David M. Marks v. Houston Casualty Company
881 N.W.2d 309
Wis.2016Background
- David Marks, trustee of two trusts (ICT and ICT2), was named in six lawsuits (2007–2009) alleging misconduct primarily in his roles as officer/director of business enterprises (e.g., Titan), not as trustee.
- Marks held a Professional Liability (E&O) policy from Houston Casualty covering wrongful acts "solely in the performance of services as the Trustee of [ICT/ICT2], for a fee."
- The policy contained a business-enterprise exclusion barring coverage for liability "arising out of the Insured's services and/or capacity as ... an officer, director, partner, trustee, or employee of a business enterprise not named in the Declarations."
- Marks tendered defense; Houston Casualty denied coverage and refused to defend, citing (inter alia) that the claims did not arise from trustee services and were excluded by the business-enterprise exclusion.
- Marks sued Houston Casualty for breach of the duty to defend; the circuit court granted summary judgment to Houston Casualty, the court of appeals affirmed, and the Wisconsin Supreme Court granted review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the complaints, under the four-corners rule, alleged claims covered by the policy (initial grant of coverage) | Marks: his trustee role caused his board/officer roles; complaints should be read liberally to find coverage for trustee-related services | Houston: complaints allege officer/director acts for businesses not named in policy; policy covers only trustee services for ICT/ICT2 | Court: did not need to decide initial coverage because exclusions (business-enterprise) preclude coverage; insurer had no duty to defend |
| Whether the business-enterprise exclusion applied to claims against Marks as officer/director of Titan and other entities | Marks: exclusion should not apply because his board roles were derived from trustee duties; policy ambiguity favors insured | Houston: exclusion unambiguously excludes liability for officer/director services for business enterprises not named in Declarations | Held: exclusion unambiguously precludes coverage for the alleged officer/director claims; insurer had no duty to defend |
| Whether the business-enterprise exclusion renders the policy illusory (warranting reformation) | Marks: exclusion (particularly trustee/trust language) swallows all coverage, making policy illusory and subject to reformation in favor of insured | Houston: reformation is extraordinary and not warranted; any alleged illusory clause must be addressed narrowly and does not rescue coverage for officer/director claims | Held: reformation inappropriate on these facts; court would only consider reforming an actually illusory clause tied to coverage, not excise unrelated exclusion language to create coverage |
| Whether insurer's unilateral denial of defense estops it from invoking policy exclusions in later duty-to-defend litigation | Marks: because Houston refused to defend, it should be estopped from relying on exclusions (citing some court of appeals precedents) | Houston: courts must interpret policy including exclusions to decide whether breach occurred; estoppel only follows after a court determines defendant actually breached its duty to defend | Held: Supreme Court rejects the rule that unilateral denial automatically forecloses reliance on exclusions; court may consider exclusions under four-corners analysis; overrules contrary language in some court-of-appeals cases |
Key Cases Cited
- Olson v. Farrar, 338 Wis. 2d 215 (2012) (describes four-corners rule and insurer's initial duty-to-defend determination)
- Estate of Sustache v. Am. Family Mut. Ins. Co., 311 Wis. 2d 548 (2008) (four-corners rule: compare complaint to policy; first assess initial coverage, then exclusions)
- Fireman's Fund Ins. Co. v. Bradley Corp., 261 Wis. 2d 4 (2003) (complaint-centered duty-to-defend analysis; no resort to extrinsic facts)
- Professional Office Bldgs., Inc. v. Royal Indem. Co., 145 Wis. 2d 573 (Ct. App. 1988) (an insurer that breached a duty to defend may be estopped from later contesting coverage after a court determines breach)
- Grube v. Daun, 173 Wis. 2d 30 (Ct. App. 1992) (court-of-appeals decision treated as inconsistent with broader precedent and limited by Supreme Court here)
- Cook v. Cook, 208 Wis. 2d 166 (1997) (court-of-appeals must speak with a unified voice; conflicts among its published opinions should be certified to the supreme court)
- Maxwell v. Hartford Union High Sch. Dist., 341 Wis. 2d 238 (2012) (insurer on the hook for damages resulting from breach of duty to defend)