Wisconsin Insurance Law: 2013 Year in Review … and a Look Ahead Jeffrey Davis Patrick Nolan Brandon Gutschow February 12, 2014 Joint meeting of Wisconsin Chapter of RIMS & CPCU Society .
Overview of Key Insurance Coverage Decisions • 2013 was another active year in Wisconsin • Key points: – Long tail exposure cases – allocation amongst multiple carriers with a joint and several obligation ( Cleaver Brooks v. AIU ) – Further development, expansion – and confusion – in the area of “accident” and intentional acts ( Schinner v. Gundrum; Fetherston v. Parks ) – Development of pollution exclusion jurisprudence ( Wilson Mutual v. Falk )
Cleaver Brooks, Inc. v. AIU Insurance Co. 2013 WI App 135, 351 Wis.2d 643, 839 N.W.2d 882 • Insured with significant asbestos liability triggered an excess layer with three quota-share policies, only two of which had a duty to defend obligation • Insurers wanted policies to apply sequentially and insurer wanted all policies to apply simultaneously • Held: insured can decide how to apportion the liability among policies that are jointly and severally liable • Important takeaway: How will courts apply this outside of the quota-share context? Impact on contribution rights where insured settles with less than all carriers?
Volitional, Criminal and Intentional Acts – Insureds behaving badly • Schinner v. Gundrum (Wis. Sup. Ct.) • Estate of Dobry v. Wilson Mutual Insurance Co. (Wis. Ct. App.) • Fetherston v. Parks (Wis. Ct. App.) • Laufman v. Safeco Insurance Co. of America (Wis. Ct. App.)
Schinner v. Gundrum 2013 WI 71, 349 Wis.2d 529, 833 N.W.2d 685 • Insured hosted underage drinking party and one partygoer assaulted another, leaving the victim paralyzed. • Applicable homeowners policy provided coverage for harm caused by an “occurrence,” defined as “an accident” • Held: courts should determine whether “an accident” caused harm by analyzing the events from the insured’s standpoint, not from the perspective of the injured party • Held: means or cause of damage must be accidental, not just an unintended, unexpected result. • Narrow majority found no “accident” and no insurance coverage because the policyholder’s conduct in hosting the party, inviting the aggressor and failing to intervene as the dispute escalated were sufficiently “volitional”
Fetherston v. Parks 2013 WL 6500446(Wis. Ct. App.)(Recommended for publication). • Insured caused traffic accident while fleeing from police • Auto insurer denied coverage under policy exclusion for “bodily injury or property damage caused intentionally by, or at the direction of, and substantially certain to follow from the act of an insured person” • Held: insurer must prove insured subjectively and objectively intended to cause harm; subjective element not satisfied. • How to reconcile with Schinner ?
Estate of Dobry v. Wilson Mutual Insurance Co. 2013 WL 6418930 (Wi. Ct. App.)(Unpublished decision). • Insured inadvertently shot and killed his friend while playing with a gun during an underage drinking party at the insured’s home • Insured was convicted in criminal proceedings for homicide by negligent handling of a dangerous weapon. • Court of Appeals found no coverage under the criminal acts exclusion, even though insured was convicted of a criminal negligence count.
Laufman v. Safeco Insurance Co. of America 2013WL2157891 (Wis. Ct. App.)(Unpublished decision). • Lakefront property owners sued dam owner for “neglect” in operating a dam, which eventually caused lake to drain • CGL insurer denied coverage for what it deemed intentional conduct • Court of Appeals agreed with insurer: – Property owners’ complaint alleged “intentional neglect...intentionally calculated” to lead to the destruction of the lake – Such intentional conduct is not an “accident,” a term that denotes an “unexpected,” “unforeseen,” or “unintentional” event
Interpreting and Applying Policy Exclusions • Phillips v. Parmelee (Wis.) • Wilson Mutual Insurance Co. v. Falk (Wis. Ct. App.) • Heinecke v. Aurora Healthcare, Inc. (Wis. Ct. App.) • Barrows v. American Family Insurance Co. (Wis. Ct. App.) • Konrad Marine, Inc. v. Marine Associates, Inc. (Wis. Ct. App.)
