WRR Environmental Services Inc v. Admiral Insurance Company
Filing
81
ORDER signed by Judge Rudolph T. Randa on 3/4/2015. 70 Defendant's MOTION in Limine to exlude evidence of plaintiff's liability for damages or in settlement of underlying claim DENIED; 71 Defendant's MOTION in Limine to exclude evi dence of damages for attorney's fees incurred in litigating coverage DENIED; 72 Defendant's MOTION in Limine to exclude evidence of defense costs not incurred by or reimbursed to plaintiff DENIED; 73 Defendant's MOTION in Limine to bar plaintiff from offering documents or evidence not produced in discovery DENIED WITHOUT PREJUDICE; 74 Plaintiff's MOTION in Limine to exclude evidence and testimony related to defense and indemnity expense payments by plaintiff's other insurers GRANTED. Telephonic Scheduling Conference set for 3/25/2015 at 9:30 AM (Central Time) before Judge Rudolph T. Randa, the Court will initiate the call. (cc: all counsel)(cb)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
WRR ENVIRONMENTAL SERVICES, INC.,
Plaintiff,
-vs-
Case No. 10-C-843
ADMIRAL INSURANCE COMPANY,
Defendant.
DECISION AND ORDER
This Decision and Order address five pending motions in limine filed
in advance of the final pretrial conference and the four-day damages jury
trial in this case.
(EFC Nos. 70 through 74.)
Upon the parties’ joint
request, final pretrial and jury trial dates were adjourned until the motions
were resolved.
(ECF No. 78.)
This decision resolves the motions;
consequently, the Court will conduct a supplemental telephone scheduling
conference with the parties on March 25, 2015, at 9:30 a.m. to reschedule
the final pretrial conference and jury trial dates.
Background
Since four of the motions relate to substantive damage issues, an
outline provides helpful background.
This action arises from a request
from the insured, Plaintiff WRR Environmental Services (“WRR”), a
Wisconsin corporation operating a hazardous waste facility in Eau Claire,
Wisconsin, that Defendant Admiral Insurance Company (“Admiral”) defend
and provide coverage and indemnification under a general comprehensive
liability policy. WRR made the request in response to written notification
by the United States Environmental Protection Agency (“EPA”) that WRR
was a potentially responsible party (“PRP”) for the Lake Calumet Cluster
Site (the “LCCS”), a Chicago, Illinois hazardous waste site. WRR bought
the policy to satisfy federal regulatory requirements and obtained a
“Hazardous Waste Facility Certificate of Liability Insurance” (the
“certificate”) that the EPA accepted in satisfaction of its requirements.
This litigation has focused on whether Admiral has any obligation
under the policy to defend and/or indemnify WRR with respect to the LCCS
site. (See Compl.) (ECF No. 1-2.) At the parties’ suggestion, the action was
divided into two phases.
During the first phase Admiral sought summary judgment
dismissing WRR’s four-count Complaint for declaratory judgment, breach
of contract, bad faith, and breach of the duty of good faith and fair dealing;
and granting its declaratory judgment counterclaim finding that it had no
duty to defend or to provide coverage or indemnification. (ECF No. 24.)
WRR sought partial summary judgment that as a matter of law the
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Absolute Pollution Exclusion does not bar WRR’s claims. (ECF No. 25.)
The Court issued a decision holding:
The certificate is essentially a promise by Admiral
to WRR and the EPA that the policy would cover
third parties for sudden accidental occurrences. To
the extent that this promise is inconsistent with
the pollution exclusion, the latter must give way to
the former. Issuing the exclusion was a mistake
that contradicts the intent of the contracting
parties. . . . The failure to provide the requested
coverage (i.e., the contradictory inclusion of the
absolute pollution exclusion) is a mutual mistake
requiring reformation.
(Court’s September 7, 2012, Decision & Order, 4-5.) (ECF No. 35.) The
Court did not further describe the reformed document; however, the
decision was premised on the conflict between the Absolute Pollution
Exclusion and the certificate.
