Lead Opinion
| 1. This is a review of a published decision of the court of appeals, Marks v. Houston Casualty Co.,
¶ 2. In July of 2009, trustee David Marks ("Marks") asked his professional liability insurer, Houston Casualty, to defend him in six lawsuits filed in 2007, 2008, and 2009 in five different states. Houston Casualty informed Marks that it had no duty to defend him in any of those lawsuits, and Marks then brought suit against Houston Casualty. Both the circuit court and the court of appeals agreed with Houston Casualty that a comparison of Marks' policy to the allegations in the complaints against Marks established that Houston Casualty had no duty to defend Marks.
¶ 3. We conclude that the complaints and counterclaim against Marks do not allege facts which, if proven, would constitute claims covered under the insurance policy Marks obtained from Houston Casualty. Houston Casualty therefore did not breach its duty to defend Marks when it declined to defend him in the six lawsuits at issue. Consequently, we affirm the decision of the court of appeals.
I. FACTUAL AND PROCEDURAL BACKGROUND
¶ 4. David Marks is the trustee of two trusts: the Irrevocable Children's Trust ("ICT") and the Irrevocable Children's Trust No. 2 ("ICT2"). At all times relevant to this dispute, ICT and ICT2 owned a controlling interest in a company known as Titan Global
¶ 5. On or about December 21, 2007, Oblio Tele-com, Inc. ("Oblio") filed a lawsuit against Hawaii Global Exchange, Inc. ("Hawaii Global") in the United States District Court for the Northern District of Texas (the "Hawaii Global action").
¶ 6. On October 28, 2008, the Professional Liability Errors & Omissions Insurance Policy at issue in this case ("the policy" or "Marks' policy"), issued by Houston Casualty to Marks, took effect. The policy's expiration date was October 28, 2009. The policy provided coverage for
any Loss and Claim Expenses in excess of the Deductible amount and subject to the Limit of Liability as the Insured acting in the profession described in Item 3 of the Declarations shall become legally obligated to pay for Claim or Claims first made against the Insured during the Policy Period by reason of any Wrongful Act by an Insured provided always that the Insured has no knowledge of such Wrongful Act prior to the Inception Date of this Policy and further provided that such Wrongful Act took place subsequent to the Retroactive Date set forth in Item 8 of the Declarations.
¶ 7. "Loss" is defined in the policy to mean, in part, "a monetary judgment, award or settlement for damages including an award by a court of reasonable attorney's fees and costs to a party making [a] Claim."
(1) fees charged by an attorney designated by the Company and (2) all other fees, costs or expenses incurred in the investigation, adjustment, defense and appeal of a Claim if incurred by the Company or an attorney designated by the Company, or by the Insureds with the written consent of the Company.
"Wrongful Act" is defined in the policy to mean "any actual or alleged error or omission or breach of duty committed or alleged to have been committed or for failure to render such professional services as are customarily rendered in the profession of the Insured as stated in Item 3 of the Declarations."
f 8. "Item 3 of the Declarations" lists Marks' profession as follows: "[s]olely in the performance of services as the Trustee of the Irrevocable Children's Trust (ICT), and/or Irrevocable Children's Trust No. 2 (ICT2), for a fee." Relevant to this appeal, the policy contained the following exclusions:
This Policy does not apply either directly or indirectly to any Claim and Claim Expenses:
a) Based upon or arising out of any dishonest, criminal, fraudulent, malicious or intentional Wrongful Acts, errors or omissions committed by or at the direction of the Insured.
b) For liability arising out of the Insured's services and/or capacity as:
1) an officer, director, partner, trustee, or employee of a business enterprise not*558 named in the Declarations or a charitable organization or pension, welfare, profit sharing, mutual or investment fund or trust;....
¶ 9. Finally, Endorsement Number 10 of the policy reads in part as follows:
c) Defense, Investigation, and Settlement of Claim
1) With respect to the insurance afforded by this Policy, the Company shall have the right and duty to defend any Claim brought against the Insured alleging a covered Wrongful Act.
