Wisconsin Insurance Law: 2013 Year in Review and a Look Ahead - - PowerPoint PPT Presentation

Wisconsin Insurance Law:

2013 Year in Review … and a Look Ahead

Jeffrey Davis Patrick Nolan Brandon Gutschow February 12, 2014 Joint meeting of Wisconsin Chapter of RIMS & CPCU Society

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Overview of Key Insurance Coverage Decisions

• 2013 was another active year in Wisconsin
• Key points:

– Long tail exposure cases – allocation amongst multiple carriers with a joint and several obligation (Cleaver Brooks v. AIU) – Further development, expansion – and confusion – in the area of “accident” and intentional acts (Schinner v. Gundrum; Fetherston v. Parks) – Development of pollution exclusion jurisprudence (Wilson Mutual v. Falk)

Cleaver Brooks, Inc. v. AIU Insurance Co.

2013 WI App 135, 351 Wis.2d 643, 839 N.W.2d 882

• Insured with significant asbestos liability triggered an

excess layer with three quota-share policies, only two of which had a duty to defend obligation

• Insurers wanted policies to apply sequentially and insurer

wanted all policies to apply simultaneously

• Held: insured can decide how to apportion the liability

among policies that are jointly and severally liable

• Important takeaway: How will courts apply this outside of

the quota-share context? Impact on contribution rights where insured settles with less than all carriers?

Volitional, Criminal and Intentional Acts – Insureds behaving badly

• Schinner v. Gundrum (Wis. Sup. Ct.)
• Estate of Dobry v. Wilson Mutual Insurance
• Co. (Wis. Ct. App.)
• Fetherston v. Parks (Wis. Ct. App.)
• Laufman v. Safeco Insurance Co. of America

(Wis. Ct. App.)

Schinner v. Gundrum

2013 WI 71, 349 Wis.2d 529, 833 N.W.2d 685

• Insured hosted underage drinking party and one partygoer

assaulted another, leaving the victim paralyzed.

• Applicable homeowners policy provided coverage for harm caused

by an “occurrence,” defined as “an accident”

• Held: courts should determine whether “an accident” caused harm

by analyzing the events from the insured’s standpoint, not from the perspective of the injured party

• Held: means or cause of damage must be accidental, not just an

unintended, unexpected result.

• Narrow majority found no “accident” and no insurance coverage

because the policyholder’s conduct in hosting the party, inviting the aggressor and failing to intervene as the dispute escalated were sufficiently “volitional”

Fetherston v. Parks

2013 WL 6500446(Wis. Ct. App.)(Recommended for publication).

• Insured caused traffic accident while fleeing from police
• Auto insurer denied coverage under policy exclusion for

“bodily injury or property damage caused intentionally by, or at the direction of, and substantially certain to follow from the act of an insured person”

• Held: insurer must prove insured subjectively and
• bjectively intended to cause harm; subjective element

not satisfied.

• How to reconcile with Schinner?

Estate of Dobry v. Wilson Mutual Insurance Co.

2013 WL 6418930 (Wi. Ct. App.)(Unpublished decision).

• Insured inadvertently shot and killed his friend while

playing with a gun during an underage drinking party at the insured’s home

• Insured was convicted in criminal proceedings for

homicide by negligent handling of a dangerous weapon.

• Court of Appeals found no coverage under the criminal

acts exclusion, even though insured was convicted of a criminal negligence count.

Laufman v. Safeco Insurance Co. of America

2013WL2157891 (Wis. Ct. App.)(Unpublished decision).

• Lakefront property owners sued dam owner for “neglect”

in operating a dam, which eventually caused lake to drain

• CGL insurer denied coverage for what it deemed

intentional conduct

• Court of Appeals agreed with insurer:

– Property owners’ complaint alleged “intentional neglect...intentionally calculated” to lead to the destruction of the lake – Such intentional conduct is not an “accident,” a term that denotes an “unexpected,” “unforeseen,” or “unintentional” event

Interpreting and Applying Policy Exclusions

• Phillips v. Parmelee (Wis.)
• Wilson Mutual Insurance Co. v. Falk (Wis. Ct. App.)
• Heinecke v. Aurora Healthcare, Inc. (Wis. Ct. App.)
• Barrows v. American Family Insurance Co. (Wis.
• Ct. App.)
• Konrad Marine, Inc. v. Marine Associates, Inc.

