. Id. at § 11.14.
¶27 "Whenever two policies apply to the same insured at
the same time, the issue of which policy must pay first——or
10
No. 2013AP907
which is primary and which is excess——is dealt with by 'other
insurance' clauses." Id. at § 11.3. Wis. Stat. § 631.43(1)
governs other insurance provisions:
When 2 or more policies promise to indemnify an
insured against the same loss . . . . The policies
may by their terms define the extent to which each is
primary and each excess, but if the policies contain
inconsistent terms on that point, the insurers shall
be jointly and severally liable to the insured on any
coverage where the terms are inconsistent, each to the
full amount of coverage it provided.
Millers First's other insurance clause states: "If there is
other applicable liability insurance, we will pay only our share
of the loss. Our share is the proportion that our limit of
liability bears to the total of all applicable limits."
¶28 The circuit court determined that Menard's self-
insured retention was "other applicable liability insurance"
under the terms of the Millers First "other insurance" clause.
In applying the terms of the Millers First "other insurance"
clause, the circuit court divided responsibility for paying any
settlement or verdict between Millers First and Menard in
proportion to their limits of liability.5 Its interpretation was
impelled by this court's determination in Hillegass when we
5
Like the court of appeals, we decline to apply the "other
insurance" clause from the CNA policy. See Burgraff v. Menard,
Inc., 2014 WI App 85, ¶¶15-17, 356 Wis. 2d 282, 853 N.W.2d 574.
We agree that the CNA policy's "other insurance" clause does not
apply to Menard's self-insured retention because it only applies
to CNA's obligations once the self-insured retention is
exhausted. See id.
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No. 2013AP907
concluded that self-insurance constitutes "other collectible
insurance." 176 Wis. 2d at 85.
¶29 The plaintiff in Hillegass was injured in a motor
vehicle collision involving a vehicle owned by Burlington Air
Express. Id. at 78. Burlington was self-insured at the time of
the collision for up to $1 million with an additional $2 million
umbrella policy. Id.
¶30 The defendant driver had his own insurance policy with
Farmers Insurance Exchange that contained an "other insurance"
clause. Id. Farmer's policy provided that it was "excess over
any other collectible insurance." Id. Burlington asserted on
summary judgment that because it was self-insured there was no
"other collectible insurance" within the meaning of the Farmers'
policy and therefore Farmers, not Burlington, was the primary
insurer. Id. at 78-79.
¶31 The Hillegass court concluded that "self-insurance
constitutes 'other collectible insurance'," explaining that
self-insurers retain their own risk in exchange for not paying
premiums:
Whereas contractual insurance policies involve a
third-party insurer underwriting the insured's risk in
exchange for premium payments, self-insurers retain
their own risk in exchange for not paying premiums.
The parties implicated in the risk-shifting may change
depending on the particular arrangement, but the
essence of the transaction remains the same:
exchanging future liability for premium payments.
Id. at 81-82. It emphasized "the fact that the legislature
permits companies to formulate the most efficient insurance
12
No. 2013AP907
coverage should not be misconstrued as a device to avoid
liability by the self-retention of risk." Id. at 83.
¶32 We agree that Menard's responsibility under its self-
insured retention ought to be analyzed in terms of how it
shifted risk in exchange for premium payments. Menard, like
Burlington Air in Hillegass, chose to retain its own risk for
the first $500,000 of liability coverage. In doing so, Menard
avoided paying premiums to a third-party insurer for that
coverage. Menard gained the benefit of lower premiums with the
risk of the self-insured retention. In addition, Menard's CNA
insurance policy explicitly states that its excess coverage with
CNA attaches only after Menard's self-insured retention has been
exhausted. Thus, Menard understood that it had an obligation as
a primary insurer up to the limits of its $500,000 self-insured
retention.
¶33 Menard argues that Brown County, not Hillegass,
controls the outcome because the dispute between Menard and
Millers First is between an insured and its own insurer. It
contends that because it is a permissive user of Burgraff's
vehicle under Blasing, Menard has the same rights under the
Millers First policy as if it were the named insured. See
Blasing, 356 Wis. 2d 63, ¶¶41, 52. Menard's argument is based
on this Court's statement in Blasing that "[o]ur case law makes
no distinction between injured parties who are named insured and
other insureds." Id., ¶74.
¶34 We disagree with Menard that Brown County controls the
outcome of this case. In Brown County, the County was sued when
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No. 2013AP907
a patient died at a county facility. 300 Wis. 2d 547, ¶1. The
County's liability was covered by two insurance policies. Id.
Both policies provided primary coverage, but one policy required
the County to pay the first $100,000 as a "self-insured
retention." Id.
¶35 The court of appeals determined that the insurance
policy in Brown County was ambiguous as to whether the self-
insurance agreement with Wisconsin Municipal Mutual Insurance
Company was "other insurance." Id., ¶10. It further concluded
that the self-insured retention at issue operated more like a
deductible than insurance coverage. Id., ¶16. Significantly,
Brown County explained that the public policy relied on in
Hillegass did not apply in a dispute between a self-insured
party and its own insurer. Id., ¶18.
¶36 Brown County created a narrow exception to Hillegass
when an "other insurance" clause is ambiguous, operates in
exactly the same way as a deductible, and involves a dispute
between a self-insured party and its own insurer. Menard
contends that because it is a permissive user of Burgraff's
vehicle, this case involves a dispute between a self-insured
party and its own insurer. However, this case is
distinguishable from Brown County.
¶37 Menard's self-insured retention operates differently
than a deductible. Menard's policy with CNA states: "The
S.I.R. [self-insured retention] shall be eroded by allocated
claim costs including defense . . . ." Self-insured retentions
are distinct from deductibles when the insured is obligated to
14
No. 2013AP907
retain its own defense counsel. See Anderson, Wisconsin
Insurance Law, § 11.12. That is exactly the case here.
¶38 More importantly, this is not a dispute between an
insured and its own insurer. In Brown County, the court
explained that "when both a self-insured party and its insurer
are liable for a loss, requiring the insurer to cover the loss
does not allow the self-insured party to avoid both paying
premiums and making payouts." Id., ¶25. The fact that the
County purchased both policies led the Brown County Court to
conclude that this "was not a windfall for the County; the
County bargained for coverage in this situation." Id., ¶26.
¶39 In Brown County, both insurance policies were
purchased by the County. Although Menard may benefit from
coverage as a permissive user, that does not place Menard in the
same shoes as the insured in Brown County. Menard's argument is
unpersuasive because it ignores the fact that it did not bargain
or pay for the $100,000 in liability coverage available under
the Millers First policy.
