Haley, Mary et al v. Kolbe and Kolbe Millwork Co., Inc. et al
OPINION and ORDER granting intervenor United States Fire's 294 Motion for Summary Judgment on defendant Kolbe and Kolbe Millwork Co.'s claims that United States Fire breached its duty to defend defendant and acted in bad faith; denying 261 and 265 Motions for Summary Judgment filed by intervenors United States Fire and Fireman's Fund Insurance Company regarding their duty to defend and indemnify defendant. Signed by District Judge Barbara B. Crabb on 11/2/2015. (kwf)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - MARY HALEY and MICHAEL HALEY,
LESLIE BANKS and JAMES HAL BANKS,
ANNIE BUINEWICZ and BRIAN BUINEWICZ,
TERRANCE McIVER AND JEAN ANN McIVER,
SUSAN SENYK, CHRISTIAN SENYK,
GARY SAMUELS, PATRICIA GROOME,
MATTHEW DELLER, RENEE DELLER
and MARIE LOHR, on behalf of themselves and
all others similarly situated,
OPINION and ORDER
KOLBE & KOLBE MILLWORK CO., INC.,
FIREMAN’S FUND INSURANCE COMPANY
and UNITED STATES FIRE INSURANCE COMPANY,
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This is a proposed class action in which plaintiffs allege that the windows they
purchased from defendant Kolbe & Kolbe Millwork Co. are defective. This order will
address three motions for summary judgment related to peripheral disputes between
defendant and its insurers, Fireman’s Fund Insurance Company and United States Fire
In particular, United States Fire seeks summary judgment on
defendant’s claims that United States Fire breached its duty to defend defendant and acted
in bad faith. Dkt. #294.
In addition, both insurers seek a declaration that they owe no
duty to defend or indemnify defendant. Dkt. ##261 and 265.
I am granting United States Fire’s motion with respect to defendant’s claims because
defendant has not shown that United States Fire’s conduct violated defendant’s rights.
However, I am denying the insurers’ motion regarding their duty to indemnify and their
continuing duty to defend because there is still a possibility that defendant could be required
to pay damages that are covered by the insurers’ policies.
A. United States Fire’s Motion for Summary Judgment on Defendant’s Claims
United States Fire seeks summary judgment on defendant’s claims for breaching the
duty to defend and engaging in bad faith. (Defendant asserted the same claims against
Fireman’s Fund, but the parties settled that claim. Dkt. #361.) Defendant argues that
United States Fire committed both of these torts in various ways, some of which seem to
(1) failing to respond in a timely manner to defendant’s tender of defense;
(2) attempting to force defendant to replace the counsel it chose;
(3) choosing counsel who were not “truly independent”;
(4) failing to disclose “actual or potential conflicts” with the counsel it chose;
(5) threatening to direct its choice of counsel to make an appearance on behalf
(6) threatening to treat defendant’s rejection of United States Fire’s choice of
counsel as a “rejection of coverage”;
(7) failing to communicate with defendant “in a prompt manner”; and
(8) “putting its own interests ahead of [defendant’s] interests by attempting
to cram down an unwanted change in defense counsel.”
Dkt. #338. These eight categories can be distilled to two: United States Fire’s delay in
making decisions regarding counsel and its attempt to impose its own choice of counsel on
defendant rather than accept defendant’s choice.
An initial problem is that defendant does not distinguish its claim for breaching the
duty to defend from its bad faith claim and it does not develop an argument that the duty
to defend or the duty to act in good faith even extends to the type of conduct at issue in this
case. This is important because United States Fire did not simply refuse to defend defendant
and then deny coverage without any reasonable basis, which is generally what triggers
liability for these types of claims.
E.g., Trinity Evangelical Lutheran Church and
School–Freistadt v. Tower Insurance Co., 2003 WI 46, ¶ 33, 261 Wis. 2d 333, 661 N.W.2d
789; Newhouse by Skow v. Citizens Security Mutual Insurance Co., 176 Wis. 2d 824, 501
N.W.2d 1 (1993). Although United States Fire delayed its decision regarding its duty to
defend, defendant was not left high and dry. Rather, defendant proceeded with counsel of
its own choosing and United States Fire paid its share of the defense costs and has continued
to do so throughout the lawsuit. Dft.’s Resp. to U.S. Fire’s PFOF ¶¶ 41-46, dkt. #342.
