WHAT’S HOT & WHAT’S NOT

IN INSURANCE COVERAGE

Arnold P. Anderson

Wisconsin Reinsurance Corporation

Mohr & Anderson, LLC

2810 City View Drive

Madison, WI 53708

(608) 242-4517

I. AMBIGUITY

A.What is the effect if the terms of a policy are ambiguous? Taylor v. Greatway Ins. Co., 2001 WI 93, ¶ 10, 245 Wis. 2d 134, 628 N.W.2d 916, noted the basic rules that apply to ambiguities. The language of a policy is ambiguous if it is susceptible to more than one reasonable construction. If ambiguous, the court will interpret the language by trying to determine what a reasonable person in the position of the insured would have understood the words of the policy to mean. Dowhower v. West Bend Mut. Ins. Co., 2000 WI 73, ¶ 35, 236 Wis. 2d 113, 613 N.W.2d 557. The language of an insurance policy should advance the insured’s reasonable expectations of coverage. Taylor, supra, ¶ 10.

B.The “reasonable insured” from whose standpoint the policy is interpreted, is the insured that purchased the policy. Ennis v. Western Nat. Mut. Ins. Co., 225 Wis. 2d 824, 593 N.W.2d 896 (Ct. App. 1998).

C.Terms in an insurance policy are not interpreted in a vacuum or based on hypotheticals. The words are tested against the factual allegations at issue. Peace v. Northwestern Nat. Ins. Co., 228 Wis. 2d 106, 136, 596 N.W.2d 429 (1999) stated: “Looking at the text of the pollution exclusion clause in relation to the facts of this case, we conclude that the clause is not ambiguous.” Donaldson v. Urban Land Interest, Inc., 211 Wis. 2d 224, 231-232, 564 N.W.2d 728 (1996) (issue was whether exclusion applied to human respiration); Ruff v. Graziano, 220 Wis. 2d 513, 523, 583 N.W.2d 185 (Ct. App. 1998) (business pursuits exclusion construed in the context of the activity from which the claim arises). Lahoe v. Century 21 Baltes-Selsberg, 204 Wis. 2d 483, 555 N.W.2d 149 (Ct. App. 1996) (exclusion not ambiguous to every class of persons and reasonable person in the position of the insured would interpret the clause to exclude coverage); and Jacob v. Russo Builders, 224 Wis. 2d 436, 453, 592 N.W.2d 271 (Ct. App. 1999) (“Thus, the issue here is the meaning of the CGL policy language and its application to the facts of this case.”).

D.The designation “d/b/a” means “doing business as,” is descriptive of the person or corporation which does business under some other name, and did not create or constitute an entity distinct from the person operating the business. Jacob v. West Bend Mut. Ins. Co., 203 Wis. 2d 524, 553 N.W.2d 800 (Ct. App. 1996). See also Binon v. Great Northern Ins. Co., 218 Wis. 2d 26, 580 N.W.2d 370 (Ct. App. 1998).

E.Exclusions operate independently to deny coverage. An alleged inter-relationship between two exclusions did not create uncertain affect or an ambiguity. In Heaton v. Mountin, 2000 WI App 45, 12, 233 Wis. 2d 154, 607 N.W.2d 322, no ambiguity was created in an automobile policy which excluded as “insured persons” any person other than a relative using the insured care without permission and also excluded any person using a vehicle without permission of the person having lawful possession.

F.The fact a word has more than one dictionary meaning or that the parties disagree about the meaning does not make the word ambiguous. If the court concludes that only one meaning applies in the context and comports with the parties’ objectively reasonable expectations, it is not ambiguous. Ruff v. Graziano, 220 Wis. 2d 513, 583 N.W.2d 185 (Ct. App. 1998). See also, Doyle v. Engelke, 219 Wis. 2d 277, 580 N.W.2d 245 (1998).

G.When the clause is not ambiguous there is no duty to explore materials outside the policy. Peace v. Northwestern Nat’l Ins. Co., 228 Wis. 2d 106, 596 N.W.2d 420 (Ct. App. 1999).