¶40 Unlike in Brown County, this argument would result in
a windfall for Menard because it could both avoid paying
premiums and making payments under its self-insured retention.
Here, as in Hillegass, it would be "fundamentally unfair and
contrary to legislative intent" to permit companies such as
Menard to self-insure and thereby escape the expense of premium
payments as well as the possibility of being held liable as a
primary insurer. 176 Wis. 2d at 83.
15
No. 2013AP907
¶41 Brown County did not analyze the self-insured
retention in terms of how it shifted risk in exchange for
payment of premiums. The County argued that "'insurance' could
refer only to agreements where third parties agreed to insure
the County against risk, not agreements whereby the County
agreed to pay its losses itself." Brown County, 300 Wis. 2d
547, ¶14. Agreeing with the County, the court of appeals
explained that "the only question that matters is who is liable:
the County or someone else." Id., ¶15.
¶42 If the court of appeals in Brown County had analyzed
whether the County's self-insured retention shifted risk in
exchange for premiums, the court would still have concluded that
the County's self-insured retention was not "other insurance" in
that case. As Hillegass explained, Burlington "chose to retain
its own risk for the first $1 million rather than pay premiums
to a third-party insurer." 176 Wis. 2d at 82. In contrast, the
County chose to avoid that risk by purchasing a second primary
insurance policy without a deductible. Thus, the Hillegass risk
analysis still allows for an exception to the general rule in
cases where a self-insured party chooses to purchase additional
liability insurance without a deductible or self-insured
retention.
¶43 In sum, we agree with both the circuit court and the
court of appeals that Hillegass, and not Brown County, controls
the outcome of this case. Accordingly, we conclude that
Menard's self-insured retention is "other applicable liability
16
No. 2013AP907
insurance" under the Millers First policy's "other insurance
clause."
IV.
¶44 We address next the issue raised in Millers First's
petition for review. It contends that the court of appeals
erred when it concluded that Millers First breached its duty to
defend Menards.
¶45 Millers First's duty to defend stems from Menard’s
status as a permissive user of the plaintiff's vehicle. In
Blasing, this Court concluded that a Menard employee was a
permissive user under a customer's automobile insurance policy.
356 Wis. 2d 63, ¶41. Blasing also determined that the
automobile insurer has a duty to defend and indemnify a
permissive user. Id., ¶42-44. However, Blasing did not address
the issues we now face.
¶46 In addressing its duty to defend, Millers First's
policy states that Millers First "will settle or defend, as we
consider appropriate, any claim or suit asking for [covered]
damages." It further states: "Our duty to settle or defend
ends when our limit of liability for this coverage has been
exhausted. We are not obligated to provide defense after we
have paid our limits of liability in settlement of claims or
suits."
¶47 The declaration page of Millers First's policy
provides a limit of liability of $100,000: "DESCRIPTION OF
COVERED VEHICLES, LIMITS OF LIABILITY AND PREMIUMS CHARGED.
COVERAGE IS PROVIDED WHERE A PREMIUM AND LIMIT OF LIABIITY IS
17
No. 2013AP907
SHOWN." The "PER PERSON LIMIT [FOR] BODILY INJURY" is
"100,000." It also sets forth the premium paid for this
coverage.
¶48 Nevertheless, Millers First contends that its limits
of liability should be $40,000, rather than the $100,000 set
forth in its declaration page. Referring to the terms of its
policy, Millers First argues that it was required to provide a
defense only until its "limit of liability for this coverage has
been exhausted."6 Millers First contends that its liability "for
this coverage" was exhausted by its $40,000 payment of its
proportionate share of Burgraff's claim. Additionally, Millers
First advances that because Menard is a permissive user, it
would be a windfall for Menard if Millers First is obligated to
defend Menard after Millers First settled its obligation with
the plaintiff.
¶49 The general rule regarding an insurer's duty to defend
until its policy limits are exhausted is set forth in St. John's
Home of Milwaukee v. Continental Cas. Co., 147 Wis. 2d 764, 434
N.W.2d 112 (Ct. App. 1988). In St. John's, Aetna Casualty
Insurance Company ("Aetna") and American National Fire Insurance
Company ("American"), moved for partial summary judgment to
limit the scope of St. John's covered damages. 147 Wis. 2d at
769. The circuit court determined that the maximum amount of
6
Millers First agreed to defend Menard subject to a
reservation of rights, but later conceded that it had a duty to
defend, agreeing that Menard was entitled to coverage under
Burgraff's automobile policy.
18
No. 2013AP907
claimed damages for which there was coverage under the Aetna and
American insurance policies was $11,400. Id. at 778-79.
American deposited $11,400 with the circuit court as tender to
St. John's to cover the insurers' maximum potential liability
for the claims. Id. at 779. According to the circuit court,
Aetna and American had no duty to defend after the $11,400 was
tendered as payment of the insurers' maximum potential
liability. Id. at 779.
¶50 Reversing the circuit court's ruling, the court of
appeals explained that the circuit court was "incorrect in
holding that if the insurers paid the sum of $11,400, they owed
no duty to defend." Id. at 787. St. John's explicitly held
that "maximum potential liability" cannot be equated with
"maximum policy limits." Id. The St. John's court explained
that "[i]f an insurer owes any money at all under its insurance
policy, it must defend, because Wisconsin is one of those states
which requires an insurer to exhaust its total policy limits
before it is freed from the duty to defend." Id. Thus, even
though Aetna and American tendered payment of their maximum
potential liability of $11,400, they continued to have a duty to
defend because they had not paid their full policy limits.
¶51 Here, as in St. John's, Millers First's $40,000
payment to the plaintiffs was less than its $100,000 policy
limits. Although Millers First's $40,000 payment may represent
its maximum potential liability for Burgraff's claim, the policy
language does not limit the duty to defend based on maximum
potential liability. Thus, under St. John's, Millers First has
19
No. 2013AP907
a duty to defend Menard until it pays its full $100,000 policy
limits.
¶52 Any alteration in an insured's duty to defend must be
explicitly stated in the policy. "Because any limitation on the
insurer's duty to defend is in the nature of an exclusion, the
defense coverage clause must clearly express the limitation."
Gross v. Lloyds of London Ins. Co., 121 Wis. 2d 78, 88, 358
N.W.2d 266 (1984). There is no clause in Millers First's policy
that alters its duty to defend if it shares responsibility for
providing primary liability coverage with another insurer.