Although United States Fire eventually attempted to replace defendant’s choice of counsel
with its own, that attempt was unsuccessful and defendant has been able to retain its own
counsel without interruption. Id. at ¶ 38. Defendant does not identify any way in which
United States Fire’s conduct prejudiced defendant in litigating this case. Hamlin Inc. v.
Hartford Accord & Indemnity Co., 86 F.3d 93, 95 (7th Cir. 1996) (to prevail on claim for
duty to defend under Wisconsin law, “the insured must show that he was made worse off
by the breach than he would have been had the breach not occurred”). Rather, the only
damages defendant identifies are its costs for litigating the disputes about counsel.
Although defendant’s claims go well beyond a traditional claim for breach of the duty
to defend and the duty to act in good faith, defendant simply assumes in its brief that
United States Fire’s conduct is the type that qualifies as a breach. Defendant devotes most
of its brief to arguing that United States Fire’s conduct was unreasonable without explaining
why it believes it has a cause of action or even discussing the standard for proving either
claim. That is reason alone to grant United States Fire’s motion for summary judgment.
Instead of developing an argument, defendant cites several cases to support its claims,
but none of them are helpful, at least not for defendant. First, defendant cites Grube v.
Daun, 173 Wis. 2d 30, 496 N.W.2d 106 (Ct. App. 1992), for the proposition that an
insurer violates the duty to defend if it does not “step up and immediately provide a
defense.” Dft.’s Br., dkt. #338. However, the question in Grube had nothing to do with
timing; the insurer in that case had flatly refused to provide a defense. In summarizing the
duty to defend, the court stated in dicta that insurers are required “either to provide a
defense immediately or to use alternate methods to reduce the costs of providing a defense
until the coverage issue is decided.” Grube, 173 Wis. 2d at 76. However, even if I assume
that this is an accurate statement of the law, it does not help defendant because United
States Fire allowed defendant to keep its own choice of counsel while United States Fire
investigated the claim and helped to pay for that counsel, so it opted for an “alternate
method” for meeting its obligation to defendant.
The second case, American Design & Build, Inc. v. Houston Casualty Co., No.
11-C-293, 2012 WL 719061, at *10-11 (E.D. Wis. Mar. 5, 2012), supports United States
Fire much more than it supports defendant. The court stated that it was “perplexed by the
plaintiff's insistence that the defendant has breached its duty to defend” by delaying its
decision regarding a defense for several months, reasoning that “the plaintiff actually ha[d]
received money from the defendant to reimburse the plaintiff for the cost of the defense
retroactive to the date the defendant received notice of the claim.” Id. at 10. The court
rejected the insured’s argument that the insurer’s response was "too little, too late," stating
that “[a]n insurer may investigate a claim before accepting the defense, so long as it
reimburses the insured for the defense retroactive to the date of the claim.” Id. at 11.
Because the situation in American Design & Build was similar to the situation in this case,
that court’s rulings support a decision in favor of United States Fire.
Like this case, the third case defendant cites, Lakeside Foods, Inc. v. Liberty Mutual
Fire Insurance Co., 2010 WI App 120, ¶ 41, 329 Wis. 2d 270, 789 N.W.2d 754
(unpublished), involved an insured contending that its insurer breached its duty to defend
and acted in bad faith by delaying its decision to accept responsibility for providing a defense
and by attempting to impose its own choice of counsel on the insured. The court concluded
that the insurer had not breached its duty to defend because the insured was allowed to keep
its own choice of counsel and the insurer paid for it while the insurer was investigating the
clam. Id. at ¶ 43. By itself, the delay in deciding was not enough to breach the duty to
See also Carney v. Village of Darien, 60 F.3d 1273, 1277 (7th Cir. 1995)
(concluding that insurer complies with duty to defend so long as it seeks declaration from
court “prior to the trial on the liability issue”). Although the court in Lakeside Foods
concluded that the insured’s claim for bad faith should be allowed to proceed, this was only
because there were genuine disputes regarding whether the parties had an oral agreement on
attorney fees. Id. at ¶ 49.
