Wisconsin Business and Commercial Litigation

Insurance is a big deal for every business owner, particularly if you can use it to avoid litigation costs and cover potential liability.  But insurance companies have lawyers to (my firm does work for a LOT of insurance companies), and it’s best to have someone who knows how to make sure you’re protected.  Take the recent Court of Appeals case Society Ins. v. Bodart, which discusses coverage issues that will matter to every business that’s sued and turns to its insurance company for coverage. 

Bodart was sued in Michigan, and Society brought a Wisconsin action seeking a declaration of its duty to defend in Michigan.  The circuit court found that coverage arguable existed for at least one of the claims in the Michigan action.  Accordingly, Society provided a defense, and ended up settling three of the five Michigan claims, including the one the court found was arguably covered.

Having settled the only potentially covered claim, Society informed Bodart that it was withdrawing from the defense of the remaining claims.  Bodart sought a contempt order, which the circuit court denied.  Bodart appealed, and this case of first impression made its way to the Court of Appeals.

The court described and accepted what it called the “general rule” permitting an insurance company to withdraw its defense once the potentially covered claims are settled:

Turning to case law, the parties agree that no Wisconsin case has decided the precise question of whether an insurer has a continuing duty to defend remaining claims after all at least arguably covered claims are settled and dismissed. However, we now discern from the parties’ briefing and our own research that the general rule consistently reflected in persuasive authority is this: An insurer’s duty to defend ends after all at least arguably covered claims are settled and dismissed. See, e.g., Lockwood Int’l, B.V. v. Volm Bag Co., 273 F.3d 741, 744 (7th Cir. 2001) (“[I]f in the course of litigation the covered claims fall out of the case through settlement , the insurer’s duty to defend [the] insured ceases.”); Meadowbrook, Inc. v. Tower Ins. Co., 559 N.W.2d 411, 417 (Minn. 1997) (“Once the insurer settled and paid [the covered] claims, it completely performed its contractual duty.”); Allan D. Windt, Insurance Claims & Disputes § 4:28 (5th ed. 2007) (generally an insurer may withdraw its defense if “the insurer enters into a settlement with the plaintiff pursuant to which the plaintiff dismissed those claims encompassed by the policy–even though the lawsuit continues as to the noncovered claims”); see also Lee R. Russ & Thomas F. Segalla, 9 Couch on Insurance § 200:49 (3d ed. 2005) (“An insurer’s duty to defend continues until final resolution of the covered claims.”).   

We have located no authority, nor has Bodart provided any authority, to the contrary.

The general rule for business owners when faced with a matter in which insurance coverage applies to one of several claims or when coverage becomes an issue:  be sure to retain Wisconsin counsel who understand insurance coverage and the impact on your business.

Some rulings can even garner sympathy for insurance companies.  This may be one of them.  In Accola v. Fontana Builders, the Wisconsin Court of Appeals overturned a decision by Walworth County Circuit Court Judge John Race regarding insurance coverage.  The Accolas sued Fontana Builders and its insurance company, Westfield, to recover damages to the Accolas’ personal property that burned while they slept in their soon-to-be home (the Accolas had moved in early while Fontana, still technically the owner of the property, competed construction). 

There is an interesting catch in the story that probably played to the trial judge:

At the time of the fire, the house was owned by Fontana, but legally occupied by the Accolas under a thirty-day temporary occupancy permit.  Interestingly, James Accola happens to be both owner and president of Fontana.  The fire was allegedly caused by some dirty (and apparently flammable) rags left behind by a Fontana employee.

After the fire, the Accolas filed a negligence claim against Fontana and Westfield, Fontana’s liability insurer.  They acknowledged that damage to the house itself was not covered because the liability policy excludes coverage for property owned by the insured (here, Fontana).  However, they claim that the personal property they moved into the house was covered because it was not owned by Fontana and was not in Fontana’s care, custody, or control.

Westfield filed for summary judgment, claiming that the Accolas’ personal property was excluded from their policy by the “care, custody, or control” exclusion.  It claims that this exclusion is in place to avoid precisely this scenario, where an insured allows valuable property to be stored on its property while it is still doing work on it.  Westfield also claims that James Accola’s status as owner of Fontana strengthens its argument that his personal property should be excluded because it was under supervision “24 hours a day” by a Fontana employee–Accola himself.  The trial court granted summary judgment to Westfield and dismissed it from the lawsuit.

