In an opinion authored by Chief Judge Lisa Neubauer and joined by Judge Brian Hagedorn (both Wisconsin Supreme Court candidates), the Court of Appeals District II held in Choinsky v. Germantown School District (2018AP116) that insurers did not breach their duty to defend when they did not immediately accept the defense of their insured. Furthermore, the insurers did not owe unpaid fees beyond what was agreed upon between the insurers and the attorneys.

Facts

The underlying issue in this case involved a group of retired teachers who filed a lawsuit against their school district for breach of contract following the enactment of 2011 Act 10. The district tendered its defense to its insurers, Employers Insurance Company of Wausau and Wausau Business Insurance Company.

The insurers determined there was no coverage and, according to the coverage dispute procedure recommended by Wisconsin courts, moved to 1) intervene, 2) bifurcate the coverage issue from the underlying merits of the case, and 3) stay the merits case until the resolution of the coverage issue. The court agreed to bifurcate the issues but denied the motion to stay, citing the need for urgency in resolving the underlying employee benefits issue. The insurers agreed to meanwhile provide defense to the district on the merits case – including retroactive fees – until the court decided the coverage issue.

Before the court decided on the insurers’ motion to intervene, the school district moved to dismiss the teachers’ merits case. There was relatively little other activity on the merits case between when the district filed its motion to dismiss and when the court issued its decision to bifurcate but not stay the merits case.

Attorney Fees in Establishing Coverage

The district contended that, because the insurers did not immediately accept its defense and instead waited until the court decision on the bifurcation and stay, the insurers owed the district attorney fees for the coverage dispute. Elliot v. Donahue required an insurer to pay attorney fees for establishing coverage when the insurers denied defense to an insured and moved to bifurcate but not stay the merits proceedings. In the instant case, the appeals court ruled that Elliot did not apply here because the insurers timely and properly followed the court-approved coverage issue procedures. Even though there was no stay granted, the insurer properly filed the motion to stay and timely decided to defend the district when the stay was denied. The court furthermore ruled that waiting to defend until the circuit court decided on the coverage dispute was not a breach of the insurers’ duty to defend.

Unpaid Fees on the Merits Case

The district also contended that the insurers failed to reimburse the district fully for attorney fees in the merits case. The insurers had made deductions to invoices, citing the attorneys’ violations of guidelines the attorneys and insurers had agreed upon when they worked together in previous cases. The attorneys did not dispute the insurers’ deductions. The district claimed reimbursing them for the deducted amount instead of the full invoice amount was a breach of contract and requested reimbursement of $50,000 in unpaid fees. The court rejected the district’s argument, stating that there was no evidence the unpaid fees were reasonable and owing, since the attorneys and insurers had agreed upon them.

In Town of Little Wolf v. Waupaca County (2017AP1941), the Court of Appeals District IV upheld Waupaca County’s decision that a mine was a lawful nonconforming use after the passage of a non-metallic mining ordinance.

In 2015, Waupaca County passed the non-metallic mining ordinance, which requires new and expanding mines to obtain conditional use permits. The Waupaca County Planning and Zoning Committee determined that the Theil Pit mine was a lawful nonconforming use. Accordingly, the Theil Pit operators did not need to obtain a conditional use permit since the mine operated prior to the passage of the ordinance.

The Town of Little Wolf appealed the Zoning Committee’s decision, arguing that the Thiel Pit was not a lawful nonconforming use because its operators had failed to comply with a previous ordinance requiring them to obtain a reclamation permit. However, the court ruled that, whether the Thiel Pit was in violation of the reclamation ordinance or not, the mine was still operating legally in regard to zoning laws. The court stated that noncompliance with a regulatory, non-zoning ordinance like the reclamation ordinance does not prohibit the mine from continuing to be zoned as a lawful nonconforming use.

The court also rejected the town’s arguments that Waupaca should have considered whether the Thiel Pit was a public nuisance, that the appeal process violated the town’s due process rights, and that there was a conflict of interest related to a Waupaca attorney.

In Bakkestuen v. Lepke Holdings LLC (2017AP2500), the Court of Appeals District IV held that employer Lepke owed dump truck drivers compensation for preparation time before and after actual loading time.

Citing the 2016 Wisconsin Supreme Court decision United Food & Com. Workers Union v. Hormel Foods Corp., which held that donning and doffing of required clothing was compensable work time, the appeals court ruled in this case that preparing trucks before and after loading was similarly compensable. The court stated that the preparation time was “integral and indispensable” to the drivers’ primary loading activity.