¶53 Although the Millers First policy was in effect before
Blasing and thus did not contemplate Menard as a permissive
user, the relationship between two primary insurers is not new
or unique. Millers First included an "other insurance" clause
in its policy which set forth the responsibilities of two
primary insurers with respect liability coverage. The "other
insurance" clause was applied by the circuit court and the
parties' responsibilities were pro-rated according to terms of
the policy.
¶54 Millers First's policy specifically provides for a
pro-rata share of liability payments, but does not contain a
similar pro-rata clause for defense costs. Certainly Millers
First could have included a similar clause with respect to
concurrent insurers' duty to defend, but did not write its
policy to include a pro-rated duty to defend. It is now asking
us to read such a clause into the policy. We decline to do so
here. We will not re-write Millers Firsts' policy language.
20
No. 2013AP907
¶55 Instead, we will follow the well-established rules of
insurance contract interpretation. Insurance policies are
interpreted as they would be by a reasonable person in the
position of the insured. State Farm, 251 Wis. 2d 561, ¶28.
"[B]ecause the insurer is in a position to write its insurance
contracts with the exact language it chooses–so long as the
language conforms to statutory and administrative law——ambiguity
in that language is construed in favor of an insured seeking
coverage." Froedtert, 317 Wis. 2d 54, ¶43. This court will not
now create an exclusion with respect to Millers First's duty to
defend that it did not write into its own policy.
¶56 We also reject Millers First argument that Teigen and
Loy stand for the proposition that Millers First can settle for
less than its limits of liability and be released from its duty
to defend. In Teigen v. Jelco of Wis. Inc., an insurer was
relieved of its duty to defend after it used a Loy release to
settle with the plaintiffs. 124 Wis. 2d 1, 367 N.W.2d 806
(1985). A Loy release allows the plaintiff to settle for less
than the primary insurer's policy limits by giving the secondary
or excess insurance carrier credit for the full amount of the
policy limits. Loy v. Bunderson, 107 Wis. 2d 400, 417, 320
N.W.2d 175 (1982). The parties, however, did not enter into a
Loy Release here. They instead settled for a proportionate
amount of the verdict without giving credit up to the policy
limits.
¶57 We agree with the court of appeals that the only
reasonable interpretation of the term "limit of liability" is
21
No. 2013AP907
the $100,000 limit of liability listed on the insurance policy's
declarations page. Under the unambiguous policy language,
Millers First was required to provide a defense for Menard until
it paid its $100,000 limit of liability. Like the court of
appeals, we determine that Millers First breached its duty to
defend when it withdrew its defense of Menard following the
settlement.
V.
¶58 Having concluded that Menard's self-insured retention
is "other applicable liability insurance" and that Millers First
breached its duty to defend Menard, this case is remanded to the
circuit court. Upon remand, the circuit court must make a
determination of damages. We discuss next the nature of
available damages to provide guidance to the circuit court.7
¶59 Menard relies on Newhouse by Skow v. Citizens Sec.
Mut. Ins. Co. for the proposition that Millers First must pay
damages including: (1) the amount of the judgment or settlement
plus interest; (2) costs and attorney fees incurred by the
insured in defending the suit; and (3) any additional costs that
the insured can show naturally resulted from the breach. 176
Wis. 2d 824, 838, 501 N.W.2d 1 (1993). It reads Newhouse too
7
After oral argument, we ordered the parties to file letter
briefs addressing the following issues: (1) What type of
damages can be claimed if Millers First is found to have
breached its duty to defend?; and (2) Are the damages available
affected by the fact that Millers First defended until the
circuit court approved Millers First's settlement with the
plaintiff?
22
No. 2013AP907
broadly. Just as the damages awarded in Newhouse were based on
the facts of that case, the damages here depend on the unique
facts of this case. The test, however, remains the same.
¶60 Newhouse sets forth the test as follows: "The
insurance company must pay damages necessary to put the insured
in the same position he would have been in had the insurance
company fulfilled the insurance contract." Id. at 838. "[A]
party aggrieved by an insurer's breach of its duty to defend is
entitled to recover all damages naturally flowing from the
breach." Id. at 830.
¶61 In Newhouse, neither the insurer nor its insured
participated in the trial. Id. at 832. During the course of
the trial, each of the other defendants settled separately with
the plaintiffs. Id. Judgment was entered against the insured
in the amount of $588,003.70, which was in excess of the $50,000
policy limits. Id. The Newhouse court concluded that "an
excess judgment is properly included in the damages for breach
of an insurer's duty to defend, if the excess judgment was a
natural or proximate result of the breach." Id. at 838.
¶62 As the Seventh Circuit explained in Hamlin Inc. v.
Hartford Accident and Indem. Co., 86 F.3d 93, 95 (7th Cir.
1996), Newhouse "is explicit that the insured must show that he
was made worse off by the breach than he would have been had the
breach not occurred." The Hamlin court considered whether the
defendant had as good of a defense as he would have had if the
insurer provided counsel. Id. at 95. It observed that, "[t]his
insurer did not pay the entire bill for Hamlin's defense. But
23
No. 2013AP907
neither is Hamlin some hapless individual who could not afford a
good defense unless his insurer or insurers picked up the full
tab." Id. In this case, Menard is analogous to the defendant
in Hamlin, not the insured in Newhouse.
¶63 The court in Hamlin was concerned about a windfall.
It explained that to award the entire $2.6 million verdict to
Hamlin would result in a windfall, which would be punitive in
nature to the insurer. Id. Punitive damages are not awarded
unless an insurance company acts in bad faith. Id. (citing
Weiss v. United Fire & Casualty Co., 197 Wis. 2d 365, 397, 541
N.W.2d 753 (1995)). Here there is no allegation that Millers
First acted in bad faith when it withdrew its defense of Menard.
Likewise, it would be a windfall for Menard if Millers First
were ordered to pay the entire verdict in this case.
¶64 Just as in Hamlin, Menard cannot demonstrate that the
amount of the jury verdict was a result of the breach. Menard
chose its own counsel and there is no assertion that it would
have achieved a better result at trial had Millers First chosen
Menard's counsel. See 86 F.3d at 95. Unlike the excess
judgment against the defendant in Newhouse, the jury verdict
against Menard was for less than the policy limits. Thus,
Menard is not entitled to damages in the amount of the jury
verdict because the verdict amount does not flow naturally from
the breach.
