©2015 Quarles & Brady LLP. This document provides information of a general nature. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations or issues. Additional facts and information or future developments may affect the subjects addressed in this document. You should consult with a lawyer about your particular circumstances before acting on any of this information because it may not be applicable to you or your situation.

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2015 Wisconsin Insurance Law
Update
February 10, 2016
Joint meeting of the Wisconsin Chapter of
RIMS, the Risk Management Society TM and
Greater Milwaukee CPCU Chapter
Jeff Davis
Patrick Nolan
Brandon Gutschow
Alex Shortridge

3. • Notice Requirements for Claims Made Insurance
• The Duty to Defend
– When Breach Occurs / Choice of Counsel / Defense
Handling / Four Corners Rule
– Using Exclusions to Analyze the Duty to Defend
• Application of Policy Exclusions
• Triggers of Coverage Relating to Property Damage
• Bad Faith Claims
• Post-Coverage Recovery Issues
Overview of Key Insurance Decisions

4. • Anderson v. Aul, 2015 WI 19, 361 Wis. 2d 63, 862 N.W.2d 304
Notice Requirements for Claims Made
Insurance
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5. • Wisconsin Statute §632.26 requires that for “every liability policy”
an insured losses coverage only where the insurer is “prejudiced” by
late notice.
• Circuit Court granted an attorney’s malpractice carrier a declaration
of no coverage under a “claim-made-and-reported” where the
attorney did not provide notice until eleven months after the policy
expired, despite finding no prejudice; Court of Appeals reversed
under Wis. Stat.§632.26.
• The Wisconsin Supreme Court held in favor of carrier that the plain
language of Wis. Stat. §632.26 (requiring insurers to be prejudiced
by late notice before denying claims) does not apply to reporting
requirements in “claims-made-and-reported” policies.
• Found that because the reporting requirement was in the coverage
grant, the statute would create coverage where none existed.
Anderson v. Aul, 2015 WI 19, 361 Wis. 2d 63, 862
N.W.2d 304
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6. • Key take-away points for policyholders:
– Always read and understand whether you have a claims-made-and-
reported liability policy;
– Be vigilant about what constitutes a “claim” under the policy—a claim
can be broader than suit papers and as simple as a letter demanding
some relief or payment, or even a government subpoena or
investigation;
– When faced with an arguable claim or circumstances that could turn into
a claim, err on the side of caution and report the claim or circumstances
to the insurer.
Anderson continued…
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7. • When Breach Occurs / Choice of Counsel / Defense
Handling / Four Corners Rule
– Haley v. Kolbe & Kolbe Millwork Co., Inc., No. 14-cv-99-
bbc, 2015 WL 6669395 (W.D. Wis. Nov. 2, 2015)
• Using Exclusions to Analyze the Duty to Defend
– David M. Marks v. Houston Casualty Co., 2015 WI App 44, 363 Wis.2d
505, 866 N.W.2d 393
– Water Well Solutions Service Group Inc. v. Consolidated Insurance
Company, 2015 WI App 78, 365 Wis.2d 223, 871 N.W.2d 276
The Duty to Defend
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8. • Window manufacturing company sued in class-action lawsuit for
allegedly defective windows; insurers agreed to pay only a portion of
rates charged by company’s chosen counsel
• Company sued for breach of the duty to defend and bad faith based
on insurer not immediately agreeing to pay defense costs and
attempting to appoint defense counsel that were not truly
independent
Haley v. Kolbe & Kolbe Millwork Co., Inc., No. 14-
cv-99-bbc, 2015 WL 6669395 (W.D. Wis. Nov. 2,
2015)
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9. • On when an insurer breaches its duty to defend…
– An insurer need not immediately agree to defend a lawsuit; may take
time to investigate its duty to defend
– If, after investigation, insurer owes and pays defense costs from point of
tender, no breach
– An insurer’s “sharp” practices: e.g., failing to respond to tenders of
defense; appointing defense counsel with potential conflicts; threatening
to have appointed defense counsel appear; treating rejection of counsel
as rejection of coverage, do not necessarily qualify as bad faith or a
breach of the duty to defend (as long as insurer pays defense bills).
