926 N.W.2d 196
Wis. Ct. App.2019Background
- Plaintiffs (retired teachers) sued Germantown School District in 2013 alleging the District’s 2012 termination of a group long-term care (LTC) policy caused losses; claims included breach of contract and related theories.
- District tendered defense to its insurers (Wausau/Employers). Insurers initially concluded there was no coverage, notified the District, and moved to intervene, bifurcate coverage from the merits, and stay the merits.
- The circuit court granted intervention and bifurcation but denied the stay because of potential harm to retirees; after the denial, insurers agreed to defend under a reservation of rights and later paid most defense fees subject to billing-guideline deductions.
- The District kept its chosen counsel (Buelow); disputes arose over approximately $50,000 in unpaid defense fees and about coverage-related attorney fees incurred establishing coverage.
- A jury later found the District’s termination was negligent; insurers conceded indemnity if liability resulted. The District sought unreimbursed defense fees and fees to establish coverage; the circuit court denied fee recovery and the District appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurers breached duty to defend by delaying agreement to provide defense | Insurers’ agreement to defend was belated (July 16–Jan 14) and that delay breached duty to defend, so insurers owe damages (unpaid defense fees) | Insurers pursued court-approved procedures (letter, motion to intervene/bifurcate/stay) and only began defending after stay denial; no undue delay or prejudice | No breach: insurers followed preferred procedures; timing did not constitute a breach |
| Whether unpaid ~$50,000 in merits defense fees must be paid as damages for breach | District says unpaid fees are owed as damages flowing from breach | Insurers say fees were disputed (billing-guideline deductions), no concession of liability, lack of record proof, possible forfeiture | District failed to prove entitlement or reasonableness of unpaid fees; fee dispute does not establish breach |
| Whether District may recover attorney fees incurred to establish coverage under Elliott v. Donahue | District says insurers forced simultaneous defense and coverage litigation, so Elliott equity award applies | Insurers sought stay and bifurcation; after stay denial they agreed to defend retroactively, so Elliott’s unfairness is absent | Elliott inapplicable; because insurers moved to stay and then defended after denial, Reid/American Rule govern and District pays its own coverage-related fees |
| Proper remedy and scope when insurer litigates coverage then defends under reservation of rights | District urges full recovery for all fees flowing from insurer conduct | Insurers argue they followed reservation-of-rights/approved steps and paid or adjusted fees per guidelines | Court affirms that following preferred approaches shields insurer from liability for coverage-related fees absent breach; insurer not liable here |
Key Cases Cited
- Elliott v. Donahue, 169 Wis.2d 310 (Wis. 1992) (equitable award of fees where insurer forced insured to defend merits while contesting coverage and did not move to stay)
- Reid v. Benz, 245 Wis.2d 658 (Wis. 2001) (limits Elliott; insurer defending under reservation of rights and seeking bifurcation/stay eliminates Elliott-based fee awards)
- Water Well Solutions Service Group, Inc. v. Consolidated Ins. Co., 369 Wis.2d 607 (Wis. 2016) (duty-to-defend analysis: compare four corners of complaint and policy; courts encourage bifurcation, stay, reservation of rights)
- Newhouse v. Citizens Sec. Mut. Ins., 176 Wis.2d 824 (Wis. 1993) (insurer breach requires payment of damages that put insured in position as if insurer had defended)
- Patrick v. Head of the Lakes Cooperative Electric Ass'n, 98 Wis.2d 66 (Wis. Ct. App. 1980) (insured entitled to reasonable defense fees after insurer breach; reasonableness must be shown)
- Sauk County v. Employers Ins. of Wausau, 202 Wis.2d 433 (Wis. Ct. App. 1996) (partial payment of defense costs may be acceptable where insurer pays for portion it is obligated to cover)