Lakeside Foods suggests that disputes about timing and choice of counsel do not
qualify as a breach of the duty to defend when the insured proceeds with its own choice of
counsel and the insured agrees to pay for it. Because that is what happened in this case,
Lakeside Foods supports United States Fire’s position more than it supports defendant’s.
Further, the court’s ruling on bad faith is not instructive because this case does not involve
any disputes about a possible oral agreement.
Defendant says that I found in the April 1, 2015 decision that American Design &
Build and Lakeside Foods supported its position, but that is incorrect. The question in the
April 1, 2015 decision was whether United States Fire and the other insurers should be
estopped from requiring defendant to change counsel midway through the lawsuit in light
of the insurers’ delay in making their own choice for counsel and their delay in raising the
issue with the court. I made it clear that there were important differences between that
question and the question whether the insurers breached the duty to defend. In fact, when
discussing American Design & Build and Lakeside Foods, I acknowledged that “a four-month
delay in deciding whether to defend an insured may not cause prejudice so long as the
insurer agrees to make its decision retroactive and pay the costs of litigation from the time
the insured tendered its defense.” Haley v. Kolbe & Kolbe Millwork Co., No. 14-cv-99-bbc,
— F. Supp. 2d —, 2015 WL 1505686, at *7 (W.D. Wis. Apr. 1, 2015).
Finally, defendant cites Fireman's Fund Insurance Co. v. Waste Management of
Wisconsin, Inc., 777 F.2d 366, 367 (7th Cir. 1985), and HK Systems, Inc. v. Admiral
Insurance Co., No. 03 C 0795, 2005 WL 1563340, at *1 (E.D. Wis. June 27, 2005). In
these cases, the court ruled in favor of the insured in the context of a dispute regarding
whether the insured or insurer had the right to choose counsel. However, these cases are not
instructive because the courts did not hold that an insurer violates its duty to defend when
it attempts to choose counsel for the insured, even if a court determines later that the
insured gets to choose.
In short, defendant has neither cited helpful case law nor developed a persuasive
argument in favor of its claims that United States Fire breached its duty to defend and acted
in bad faith by delaying its decision whether to defend defendant and attempting to impose
its own choice of counsel on defendant. With respect to United States Fire’s delay, I find
persuasive the view in Lakeside Foods and American Design & Build that a delay in deciding
whether to defend an insured does not qualify as a breach of duty to defend or an exercise
of bad faith when the reason for the delay is the insurer’s investigation of coverage, the
insured has counsel while the insurer is conducting its investigation and the insurer pays the
cost of counsel even for the time period that the investigation was pending. Under those
circumstances, the insured’s defense is not harmed in any way. Because those circumstances
are present in this case, I conclude that United States Fire’s delay did not violate defendant’s
With respect to the dispute over the choice of counsel, I need not decide whether
there might be some situation in which such a dispute could qualify as bad faith or a breach
of the duty to defend. As discussed above, unless a dispute prejudices the defense somehow,
it is difficult to see how the dispute could constitute a breach. In any event, it is enough to
say in this case that defendant has not identified any reason why United States Fire’s
conduct violated that duty.
With respect to bad faith, defendant acknowledges that a claim for bad faith requires
a showing that the insured lacked any reasonable basis for its decision. Dft.’s Br., dkt. #338,
at 19 (quoting Lakeside Foods, 2010 WI App 120 at ¶ 44). Although I sided with defendant
regarding the right to choose counsel in the April 1, 2015 order, I also acknowledged that
there is a split in authority regarding whether the insurer or the insured has the right to
choose counsel when the insured provides a defense under a reservation of rights. Compare
HK Systems, 2005 WL 1563340 (insurers who defend under reservation of rights retain
right to choose “independent” counsel) with Nowacki v. Federated Realty Group, Inc., 36
F. Supp. 2d 1099 (E.D. Wis.1999) (insured has right to choose counsel when insurer
provides defense under reservation of rights). The parties cited no cases in which any court
had considered the circumstances under which an insurer could be estopped from choosing
counsel. Thus, although defendant may have incurred additional costs by hiring separate
counsel to litigate the dispute over the choice of counsel, I cannot say that the law on that
issue was so clear as to justify a finding of bad faith by United States Fire. Accordingly, I am
granting United States Fire’s motion for summary judgment on defendant’s claims for bad
faith and breach of the duty to defend.