• On when an insured may be entitled to its own defense counsel…
– If insurer delays in agreeing to defend after insurer hires own counsel,
insurer may be estopped from appointing new defense counsel (here
insured’s hired counsel defended for 4 months before insurer tried to
appoint new counsel)
Haley continued…
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10. • On the four corners rule…
– Insurers attempted to avoid a duty to defend because court filings in
underlying lawsuit suggested plaintiffs were not seeking damages
associated with “other” property – the only covered claim.
– Nothing in the court filings showed that plaintiffs were unequivocally
disclaiming a recovery for damages to “other” property
– Held that allegations of damages to other property in complaint brought
claims within defense coverage
– Refused to consider filings or extend Estate of Sustache v. American
Family Mutual Ins. Co., 311 Wis.2d 548, 751 N.W.2d 845, 2008 WI 87
Haley continued…
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11. • Insurer unilaterally refused to defend multiple actions asserting
insured breached fiduciary duties as officer and director of various
companies, based upon an express policy exclusion
• In action for breach of duty to defend, insured argued that coverage
determination should be based solely on the policy’s coverage grant
without reference to exclusions
• Insured seized on particular language in Court of Appeals cases in
Grube, Kenefick, and Radke suggesting that only coverage grant be
applied; this position contradicted Professional Office Buildings
• Court rejected argument that a separate duty to defend analysis
applies when carrier unilaterally denies a duty to defend, holding that
exclusions should be used to determine the duty to defend
David M. Marks v. Houston Casualty Co., 2015 WI
App 44, 363 Wis.2d 505, 866 N.W.2d 393
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12. • Insured plumbing contractor negligently replaced submersible pump
in a municipal water system that failed
• Insurer unilateral denied duty to defend based on the “your work”
and “your product” exclusions
• Again, the Court of Appeals found that the entire policy must be
examined and applied in determining the duty to defend
• No allegations suggested exceptions to the your work or your product
exclusion in the complaint.
Water Well Solutions Service Group Inc. v.
Consolidated Insurance Company, 2015 WI App
78, 365 Wis.2d 223, 871 N.W.2d 276
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13. • Insured attempted to circumvent the long-established Four Corners
Rule
• Introduced an affidavit that suggested:
– The “your product” exclusion did not apply because there was damage
to “other property”
– The “your work” exclusion did not apply because work was done by a
subcontractor, for which there is an exception that restores coverage
• Dissent suggested that the Wisconsin Supreme Court should address
the Four Corners Rule again due to possible conflicts in various cases
discussing the duty to defend (Grieb, Doyle, Sustache)
Water Well Solutions Service Group Inc. v.
Consolidated Insurance Company, 2015 WI App
78, 365 Wis.2d 223, 871 N.W.2d 276
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14. • State Farm Fire & Casualty Company v. Easy PC Solutions, LLC, No.
2014AP2657, 2015 WL 8215533 (Wis. Ct. App. Dec. 9, 2015) (slip
copy) (recommended for publication)
• Advanced Waste Services Inc. v. United Milwaukee Scrap, LLC, 2015
WI App 35, 361 Wis.2d 723, 863 N.W.2d 634
• Acuity v. Chartis Specialty Ins. Co., 2015 WI 28, 361 Wis.2d 396, 861
N.W.2d 533
• Connors v. Zurich American Ins. Co., 2015 WI App 89, 365 Wis. 2d 528,
872 N.W.2d 109
• Ramos v. Charter Oak Fire Ins. Co., 2015 WL 5972555, 2015 WI App
90, 365 Wis. 2d 607, 871 N.W.2d 866 (Oct. 15, 2015)
Application of Policy Exclusions
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15. • Blast fax case where CGL policy included Telephone Consumer
Protection Act (TCPA) exclusion
• Court found that exclusion barred even though insured was sued for
conversion and may have sent blast faxes during other policy periods
• Reminder to carefully review policy language and negotiate adequate
coverage
State Farm Fire & Casualty Company v. Easy PC
Solutions, LLC
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16. • Policyholder was metal scrapper that sent wastewater to recycling
company
• Wastewater contained PCBs that were dispersed through recycling
facility
• Policyholder urged Court to adopt additional requirement that
pollution exclusion can only apply if policyholder intentionally
discharges known pollutant
• Court of Appeals declined and held that a pollution exclusion can bar
coverage even if the policyholder does not intentionally disperse
pollutant
Advanced Waste Services Inc. v. United Milwaukee
Scrap, LLC
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17. • Insured contractor’s employees damaged a natural gas pipe, causing
a leak and eventually an explosion and fire that injured several
people and damaged several structures
• Contractor’s CGL insurer acknowledged coverage, but pollution
liability insurer did not, arguing that (1) the “contaminating nature” of
the pollutant must cause the injury/damage; and (2) pollution and
CGL coverage cannot overlap
• Wisconsin Supreme Court held that pollution policy applied
– Policy requires only that pollutant cause bodily injury or property
damage, not that “contaminating nature” cause the injury/damage
– Based on a broad reading of coverage grant and a narrow reading of
exclusions, policies can provide overlapping coverage
Acuity v. Chartis Specialty Ins. Co.