¶65 Menard relies on Radke v. Fireman's Fund Ins. Co., for
the proposition that Wisconsin courts have not adopted Hamlin's
analysis. 217 Wis. 2d 39, 48, 577 N.W.2d 366 (Ct. App. 1998).
24
No. 2013AP907
However, the Radtke court simply distinguished Hamlin on the
grounds that Hamlin involved multiple insurers. Id. at 48.
According to Radtke, "[t]he key difference to the Hamlin court
was that Hamlin involved multiple insurers, one which accepted
the tender of defense and paid for a portion of Hamlin's legal
defense bill." Id. at 48. The fact that Hamlin had multiple
insurers, one of which accepted the tender of defense and paid
for a portion of the legal bill, relates to the issue of whether
the insured was worse off after the breach. It is from this
standpoint that we analyze the present case.
¶66 The facts in Radtke are also distinguishable from the
present case. The insurer denied coverage and refused to defend
Radtke. Id. at 42. Radtke settled with the plaintiff and filed
suit against the insurer seeking reimbursement of attorney fees
and his settlement payment. Id. The issue in Radtke was
whether the insurer could raise its coverage defenses after it
breached its duty to defend. The court held that because the
insurer had breached its duty to defend, "it may not now
challenge or otherwise litigate the coverage issues." Id. at
49. It concluded that the insurer "is liable to Radtke for the
costs of defending the suit, the amount recovered from Radtke by
settlement and any additional damages caused by Fireman's Fund's
breach of its contract." Id.
25
No. 2013AP907
¶67 Unlike in Radtke, Millers First accepted Menard's
tender of defense.8 Millers First defended Menard until it
settled its proportionate share of the claim. Due to its self-
insured retention, Menard had responsibility for five-sixths of
the verdict. The plaintiffs in Radtke and Newhouse would not
have been responsible for the verdict except for the insurers'
refusal to indemnify and defend. In contrast, Menard would have
had responsibility for the verdict regardless of whether Millers
First breached its duty to defend. Here, Menard has concurrent
liability because of its $500,000 self-insured retention.
¶68 In order to satisfy its duty to defend, Millers First
had various options including: (1) pay its $100,000 limit of
liability and be relieved of its duty to defend; (2) settle with
the plaintiffs for its proportionate share of the claim and use
a Loy release to give Menard credit for the full amount of the
$100,000 policy limits; or (3) settle with the plaintiff for its
proportionate share of the claim and continue to defend Menard.
Instead, Millers First settled with the plaintiff for its
proportionate share of the claim, but withdrew defense of Menard
following settlement.
¶69 To put Menard in the position it would have been in
prior to the breach, Millers First must pay damages to Menard in
the amount of costs and attorney fees. Menard is not claiming
8
During oral argument, Millers First twice stated that it
was not challenging its initial duty to defend, explaining "we
have not appealed that issue" and "we at the circuit court level
did accept coverage."
26
No. 2013AP907
attorney fees and costs incurred prior to the breach of the duty
to defend. Millers First suggests that defense costs should be
pro-rated between it and Menard. Had Millers First put a pro-
rated clause in its policy for defense costs as it did for its
liability for loss, then defense costs could be pro-rated.
However, for the reasons stated above, we decline now to rewrite
its policy. See majority op., ¶¶55-56.
¶70 Although the dissent asserts that we ought to apply
equitable contribution under the facts in this case, we find
little support for this approach under Wisconsin law. In
Plastics Eng'g Co. v. Liberty Mut. Ins. Co., we expressly
determined that we would not pro rate liability among insurers
when the policy language did not provide for it. See 2009 WI
13, ¶¶51-60, 315 Wis. 2d 556, 759 N.W.2d 613. The majority
opinion in Plastics Eng'g Co., authored by Justice Ziegler,
explained: "In our analysis, we are again driven by the policy
language. Liberty Mutual's policy contains no language that
limits its obligation to a pro rata share." Id., ¶55. "Thus,
to insert the pro rata language, we would have to rewrite the
insurance policy." Id., ¶59.
¶71 In asserting that equitable contribution of attorney
fees should be applied here, the dissent leaps over a necessary
threshold determination. It fails to address whether an insurer
that breached its duty to defend should be entitled to equitable
contribution of attorney fees.
¶72 The Wisconsin court of appeals previously has refused
to apply equitable contribution when there has been a breach of
27
No. 2013AP907
the duty to defend. See Se. Wis. Prof'l Baseball Park Dist. v.
Mitsubishi Heavy Indus. Am., Inc., 2007 WI App 185, ¶64, 304
Wis. 2d 637, 738 N.W.2d 87. Although the dispute in Mitsubishi
involved a primary and excess carrier, the policy that a primary
insurer should not be rewarded for a refusal to honor its duty
to defend applies here as well:
We perceive no good policy reason to reward
Travelers . . . for its repeated refusal to defend——
even after being repeatedly told it had a contractual
duty to do so——by reducing the amount the trial court
has determined it owed. Such a reduction would reward
a primary carrier for a wrongful refusal to defend and
create something akin to a litigation expense game of
"chicken"——with offsets going to the obligated primary
insurer who breached its duty.
Id., ¶64. The Mitsubishi court further explained: "We decline
Travelers' invitation to thrust the trial court into this new,
and in this case unnecessary, sea of litigation." Id.
¶73 In other jurisdictions as well, a breach of a duty to
defend precludes application of equitable contribution. For
example, the dissent relies on Cargill Inc. v. Ace Am. Ins. Co.,
784 N.W.2d 341, 354 (Minn. 2010), which states that a "breach of
a duty to defend precludes application of an equitable right to
contribution." See also Nat'l Indem. Co. v. St. Paul Ins.
Companies, 724 P.2d 544, 545 (Ariz. 1986) ("When an insurer has
a duty to defend the insured, there should be no reward to the
insurer for breaching that duty . . . . Under the principle of
equitable subrogation, the insurer which has performed the duty
to provide a defense to its insured should be able to compel
28
No. 2013AP907
contribution for a share of the cost of defense from another
insurer . . . .").
¶74 Likewise, in Cont'l W. Ins. Co. v. Colony Ins. Co., 69
F. Supp. 3d 1075, 1086 (D. Colo. 2014), which the dissent also
cites, the court found that "a participating insurer is entitled
to equitable contribution from a non-participating insurer, both
having a duty to defend, when the former provides a complete
defense to an insured against a common risk . . . ." (emphasis
added). Here, Millers First did not provide a complete defense
because it withdrew its defense after settlement with the
plaintiffs in breach of its obligation to provide a defense
until its limits of liability were exhausted.