B. The Insurers’ Motions for Summary Judgment on their Duty to Defend and
Both insurers accepted defendant’s tender of defense, but they did so under a
reservation of rights. Now the insurers argue that factual developments since plaintiffs filed
the complaint show conclusively that plaintiffs cannot obtain damages that are covered by
the insurers’ commercial general liability policies, so the insurers seek a declaration that they
do not have a duty to defend or indemnify defendant. Olson v. Farrar, 2012 WI 3, ¶ 29,
338 Wis. 2d 215, 228-29, 809 N.W.2d 1, 7 (insurer has no duty to defend or indemnify if
policies do not provide coverage for plaintiff’s claims).
The parties discuss several different types of potential damages: (1) damage to the
windows themselves and the cost of replacing them; (2) damages caused during the
replacement of windows (which the parties refer to as “get to” and “rip and tear” costs); (3)
consequential damages to plaintiffs’ homes such as stained walls and buckled plaster caused
by things such as leaking windows; and (4) diminution in home value. The insurers argue
that these damages are not covered by defendants’ policies, not sought by plaintiffs or both.
The two insurers’ policies use the same language with respect to the issues relevant
to this case. In particular, the policies provide coverage for “property damage” that is caused
by an “occurrence” while the policies are in effect, which was 1989 to 1997 for Fireman’s
Fund and 2003 to 2004 for United States Fire. The policies define “property damage” as
a. Physical injury to tangible property, including all resulting loss of use of that
property. All such loss of use shall be deemed to occur at the time of the
physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss
of use shall be deemed to occur at the time of the “occurrence” that caused it.
In addition, both policies contain an exclusion that the policies do not apply to “damage to
your product.” Fireman’s Fund PFOF ¶¶ 3-5, dkt. #308; United States Fire’s Br., dkt. #263
at 12-13 (citing dkt. #84-2).
In light of this policy language, the insurers argue that they are not required to defend
or indemnify defendant for several reasons: (1) none of the alleged damages qualify as
“property damage” under the policies; (2) all of the alleged damages fall within the policies’
exclusion regarding “damage to your product”; (3) plaintiffs are no longer seeking damages
to their homes or other consequential damages; and (4) none of the plaintiffs are seeking
damages for events that occurred in the relevant policy period. I will consider each of these
arguments below. (In their reply briefs, the insurers raise new arguments regarding whether
plaintiffs’ alleged damages were caused by an “occurrence” within the meaning of the
policies, but I have not considered those arguments because they were not raised in the
insurers’ opening briefs. Casna v. City of Loves Park, 574 F.3d 420, 427 (7th Cir. 2009).)
As an initial matter, defendant argues that the insurers have waived their right to
challenge coverage by breaching their duty to defend in the manner described in the previous
section. Because I have concluded that the insurers did not breach their duty to defend, I
need not consider this argument.
2. Damages to the windows and damages caused by replacing the windows
Defendant does not respond to the insurers’ argument that the policies’ exclusion for
“damage to your product” applies to alleged damage to the windows themselves and the cost
of replacing them, so I conclude that defendant has forfeited that issue. Bonte v. U.S. Bank,
N.A., 624 F.3d 461, 466 (7th Cir. 2010) (“Failure to respond to an argument . . . results in
waiver.”). With respect to damages caused during the replacement of the window, United
States Fire cites Jacob v. Russo Builders, 224 Wis. 2d 436, 592 N.W.2d 271 (Ct. App.
1999), for the proposition that “damages . . . directly related to the repair and replacement
of defective work [a]re not covered under a commercial general liability policy” such as the
policies at issue in this case. U.S. Fire’s Br., dkt. #263, at 19. For its part, Fireman’s Fund
cites B & D Contractors, Inc. v. Arwin Window Systems, Inc., 2006 WI App 123, ¶ 5, 294
Wis. 2d 378, 385, 718 N.W.2d 256, 259, in which the court stated that “costs flowing from,
or caused by, the repair or replacement of an insured's defective product are not covered by
the Commercial-General-Liability policy.”