Based on the case law principle that the personal property is not covered only if it is necessary to the work on the property, the court of appeals overturned the trial court.  The court, while sympathetic to the argument, reasoned that the facts of the case compelled its conclusion.

We can understand why Westfield feels strongly, and why the trial court agreed, that the Accolas should not be able to sue Fontana to recover for damage done to their personal property based on the negligence of construction laborers who worked for and under James Accola himself.  Indeed, the issue of James Accola’s degree of supervision of the property may well be relevant to the merits of the potential negligence claim.  But the odd facts of this case do not change the legal standard that must be applied under Meiser and Silverton.

In order to win under the “care, custody, or control” exclusion of its policy at the summary judgment level, Westfield had to show that the Accolas’ personal property was necessary to the work being done by Fontana and this is something it has not done.

Sometimes even insurance companies get caught by the technicalities.

House fire photo courtesy 111 Emergency’s flickr gallery via this creative commons license.

At my recent presentation to the Muskego Area Chamber of Commerce, the issue of insurance coverage for company employees arose.  Many employees, and even owners, are understandably concerned about the existence and scope of insurance coverage for acts taken in the course of employment. 

Two events are crucial to making sure that you’ve got the coverage you want.  The first is bringing the issue up with your insurance agent, and also with your lawyer.  You can’t make a good decision if you don’t know what coverage is available, what it costs, and what potential problems you might face.  Talking with both your agent and your lawyer should cover all these bases.  By the way, if your agent isn’t bringing this issue up to you (or hasn’t brought it up to the owner/manager of the company for which you work) it might be time to find a new agent.

Second, once the decision has been made, you have to confirm that what you’ve got is what you’ve asked for.  When you get the policy, review the language.  Does it say what you think it should say?  Also, I’d take the policy back to your lawyer and find out if the language in the policy is sufficient to effectuate the decision you made earlier. 

If you’re an employer, I can tell you now that this issue is important to your employees.  If you’re an employee, let your employer know that the issue is important to you, and find out what you can about how (and if) you’re protected.

Used under a Creative Commons License from Peyman's Flickr gallery

In the Wisconsin Law Journal, Dave Ziemer writes an opinion piece about the proposed legislation that would prohibit insurance companies from using ZIP codes to set automobile insurance rates.  You can find more information at this site and in an article from the Wisconsin State Journal, which provides contact information.  While the discussion relates to personal auto insurance, this bill could impact on business insurance rates, as well.

Is a surety liable for post-completion guarantees on its principal’s work?  If the bond contains language like the language in Milwaukee Board of School Directors v. Bitec (Sept. 9, 2009), the answer is yes.  In a much-needed piece of good news for anyone remotely connected with Milwaukee’s school system, the District 1 Court of Appeals concluded that Atlantic Mutual’s surety bond covered warranty obligations arising from its principal’s (Specialty Associates) construction contract with the MBSD.

A roof system installed by Specialty Associates failed within the five-year warranty established in its construction contract with the MBSD.  Among other things, Atlantic Mutual argued that the surety bond’s one-year limitation trumped the warranty, precluding liability.  The court disagreed:

“The rule in Wisconsin is that a surety’s obligation is derived from its principal and the liability of the surety is measured by the liability of the principal.” Waukesha Concrete Prods. Co. v. Capitol Indem. Corp., 127 Wis. 2d 332, 339, 379 N.W.2d 333 (Ct. App. 1985); see also Riley Constr. Co. v. Schillmoeller & Krofl Co., 70 Wis. 2d 900, 905, 236 N.W.2d 195 (1975) (“Because the surety’s obligation is derived from that of the principal debtor, the liability of the surety is ordinarily measured by the liability of the principal. If the principal is not liable to the claimant, then the surety is not liable either.”). “The bond issued by the surety and the contract which it secures should be construed together.” Waukesha Concrete, 127 Wis. 2d at 339.

The court also pointed to the plain terms of the bond language, which voided the bond only after Specialty Associates “faithfully performed all of the terms of the contract and has indemnified MBSD for all costs suffered due to any failure on the part of [Specialty Associates] to fully perform the contract.”  Because the five-year warranty was part of the contract, it was covered by the bond.

For those of you who work with surety bonds or construction, this case is a must read.