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18. • Bacteria formed in cooling towers of foundry--allegedly causing
plaintiffs to contract pneumonia
• Foundry’s insurer denied coverage based on pollution exclusion
• Policy contained endorsement redefining “pollutant” and listing
examples, all of which were industrial products or byproducts
• Court of Appeals found coverage because endorsement rendered
definition ambiguous by arguably limiting it to industrial products and
byproducts (which the bacteria was not)
Connors v. Zurich American Ins. Co. and
Ramos v. Charter Oak Fire Ins. Co.
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19. • Advance Cable Co. LLC v. Cincinnati Ins. Co., 788 F.3d 743 (7th Cir.
2015)
• Smith v. Anderson, 2015 WL 9283969 (Wis. Ct. App. Dec. 22, 2015)
Triggers of Coverage Relating to Property
Damage
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20. • Insured tendered claim for cosmetic hail damage to metal roof
• Insurer denied coverage because damage did not result in material
structural harm or impair roof panels’ life expectancy, arguing that
“physical loss” meant “material or structural harm”
• District Court found coverage for cosmetic damage
• Seventh Circuit affirmed holding that “physical” means “affecting the
physical (not intangible) characteristics” of the covered property” and
that “loss” is not limited to losses of function or diminution in value
Advance Cable Co. LLC v. Cincinnati Ins. Co., 788
F.3d 743 (7th Cir. 2015)
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21. • Home seller was sued by buyer for misrepresenting the condition of
the home
• Seller sought indemnification and contribution from a contractor he
had hired to fix defects at issue
• Contractor tendered claim to insurer who sought declaration of no
coverage
• Wisconsin Court of Appeals found no coverage
– There was no “property damage caused by an occurrence”;
misrepresentation does not cause property damage
– Neither buyer’s complaint nor third-party complaint alleged that
negligence or faulty workmanship caused property damage
Smith v. Anderson, 2015 WL 9283969 (Wis. Ct.
App. Dec. 22, 2015)
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22. • Estate of Meistad v. Progressive Universal Ins. Co., 2015 WL 3403457,
2015 WI App 52, 364 Wis. 2d 408, 866 N.W.2d 405
– Unpublished decision (persuasive value only)
– Bad faith in settlement negotiations
Bad Faith Claims
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23. • Plaintiff was injured by uninsured driver and made a claim under his
uninsured motorist policy
• Insurer settled claim and insured released insurer but later learned
injuries were misdiagnosed / more severe and then sought
additional coverage which insurer denied
• Adjuster discouraged plaintiff to retain attorney / told him he would
be “taken care of”
• The Wisconsin Court of Appeals held that an insured can sue for bad
faith, even where claim was settled, where insurer failed to conduct a
reasonable investigation and obtained a release through bad faith
conduct.
Estate of Meistad v. Progressive Universal Ins. Co.,
2015 WL 3403457, 2015 WI App 52, 364 Wis. 2d
408, 866 N.W.2d 405
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24. • Issues:
– Were the requirements of WI Supreme Court case of Brethorst satisfied?
– i.e., was there an actual denial of benefits under the policy. (Insurer:
since a payment was made, that was sufficient to avoid bad faith).
– Is a signed release an “objective basis” to avoid bad faith claim?
– Was there a factual basis for a jury to find bad faith?