¶ 10. On December 23, 2008, ILDN West, LLC ("ILDN") filed a lawsuit against Titan, Oblio, Titan Communications, Inc. ("Titan Communications"), Planet Direct, Inc. ("Planet Direct"), Marks, Crivello, and Does 1-50 in the Superior Court of the State of California for the County of Los Angeles (the "ILDN action"). The complaint described Marks as "an individual residing at all material times in or around Dallas, Texas," and stated that "[a]t all times relevant hereto, Marks was a Chairman of Titan and represented Oblio, Titan Communications and Planet Direct." The complaint asserted seven causes of action: breach of contract against Titan, Titan Communications, and Planet Direct; breach of contract against Oblio, Titan Communications, and Planet Direct; breach of guaranty against Titan; fraud against Titan, Marks, and Crivello; negligent misrepresentation against Titan, Marks, and Crivello; quantum meruit/ unjust enrichment against Titan, Oblio, Titan Communications, and Planet Direct; and "account stated"
¶ 11. On February 2, 2009, George L. Miller, Chapter 7 Trustee of the Estate of USA Detergents, Inc. ("USAD"), filed a lawsuit against Greystone Business Credit II, LLC. ("Greystone"), GBC Funding, L.L.C. ("GBC"), Titan, Frank Orlando ("Orlando"), Chance, R. Scott Hensell ("Hensell"), Marks, Titan PCB West, Inc., n/k/a Titan Electronics, Inc. ("Titan PCB West"), Titan PCB East, Inc., n/k/a Titan East, Inc. ("Titan PCB East"), Oblio, Titan Wireless Communications, Inc. ("Titan Wireless"), StartTalk Inc. ("StartTalk"), Pinless, Inc. ("Pinless"), Appalachian Oil Company ("Appalachian"), Appco-Ky, Inc. ("Appco"), and Crivello in the United States Bankruptcy Court for the District of Delaware (the "USAD action"). The complaint described Marks as "a citizen of Wisconsin," "Chairman of the Board of Directors of USAD at some point after August 1, 2007," and, "[a]t all material times hereto," "Chairman of Titan and a Member of Crivello Group[, LLC]."
¶ 13. On or about May 4, 2009, Phillip L. Near filed a lawsuit against Titan, Crivello, Marks, Chance, Greystone, and Goldberg, Kohn, Bell, Black, Rosen-bloom & Moritz, Ltd. ("Goldberg Kohn") in the United States District Court for the District of Kansas (the "Near action"). The complaint described Marks as "a resident of Wisconsin," "the Chairman of Titan and, through one or more of his business entities, a shareholder of Titan." The complaint also stated that Marks
¶ 14. On July 1, 2009, Lanny Houillion filed a lawsuit against Chance, Hensell, Oblio, Titan, and Marks in the County Court of Dallas (the "Houillion action"). The complaint described Marks as "an individual and Chairman of the Board for [Titan]."
¶ 16. The complaint asserted six counts: to avoid fraudulent transfers pursuant to 11 U.S.C. § 548(a)(1)(B) and recover fraudulent transfers pursuant to 11 U.S.C. § 550 against Titan; to avoid fraudulent transfers pursuant to 11 U.S.C. § 548(a)(1)(A) and recover fraudulent transfers pursuant to 11 U.S.C. § 550 against Titan; to avoid fraudulent conveyances pursuant to 11 U.S.C. § 544 and applicable state law and to recover fraudulent conveyances pursuant to 11 U.S.C. § 550 against Titan; to avoid preferential transfers pursuant to 11 U.S.C. § 547 and recover preferential transfers pursuant to 11 U.S.C. § 550 against Titan; to avoid wrongful distributions to shareholders pursuant to T.C.A. § 48-16-401(C) [of the Tennessee Code] against Titan; and to recover wrongful distributions to shareholders pursuant to T.C.A. § 48-18-304 [of the Tennessee Code] against the director defendants.