¶75 The dissent argues that Millers First's breach of its
duty to defend should not preclude equitable contribution. It
relies on an Arizona court of appeals decision, Nucor Corp. v.
Emp'rs Ins. Co. of Wausau, 296 P.3d 74 (Ariz. Ct. App. 2012),
that is readily distinguishable.
¶76 Nucor involved a class action lawsuit in which every
insurer breached its duty to defend. As the Nucor court
explained, equitable contribution was allowed because all the
insurers breached their duty to defend:
Nucor's argument also fails to acknowledge that all of
its insurers refused to defend Nucor at some time.
All refused to defend Nucor in the ADEQ proceeding,
not just Wausau. Hartford had to be sued twice by
Nucor for bad faith before it acknowledged coverage.
Travelers did not defend Nucor in the class action
litigation until Nucor sued it for bad faith.
29
No. 2013AP907
Id., ¶44. That is not the case here. Only Millers First
breached its duty to defend. There is no allegation that Menard
failed in its duty to defend. It was Menard, not Millers First,
that shouldered the cost of litigation after Millers First
settled with Burgraff.
¶77 Millers First could have followed the procedure set
forth under well-established Wisconsin law. When coverage is
disputed, an insurer should request a bifurcated trial on the
issues of coverage and liability and move to stay any
proceedings on liability until the issue of coverage is
resolved. Newhouse, 176 Wis. 2d at 836; see also Elliot v.
Donahue, 169 Wis. 2d 310, 318, 485 N.W.2d 403 (1992). Had it
done so, Millers First would not have breached its duty to
defend. Instead, Millers First relied on the circuit court's
summary judgment order and withdrew its defense of Menard.
¶78 "An insurance company breaches its duty to defend if a
liability trial goes forward during the time a no coverage
determination is pending on appeal and the insurance company
does not defend its insured at the liability trial." Newhouse,
176 Wis. 2d at 836. "When an insurer relies on a lower court
ruling that it has no duty to defend, it takes the risk that the
ruling will be reversed on appeal." Id.
¶79 In sum, we are in accord with the court of appeals'
determination that Menard's self-insured retention is "other
applicable liability insurance" under the Millers First policy's
"other insurance clause." We also agree with the court of
appeals conclusion that Millers First breached its duty to
30
No. 2013AP907
defend when it withdrew its defense of Menard following the
settlement.
¶80 Accordingly, we affirm the court of appeals and remand
to the circuit court for a determination of the amount of costs
and attorney fees Menard incurred after Millers First breached
its duty to defend.
By the Court. – The decision of the court of appeals is
affirmed and the cause is remanded to the circuit court for a
determination of damages.
¶81 MICHAEL J. GABLEMAN and REBECCA G. BRADLEY, J.J., did
not participate.
31
No. 2013AP907.pdr
¶82 PATIENCE DRAKE ROGGENSACK, C.J. (concurring in part,
dissenting in part). I concur in the majority opinion's
conclusion that Millers First breached its duty to defend by
withdrawing its defense prior to exhausting its $100,000 limit
of liability.1 I also concur in the majority opinion's
conclusion that Menard's self-insured retention constitutes
"other applicable liability insurance" under Millers First's
"other insurance clause."2
¶83 However, I write in dissent because, contrary to the
majority opinion, I conclude that Wisconsin has applied
equitable contribution to other shared obligations and should
apply it to defense costs between two primary insurers, Millers
First and Menard. Millers First and Menard insured the same
entity, Menard; they had the same primary obligation to defend
Menard against Burgraff's claims; and Millers First contends
that it paid more than its fair share of defense costs.
Therefore, I conclude that the matter should be remanded to the
circuit court to apply equitable contribution principles to
determine how best to allocate the total defense costs incurred
by Millers First and Menard. Accordingly, I respectfully concur
in part and dissent in part from the majority opinion.
I. BACKGROUND
¶84 For the most part, the majority opinion sets forth
facts that underlie the dispute before us. Therefore, I will
1
Majority op., ¶3.
2
Id., ¶5.
1
 No. 2013AP907.pdr
not repeat them in full. However, I do relate a few additional,
relevant facts.
¶85 Millers First provides automobile liability insurance
to Kenneth Burgraff, who was injured when a Menard employee
attempted to load items purchased from Menard into Burgraff's
vehicle. Burgraff brought suit against Menard for personal
injuries. Millers First accepted Menard's tender of defense,
subject to a reservation of rights, because in Blasing v. Zurich
Am. Ins. Co., 2014 WI 73, ¶41, 356 Wis. 2d 63, 850 N.W.2d 138,
we concluded that one who loads property into a vehicle is a
"permissive user" of the vehicle and, accordingly, is entitled
to a defense under the automobile liability policy for injuries
alleged to have been caused by the loading.
¶86 Millers First hired attorney Edmund Manydeeds to
defend both itself and Menard on the merits of Burgraff's
claims. Millers First paid the entire cost of that defense
until Millers First settled Burgraff's liability claim against
it and was granted summary judgment dismissing it from the suit.3
¶87 Prior to withdrawing its defense, Millers First moved
for pro rata apportionment of defense costs, asserting that
Menard had a duty to defend itself under its self-insured
retention. The circuit court denied the motion. The case
proceeded to trial where Burgraff was awarded damages in excess
3
Prior to Millers First's acceptance of Menard's tender of
defense, Menard's in-house counsel appeared for Menard on the
merits, as well as with respect to coverage issues.
2
No. 2013AP907.pdr
of the amount that Millers First paid for its share of
liability. Menard provided its own defense at trial.
¶88 Menard appealed the circuit court's summary judgment
decision. The court of appeals affirmed the circuit court's
conclusion that Menard's self-insurance constitutes "other
applicable liability insurance," it reversed the decision
regarding Millers First's duty to defend, and we granted review.
¶89 Subsequent to oral argument, we ordered the parties to
brief the following issues: "(1) What types of damages can be
claimed if Millers First is found to have breached its duty to
defend?[;] (2) Are the damages available affected by the fact
that Millers First defended until the circuit court approved
Millers First's settlement with the plaintiff?"