II.WAIVER AND ESTOPPEL

A.In Nugent v. Slaght, 2001 WI App 282, 249 Wis. 2d 220, 638 N.W.2d 594, the insured was sent a notice that an auto liability policy would be canceled on July16, 1996 if the premium was not paid. On July 19, 1996 the insured was involved in a two-car collision. The claims department did not know of the cancellation and attempted to settle the claim against the insured for approximately 3 years. Interviews were given, authorizations were provided. When suit was filed in June of 1999, the company verified coverage and found out the policy had been canceled prior to the accident. Nugent held that waiver did not apply since the claims representatives acted without knowledge held by other employees of the insurance company. However, the case was remanded to determine whether equitable estoppel should be applied to the insurance company. Shannon v. Shannon, 150 Wis. 2d 134, 442 N.W.2d 25 (1989) was distinguished because it dealt with scope of coverage, not whether the company was estopped from asserting its forfeiture or cancellation provisions. Nugent relied in part on Peterson v. Truck Ins. Exchange, 65 Wis. 2d 542, 223 N.W.2d 579 (1974) (waiver of right to have policy lapse automatically for non-payment of premium).

B.In Sugden v. Boch, 2002 WI App 49, 251 Wis. 2d 344, 641 N.W.2d 697, plaintiffs contended the insurance company had waived an anti-stacking provision when it voluntarily stacked two policies in order to settle a single claim and then told the plaintiffs there was additional coverage. The accident involved two members of the same family (James and Albert) who were both killed while riding bicycles when hit by an uninsured motorist. The insurance company had offered to settle James’s claim by making two payments of $25,000 from two policies which was the $50,000 “per occurrence” limit of the policies. The company also informed the plaintiff’s attorney that there was additional coverage with regard to Albert’s claim. The insurance company caught the error and then claimed it had paid its limits and the anti-stacking provision applied. The Court of Appeals agreed with the company, but that left the issues of waiver and estoppel. The anti-stacking provision did not fit squarely in either category of coverage or forfeiture clause. See Shannon v. Shannon, 150 Wis. 2d 434, 442, N.W.2d 25 (1989) (coverage clause cannot be waived but forfeiture clause can be waived). Allowing the plaintiffs to collect more than $50,000 would give them more coverage than they paid for and create coverage where none had existed. However, there are some instances when waiver and estoppel may apply even though it will create coverage that did not otherwise exist. See Nugent v. Slaght, 2001 WI App 282, 249 Wis. 2d 220, 638 N.W.2d 594. In this case, however, those factors were not in evidence. There was no inequity to plaintiffs by applying the policy as written. The plaintiffs were unable to establish how accepting the $50,000 settlement was detrimental to them when they received the maximum allowable under one occurrence or $50,000. Thus the insurance company did not waive nor was it estopped from applying the anti-stacking provisions. Waiver and estoppel were also not applicable under the theory that the insurer paid one person $25,000 under one policy and $25,000 under another policy and therefore waived the anti-stacking provision. The policy limit of $50,000 applied no matter how it was paid.

C.In one case, injustice to a claimant outweighed the public interest in the application of Wis. Stat. § 898.80, (claim filing requirement for municipalities and schools). The insurance company had been dealing directly with the insured and the insured did not have any reason to believe that anything further was required. Fritsch v. St. Croix Central School District, 183 Wis. 2d 336, 515 N.W.2d 328 (Ct. App. 1994).

D.Usually, the fact a reservation of rights letter is late does not result in waiver or estoppel, particularly if the company is reserving because of an exclusion. The general rule is that a policy exclusion sets the scope of coverage. Bortz v. Merrimac Mut. Ins. Co., 92 Wis. 2d 865, 871, 286 N.W.2d 16, 19 (Ct. App. 1979) (“In an insurance policy, an exclusion is a provision which eliminates coverage where, were it not for the exclusion, coverage would have existed”). (Quoted source omitted).

III.BUSINESS EXCLUSIONS AND

NEGLIGENT SUPERVISION

A.Miller v. Wal-Mart Stores, Inc., 219 Wis. 2d 250, 580 N.W.2d 233 (1998), established in Wisconsin a cause of action for negligent hiring, training and supervision. Doyle v. Engelke, 219 Wis. 2d 277, 580 N.W.2d 245 (1998), found that an allegation of negligent supervision in a complaint triggered the duty to defend and the intentional act exclusion did not preclude the obligation to defend.