¶ 18. On July 28, 2009, Marks provided notice of each lawsuit — the Hawaii Global action, the ILDN action, the USAD action, the Near action, the Houil-lion action, and the Appalachian action — to Houston Casualty. In letters to Marks dated July 30, 2009, Professional Indemnity Agency, Inc. ("Professional Indemnity") acknowledged receipt of the six claims on behalf of Houston Casualty and stated that it was "presently in the process of establishing a claim file and reviewing the information provided."
¶ 19. On October 23, 2009, Marks filed a complaint against Houston Casualty in Milwaukee County circuit court alleging, among other things, breach of Houston Casualty's duty to defend Marks in each of the six lawsuits discussed and denial of Marks' six claims in bad faith.
¶ 20. On October 27, 2009, Hawaii Global and TransPac Telecom, Inc. ("TransPac") — parties in the earliest of the lawsuits discussed above, the Hawaii Global action — filed a "Motion for Leave to File Supplemental and Amended Counterclaims."
¶ 21. On October 28, 2009, Marks notified Houston Casualty of Hawaii Global and TransPac's motion. The same day, Marks' policy expired.
¶ 22. In letters dated November 4, 2009, Professional Indemnity informed Marks on behalf of Houston Casualty that Houston Casualty had "determined that
¶ 24. On November 17, 2009, Marks voluntarily dismissed his case and again filed a complaint against Houston Casualty in Milwaukee County circuit court alleging, among other things, breach of Houston Casualty's duty to defend Marks in each of the six lawsuits discussed and denial of Marks' six claims in bad faith. This second complaint, unlike the first, named Bedford Underwriters as a defendant.
¶ 25. On December 18, 2009, Houston Casualty again removed the case to federal court. On March 22, 2010, the case was remanded to state court.
¶ 26. On January 21, 2010, the United States District Court for the Northern District of Texas granted Hawaii Global and TransPac's "Motion for Leave to File Supplemental and Amended Counterclaims." On January 25, 2010, Hawaii Global and TransPac Telecom, Inc. filed supplemental counterclaims against
[Crivello], both individually and as settlor, de facto trustee and de facto beneficiary of the Irrevocable Children's Trust and Irrevocable Children's Trust 2, [Marks], both individually and as trustee of the Irrevocable Children's Trust and Irrevocable Children's Trust 2,.. . the Irrevocable Children's Trust[,] .. . the Irrevocable Children's Trust 2 [,]... Crivello Group LLC[,] ... Phoenix Investors LLC[,] ... and Farwell Equity Partners LLC.
The counterclaims collectively refer to these latter five entities as the "Crivello Family Interests," and assert
¶ 27. The supplemental counterclaims described Marks as "a citizen of the State of Wisconsin" and further stated:
According to Titan's 10-K for the fiscal year ending August 31, 2008,
Mr. Marks has served as Trustee of Irrevocable Children's Trust and Irrevocable Children's Trust No. 2 since 1994. Irrevocable Children's Trust and Irrevocable Children's Trust No. 2 currently have an ownership or investment interest in commercial properties, private residences, natural resources, telecommunications, and technology companies, and other business and investment ventures. Mr. Marks has the responsibility in overseeing all investments by Irrevocable Children's Trust and Irrevocable Children's Trust No. 2 with responsibilities beginning at acquisition and continuing through ownership. Mr. Marks generally acts in the capacity of officer or director for all of the operating companies that are vehicles for investments by the Trusts and is involved in strategic planning, and major decision-making.
In addition to his individual capacity, Marks is being added in a representative capacity as ostensible trustee and chairman of Crivello-controlled alter ego entities alleged herein.
f 28. Hawaii Global alleges, among other things, that "[i]n their various capacities as settlor, de facto trustee, trustee, de facto beneficiaries, shareholders, board members and/or officers, Crivello and Marks have caused the Crivello Family Interests to intention
¶ 29. The counterclaims asserted three causes of action: alter ego; RICO conspiracy against the Crivello Family Interests; and fraudulent transfer against all counterclaim defendants.
¶ 30. On October 28, 2010, Marks filed an amended complaint.