• Inducement by the adjuster that he did not need attorney / would take care
of plaintiff
• Reserve amounts greater than settlement
• Adjuster notes that the claim was worth more than eventual settlement
Estate of Meistad v. Progressive Universal Ins. Co.,
2015 WL 3403457, 2015 WI App 52, 364 Wis. 2d
408, 866 N.W.2d 405
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25. • Dilger v. Metropolitan Property and Casualty Ins. Co., 2015 WI App
54, 364 Wis. 2d 410, 868 N.W.2d 117 (Wis. Ct. App. June 3, 2015)
• Gronik v. Balthasar, Nos. 10-cv-0954, 11-cv-0697, 2015 WL 4647938
(E.D. Wis. Aug. 6, 2015)
• Fleet and Farm of Green Bay, Inc. v. United Fire and Casualty Co., No.
13-C-1013, 2015 WL 5839056 (E.D. Wis. Oct. 7, 2015)
Post-Coverage Recovery Issues
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26. • Wisconsin Statute§628.46 requires insurers to pay claims within 30
days of written notice, or incur interest at 12%
• Claimant police officer was struck by insured driver who fled scene
thinking she had hit a deer
• Insured later turned herself in and pled guilty to hit and run and was
sentence to four months of jail
• The Court of Appeals found that interest did not accrue until the
insured was sentenced
– Insurer had reasonable proof of non-responsibility until sentencing
Dilger v. Metropolitan Property and Casualty Ins.
Co., 2015 WI App 54, 364 Wis. 2d 410, 868
N.W.2d 117 (Wis. Ct. App. June 3, 2015)
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27. • Insured homeowner settled a claim for damages and then sought to
recover the same damages from its insurer
• Insurer counterclaimed that it was entitled to an offset for the
settlement amount to avoid double recovery by the homeowners
• Eastern District denied the setoff
– A setoff is a reduction in a debt plaintiffs owe defendants and the
plaintiff homeowners did not owe insurers a pre-existing debt
– Setoffs are equitable and equitable remedies are unavailable in contract
actions
– A setoff would be against public policy because the insured paid a
premium for the benefit of coverage and should receive the benefit
regardless of whether he is able to obtain payment from another source
Gronik v. Balthasar, Nos. 10-cv-0954, 11-cv-0697,
2015 WL 4647938 (E.D. Wis. Aug. 6, 2015)
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28. • Insurers were found to wrongfully deny coverage for an accident in a
Fleet and Farm store and were liable for defense costs
• Fleet and Farm provided redacted defense costs invoices
• Insurer moved for un-redacted copies claiming it could not tell
whether fees were reasonably and necessarily incurred
• The Eastern District denied the motion holding that the insurer had
given up the right to “take a fine-toothed comb over its legal bills”
Fleet and Farm of Green Bay, Inc. v. United Fire and
Casualty Co., No. 13-C-1013, 2015 WL 5839056
(E.D. Wis. Oct. 7, 2015)
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29. • Fluor Corp v. Superior Court, 354 P.3d 302 (Cal. 2015)
• In re Deepwater Horizon, 470 S.W.3d 452 (Tex. 2015)
• New Products
– Reps and Warranties
– Cyber!
Beyond Wisconsin—and a Look Ahead
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30. • Overruled Henkel Corp v. Hartford Accident and Indemnity Co.’s
holding that anti-assignment provisions prohibit sellers from
assigning purchasers right to coverage for legacy liabilities
• Held that a seller in an asset sale transaction may assign to the
purchaser the right to coverage for pre-existing but undiscovered
liabilities without running afoul of the anti-assignment provisions
Fluor Corp v. Superior Court, 354 P.3d 302 (Cal.
2015)
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31. • Evaluated additional insured provisions in light of Deepwater Horizon
oil spill
• Found that BP who had contracted with insured was not entitled to
damages for subsurface pollution per the drilling contract which
limited the insureds liability to surface pollution: “an insurance policy
may incorporate an external limit on additional-insurance coverage.”
In re Deepwater Horizon, 470 S.W.3d 452 (Tex.
2015)
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32. • … but not much new law
• Reps and warranties
– Becoming more and more important in mergers and acquisitions
• Cyber coverage is exploding
– Some businesses need it more than others
– No uniformity in coverage
New Products
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33. • Jeff 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
• Alex Shortridge
(414) 277-5443
Alexandra.shortridge@quarles.com
Questions?
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