B.An insurance company (National) provided commercial general liability insurance to Nu-Pak which had a contract to process and package an alcoholic beverage sold to consumers in a frozen pouch. There were quality control problems with the product and Nu-Pak’s customer, Wine Specialties, brought an action against Nu-Pak and also a direct action against Nu-Pak’s insurance company, National. Wine Specialties settled with Nu-Pak which left only the claims against National. National brought a motion for summary judgment claiming its policies did not cover the loss. The trial court granted that motion for summary judgment. The Court of Appeals affirmed. Nu-Pak, Inc. v. Wine Specialties, Iternational, Ltd., 2002 WI App 92, ___ Wis. 2d ___, 643 N.W.2d 848. Wine Specialties recognized it had a problem establishing insurance coverage for a business risk. See Bulen v. West Bend Mut. Ins. Co., 125 Wis. 2d 259, 371 N.W.2d 329 (Ct. App. 1985). Therefore Wine Specialties argued liability did not arise out of the failure of the workers in the operation, but the negligent hiring, training and supervision of those workers and this negligence did not involve the product itself. The Court of Appeals looked at the exclusion for damage to “your product” and noted that the definition excluded any goods or products that were “manufactured” or “handled.” This case involved damage to a product manufactured by Nu-Pak and the exclusion applied whether the property damage was caused by negligent management or by the line employees. In addition, the court stated:

Moreover it is irrelevant that the policy might provide coverage for negligent hiring, training and supervision of employees in cases where a different injury is alleged. ¶18.

Since there was no coverage for the damage caused by the negligent hiring, training and supervision, there was also no coverage for the cost of removing the contaminated products, the value of loss of future sales and damage to Wine Specialties’ reputation. These claims did not involve damage to “tangible property.” They are also not covered because these were incidental damages flowing from the excluded property damage. ¶19. The same arguments were made with regard to “your work” exclusion. That exclusion also applied whether the damage was caused by the negligent management or the negligence of the line employees or both.

IV.WITHDRAWAL FROM THE DEFENSE

A.The Minnesota Supreme Court in Meadowbrook, Inc. v. Tower Insurance Co., 559 N.W.2d 411 (Minn. 1997), held that an insurance company that defends a multi-claim lawsuit under a reservation of rights can withdraw from the entire defense if all arguably covered claims have been resolved with finality. Once the covered claims were eliminated with finality, the insurance company’s duty to defend the non-covered claims ended.

B.In Lockwood International v. Volm Rag Co., 273 F.3d 741 (7th Cir. 2002) (Wis. law) the insurer paid the plaintiff and in return amended the complaint to delete any covered claims. However, in this case, the insurance did it in such a fashion that it did not deal with the insured in good faith.

It is true as North River point out that if in the course of litigation the covered claims fall out of the case through settlement or otherwise, the insurer’s duty to defend his insured ceases. E.g., Meadowbrook, Inc. v. Tower Ins. Co., 559 N.W.2d 411, 416 (Minn. 1997); Conway Chevrolet Buick, Inc. v. Travelers Indemnity Co., 136 F.3d 210, 214-15 (1st Cir. 1998); North Bank v. Cincinnati Ins. Cos., 125 F.3d 983, 986 (6th Cir. 1997). That is the easiest case for readily apportioning defense costs between covered and uncovered claims. Nor can the insured prevent the insurer from settling covered claims for an amount that protects the insured from having to pay anything on those claims out of his own pocket, merely because the settlement, by giving the insured all that he contracted for, will terminate the insurer’s duty to defend the entire suit. Meadowbrook, Inc. v. Tower Ins. Co., supra, 559 N.W.2d at 417; Reller, Inc. v. Hartford Ins. Co., 765 So. 2d 87, 88 (Fla. App. 2000); Allstate Ins. Co. v. Mende, 176 A.D.2d 907, 575 N.Y.S.2d 520, 522 (1991). But North River did not merely settle covered claims; as part of the settlement it paid Lockwood to convert some of the covered claims to uncovered claims. That was not dealing in good faith with its insured. Id., pp. 744-745.

C.In St. John’s Home v. Continental Casualty Co., 147 Wis. 2d 769, 434 N.W.2d 112 (Ct. App. 1988), insurer was not allowed to withdraw from the defense.

