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Choinsky v. Employers Insurance Co. of Wausau (Duty to Defend)

Posted on by Hamilton

In Choinsky v. Employers Insurance Co. of Wausau (2020 WI 13), a 5-1 Wisconsin Supreme Court held that insurers did not breach their duty to defend when they did not immediately accept the defense of their insured. Insurers may initially deny a tendered claim, then follow a judicially preferred method of determining coverage to avoid breaching duty to defend.

 

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 school district on the merits case – including retroactive fees – until the court decided the coverage issue.

The school district argued the insurers breached their duty to defend by not immediately providing the school district a defense.  

 

Decision

The Supreme Court held that the insurers did not breach their duty to defend because, upon finding there was a coverage dispute with the insured, the insurers properly sought bifurcation of the coverage dispute and stay of the liability proceedings. Bifurcation and stay are one of four judicially preferred methods to litigate a coverage dispute between insurer and insured.

When the circuit court denied the motion to stay, the insurers properly followed another judicially preferred method by defending the insured in the liability lawsuit under a reservation of rights until the coverage dispute was resolved. Because the insurers followed the judicially preferred methods, they did not breach their duty to defend and did not owe attorney fees to the school district for the coverage dispute.

 

Dissent

In a dissent, Justice Kelly argued that the insurers did have a duty to defend until the coverage dispute was resolved, notwithstanding a request to bifurcate and stay.

The dissent argued that the court improperly introduced a new concept of “retroactive defense” wherein an insurer can initially refuse coverage without consequence because it can always pay for the defense retroactively if a court later decides coverage is due. The “retroactive defense” concept adopted by the court allows insurers to initially breach their duty to defend and forces the insured to defend itself in coverage and liability trials simultaneously, contrary to the intent of the judicially preferred methods for coverage disputes.

Here, according to the dissent, the insurers did breach their duty to defend by not providing a defense to the school district until the coverage dispute was resolved. The insurers had a duty to defend the school district until coverage was resolved, regardless of whether the insurers sought and the circuit court approved a motion to bifurcate and stay the liability proceedings.

Kasal v. Stryker Corp. (Attorney Fees in Worker’s Compensation)

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In Kasal v. Stryker Corp. (2019AP1017), the Court of Appeals District I held that an insurer was not entitled to attorney fees in a third-party liability worker’s compensation case because the insured’s policy precluded recovery of attorney fees.

Aurora hospital employee Mary Kasal was injured by a piece of equipment at work. Kasal subsequently filed a third-party liability worker’s compensation claim against Stryker Corp., which manufactured the equipment. Aurora and its insurer Sentry Insurance joined the claim, as allowed under Wis. Stat. § 102.29. When Kasal reached a settlement with Stryker, Sentry objected to the settlement, seeking attorney fees, which were not included in its payment under the proposed settlement. The circuit court approved the settlement without attorney fees for Sentry. Sentry appealed.

The Court of Appeals agreed that Sentry was not entitled to attorney fees. A provision in the Aurora policy with Sentry allows Sentry to recover payments from anyone liable for the injury (i.e. Stryker). Because the policy is silent on whether Sentry may recover attorney fees from a third party liable for the injury, the court found that Sentry was not entitled to attorney fees in the settlement. The court determined that the policy provisions superseded Wis. Stat. § 102.29(1)(c), which typically requires attorney fees for third-party liability worker’s compensation lawsuits.

 

Central United Methodist Church v. City of Milwaukee (Tax Exemption)

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In Central United Methodist Church v. City of Milwaukee (2019AP778), the Court of Appeals District I held that a Milwaukee church accepting donations for use of its parking lot used its property exclusively for benevolent purposes; therefore, the church was entitled to a property tax exemption under Wis. Stat. § 70.11(4).

Central United, a non-profit church located near the Rave/Eagles Club concert venue in Milwaukee, began accepting donations from concert-goers who wished to park in its lot. Several years after Central United began offering concert parking, the City of Milwaukee changed the parking lot’s tax assessment classification from “exempt” to “local mercantile.” Central United filed this lawsuit seeking a declaration that the parking lot was exempt and seeking recovery of taxes paid based on the reclassification.