Shortly thereafter Admiral filed a motion for clarification. (ECF No.
38.) The Court denied the motion, stating that the Decision and Order did
not require clarification and that the first phase of the action, limited to
issues relating to the formation and interpretation of the insurance
contract — including the Absolute Pollution Exclusion, was complete. (ECF
No. 42.)
During the second phase the parties filed another round of summary
judgment motions. WRR sought partial summary judgment (ECF No. 56)
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declaring that Admiral had breached its duty to defend under the policy
and must indemnify WRR for all costs and damages associated with its
investigation and remediation of the LCCS.
In the alternative WRR
sought an order striking Admiral’s affirmative defenses under Fed. R. Civ.
P. 12(f) and entering summary judgment on Count I of its Complaint
declaring
that
Admiral
owes
WRR
the
duties
of
defense
and
indemnification.
Admiral sought summary judgment (ECF No. 53) holding that
regardless of whether the policy is read in its original form or as reformed
by the Court it excludes coverage for the LCCS claim, and Admiral had no
duty to defend that claim; WRR’s claim is barred by the settlement
agreement in the 1998 action; and WRR had no damages.
By a September 23, 2014, Decision and Order the Court granted
WRR’s motion for partial summary judgment to the extent that it found
WRR is entitled to declaratory judgment that Admiral breached its duty to
defend, and denied the motion in all other respects. Admiral’s motion for
summary judgment was granted to the extent that the Court held that it
has no duty to indemnify WRR, and as of September 23, 2014, its duty to
defend WRR ended. (ECF No. 66, 15-16.) Admiral’s motion was denied in
all other respects.
-4-
Now the parties seek rulings as to the admissibility of damages
evidence.
Throughout this diversity action the parties have implicitly
agreed that Wisconsin substantive law is applicable; they disagree
regarding its interpretation/application to the issues presented.
In
applying Wisconsin law, the Court would generally apply the law of the
Wisconsin Supreme Court. Home Valu, Inc. v. Pep Boys, 213 F.3d 960, 963
(7th Cir. 2000). If, however, “the Wisconsin Supreme Court has not spoken
on the issue,” the Court must treat “decisions by the state's intermediate
appellate courts as authoritative ‘unless there is a compelling reason to
doubt that [those] courts have got the law right.’” Id. (citations omitted).
Moreover, if the Court is “faced with two opposing and equally plausible
interpretations of state law, ‘[it] generally [should] choose the narrower
interpretation which restricts liability, rather than the more expansive
interpretation which creates substantially more liability.’” Id.
Based on the finding that Admiral breached its duty to defend WRR
for the investigation and remediation of LCCS, Admiral is responsible for
“all damages that naturally flow from the breach” of its duty to defend.
Newhouse v. Citizens Sec. Mut. Ins. Co., 176 Wis. 2d 824, 837, 501 N.W.2d
1, 6 (Wis. 1993). “Damages which naturally flow from an insurer’s breach
of its duty to defend include: (1) the amount of the judgment or settlement
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against the insured plus interest; (2) costs and attorney fees incurred by
the insured in defending the suit; and (3) any additional costs that the
insured can show naturally resulted from the breach.” Id. “The insurance
company must pay damages necessary to put the insured in the same
position he would have been in had the insurance company fulfilled the
insurance contract. Policy limits do not restrict the damages recoverable
by an insured for a breach of the contract by the insurer.”
Id. at 7
(citations omitted.) The proper measure of damages for an insurer's breach
of its contractual duty to defend is a legal question. Loosmore v. Parent,
237 Wis. 2d 679, 613 N.W.2d 923, 927 (Wis. Ct. App. 2000) (citing
Newhouse, 501 N.W.2d 1.)
I.