¶ 31. On February 8, 2013, Houston Casualty and Marks filed motions for summary judgment in Marks' lawsuit against Houston Casualty in Milwaukee County circuit court. Marks made four arguments relevant to this appeal. First, he argued that although his policy covered only liability arising out of his "performance of services as the Trustee of the Irrevocable Children's Trust (ICT), and/or Irrevocable Children's Trust No. 2 (ICT2), for a fee," the language in Marks' policy does not "define the scope of services that are covered when performed by the trustee." More specifically, "Marks was sued in all six lawsuits because he was a director of Titan, and . . . Marks was on the board of directors of Titan only by virtue of the trusts' controlling investment position in Titan." Second, Marks claimed he was sued in the Hawaii Global action "because of his position as trustee of ICT and ICT2." Third, Marks argued that, in determining whether an insurer has breached its duty to defend an insured, a court may not consider exclusions or limit
¶ 32. On October 4, 2013, the circuit court issued an order granting Houston Casualty's motion for summary judgment and denying Marks' motion for summary judgment. The circuit court determined that Marks' policy, "when construed liberally, . . . can be read to cover the work of a trustee when working as an officer or director of a corporation in which the trust corpus is [invested]." Further, the court found that the "allegations of the six lawsuits against Mr. Marks as presented within the four corners of the pleadings fall within the scope of the insuring [clause]." However, the court also found that the business enterprise exclusion did not render the insurance policy illusory, "is enforceable [,] and does preclude coverage for the claims in this case." Thus, the court concluded that Houston Casualty had not breached any duty to defend Marks. On October 31, 2013, the court dismissed the case.
¶ 33. On December 13, 2013, Marks filed a notice of appeal. On January 10, 2014, Houston Casualty filed a notice of cross-appeal. On May 7, 2015, the court of appeals "affirm[ed] the circuit court's determination that Houston Casualty did not have a duty to defend Marks." Marks,
¶ 34. On July 6, 2015, Marks filed a petition for review in this court. On September 15, 2015, we granted the petition.
II. STANDARD OF REVIEW
¶ 35. "We review summary judgment rulings independently, applying the well-established standards set forth in Wis. Stat. §802.08" (2013-14).
¶ 36. In this case we interpret an insurance contract. "The interpretation of an insurance contract is a question of law, which this court reviews de novo." Plastics Eng'g Co. v. Liberty Mut. Ins. Co.,
III. ANALYSIS
A. General Principles Regarding an Insurer's Contractual Duty to Defend Its Insured
¶ 37. Liability insurance policies often contractually obligate an insurer both to defend and to indemnify its insured. Maxwell v. Hartford Union High Sch. Dist.,
¶ 38. When an insurer receives a tender of defense from its insured, it "makes an initial determination about whether it will defend its insured." Olson,
¶ 39. Both insurers in making this initial determination and courts in examining whether an insurer has breached its duty to defend its insured use the same analytical framework, known in Wisconsin as the "four-corners rule." See Olson,
¶ 40. The four-corners rule is "well established" in Wisconsin, Fireman's Fund,
An insurer's duty to defend its insured is determined by comparing the allegations of the complaint to the terms of the insurance policy. ... It is the nature of*572 the alleged claim that is controlling, even though the suit may be groundless, false, or fraudulent. . ..
Courts liberally construe the allegations in the complaint and assume all reasonable inferences. This rule tends to help an insured's demand for coverage. As usual, ambiguity in the coverage terms will be construed against the insurer. This familiar rule of contract construction also helps the insured.
In determining whether there is a duty to defend, the court first considers whether the insuring agreement makes an initial grant of coverage — i.e., whether the insurer has a duty to indemnify its insured — for the claims asserted. If the court determines that the policy was not intended to cover the claims asserted, the inquiry ends. ...
Only after concluding that coverage exists does the court examine the policy's exclusions to determine whether they preclude coverage. In other words, when a court determines that there is no coverage in the policy for the allegations in the complaint, it is not necessary to interpret the policy's exclusions.