The court found that the church’s parking lot was exempt under Wis. Stat. § 70.11(4), which exempts benevolent associations from property tax payments. According to the court, donations from concert-goers for parking spaces in the church lot were incidental to the benevolent purpose of the church. The church used profits from the voluntary parking lot donations as it used donations from any other source – to support its primary benevolent functions. Furthermore, the church had only begun using volunteers to collect parking lot donations after unauthorized neighbors not associated with the church had attempted to use the parking lot to make a profit. Because the use of the parking lot to accept donations was incidental to the benevolent purpose of the church, the court ruled against the city and found the church exempt from paying property taxes under Wis. Stat. § 70.11(4).

Hickethier v. Janesville Kia (Fraudulent Misrepresentation)

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In Hickethier v. Janesville Kia (2018AP2276), the Court of Appeals District IV held that plaintiffs failed to sufficiently allege that their car dealership knowingly misrepresented defects in the vehicle they purchased or that the dealership engaged in unconscionable practices.

Dawn Livingston-Hickethier and Chris Hickethier purchased a used Buick from Janesville KIA. When the Hickethiers got the vehicle’s oil changed for the third time, a mechanic found that the vehicle had an excessive oil consumption issue. The Hickethiers later obtained a vehicle history report showing that there had also been a recall for seat wiring in the vehicle. As a result, the Hickethiers filed this lawsuit alleging that Janesville KIA had engaged in fraudulent conduct and unconscionable practices in violation of auto dealer statutes in Wis. Stat. Ch. 218.

The court found that the Hickenthiers failed to sufficiently allege the Ch. 218 claims. The court determined that, for their fraud claims to succeed, the Hickenthiers must have established that Janesville KIA made a knowing misrepresentation. The Hickethiers failed to allege that Janesville KIA made such a knowing misrepresentation. The court could not infer that Janesville KIA had known about the excessive oil consumption issue, especially since it had taken three trips to mechanics before the Hickenthiers discovered the issue. Regarding the seat wiring recall, Janesville KIA was not obligated to find and disclose recalls for Buick, for which it did not hold a franchise (see Wis. Admin. Code § Trans 139.04(9)). Finally, the court held that Janesville KIA did not engage in unconscionable practices because the dealership did not inflate the price and the vehicle was not unsafe to drive at the time of purchase.

Because the Hickenthiers’ claims failed to meet the required pleading standards, the court dismissed the case.

Southwest Airlines Co. v. DOR (Tax Assessment)

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In Southwest Airlines Co. v. DOR (2019AP818), the Court of Appeals District I held that Southwest Airlines and AirTran Airways did not meet the statutory requirements to qualify for a “hub facility” exemption from property taxes. The “hub facility” exemption from property taxes exempts air carriers from paying property taxes if they operate at least 45 common carrier departing flights each weekday, among other requirements (Wis. Stat. § 70.11(42)(a)2.a.).

Southwest and AirTran merged in 2011 but filed separate air carrier reports – not seeking the hub facility exemption – to the Wisconsin Department of Revenue (DOR) for their 2013 and 2014 property tax assessments. While undergoing later audits by DOR, the airlines realized that they believed their flight data showed they collectively had met the requirements for the hub facility exemption for the 2013 and 2014 assessments. The airlines filed this lawsuit seeking the amount they paid in property taxes for those years.

The Court of Appeals agreed with DOR that the airlines did not meet the requirements for the hub facility exemption for the 2013 and 2014 assessments. For the 2013 assessment, there were six weekdays where the airlines did not meet the minimum 45 departing flights requirement. The court rejected the airlines’ argument that those shortfalls should not count because they were caused by holidays or bad weather. For the 2014 assessment, the court rejected the airlines’ argument that they had met the minimum 45 flights based on their average number of departing flights. The court said the statute does not provide an exemption for airlines operating an average of 45 flights per weekday.