Evidence Regarding WRR’s Liability for Damages and the
Settlement of the LCCS Claim
Admiral moves to preclude WRR from presenting any evidence of its
liability for damages or the settlement of the LCCS claim. Admiral asserts
that WRR was not made worse off in defending the LCCS claim because it
selected its own attorney who was either paid or reimbursed almost
entirely by multiple other insurers, and that any additional amounts paid
as damages or in settlement of WRR’s liabilities for the LCCS claim were
not paid by WRR; consequently, such evidence is irrelevant and
-6-
inadmissible under Fed. R. Evid. 402.
Wisconsin state courts have included the amount of a settlement
when calculating damages flowing from a breach of the duty to defend. See
Maxwell v. Hartford Union High Sch. Dist., 341 Wis. 2d 238, 814 N.W.2d
484, 496 (Wis. 2012); S.E. Wis. Prof’l Baseball Park Dist. v. Mitsubishi
Heavy Indus. Am., Inc., 304 Wis. 2d 637, 738 N.W.2d 87, 98 (Wis. Ct. App.
2007); Loosmore, 613 N.W.2d at 929-30; Radke v. Fireman’s Fund Ins. Co.,
217 Wis. 2d 39, 577 N.W.2d 366, 371 (Wis. Ct. App. 1998).
Admiral’s
position is not supported by the controlling Wisconsin law, and therefore
its motion to preclude WRR from presenting any evidence of its liability for
damages or the settlement of the LCCS claim is denied.
II.
Evidence of WRR’s Attorney’s Fees in Litigating Coverage
Relying upon Rule 402, Admiral moves to preclude WRR from
presenting evidence of attorney’s fees it incurred litigating the coverage
issue.
Admiral asserts that because this Court held Admiral does not
have a duty to provide coverage under the Policy, the attorneys’ fees and
costs WRR incurred in litigating this action are not recoverable and should
be excluded.
As prescribed by the Wisconsin Supreme Court, the proper
procedure for an insurance company when coverage is disputed is to
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defend under a reservation of rights or seek a bifurcated trial on the issues
of coverage and liability and move to stay any proceedings on liability
until the issue of coverage is resolved. Elliott v. Donahue, 169 Wis. 2d
310, 485 N.W.2d 403, 406 (Wis. 1992). “If the insurance company refuses
to defend, it does so at its own peril.” Id. at 407. Admiral did not follow
the appropriate procedure. Instead, WRR brought this action, and the
Court determined that Admiral had a duty to defend WRR which did not
end until the Court’s September 23, 2014, finding of non-coverage.
When an insurer breaches its duty to defend, “the insurer is guilty of
a breach of contract which renders it liable to the insured for all damages
that naturally flow from the breach.”
Newhouse, 501 N.W.2d at 6.
Damages “naturally flowing from the breach” include the legal expenses
incurred in establishing coverage. Loosmore, 613 N.W.2d at 929.
Admiral asserts that the Court’s order finding no indemnity
coverage under the policy bars WRR’s recovery of attorney fees. However,
Admiral’s assertion does not address defense coverage. Again, the duty to
defend is broader than the duty to indemnify, and coverage for defense
may occur in situations such as this where indemnity coverage ultimately
is lacking. See Liebovich v. Minn. Ins. Co., 299 Wis. 2d 331, 728 N.W.2d
357, 360 (Wis. Ct. App. 2007).
-8-
Liebovich was an appeal from a summary judgment decision finding
that the insurer did not have a duty to defend and did not have a duty to
indemnify under the relevant policy. The appellate court found that the
insurer had breached its duty to defend because coverage under the policy
was debatable, id. at 363-64, however it upheld the finding of no
indemnity coverage, id. at 365.
In remanding the case for a determination of damages, the appellate
court stated that the insurer’s breach of the duty to defend required that it
“compensate [the insured] for the reasonable cost of that defense, along
with the judgment against him and his expenses in successfully
establishing coverage.”
Id..