Estate of Sustache,
¶ 41. Importantly, the four-corners rule generally protects the insured: "[W]ithout the four-corners rule, 'the duty to defend would often be empty. The insurance company could refuse to defend in the hope that the facts as they emerged in the litigation that its insured had asked it to defend would reveal that there
The complaint test, literally applied, usually will preclude insurers from rejecting tenders of defense based on policy exclusions. The reason is that most complaints simply allege that the insured was negligent and that bodily injury or property damage resulted. These kinds of allegations almost always give rise to a duty to defend under the coverage clauses of standard liability policies. The applicability of an exclusion, however, is rarely obvious from the allegations in the complaint. Insurers often have to rely on investigation, discovery and other information not stated in the complaint to determine whether an exclusion applies. The complaint test, rigidly enforced, forbids that. If the allegations fall within the coverage clause and are not on their face excluded, then the company must defend or promptly take steps to resolve its duty to defend in court.
Peter F. Mullaney, Liability Insurers' Duty to Defend, Wis. Law., at 10-11 (July 1995).
¶ 43. With this general framework before us, we now examine whether the five complaints and one set of counterclaims against Marks allege facts that, if proven, would constitute a claim covered under Marks' professional liability insurance policy. If they do not, Houston Casualty did not breach its duty to defend Marks when it denied Marks' tender of defense.
B. Whether Houston Casualty Breached Its Duty to Defend Marks
1. Initial Coverage
f 44. The four-corners rule dictates that we first examine whether Marks' policy provides an initial grant of coverage for the claims against Marks in the six lawsuits at issue. See Estate of Sustache,
¶ 45. As explained supra, Marks' policy provides coverage for
any Loss and Claim Expenses ... as the Insured acting in the profession described in Item 3 of the Declarations shall become legally obligated to pay for Claim or Claims first made against the Insured during the Policy Period by reason of any Wrongful Act by an Insured....
(Emphasis added.) "Item 3 of the Declarations" in turn lists Marks' profession as follows: "[s]olely in the performance of services as the Trustee of the Irrevocable Children's Trust (ICT), and/or Irrevocable Children's Trust No. 2 (ICT2), for a fee." And, finally, "Wrongful Act" is defined in the policy to mean "any
f 46. Taken as a whole, the policy essentially provides coverage for liability arising out of mistakes Marks makes in rendering services in his capacity as trustee of ICT and ICT2. Though it does not affect our analysis, we note that such a scope of coverage is consistent with the type of policy Marks purchased: professional liability errors and omissions insurance.
An errors-and-omissions policy is professional-liability insurance providing a specialized and limited type of coverage compared to general comprehensive insurance. It is designed to insure members of a particular professional group from liability arising out of the special risk such as negligence, omissions, mistakes and errors inherent in the practice of the profession. . . . These professional-liability policies differ in detail depending upon the company which issues them and are generally called malpractice insurance when issued to members of the healing profession where the exposure is largely bodily injury and errors-and-omissions insurance where the risk is primarily that of damage to intangible property such as coverage for attorneys, insurance agents, and architects.
Grieb v. Citizens Cas. Co. of New York,
f 47. The circuit court below found that Marks' policy provides an initial grant of coverage. The court of appeals assumed without deciding that Marks' policy provides an initial grant of coverage, then
2. The Business Enterprise Exclusion
¶ 48. The business enterprise exclusion in Marks' policy excludes coverage:
b) For liability arising out of the Insured's services and/or capacity as:
1) an officer, director, partner, trustee, or employee of a business enterprise not named in the Declarations or a charitable organization or pension, welfare, profit sharing, mutual or investment fund or trust....
¶ 50. We now turn to the complaints. Except for the supplemental counterclaims in the Hawaii Global actions, which we will examine momentarily, the claims against Marks characterize Marks as follows:
¶ 51. Conspicuously absent from these characterizations is any mention of Marks' position as trustee of ICT and ICT2. In fact, the allegations in the complaints do not discuss ICT and ICT2 at all. Instead, the various claims against Marks attack him in his capacity as an officer or director of Titan, a business enterprise not named in the declarations, as well as in his capacity as an officer or director of other business enterprises not named in the declarations.
