Lexington Insurance Company v. Tudor Insurance Company

Filing 15

ORDER signed by Judge Rudolph T Randa on 12/13/2011 denying 8 Motion to Dismiss. (cc: all counsel) (Koll, J)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN

LEXINGTON INSURANCE COMPANY,
Plaintiff,
-vs-

Case No. 11-C-809

TUDOR INSURANCE COMPANY,
Defendant.

DECISION AND ORDER

Tudor Insurance Company issued a series of Commercial General Liability (“CGL”)
policies to Trek Bicycle Corporation (“Trek”) covering the policy periods of September 30,
2001 to September 30, 2006. Lexington Insurance Company (“Lexington”) issued umbrella
policies to Trek covering September 30, 2004 to September 30, 2006 and then CGL and
umbrella policies covering 2006-2009. In 2008, LeMond Cycling, Inc. (“LeMond”) sued
Trek in Minnesota. Trek tendered defense of the LeMond lawsuit to both Lexington and
Tudor. Lexington spent over $1 million in defense and settlement of the claims. Tudor
disclaimed coverage and refused to provide any defense. In this diversity action, Lexington
alleges that as a “direct result of Tudor’s breach of its duty to defend Trek in the LeMond
Cycling Lawsuit, Lexington has incurred costs in the defense and settlement of the LeMond
Cycling Lawsuit beyond what it was obligated to pay.” Complaint, ¶ 29.
Tudor moves to dismiss for failure to state a claim. In evaluating a motion to dismiss
under Rule 12(b)(6), the court accepts the plaintiff’s well-pleaded allegations as true, and

draws reasonable inferences in plaintiffs’ favor. Tamayo v. Blagojevich, 526 F.3d 1074,
1081 (7th Cir. 2008). The complaint must contain “sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 129 S. Ct.
1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Thus,
a complaint must “describe the claim in sufficient detail to give the defendant ‘fair notice of
what the . . . claim is and the grounds upon which it rests;’” additionally, the complaint’s
allegations must “plausibly suggest that the plaintiff has a right to relief, raising that
possibility above a ‘speculative level.’” EEOC v. Concentra Health Servs., Inc., 496 F.3d
773, 776 (7th Cir. 2007) (internal citations omitted).
Tudor argues that Lexington fails to state a claim because the respective parties have
no contractual relationship, and Lexington did not accept an assignment of Trek’s claims
against Tudor. Tudor relies upon the holding in Loy v. Bunderson, 320 N.W.2d 175, 190
(Wis. 1982) that one insurer’s duty to defend is “entirely independent” of any obligation that
another insurer may have under a separate policy. Tudor takes this holding out of context.
In Loy, the Wisconsin Supreme Court considered a situation where a primary insurer settled
claims against the insured for less than its policy limit, leaving an excess insurer liable for
any sums above the primary policy limit and up to the limits of the excess policy. Loy does
not apply where the “disputed issue” is whether an insurer (Tudor) was required by its policy
to defend claims that were also defended by another policy provider (Lexington). Doyle v.
Engelke, 580 N.W.2d 245, 248-49 (Wis. 1998). The lack of a contractual relationship is
irrelevant because Lexington invokes the equitable concepts of contribution and/or

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subrogation. “In the case of insurance, subrogation takes the form of an insurer’s right to be
put in the position of the insured in order to pursue recovery from third parties legally
responsible to the insured for a loss which the insurer has both insured and paid. . . .
Equitable contribution is entirely different. It is the right to recover, not from the party
primarily liable for the loss, but from a co-obligor who shares such liability with the party
seeking contribution.” Fireman’s Fund Ins. Co. v. Maryland Cas. Co., 65 Cal. App. 4th
1279, 1291-94 (1998) (internal citations omitted) (emphases in original).
Tudor argues further that Lexington cannot bring a contribution claim because
Lexington and Tudor insured Trek during different policy periods. This contention is
debatable given the overlapping periods of insurance coverage. But even if contribution is
inapplicable, Lexington would still have a subrogation claim. By bringing an “alternative
claims” complaint, Lexington correctly recognizes that subrogation and contribution are
“different paths to the same destination.” McGee v. Bates, 691 N.W.2d 920, 923 (Wis. Ct.
App. 2004). Lexington is entitled to be made whole to the extent that Tudor shirked its
obligations to the mutual insured.
Finally, Tudor also argues that Lexington cannot bring a bad faith claim because of
the lack of a contractual relationship between the parties. Under Wisconsin law, the insurer’s
duty of good faith and fair dealing arises from the insurance contract and runs to the insured.
Loy, 320 N.W.2d at 190 (citing Kranzush v. Badger State Mut. Cas. Co., 307 N.W.2d 256
(Wis. 1981)). However, a bad faith suit against a primary insurer can be brought when the
excess insurer has either “taken an assignment of the insured’s rights” or has “paid the excess

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liability and sues as the insured’s equitable assignee or subrogee. In either case, all the
excess insurer may assert is the rights of the insured.” 320 N.W.2d at 191 (emphasis in
original). Therefore, Lexington can bring a bad faith claim against Tudor as the subrogee
of Trek. Id. (citing cases which “make it clear that the excess insurer’s possibility of a [bad
faith] claim against a primary insurer can arise only where the insured has been abandoned
by the primary carrier”). At stage of the proceedings, the motion to dismiss must be denied.
IT IS HEREBY ORDERED THAT Tudor’s motion to dismiss [D. 8] is DENIED.
Dated at Milwaukee, Wisconsin, this 13th day of December, 2011.
BY THE COURT:

__________________________
HON. RUDOLPH T. RANDA
U.S. District Judge

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