Of course, each contract must be construed in accordance with the language in that
However, the contracts at issue in Jacob and B&D Contractors contained
exclusions for “damage to your product” similar to the exclusion at issue in this case,
supporting the view that “damage to your product” encompasses damage caused by replacing
the product. Defendant’s only response to the insurers’ argument on this issue is to say that
it is unclear which damages plaintiffs will ultimately recover, so the court should wait until
liability has been determined to address the issue. Dft.’s Br., dkt. #306, at 26-27. However,
the question of which damages plaintiffs may recover has nothing to do with the question
whether a particular kind of damages is covered by the policies. Accordingly, because
defendant did not respond meaningfully to the insurers’ argument that they do not cover
damages cause by the replacement of the windows, I conclude that defendant has forfeited
that issue for the purpose of the insurers’ motion for summary judgment.
3. Damages to plaintiffs’ homes
a. Scope of the policies
This leaves consequential damages to plaintiffs’ homes and diminution in value of the
homes. With respect to damages to plaintiffs’ homes, United States Fire argues that the
homes are part of an “integrated system” with the windows.
It cites Bay Breeze
Condominium Association, Inc. v. Norco Windows, Inc., 2002 WI App 205, 257 Wis. 2d
511, 651 N.W.2d 738, and Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 235,
593 N.W.2d 445 (1999), for the proposition that damage to an “integrated system” does
not qualify as “property damage.” However, nothing in those cases supports that view.
Rather, the relevant issue in Bay Breeze and Wausau Tile was the scope of the economic loss
doctrine, which “precludes a purchaser of a product from employing negligence or strict
liability theories to recover from the product's manufacturer loss which is solely economic.”
Wausau Tile, 226 Wis. 2d at 245-46, 593 N.W.2d at 451. The doctrine does not apply to
“damage to property other than the product itself,” but it does apply to “[d]amage by a
defective component of an integrated system to either the system as a whole or other system
components.” Id. at 249. In Bay Breeze, 2002 WI App 205 at ¶ 27, the court concluded
that allegedly defective windows that came with a newly built condominium unit were part
of an “integrated system” with “interior and exterior walls and casements,” so the economic
loss doctrine precluded the plaintiff from asserting tort claims against the window
manufacturer for damage to the condominium caused by defective windows.
Neither Bay Breeze nor Wausau Tile includes a discussion regarding the meaning of
“property damage” in an insurance policy. In fact, as defendant points out, the Wisconsin
Supreme Court has stated that the economic loss doctrine “does not determine whether an
insurance policy covers a claim, which depends instead upon the policy language.” American
Family Mutual Insurance Co. v. American Girl, Inc., 2004 WI 2, ¶ 35, 268 Wis. 2d 16, 36,
673 N.W.2d 65, 75. Under the policies’ definition of “property damage,” it seems obvious
that damages such as buckled plaster and stained walls would qualify as “physical injury to
tangible property.” United States Fire identifies no reason to reach a contrary conclusion.
Fireman’s Fund makes the same argument as United States Fire, but it also makes a
more intuitive argument, which is that the integrated systems rule should inform the court’s
reading of the policies’ exclusion for “damage to your product.” In other words, Fireman’s
Fund argues that “damage to your product” includes damage to any part of an integrated
system. However, Fireman’s Fund did not develop this argument until its reply brief. Casna,
574 F.3d at 427. In its opening brief, Fireman’s Fund simply assumed that plaintiffs’
windows are part of an integrated system with the rest of their home and that the integrated
systems rule should apply when interpreting the exclusion at issue.
Even in its reply brief, Fireman’s Fund says that its exclusion “incorporates the
economic loss and integrated structure doctrine,” Fireman’s Fund’s Reply Br., dkt. #348,
at 15-16, but it does not explain why it believes this. In the case it cites, Wisconsin
Pharmacal Co., LLC v. Nebraska Cultures of California, Inc., 2014 WI App 111, ¶38, 358
Wis. 2d 673, 856 N.W.2d 505, the court rejected the view that the integrated systems
doctrine applies to every commercial general liability policy. The court stated, “[i]f insurers
want to . . . import the economic loss/integrated product doctrine into the policy . . ., they
can do so by writing their business risk exclusions accordingly.” Id. (emphasis added). Although
Fireman’s Fund relies on Wisconsin Pharmacal, it does not point to any language in its
policy that should be read as incorporating the integrated systems rule. In another case, also
cited by the insurers, the court declined to incorporate the integrated systems rule into a
commercial general liability policy in the absence of specific language to that effect. Jacob,