The court rejected Lepke’s argument that it did not owe the drivers the unpaid wages because it paid them more than the minimum wage for the primary hours worked. Citing the recent Tetra Tech v. DOR decision, the court did not, as Lepke requested, accord great weight deference to a prior Department of Workforce Development (DWD) decision, which stated that employers are required to pay employees only so that the total amount paid during a pay period divided by the total number of hours worked is at least the statutory minimum wage. Instead, the court held that DWD rules (Wis. Admin. Code §§ DWD 272.025 and 272.12(1)) require Lepke to pay employees the agreed-upon wage for all hours worked.

Finally, the court held that Lepke was required to pay the drivers overtime. Although the motor carrier exemption to federal and state overtime laws applied, Lepke owed the employees overtime because Lepke had contractually agreed to pay them overtime. Furthermore, Lepke owed the drivers the higher prevailing wage for overtime work they did on municipal and state works projects, according to the now repealed prevailing wage statute (2013-14 Wis. Stat. §§ 103.49 and 103.50).

In Anderson v. Kayser Ford, Inc. (2017AP2018), the Court of Appeals District IV held that insurers have a duty to defend insureds in lawsuits where the only indemnifiable claim is dismissed (leaving only noncovered claims to be litigated at the trial level) because the indemnifiable claim could recur on appeal.

Jody Anderson filed this lawsuit against Kayser Ford, making four claims. A circuit court ruled that Kayser’s insurer, Regent Insurance Co., had an obligation to indemnify Kayser only on Anderson’s first claim. The partial summary judgment decision left a trial only on Anderson’s fourth claim, on which Regent had no duty to indemnify Kayser if Anderson prevailed.

Regent argued that, since the only indemnifiable claim had been dismissed, it had no duty to defend Kayser in the litigation on the fourth claim. The appeals court rejected Regent’s argument, stating that the indemnifiable first claim could recur in an appeal.

The “four-corners test” requires courts to uphold insurers’ duty to defend so long as there is a possibility the insurer might be obligated to indemnify the insured under the “four corners” of the complaint. Wisconsin courts also follow the “entire suit rule,” which requires insurers to defend the insured in an entire lawsuit, even if the insurer only has an obligation to indemnify in one of the claims in the lawsuit.

Based on the four-corners test and the entire suit rule, the appeals court determined Regent had a duty to defend Kayser in this case. Although the indemnifiable claim had been dismissed, the partial summary judgment was not a final decision, leaving the possibility that Anderson could bring the indemnifiable first claim back on appeal. Whether or not an indemnifiable claim remains after the circuit court level, the court said the insurer’s duty to defend only ends when a final settlement is reached or the litigation has come to a final conclusion, with no more appeals available.

In Hinrichs v. DOW Chemical Co. (2017AP2361), the Court of Appeals District II dismissed misrepresentation claims on the basis of the economic loss doctrine, but ruled the plaintiffs might be considered “the public” for the purposes of bringing forth a fraudulent representation claim.

Facts

Chris Hinrichs developed acrylic skylight panels for vehicles and owned Autovation Limited, which manufactured, distributed, and installed the panels. Autovation used a DOW Chemical adhesive to install the panels. When Hinrichs discovered some of the panels were cracking, an agent from DOW issued him a report stating that the adhesives were properly functioning. However, Hinrichs later discovered that the adhesives in the panels were in fact failing, damaging his products and significantly affecting his sales. Hinrichs and Autovation filed the instant claims of negligent misrepresentation, intentional misrepresentation, strict responsibility misrepresentation, and violation of Wisconsin’s fraudulent representations statute (Wis. Stat. § 100.18).

Economic Loss Doctrine

The court barred Hinrichs’s misrepresentation claims on the basis of the economic loss doctrine, which provides that plaintiffs cannot sue to recover solely economic losses from the nonperformance of a contract.

The court ruled the “fraud in inducement” exception to the economic loss doctrine did not apply because the misrepresentation did not occur before Hinrichs’s contract with DOW was formed and because the alleged misrepresentation was not extraneous to the contract. The “other property” exception to the economic loss doctrine did not apply because the damaged panels and the adhesive the parities contracted for were parts of an integrated system. Furthermore, Hindrichs could have foreseen that failure of the adhesives would damage the panels.

In short, Hinrichs and DOW had the opportunity to address these circumstances in their contract and, since they declined to do so, Hinrichs is not entitled to damages for economic loss.

Fraudulent Representation

 The court found that the plaintiffs’ complaint against DOW made a sufficient case for the claim of untrue, deceptive, or misleading representations under Wis. Stat. § 100.18 to go forward. However, the court was still unclear on whether Hinrichs and Autovation are members of “the public” who can bring a fraudulent representation claim against DOW. The appeals court remanded this aspect of the case, asking the circuit court to address whether Hinrichs and Autovation had a significant enough relationship with DOW to prohibit them from claiming fraudulent representation.