(Wis. Ct. App.)

Coverage Methodology

Within Coverage Grant? No Coverage Within Exclusion? Exception? Conditions Met? No Coverage

Yes No Yes No No Yes

Coverage Exists

No Yes

Asbestos Exclusion Phillips v. Parmelee

2013 WI 105, 351 Wis.2d 758, 840 N.W.2d 713

• Insured sold building without disclosing presence
• f asbestos and new owner unknowingly cut into

ductwork that was wrapped in asbestos

• Insurer of business owners policy denied coverage

under broad asbestos exclusion

• Supreme Court agreed with insurer but notably did

not address the Court of Appeals’ volitional acts analysis

– Court of Appeals had found that the allegations of the underlying complaint (fraud and negligent failure to disclose defective conditions) triggered an initial grant of coverage – This issue was not presented for review by the Supreme Court

Pollution Exclusion Wilson Mutual Insurance Co. v. Falk

2013WL6480760 (Wis. Ct. App.)(Recommended for publication).

• Insured farmer spread manure on fields that wound

up contaminating a local aquifer and neighboring wells

• Insurer denied coverage under pollution exclusion
• f farmowners policy (“pollutant” = “any solid liquid,

gaseous … irritant or contaminant, including ... waste”)

• Held: examine policy from the standpoint of the

policyholder (in this case, a farmer)

• From the standpoint of a farmer, manure is “liquid

gold” not a “pollutant”

Coverage Methodology

Within Coverage Grant? No Coverage Within Exclusion? Exception? Conditions Met? No Coverage

Yes No Yes No No Yes

Coverage Exists

No Yes

Fungi and Bacteria Exclusion Heinecke v. Aurora Healthcare, Inc.

2013 WI App 133, 351 Wis.2d 463, 841 N.W.2d 52

• Hospital’s decorative water fountain allegedly emitted a

bacteria that caused several people to contract pneumonia

• Issue: Did the “consumption” exception to the “fungi or

bacteria” exclusion in the contractor’s liability policy apply?

• Held: No, consumption exception does not apply to

decorative fountain, so no coverage

– Dictionary definitions have their limits – Definition of “consumption” that includes observation and enjoyment of art would lead to absurd results and ignore the parties’ expectations – More common definition – “to eat, to drink, to use up, to consume” – governed

Intra-insured Exclusion Barrows v. American Family Insurance Co.

2013 WL 6418929 (Wis. Ct. App.)(Recommended for publication).

• Whether intra-insured exclusion applies to a non-

insured claimant bringing a claim for wrongful death of an insured. (Issue of first impression in WI)

• Child shot and killed himself with stepfather’s gun –

child’s father sued ex-wife for wrongful death.

• Homeowners insurer of mother, stepfather and child

denied coverage for father’s wrongful death lawsuit under intra-insured exclusion

• Court of Appeals adopted “majority rule that an intra-

insured exclusion like the one in [the] policy bars coverage for a wrongful death claim arising out an insured’s death, even if the claimant is a non-insured”

Business Risk Exclusions Konrad Marine, Inc. v. Marine Associates, Inc.

2013WL1580354 (Wis. Ct. App.)(Unpublished decision).

• Insured improperly cut teeth into gears, eventually

causing failures in stern drives for boats

• Court of Appeals agreed that liability insurer’s “your

work” and “your product” exclusions barred coverage for:

– Costs associated with the insured’s gears themselves; and – Costs of replacing gear sets in drives that had not failed

• Court held that stern drive manufacturer’s lost

profits were covered: lost profits were “because of” covered property damage (damaged stern drives) and uncovered damage (faulty gears); it was not practical to further parse the source of lost profits.