Explaining the reasoning for awarding
attorneys’ fees to the insured who successfully establishes defense
coverage Liebovich states:
[W]here the insurer breaches its duty to defend,
the system seeks to put the insured in the same
position he or she would have been had the
insurer performed its duties; one of the bedrock
principles of contract law. Since insurance
companies are sophisticated repeat players in the
legal system, it makes sense to place the onus of
deciding whether to participate in a case upon
them, rather than upon the insured. Further, an
individual who has paid insurance premiums is
entitled to a defense; that is what the premiums
are for. It makes no sense to require, as a matter
of course, that insured individuals sue their
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insurers to get what they paid for.
Id. at 361, n.2.
This case is analogous to Liebovich. If not for Admiral’s breach of its
duty to defend, WWR could have avoided bringing this action and its
related attorney fees. Unless WRR recovers the attorney fees incurred in
bringing this action, it will not be in the position it would have been had
Admiral provided its defense.
Therefore, Admiral’s motion to preclude
WRR from presenting evidence of its attorney fees in ligating the coverage
issue is denied.
III.
Evidence of Damages for Defense Costs Not Incurred By
WRR or that Were Reimbursed
Admiral moves to exclude evidence of damages for defense costs
WRR did not incur, or for which it was reimbursed by non-breaching
insurers. Relying on Acuity v. Bagadia, 302 Wis. 2d 228, 734 N.W.2d 464
(Wis. Ct. App. 2007), WRR asserts that the request is contrary to
Wisconsin law and its strong policy in favor of the insured.
Acuity affirmed a declaratory judgment that the insurer had a duty
to defend and was not entitled to a discount in damages for the amount
paid by a different insurer. The appeals court stated that the third-party
insurer was “not a party to this action, and there has apparently been no
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final determination of [the third-party insurer]’s legal obligations . . . . It
may well be that ultimately [the breaching insurer] is responsible for less
than all of the judgment, but the record before us (which does not even
include the [third-party insurer’s] policy) does not allow us to determine
who owes what.” Id. at 472. In this case, like Acuity, the nonbreaching
insurers are not parties, and they are defending under a reservation of
rights which may entitle them to dispute coverage at any time.
Wisconsin law is unsettled with regard to whether nonbreaching
insurers may attempt to recoup their defense payments made under the
duty to defend while maintaining the right to later contest coverage. See
Appleton Papers, Inc. v. George A. Whiting Paper Co.¸ No. 08-C-16, 2009
WL 62988, at *3 (E.D. Wis. Jan. 8, 2009) (stating that an insurer “may be
able to seek reimbursement of [defense] expenses from its insured in the
event no coverage is found.”). If the insurers challenge coverage, prevail,
and seek reimbursement for defense payments, WRR may not retain the
benefit of those payments.
Because there has been “no final
determination” of the nonbreaching insurers’ legal obligations, there can
be no determination, in this case, of “who owes what.”
Therefore, any
amounts paid by nonbreaching insurers may not be deducted from
damages that WRR may recover from Admiral. See Acuity, 734 N.W.2d at
- 11 -
472.
Furthermore, WRR intends to prove that since 2004 it has paid its
attorneys for legal services using its own funds. Subsequently, WRR’s
insurers reimbursed it for a portion of its legal fees. If WWR establishes
the foregoing, it would be entitled to recover any difference in those
amounts.
Admiral maintains that the Court should reduce WRR’s damages
amount by the portion paid by the nonbreaching insurers to avoid a
“windfall.” However, this is a defense, and Admiral has burden of proving
the amount by which WRR’s damages should be reduced. See generally
Teff v. Unity Health Plans Ins. Corp., 265 Wis.2d 703, 666 N.W.2d 38, 5051 (Wis. Ct. App. 2003).
