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.