Because the airlines did not strictly meet the statutory requirements for the hub facility exemption, the court dismissed the airlines’ case.

Paustian Medical & Surgical Center, S.C. v. IMT Insurance Co. (Duty to Defend)

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In Paustian Medical & Surgical Center, S.C. v. IMT Insurance Co. (2019AP141), the Court of Appeals District IV held that the insurer had no duty to defend because an impaired property exclusion applied.

Paustian contracted with RC Heating & Cooling so RC could design and install an HVAC system in the build-out of Paustian’s medical facility. After RC completed the project, Paustian sued RC and RC’s insurer IMT for breach of contract and negligence. Paustian alleged it lost income because it couldn’t use the build-out area for procedures and it incurred expenses for repairing RC’s work.

IMT argued and the court agreed that it had no duty to defend under its policy with RC. The policy excluded coverage for 1) property damage to property that has not been physically injured and 2) loss of use of property arising out of RC’s failure to perform a contract. This “impaired property” exclusion applied here because Paustian did not allege the HVAC system had been physically injured or caused physical injury to the Paustian facility – the HVAC system just had some deficiencies that required repair. The exclusion also applied because Paustian alleged its damages arose from RC’s breach of the contract for installation of the HVAC. Because the exclusion applied, IMT had no duty to defend.

Vistelar, LLC v. Cincinnati Specialty Underwriters Insurance Co. (Duty to Defend)

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In Vistelar, LLC v. Cincinnati Specialty Underwriters Insurance Co. (2019AP633), the Court of Appeals District I held that the insurer did not have a duty to defend against claims of trademark infringement because the policy prohibited coverage for known losses.

Vistelar and Verbal Judo entered into a licensing agreement wherein Vistelar could use Verbal Judo’s intellectual property. In 2013, the agreement expired, and Verbal Judo did not renew the agreement. Verbal Judo then sent a letter asking Vistelar to cease and desist use of its intellectual property. In July 2017, Verbal Judo sued Vistelar, alleging trademark infringement.

Vistelar tendered its defense to its insurer Cincinnati. Cincinnati denied coverage, arguing that Vistelar knew the alleged injuries to Verbal Judo began to occur before the policy period, which commenced in August 2016.

The court agreed that Cincinnati did not have a duty to defend because the policy had provisions excluding coverage for a “known loss.” Under the policy, Cincinnati would not provide coverage if Vistelar was “aware…of a condition from which injury is substantially certain to occur.” Since Verbal Judo sent the cease and desist letter in 2013, the court found that Vistelar was aware of potential injury and liability before its Cincinnati policy began in 2016. Therefore, the “known loss” provision in the policy applied, and Cincinnati had no duty to defend.

 

Wisconsin Court of Appeals Rules in Voter Registration Lawsuit

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*This case is recommended for publication.

 

In Zignego v. Wisconsin Elections Commission (2019AP2397/2020AP112), the Court of Appeals District IV overturned a circuit court order mandating the Wisconsin Elections Commission deactivate the registrations of Wisconsin voters who had recently moved and failed to timely apply for continuation of registration.

 

Background

Wis. Stat. § 6.50(3) provides that, if a municipal clerk or “board of election commissioners” receives information that voters have moved, it must notify the voters. If a notified voter fails to respond to the notice within 30 days, the municipal clerk or “board of election commissioners” is required to change the voter registration status to ineligible. At issue in this case was whether “board of election commissioners” refers to the Wisconsin Elections Commission.

The Wisconsin Elections Commission in 2017 received from a third-party data corporation a report on voters who may have moved. Based on that data, the Commission sent notices to those voters stating that they had 30 days to respond or their registration status would switch to ineligible. The Commission subsequently deregistered those individuals who did not respond to the notice.

After receiving another report on voters who may have moved in 2019, the Commission, citing worries about inaccurate data from the 2017 report, sent out a notice to those voters but declined to state the Commission would deregister voters who did not respond.