Coverage Methodology Within No No Coverage Coverage Grant? Yes Within Exception? Yes Exclusion? No Yes No Conditions No No Met? Coverage Yes Coverage Exists
Asbestos Exclusion Phillips v. Parmelee 2013 WI 105, 351 Wis.2d 758, 840 N.W.2d 713 • Insured sold building without disclosing presence of asbestos and new owner unknowingly cut into ductwork that was wrapped in asbestos • Insurer of business owners policy denied coverage under broad asbestos exclusion • Supreme Court agreed with insurer but notably did not address the Court of Appeals’ volitional acts analysis – Court of Appeals had found that the allegations of the underlying complaint (fraud and negligent failure to disclose defective conditions) triggered an initial grant of coverage – This issue was not presented for review by the Supreme Court
Pollution Exclusion Wilson Mutual Insurance Co. v. Falk 2013WL6480760 (Wis. Ct. App.)(Recommended for publication). • Insured farmer spread manure on fields that wound up contaminating a local aquifer and neighboring wells • Insurer denied coverage under pollution exclusion of farmowners policy (“pollutant” = “any solid liquid, gaseous … irritant or contaminant, including ... waste”) • Held: examine policy from the standpoint of the policyholder (in this case, a farmer) • From the standpoint of a farmer, manure is “liquid gold” not a “pollutant”
Coverage Methodology Within No No Coverage Coverage Grant? Yes Within Exception? Yes Exclusion? No Yes No Conditions No No Met? Coverage Yes Coverage Exists
Fungi and Bacteria Exclusion Heinecke v. Aurora Healthcare, Inc. 2013 WI App 133, 351 Wis.2d 463, 841 N.W.2d 52 • Hospital’s decorative water fountain allegedly emitted a bacteria that caused several people to contract pneumonia • Issue: Did the “consumption” exception to the “fungi or bacteria” exclusion in the contractor’s liability policy apply? • Held: No, consumption exception does not apply to decorative fountain, so no coverage – Dictionary definitions have their limits – Definition of “consumption” that includes observation and enjoyment of art would lead to absurd results and ignore the parties’ expectations – More common definition – “to eat, to drink, to use up, to consume” – governed
Intra-insured Exclusion Barrows v. American Family Insurance Co. 2013 WL 6418929 (Wis. Ct. App.)(Recommended for publication). • Whether intra-insured exclusion applies to a non- insured claimant bringing a claim for wrongful death of an insured. (Issue of first impression in WI) • Child shot and killed himself with stepfather’s gun – child’s father sued ex-wife for wrongful death. • Homeowners insurer of mother, stepfather and child denied coverage for father’s wrongful death lawsuit under intra-insured exclusion • Court of Appeals adopted “majority rule that an intra- insured exclusion like the one in [the] policy bars coverage for a wrongful death claim arising out an insured’s death, even if the claimant is a non-insured”
Business Risk Exclusions Konrad Marine, Inc. v. Marine Associates, Inc. 2013WL1580354 (Wis. Ct. App.)(Unpublished decision). • Insured improperly cut teeth into gears, eventually causing failures in stern drives for boats • Court of Appeals agreed that liability insurer’s “your work” and “your product” exclusions barred coverage for: – Costs associated with the insured’s gears themselves; and – Costs of replacing gear sets in drives that had not failed • Court held that stern drive manufacturer’s lost profits were covered: lost profits were “because of” covered property damage (damaged stern drives) and uncovered damage (faulty gears); it was not practical to further parse the source of lost profits.
Other Cases of Note Advertising Injury • Air Engineering, Inc. v. Industrial Air Power, LLC (Wis. Ct. App.) • Lexington Insurance Co. v. Tudor Insurance Co. (E.D. Wis.) Property Casualty • Waterstone Bank v. American Family (Wis. Ct. App.). Defense Handling • DeMarco v. Keefe Real Estate, Inc. (Wis. Ct. App.)
Advertising Injury Coverage / Duty to defend Air Engineering, Inc. v. Industrial Air Power, LLC 2013 WI App 18, 346 Wis.2d 9, 828 N.W.2d 565 • Insured faced lawsuit for misappropriating and using competitor’s website source code, site content and an internet advertising system • Court of Appeals: complaint allegations triggered a defense under CGL policy’s “advertising injury” coverage – The website content, source code and internet advertising system each represented “advertising ideas” (DISH Network) – Insured engaged in “advertising activity” by using these ideas – Insured’s advertising activity caused plaintiff “advertising injury” • “Knowing violation of rights of another” exclusion did not bar coverage, because certain claims did not allege intent as an element of the claim
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