224 Wis. 2d at 453, 592 N.W.2d at 278.
Courts are required to construe insurance policies in a manner consistent with what
a reasonable person in the position of the insured would have understood the words to mean,
Folkman v. Quamme, 2003 WI 116, ¶ 20, 264 Wis. 2d 617, 633, 665 N.W.2d 857, 865,
and they are required to construe exclusions narrowly in favor of coverage, Olson v. Farrar,
2012 WI 3, ¶ 65, 338 Wis. 2d 215, 240, 809 N.W.2d 1, 13. Further, insurers have the
burden to prove that an exclusion applies. Kozlik v. Gulf Insurance Co., 2003 WI App 251,
¶ 8, 268 Wis. 2d 491, 498, 673 N.W.2d 343, 347. Because neither insurer has developed
an argument in support of a view that the language “damage to your product” in their
policies should be construed to mean damage to other parts of plaintiffs’ homes, I conclude
that the insurers are not entitled to summary judgment on that ground.
b. Scope of plaintiffs’ claims
United States Fire makes an alternative argument regarding damages to plaintiffs’
homes, which is that plaintiffs are not seeking those damages. Although United States Fire
admits that plaintiffs did request those damages in their complaint (as well as in their
summary judgment submissions, dkt. #200 at ¶¶ 58-59, 80), it argues that the complaint
has been superseded by plaintiffs’ most recent “damages disclosure.” Dkt. #262, exh. A.
According to United States Fire, the new disclosure does not include any damages other than
those related to replacing the windows.
The parties debate how to interpret that disclosure, which includes a column for
“amount paid for repairs” and “RS Means Estimate,” but it does not clearly define the
damages included in either column. Id. In support of its view that plaintiffs are still seeking
damages for their homes, defendant points to invoices cited in the disclosure related to those
damages and deposition testimony from some of the plaintiffs. Dft.’s Br., dkt. #306, at 3-5.
In addition, defendant argues that an undefined “contingency” estimate of ten percent in the
disclosure may include damages to the home, citing testimony from plaintiffs’ expert. Id.
at 8. United States Fire cites different passages from the expert’s testimony to support a
view that the new disclosure is limited to damages related to repair and replacement. U.S.
Fire’s PFOF ¶ 63, dkt. #308.
Again, however, United States Fire did not develop an
argument on this issue until its reply brief.
Even setting aside United States Fire’s failure to develop this argument in its opening
brief, I conclude that it is unnecessary to parse the damages disclosure and the deposition
testimony to determine which party has the better interpretation. The general rule in
Wisconsin is that the duty to defend is determined from the allegations in the complaint
without resort to extrinsic evidence. Sola Basic Industries, Inc. v. U. S. Fidelity & Guaranty
Co., 90 Wis. 2d 641, 646-47, 280 N.W.2d 211, 213-14 (1979) (“To determine whether an
insurer is obligated to assume the defense of a third-party suit, it is necessary to determine
whether the complaint alleges facts which, if proven, would give rise to liability covered
under the terms and conditions of the policy.”); Monfils v. Charles, 216 Wis. 2d 323, 330,
575 N.W.2d 728, 731 (Ct. App. 1998) (“[T]he trial court erred by dismissing [the insurer]
from its duty to defend by using materials outside the complaint to determine the existence
of coverage.”); Atlantic Mutual Insurance Co. v. Badger Medical Supply Co., 191 Wis. 2d
229, 241, 528 N.W.2d 486, 491 (Ct. App. 1995) (“[I]n determining whether there is a duty
to defend, we do not consider later depositions or other materials; we look only at the
allegations of the complaint.”). This is referred to as the “four corners rule.” Sawyer v. West
Bend Mutual Insurance Co., 2012 WI App 92, ¶ 10, 343 Wis. 2d 714, 723, 821 N.W.2d
United States Fire points out that the Wisconsin Supreme Court has relaxed the rule
against relying on extrinsic evidence in some circumstances:
Where the insurer has provided a defense to its insured, a party has provided
extrinsic evidence to the court, and the court has focused in a coverage hearing
on whether the insured's policy provides coverage for the plaintiff's claim, it
cannot be said that the proceedings are governed by the four-corners rule. The
insurer's duty to continue to defend is contingent upon the court's
determination that the insured has coverage if the plaintiff proves his case.