Subsequently the plaintiffs filed this lawsuit alleging that the Commission violated § 6.50(3) by not deregistering the voters who had not responded to the notice. The Commission argued § 6.50(3) did not apply, as the Commission is not a “board of election commissioners.”

The circuit court ruled in favor of the plaintiffs and issued a writ of mandamus ordering the Commission to deactivate the voters. When the Commission did not deactivate the voters, the court found the Commission in contempt of court. The Commission sought a petition to bypass the Court of Appeals, but the Supreme Court rejected the petition. The next day, the Court of Appeals granted the Commission’s appeal and issued a stay of the circuit court’s writ of mandamus and contempt order.

 

Court of Appeals Decision

 The Court of Appeals agreed with the Commission that the term “board of election commissioners” in § 6.50(3) does not refer to the Commission. Wisconsin’s election statutes consistently refer to the Elections Commission as the “commission” (§ 5.025). At other places in statute, “board of election commissioners” refers to a body in Milwaukee that fills the duties of a municipal election clerk. The court found no reason to hold that “board of election commissioners” would mean something else in § 6.50(3). Even within § 6.50, the statutes use both terms: “commission” and “board of election commissioners.” Thus, assigning “board of election commissioners” to mean the Elections Commission in just one instance in these statutes would render one of the terms superfluous.

Furthermore, the court found that the Elections Commission is an independent agency, not a “board,” so “board of elections commissioners” could not refer to the Elections Commission. The court also dismissed plaintiffs’ arguments that the Legislature intended § 6.50(3) to require removal of moved voters and that the Commission itself at one point believed it had authority to deregister voters under § 6.50(3).

Thus, the Court of Appeals ordered the plaintiffs’ causes of action dismissed and reversed the circuit court’s writ of mandamus and contempt order against the Commission.

Plaintiffs, represented by Wisconsin Institute for Law & Liberty, have filed a petition for review by the Wisconsin Supreme Court.

Trost v. Haack Homestead Inspections, LLC (Duty to Defend)

Posted on by Hamilton

In Trost v. Haack Homestead Inspections, LLC (2018AP2344), the Court of Appeals District IV held that a liability insurer had no duty to defend because the complaint did not allege property damage caused by the insured.

Defendants Raymond and Donna Weihofen sold their house. After discovering a bat infestation and water intrusion in the home, the buyers brought misrepresentation claims against the Weihofens. The Weihofens claimed their liability insurer Economy Premier Insurance Co. had a duty to defend them under their policy, which covered claims resulting from occurrences where there is property damage.

Economy argued that it did not have a duty to defend the Weihofens in this case because the Weihofens did not cause the property damage at issue. The court agreed, finding that the buyers’ misrepresentation claims did not allege that the Weihofens’ conduct caused property damages at the home; instead, the buyers alleged that the Weihofens’ misrepresented the extent of the already existing damages, inducing the buyers to purchase the home to their detriment. The Economy policy provided coverage only for liability for property damage – not for liability for misrepresentations, so Economy had no duty to defend the Weihofens.

Mueller v. TL90108, LLC (Wrongful Detention)

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In Mueller v. TL90108, LLC (2020 WI 7), the Wisconsin Supreme Court unanimously determined that plaintiffs may file a wrongful detention claim against a possessor of previously converted property. The statute of repose for wrongful detention begins when the new possessor takes control of the vehicle, not necessarily when a demand for return of the property is made.

In 2017, the owners of a valuable classic car that was stolen in 2001 filed this complaint to recover the car against TL90108, which had bought the stolen car. TL argued that the plaintiffs’ claims were barred by the six-year statute of repose under Wis. Stat. §§ 893.35 and 893.51, which TL said began in 2001, when the car was first stolen.

The Supreme Court found that the plaintiffs’ claims were not barred because the cause of action took place not when the vehicle was stolen but when TL obtained possession of the vehicle in 2015. According to the court, the statute of repose in §§ 893.35 and 893.51 can begin again when the current possessor wrongfully detains property that had been wrongfully taken beyond the statute of repose.