¶90 Millers First responded as follows:
If this court were inclined to adopt the
position, advanced by Menard, that it was entitled to
a continued defense, notwithstanding that Millers
First completely satisfied its complete covered claims
duties, then the damages to be awarded should clearly
reflect and take account of the concurrent coverage
obligations of the respective parties. By virtue of
the circuit court ruling, affirmed by the Court of
Appeals, Millers First [owed] only one-sixth of the
total damages. While the trial court did not
specifically address the issue of proration of defense
costs, the logical corollary to that finding is that
Millers First would have owed only one-sixth of the
total defense costs involving fees and costs as well.
The most Menard could hope to recover, therefore,
would be reimbursement of one-sixth of the total
defense costs generated in this matter. Since Millers
First paid for 100% of the total defense costs until
it was allowed to withdraw, Millers First should be
given credit for those costs which it bore up to that
point.
(Millers First Supp. Br. 7 (emphasis omitted).)
3
No. 2013AP907.pdr
¶91 Not surprisingly, Menard holds the opposite view,
contending that pro rata apportionment of defense costs is not
appropriate and that it is "entitled to all of its defense costs
incurred in the defense of the underlying liability claim from
the date Millers First withdrew its defense." (Menard Supp. Br.
3.) Menard cites Plastics Eng'g Co. v. Liberty Mut. Ins. Co.,
2009 WI 13, ¶60, 315 Wis. 2d 556, 759 Wis. 2d 613, for the
proposition that Wisconsin law does not allow for pro rata
allocation of defense costs. (Menard Supp. Br. 3-4.)
II. DISCUSSION
A. Majority Opinion
¶92 The majority opinion apparently agrees with Menard,
stating that, "[h]ad Millers First put a pro-rated clause in its
policy for defense costs as it did for its liability for loss,
then defense costs could be pro-rated. However, . . . we
decline now to rewrite its policy."4 Without express contractual
language, the majority opinion refuses to allow the circuit
court, on remand, to consider apportioning defense costs between
Millers First and Menard.5 Instead, the majority opinion remands
the matter to the circuit court to determine the amount of
defense costs that Menard has incurred since Millers First's
withdrawal and, apparently, intends Millers First to bear 100%
of this burden, just as it did prior to the circuit court's
4
Id., ¶69.
5
Id.
4
No. 2013AP907.pdr
grant of summary judgment that dismissed Millers First from
Burgraff's lawsuit.6
¶93 As I explain below, this conclusion is inconsistent
with the majority opinion's holding that Menard's self-insured
retention constitutes "other applicable liability insurance,"
thereby rendering it a concurrent primary insurer with Millers
First, with the same duty to defend Menard that Millers First
had.7 The majority opinion explicitly recognizes Menard's duty
to provide a defense against Burgraff's claims and states,
"Menard is required to pay the first $500,000 worth of damages
and defense costs arising from an occurrence."8 Notwithstanding
this acknowledgement, the majority opinion simultaneously
overlooks Menard's duty to contribute to the costs of the
defense that it was obligated to provide as a primary insurer.
B. General Equitable Principles
¶94 We have not directly addressed pro rata apportionment
of defense costs between concurrent primary insurers. However,
other jurisdictions have done so and have apportioned those fees
based on equitable contribution principles. "Generally, where
two or more insurers' policies potentially provide coverage and
one of them bears the defense burden alone, the insurer bearing
that burden is entitled to equitable contribution from the non-
defending carriers." Lee R. Russ & Thomas F. Segalla, 14 Couch
6
Id.
7
See id., ¶¶32, 43, 79.
8
Id., ¶14 (emphasis added).
5
No. 2013AP907.pdr
on Insurance § 200:35 (3d ed. 2007).9 "[T]he aim of equitable
contribution is to apportion a loss between two or more insurers
who cover the same risk, so that each pays its fair share and
one does not profit at the expense of the others." Lee R. Russ
& Thomas F. Segalla, 16 Couch on Insurance § 222:98 (3d ed.
2000).10
¶95 Although Millers First's contract does not direct that
defense costs are to be shared with other primary insurers,
apportioning defense costs through equitable contribution is
appropriate. Id. (explaining that "equitable contribution
applies only between insurers, and only in the absence of
contract, and therefore it has no place between insurer and
insured, which have contracted the one with the other"). This
is because "all contractual duties or obligations flow only to
the insured." Douglas R. Richmond, Issues and Problems in
"Other Insurance," Multiple Insurance, and Self-Insurance, 22
Pepp. L. Rev. 1373, 1426 (1995). These duties and obligations
do not flow "between or among the insurers." Id.
¶96 In the instant case, Millers First is a fortuitous
insurer with respect to Menard. However, Menard also wears
9
I recognize that a minority of jurisdictions have rejected
the equitable contribution theory as a basis for apportioning
defense costs. Scott M. Seaman & Jason R. Schulze, Allocation
of Losses in Complex Insurance Coverage Claims § 16:6 (database
updated Dec. 2015); Lee R. Russ & Thomas F. Segalla, 14 Couch on
Insurance § 200:35 (3d ed. 2007).
10
As indicated in this writing's citations, hard copies of
the Third Edition of Couch on Insurance that are available to
the court exhibit varying dates of publication.
6
No. 2013AP907.pdr
another hat. Menard is also an insurer with a duty to defend
itself.11 Millers First's obligations arising out of its policy
language run to Menard as an insured rather than to Menard as an
insurer. Millers First does not seek to allocate defense costs
between itself and Menard as an insured but, rather, between
itself and Menard as another insurer. Therefore, it is of no
consequence that Millers First's policy language does not
provide for pro rata apportionment of defense costs between
itself and another primary insurer. Stated otherwise, the
Millers First policy is a contract between Millers First and
those who are insureds, not a contract between Millers First and
other primary insurers.
¶97 Apportioning costs between concurrent primary
insurers, who insure the same person for the same risk, is the
context in which courts apply equitable contribution principles
out of fairness rather than out of contract. See, e.g., Cont'l
W. Ins. Co. v. Colony Ins. Co., 69 F. Supp. 3d 1075, 1087 (D.
Colo. 2014) (applying equitable contribution to require both
primary insurers to bear defense costs); Cargill, Inc. v. Ace
Am. Ins. Co., 784 N.W.2d 341, 353-54 (Minn. 2010) (concluding
that primary insurer has a right to seek equitable contribution
from other primary insurer for defense costs); Am. Simmental
Ass'n v. Coregis Ins. Co., 282 F.3d 582, 589 (8th Cir. 2002)
(apportioning total defense costs in same ratio as each
insurer's policy provided for total liability); Md. Cas. Co. v.