Admiral also relies on Hamlin, Inc. v. Hartford Acc. & Indem. Co.,
86 F.3d 93 (7th Cir. 1996). However, as observed in Link Snacks, Inc. v.
Fed. Ins. Co., 664 F. Supp. 2d 944, 958 (W.D. Wis. 2009), “the discussion in
Hamlin was itself dicta because the court concluded that the insurance
company had not breached its duty to defend in that case.”1 Acuity was
1
Link Snack dismissed Hamlin’s discussion and followed Wisconsin case law to
determine that the insurer could not argue against coverage of the underlying claim
because the insurer breached its duty to defend. Id. The Court recognizes that Link
Snacks is not a binding decision; however, it concurs with the analysis. See Gould v.
Bowyer, 11 F.3d 82, 84 (7th Cir. 1993) (stating “A district court decision binds no judge
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also decided more than a decade after Hamlin. Based on the foregoing,
Admiral’s motion to exclude defense costs that were not incurred by WRR
or that were reimbursed is denied.
IV.
Documents Or Evidence Not Produced In Discovery
Admiral moves to bar WRR from offering documents or evidence not
produced in discovery. WRR states that it has no intention of introducing
any documents into evidence that have not been produced, with two
exceptions: (1) attorneys’ fees in this case which are still accruing — and
WRR will update its document production as its attorney invoices are
disseminated; (2) demonstrative exhibits which have not yet been created.
Based on WRR’s representations, Admiral’s motion to preclude the
admission of documents or evidence not produced in discovery is denied
without prejudice.
V.
Evidence of Defense and Indemnity Expense Payments by
Other WWR Insurers
Relying on Fed. R. Evid. 401, 402, and 403, WWR seeks to exclude
evidence and testimony related to defense and indemnity expense
payments by WRR’s other insurers. Admiral relies on Hamlin Inc., 86
F.3d at 95, and Johnson Outdoors, Inc. v. Gen. Star Indem. Co., No. 05-Cin any other case, save to the extent that doctrines of preclusion (not stare decisis )
apply.”)
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0522, 2009 WL 4043104, at *6 (E.D. Wis. Sept. 16, 2009), asserting that
the evidence is relevant because WRR is attempting to recover greater
damages than it would have received under the contract if Admiral had
fully performed.
As previously stated, since the other insurance
companies are not parties in this action, their payments to WRR are not
relevant. See Acuity, 734 N.W.2d at 472. Furthermore, Admiral has not
rebutted WRR’s contentions that the third-party insurers may have an
interest in its recovery and that if the nonbreaching insurers “prevail on
their coverage defenses [they could potentially] seek reimbursement for
defense payments,” (ECF No. 75, at 4) and that there can be no “windfall”
with respect to the settlement payments because WRR was “forced to use
up its policy limits.” (ECF No. 77 at 3). Based on the foregoing, WRR‘s
motion to exclude evidence of defense and indemnity expense payments by
WRR’s other insurers is granted.
NOW, THEREFORE, BASED ON THE FOREGOING, IT IS
HEREBY ORDERED THAT:
Admiral’s motion to exclude any evidence of WRR’s liability for
damages or in settlement of the underlying LCCS claim (ECF No. 70) is
DENIED;
Admiral’s motion to exclude evidence of damages for attorney’s fees
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incurred by WRR in litigating coverage (ECF No. 71) is DENIED;
Admiral’s motion to exclude evidence of damages for defense costs
which were not incurred by or were reimbursed to WRR (ECF No. 72) is
DENIED;
Admiral’s motion to bar WRR from offering documents or evidence
not produced in discovery (ECF No. 73) is DENIED WITHOUT
PREJUDICE;
WRR’s motion to exclude evidence and testimony related to defense
and indemnity expense payments by WRR’s other insurers (ECF No. 74) is
GRANTED; and
The parties MUST PARTICIPATE in a supplemental telephonic
scheduling conference on March 25, 2015 at 9:30 a.m. (Central Time).
The Court will initiate the call.
Dated at Milwaukee, Wisconsin, this 4th day of March, 2015.
BY THE COURT:
__________________________
HON. RUDOLPH T. RANDA
U.S. District Judge
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