Other Cases of Note

Advertising Injury

• Air Engineering, Inc. v. Industrial Air Power, LLC (Wis.
• Ct. App.)
• Lexington Insurance Co. v. Tudor Insurance Co. (E.D.

Wis.) Property Casualty

• Waterstone Bank v. American Family (Wis. Ct. App.).

Defense Handling

• DeMarco v. Keefe Real Estate, Inc. (Wis. Ct. App.)

Advertising Injury Coverage / Duty to defend Air Engineering, Inc. v. Industrial Air Power, LLC

2013 WI App 18, 346 Wis.2d 9, 828 N.W.2d 565

• Insured faced lawsuit for misappropriating and using

competitor’s website source code, site content and an internet advertising system

• Court of Appeals: complaint allegations triggered a

defense under CGL policy’s “advertising injury” coverage

– The website content, source code and internet advertising system each represented “advertising ideas” (DISH Network) – Insured engaged in “advertising activity” by using these ideas – Insured’s advertising activity caused plaintiff “advertising injury”

• “Knowing violation of rights of another” exclusion did not

bar coverage, because certain claims did not allege intent as an element of the claim

Advertising Injury Coverage / Duty to Defend

Lexington Ins. Co. v. Tudor Ins. Co.

2013WL461279 (E.D. Wis., Feb. 6. 2013).

• Lance Armstrong and Greg LeMond feud.
• LeMond sued Trek Bicycle Corporation, alleging

Trek failed to protect him from disparaging comments made by Armstong.

• Tudor provided advertising injury coverage to Trek

but failed to defend Trek in the LeMond suit.

• Lexington did and then sought contribution from

Tudor.

• Court held that Armstrong’s disparaging comments

about LeMond arose out of Trek’s business.

Mortgageholder clause Waterstone Bank v. American Family

2013 WI App 60, 348 Wis. 2d 213, 832 N.W.2d 152

• Bank provided mortgage to property owner who left

building vacant.

• Building was vandalized, suffered water/theft damage.
• Policy did not cover risks arising out of vacant building

including vandalism, water damage, theft.

• Mortgageholder sought coverage under the

mortgageholder clause in the policy, arguing that it should not be subject to limitation on coverage for vacant properties.

• Mortgageholer clause does not create coverage

where coverage was never assumed.

Defense Handling DeMarco v. Keefe Real Estate, Inc.

2013WL6818148(Wis. Ct. App.)(Unpublished decision).

• Homeowner’s insurer agreed to defend insured, under

reservation of rights, for claim that the insured failed to disclose defects when selling the home

• Insurer later failed to pay the final defense bill or contribute its

share of settlement

• While Court of Appeals found no duty to indemnify under

volitional acts analysis, insurer had a duty to defend until the moment the trial court made a coverage determination (here, several months after the settlement was reached)

• Insurer breached its duty to defend and was liable for all

damages resulting from the breach (e.g., fees and costs in the coverage litigation)

Insurer Insolvency

In Re Ambac Assurance Corp.

2013 WI App 129, 351 Wis.2d 539, ___N.W.2d ____.

• Ambac = “monoline” insurer
• During subprime mortgage crisis, claims spiked to $150

million per month

• Insurance Commissioner intervened and created a

“segregated account” of troubled policies

• Court of Appeals deferred to Insurance Commissioner’s

discretion

• Will this precedent apply to future insolvencies?

What to Expect in 2014

• Wilson Mutual v. Falk (pollution exclusion case) at the

Wisconsin Supreme Court? (Petition for review is pending).

• Likely continued development of issues surrounding

volitional act doctrine, intentional act exclusion, and definition of accident – expected or intended.

Questions?

Jeffrey O. Davis (414) 277-5317 Jeffrey.davis@quarles.com Patrick Nolan (414) 277-5465 patrick.nolan@quarles.com Brandon Gutschow (414) 277-5745 Brandon.gutschow@quarles.com