11
Majority op., ¶¶14, 32, 43, 79.
7
No. 2013AP907.pdr
Nationwide Mut. Ins. Co., 81 Cal. App. 4th 1082, 1089 (Cal. Ct.
App. 2000) (explaining that equitable contribution of defense
costs equalizes a common burden shared by primary insurers).
¶98 As mentioned above, it does not appear that Wisconsin
courts have considered whether equitable contribution may be
applied to apportion defense costs between concurrent primary
insurers. The court of appeals refused to apply equitable
contribution, at the request of a primary insurer, to apportion
defense costs incurred by the excess insurer, who defended the
amended complaint that the primary insurer repeatedly refused to
defend. Se. Wis. Prof'l Baseball Park Dist. v. Mitsubishi Heavy
Indus. Am., Inc., 2007 WI App 185, ¶¶62-64, 304 Wis. 2d 637, 738
N.W.2d 87. The court of appeals noted that equitable
contribution was inapplicable because the excess insurer sought
reimbursement for defense costs it incurred while shouldering a
defense that rightly should have been met by the primary
insurer. Id.
¶99 The majority opinion cites Southeast Wisconsin
Professional Baseball, asserting that it precludes equitable
contribution because Millers First did not provide a defense
until its limit of liability was exhausted.12 However, Menard
also did not provide a complete defense, which the majority
opinion recognizes that it was obligated to do.13 The majority
opinion gives no reason for treating two primary insurers so
differently.
12
Id., ¶72.
13
Id., ¶14.
8
 No. 2013AP907.pdr
¶100 We previously have explained that "what gives rise to
the right of contribution is that one co-obligor has discharged
more than his [or her] fair equitable share of a common debt."
Kafka v. Pope, 194 Wis. 2d 234, 243, 533 N.W.2d 491 (1995)
(explaining that the right to seek equitable contribution "is
premised on two conditions: (1) the parties must be liable for
the same obligation; and (2) the party seeking contribution must
have paid more than a fair share of the obligation").
¶101 The court of appeals has applied the foregoing two-
part test for equitable apportionment of losses between two
insurance companies. In McGee v. Bates, 2005 WI App 19, ¶1, 278
Wis. 2d 588, 691 N.W.2d 920, one insurance company sought
contribution from another insurance company for a portion of the
losses that it incurred by settling with plaintiffs. The court
of appeals concluded that the two insurance companies shared
liability for the same obligation because they both provided
coverage to the same person for the same loss. Id., ¶9. The
court of appeals then remanded the matter to determine whether
the insurer seeking contribution bore more than its fair share
of the losses. Id., ¶11.
C. Equitable Contribution
¶102 Given the foregoing equitable principles, I would
remand the issue of equitable contribution to the circuit court
to apportion defense costs between the two primary insurers,
Millers First and Menard, who insured the same entity, Menard,
and who had primary obligations to defend against Burgraff's
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claims. See Nucor Corp. v. Emp'rs Ins. Co. of Wausau, 296 P.3d
74, 84 (Ariz. Ct. App. 2012).
1. Standard of review
¶103 Whether equitable contribution may be applied in a
given factual context is a question of law for our independent
review. McGee, 278 Wis. 2d 588, ¶4; Am. Simmental, 282 F.3d at
586.
2. Kafka/McGee test
¶104 To be entitled to equitable contribution of defense
costs in the case before us, Millers First must prove two
conditions: (1) both Menard and Millers First are liable as
primary insurers for Menard's defense of Burgraff's claims; and
(2) Millers First has paid more than its fair share of defending
against Burgraff's claims.
a. liability for same obligation
¶105 In order to establish a shared liability for defense
of Burgraff's claims, Millers First must establish that Menard,
which was self-insured up to $500,000, had a duty to defend
itself when Burgraff was injured through the negligence of
Menard's employee. In this regard, Menard's self-insured
retention provides that it "shall be eroded by allocated claim
costs including defense . . . costs." This demonstrates that
Menard, as an insurer, has a duty to defend itself, as an
insured. The majority opinion recognizes that Menard's self-
insured retention gives Menard a duty "to pay . . . defense
costs arising from an occurrence."14
14
Id., ¶14.
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¶106 This reasoning is supported by Hillegass v. Landwehr,
176 Wis. 2d 76, 85, 499 N.W.2d 652 (1993), where we concluded
that self-insurance is other collectible insurance and should be
treated the same as if it were contracted with a third-party
insurer. The majority opinion also concludes that Menard's
self-insured retention constitutes "other applicable liability
insurance," thereby rendering Menard a concurrent primary
insurer, as is Millers First.15 Millers First and Menard each
provides coverage for third-party liability as concurrent
primary insurers, with Millers First being responsible for one-
sixth of third-party liability and Menard being responsible for
five-sixths of such obligation.16 As the majority opinion notes,
but for the fortuitousness of Millers First's policy providing
one-sixth coverage, Menard would have been obligated "to pay the
first $500,000 worth of damages and defense costs arising from
an occurrence."17 I agree.
¶107 Furthermore, "[i]n the context of liability insurance,
a primary insurer generally has the primary duty to defend the
insured . . . ." 14 Couch on Insurance § 200:35. I see nothing
in Menard's self-insured retention that removes Menard's duty to
defend itself. Furthermore, I fail to see the basis for the
majority opinion's implicit assumption that, by Millers First
15
Id., ¶¶32, 43, 79.
16
Millers First and Menard do not dispute this
apportionment of coverage for third-party liability.
17
Id., ¶14.
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accepting its defense obligations, Menard's defense obligations
are somehow eliminated. Accordingly, I conclude that Menard and
Millers First share the obligation to defend Menard from
Burgraff's claims.
b. inequitable payment
¶108 When two persons share the same obligation and one
obligor claims to have paid more than its fair share, a claim
for equitable contribution may be made. Kafka, 194 Wis. 2d at
243. Many courts recognize equitable contribution to satisfy
such a claim; however, courts employ differing methods to
apportion defense costs between concurrent primary insurers.
See Scott M. Seaman & Jason R. Schulze, Allocation of Losses in
Complex Insurance Coverage Claims § 5:8 (database updated Dec.
2015) ("[M]ethods include pro rata allocation based upon
contract limits, equal apportionment, and time on the risk.").