Estate of Sustache v. American Family Mutual Insurance Co., 2008 WI 87, ¶¶ 27-29, 311
Wis. 2d 548. However, the scope of the exception to the four corners rule is unclear. In
Sustache, the court still focused on “the allegations of the complaint and the pertinent
homeowner's policy.” Id. at ¶ 4. Although the court mentioned deposition testimony as
well, this was only to confirm allegations in the complaint. Id. at ¶¶ 51-53.
In this case, United States Fire is not relying on extrinsic evidence to confirm or even
clarify allegations in the complaint. Rather, it is trying to contradict the allegations in the
complaint. United States Fire cites no cases in which a court has relied on extrinsic evidence
for that purpose while the underlying lawsuit was pending. Further, the evidence United
States Fire cites is equivocal; United States Fire does not point to any document in which
plaintiffs disclaimed damages to their homes. Even if United States Fire’s interpretation of
the damages disclosure is correct, United States Fire cites no authority for the view that
there would be no circumstances under which plaintiffs could make additional adjustments
to their disclosures.
Any doubts about coverage must be resolved in favor of the insured when determining
whether insurer has a duty to defend. Liebovich v. Minnesota Insurance Co., 2008 WI 75,
¶ 18, 310 Wis. 2d 751, 766, 751 N.W.2d 764, 771; Sola Basic Industries, 90 Wis. 2d at
646-47. Thus, so long as there is some possibility, even a small one, that the plaintiffs could
obtain damages covered by the policy, the duty to defend remains. Any other rule would
encourage insurance companies to seek a declaration on their duty every time a new
document was filed in a lawsuit that casts some doubt on coverage. The better rule is to
keep the status quo until the case is resolved and a final determination on coverage can be
made. Olson, 2012 WI 3 at ¶ 30 (“If the allegations in the complaint, construed liberally,
appear to give rise to coverage, insurers are required to provide a defense until the final
resolution of the coverage question by a court.”).
Under Wisconsin law, if the insurer has a duty to defend with respect to any portion
of the claims, then the insurer must defend the entire lawsuit. Fireman's Fund Insurance Co.
v. Bradley Corp., 2003 WI 33, ¶ 21, 261 Wis. 2d 4, 660 N.W.2d 666. Because I have
concluded that plaintiffs’ claims for damages to their homes may be covered by the insurers’
policies, it is not necessary to decide whether plaintiffs’ claim for diminished value of their
homes is covered as well.
4. Policy Period
Finally, both insurers argue that none of plaintiffs’ claims fall within the policy period,
which was 1989 to 1997 for Fireman’s Fund and 2003 to 2004 for United States Fire.
However, plaintiffs’ proposed class includes individuals who purchased windows beginning
in 1997 and continuing to the present, dkt. #285 at 10, so both of the insurers’ policies fall
within the class period. It may be unlikely that any class members would have claims that
arose as far back as 1997 without running afoul of the statute of limitations, but, as
discussed in the summary judgment opinion, dkt. #233 at 19, a statute of limitations
analysis depends not only on the date that a plaintiff discovered a problem with the windows
but also the date the plaintiff discovered that defendant was the cause of the problem.
Again, all doubts about coverage must be resolved in favor of the insured. Because I cannot
say as a matter of law that no class member could have a timely claim that arose from
damages that occurred during the covered periods, I am denying the insurers’ motion for
summary judgment on this issue as well.
IT IS ORDERED that
1. Intervenor United States Fire’s motion for summary judgment on defendant Kolbe
and Kolbe Millwork Co.’s claims that United States Fire breached its duty to defend
defendant and acted in bad faith, dkt. #294, is GRANTED.
2. The motions for summary judgment filed by intervenors United States Fire and
Fireman’s Fund Insurance Company regarding their duty to defend and indemnify
defendant, dkt. ##261 and 265, are DENIED.
Entered this 2nd day of November, 2015.
BY THE COURT:
BARBARA B. CRABB
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