D.The requirement that a “pay and walk” provision must be conspicuous as required by Gross v. Lloyds of London, 121 Wis. 2d 78, 358 N.W.2d 266 (1984), did not apply to a permissive driver who, as an additional insured under the policy, would never have seen the policy or binder explaining the benefits of the policy. Hoffman v. Economy Preferred Insurance Company, 2000 WI App 22, 232 Wis. 2d 53, 606 N.W.2d 590.

V.DAMAGES -- DIMINISHED MARKET VALUE

An auto policy’s collision coverage, as well as many other property coverage policies, limit liability based on various standards. For example, in Wildin v. American Family Mutual Ins. Co., 2001 WI App 293, 249 Wis. 2d 477, 638 N.W.2d 87, the auto policy’s collision coverage contained the following:

LIMITS OF LIABILITY. Our limit of liability for loss shall not exceed the least of:

1. The actual case value of the stolen or damaged property.

2. The amount necessary to repair or replace the property.

3. The decrease in value of the damages property caused by the loss.

The insured argued that $5,850 for the repair of her car was not enough since no repair could restore the vehicle to its pre-loss condition. The insured wanted to be paid for the diminished market value of her car. Wildin held the above policy was not ambiguous. The term “repair” was given its ordinary meaning (restore by replacing a part or putting together what is torn or broken) and there was no requirement to pay for diminished value.

VI.AUTO LIABILITY POLICY – STACKING

A.In Weimer v. Country Mut., 216 Wis. 2d 705, 575 N.W.2d 466 (1998), there was no stacking of coverage for a truck plus a trailer it was pulling at the time of the accident. While there were two separate insurance policies (truck and trailer), the policies did not insure against the “same loss” as required by the stacking statute, Wis. Stat. 631.43(1). The policies covered separate vehicles and therefore insured against different losses. The fact that both the truck and trailer were involved in the accident in Weimer did not alter the analysis that policies insure different risks and therefore insure against different losses. Weimer noted the policy limited liability to the amounts in the declaration page “regardless of the number of covered vehicles involved in the accident, our limit of liability is ... the limit of bodily injury liability shown in the declarations for ‘each person.’” This language was unambiguous and put the insured on notice that coverage was limited when multiple insured vehicles were involved in a single accident.

B.The “regular use” exclusion was upheld in Martin v. American Family Mutual Insurance Company, 2002 WI 40, ___ Wis. 2d ___, 643 N.W.2d 452. Eric was driving a pickup owned by his father. The pickup was available for Eric’s regular use; however, Eric was not a resident of his father’s household. The insurance company paid the policy limits of the father’s policy. The same company insured Eric and refused to pay anything further citing the exclusion for injuries arising out of the use of any vehicle “furnished or available for regular use” by Eric or any resident of Eric’s household. Martin applied the “regular use” exclusion in order to prevent a policyholder from paying a single premium to insure a vehicle listed in the policy, plus a car the insured did not own, but was available for regular use. The insured argued application of the stacking statute, § 631.43(1); and that with two or more policies that covered the same loss, the stacking statute nullified the “available for regular use” exclusion. Martin, however, looked to Agnew v. American Family, 150 Wis. 2d 341, 441 N.W.2d 222 (1989), which required a threshold inquiry whether the two policies (Eric’s and his father’s) covered the same loss. They did not. The “regular use” exception in Eric’s policy prevented Eric’s policy from indemnifying against the same loss as his father’s policy. Therefore, only one policy (father’s) applied and the “two or more policies” requirement of §631.43(1), was not met.

There is no mention of Wis. Stat. 632.32(j) in Martin. This statute states the permissible form of a “drive other car” provision. It does not include cars available for regular use. However, §632.32(j) is limited to UM/UIM policies.

¶ 33.However, the cases offered by the insurers essentially address liability exclusions. They do not address uninsured motorist exclusions. Because Wis. Stat. § 632.32(5)(j) is limited to “drive other care” exclusions in the uninsured motorist context and does not address liability coverage, we are not persuaded by the insurers’ predictions.

Blazekovic v. City of Milwaukee, 2000 WI 41, 234 Wis. 2d 587, 610 N.W.2d 467 (discussed at § 3.6A).

Martin is consistent with Blazekovic, that is, based on the legislative history of the 1995 legislation, § 632.32(j) is limited to UM and UIM insurance policies.