¶109 The majority of jurisdictions allocate defense costs
based on the policies' apportionment of liability limits. See
Lee R. Russ & Thomas F. Segalla, 15 Couch on Insurance § 217:9
(3d ed. 1999). "The courts using this method find that each
insurer should bear the costs of defense in proportion to its
contract limits." Seaman & Schulze, § 5:8.
¶110 As between Millers First and Menard, there is $600,000
of combined coverage for liability awards, with one-sixth of the
total liability exposure being Millers First's and five-sixths
of the liability exposure Menard's. Using the one-sixth/five-
sixths ratio, Millers First would be liable for one-sixth of the
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total defense costs paid by Millers First and Menard, and Menard
would be responsible for the balance.
¶111 Alternatively, based upon each insurer's separate duty
to defend the insured, some courts allocate defense costs
equally. Id. As noted, there are various other methods by
which courts apportion defense costs between insurers. Id.
However, choosing how to allocate the total defense costs
between Millers First and Menard may require fact-finding that
is not appropriate in this review. Md. Cas., 81 Cal. App. 4th
at 1094 (explaining that circuit court has "broad discretion" in
determining how to properly allocate defense costs). Therefore,
were I writing for a majority of the court, I would remand to
the circuit court to make the findings necessary to determine
how, based on equitable contribution, the total defense costs
should be allocated between Millers First and Menard.
¶112 Contrary to the majority opinion, I would not preclude
Millers First from seeking equitable contribution because it
breached its duty to defend by withdrawing prior to the
exhaustion of its $100,000 limit of liability.18 Of course, in
some instances, it may be inequitable to permit an insurer to
benefit from pro rata allocation of defense costs where that
insurer has refused to defend the insured at all. See Cargill,
784 N.W.2d at 354; Cont'l Cas. Co. v. Nat'l Union Fire Ins. Co.
of Pittsburgh, Pa., 940 F. Supp. 2d 898, 929-30 (D. Minn. 2013).
However, that did not occur here, as Millers First fully
18
Id., ¶¶71-74.
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defended Menard until it was dismissed from the lawsuit by the
circuit court.
¶113 The effect of the majority opinion is to remove
Menard's duty as a primary insurer to defend itself. In so
doing, the majority opinion treats two primary insurers very
differently and by its directions on remand, inequitably imposes
100% of defense costs on the fortuitous insurer, Millers First.
Even in instances where an insurer has breached its duty to
defend, courts apportion defense costs between insurers where it
is equitable to do so. See, e.g., Cont'l Cas. Co., 940 F. Supp.
2d at 929-30 (explaining that barring an insurer from seeking
pro rata allocation, where that insurer has significantly
contributed to defense, does not "comport with the equitable
nature of contribution").
¶114 In Nucor, 296 P.3d at 84-85, the court permitted an
insurer, which previously had breached its duty to defend, to
seek equitable contribution from other, concurrent primary
insurers that had likewise refused to defend the insured at
various points in time. In rejecting the argument that an
insurer was not entitled to pro rata apportionment after
breaching its duty to defend, the court reiterated the
overarching purpose of equitable contribution, which is "to
accomplish substantial justice by equalizing the common burden
shared by coinsurers, and to prevent one insurer from profiting
at the expense of others." Id. at 85 (internal quotation marks
omitted) (quoting Fireman's Fund Ins. Co. v. Md. Cas. Co., 77
Cal. Rptr. 2d 296, 303-04 (Cal. Ct. App. 1998)).
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¶115 Similar to the court in Nucor, I would not preclude
Millers First from seeking equitable contribution simply because
Millers First did not continue to defend until its limit of
liability was reached. Menard had a concurrent obligation to
defend that should not be overlooked. Precluding pro rata
allocation here permits Menard to foist a mutual obligation
wholly onto Millers First, thereby profiting at the expense of
Millers First. See Cont'l Cas., 940 F. Supp. 2d at 929
(explaining that such a holding "would not accomplish
substantial justice").
¶116 Additionally, I recognize that "[a] breach of the
obligation to defend should not be encouraged, but the rule
which allows an insurer to avoid the costs of defense tends to
encourage an avoidance of the insurer's responsibilities."
Nat'l Indem. Co. v. St. Paul Ins. Cos., 724 P.2d 544, 545 (Ariz.
1986). While erroneously asserting that "[o]nly Millers First
breached its duty to defend,"19 the majority opinion precludes
pro rata allocation of defense costs between concurrent primary
insurers who have the same obligation to defend against
Burgraff's claims.20 The majority opinion offers few insights
for future insurers who may find themselves in a similar
situation.
19
Id., ¶76. Menard had the same duty to defend as Millers
first. However, Menard provided no defense until after Millers
First was dismissed from the lawsuit, and the majority opinion
allows Menard to ignore the obligation to contribute to its own
defense.
20
Id., ¶¶54, 69.
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¶117 Finally, I note that Menard relies on our statements
in Plastics Engineering for the proposition that Wisconsin law
does not allow pro rata allocation of defense costs. In
Plastics Engineering, the sole insurer sought to pay only those
costs that were incurred in defending claims that were covered
under the insurer's policy, while excluding defense costs for
uncovered claims. Plastics Eng'g, 315 Wis. 2d 556, ¶51. "Under
Wisconsin law, if coverage exists, an insurer must defend the
entire suit even though some of the allegations fall outside the
scope of coverage." Id. at ¶60. However, our statements in
Plastics Engineering have nothing to do with equitable
contribution of defense costs for Burgraff's litigation because
here there are two primary insurers, both with a duty to defend.
III. CONCLUSION
¶118 I concur in the majority opinion's conclusion that
Millers First breached its duty to defend by withdrawing its
defense prior to exhausting its $100,000 limit of liability. I
also concur in the majority opinion's conclusion that Menard's
self-insured retention constitutes "other applicable liability
insurance" under Millers First's "other insurance clause."
¶119 However, I write in dissent because, contrary to the
majority opinion, I conclude that Wisconsin has applied
equitable contribution to other shared obligations and should
apply it to defense costs between two primary insurers, Millers
First and Menard. Millers First and Menard insured the same
entity, Menard; they had the same primary obligation to defend
Menard against Burgraff's claims; and Millers First contends
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that it paid more than its fair share of defense costs.
Therefore, I conclude that the matter should be remanded to the
circuit court to determine how best to allocate the total
defense costs incurred by Millers First and Menard.
Accordingly, I respectfully concur in part and dissent in part
from the majority opinion.
¶120 I am authorized to state that Justice ANNETTE
KINGSLAND ZIEGLER joins this opinion.
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