¶ 52. We acknowledge that ICT and ICT2 owned a controlling interest in Titan. Marks explains that "[i]n order to properly and effectively manage the trusts' significant investment in Titan, Marks accepted a seat on the Titan board of directors and assumed the role of chairman," and that "Marks' professional positions with Titan were solely by virtue of the trusts' controlling investments in Titan." Even if true, these facts do not change our conclusion. At most, Marks has merely identified a causal relationship: his position as trustee of ICT and ICT2 led him to accept a role as officer or director of Titan. However, that alleged connection is nonetheless deficient as Marks is being sued for his alleged failures as officer or director of Titan, not for any alleged failures as trustee of ICT and ICT2.
¶ 53. The supplemental counterclaims against Marks in the Hawaii Global action were filed almost six months after Marks notified Houston Casualty of
¶ 55. Ordinarily, our analysis would end here. Perhaps realizing the weakness of his position given the plain terms of the business enterprise exclusion, however, Marks provides two reasons why we should not give effect to the business enterprise exclusion at all: (1) the exclusion renders the policy illusory, so we must interpret the policy in favor of coverage; and (2) because Houston Casualty "unilaterally disclaim[ed] coverage," it is "estopped from using policy exclusions to litigate coverage if it is sued for breaching its duty to defend." Both arguments are without merit.
¶ 56. "Insurance policies are contracts and are governed by the same rules that govern interpretation of contracts in general." Wisconsin Label Corp. v. Northbrook Prop. & Cas. Ins. Co.,
¶ 58. Marks essentially contends that because a portion of the business enterprise exclusion not at issue (the trustee/trust portion of the exclusion) renders the policy illusory, we should provide coverage otherwise eliminated by a separate portion of the business enterprise exclusion (the officer-director/business enterprise portion of the exclusion).
f 59. Even if Marks is correct in his interpretation of the policy, our task would be to reform the policy so that it "conform [s] to [the] real intent" of the parties; that is, to reform the policy so that it represents the "definite and explicit agreement" originally reached by the parties before any mistake occurred. 2 Plitt et al., supra § 26:1; see also Vandenberg v. Continental Ins. Co.,
D. Whether this Court Should, in Conducting Its Four-Corners Analysis, Consider the Exclusions in Marks' Policy
¶ 61. Marks also argues that the business enterprise exclusion does not apply in this case because "an insurer that unilaterally disclaims coverage and its duty to defend will be estopped from using policy exclusions or limiting language to litigate coverage if it is subsequently sued by its insured for breaching its duty to defend." Marks principally relies on three court of appeals cases for this proposition: Radke v. Fireman's Fund Insurance Co.,
¶ 62. The facts in Professional Office Buildings stem from an airplane crash near Tupelo, Mississippi. Prof'l Office Bldgs.,
¶ 63. After stating the four-corners rule, the court of appeals determined that Royal had a duty to defend POB. Id. at 580-83. Importantly, the court relied for its conclusion on an exception to the exclusion which had been cited by Royal to POB when it had denied POB a defense. Id. at 578, 583. The court then concluded that "an insurer, who has breached its duty to defend an insured, may be estopped from later challenging coverage." Id. at 584-85 (emphasis added). "Royal could have tried coverage prior to undertaking the liability defense. Where coverage is an issue, bifurcated trials are the norm. . . . Royal, having breached its duty to defend the Mississippi action, may not now challenge or otherwise litigate the coverage
¶ 64. Grube involves many issues, and we recite only the portions of that opinion relevant to this appeal. In Grube Louis Achter ("Achter") sold property to John Daun ("Daun") without mentioning a gasoline leak that had occurred on the property. Grube,
¶ 65. The Grube court misinterpreted Professional Office Buildings. Important to the Professional Office Buildings, court's holding that Royal could not contest coverage was the fact that the court had already determined that Royal had breached its duty to defend POB — a determination made, notably, after the court analyzed an exclusion and an exception to that exclusion in POB's policy. Prof'l Office Bldgs.,
¶ 66. In Kenefick David and Carolyn Hitchcock ("the Hitchcocks") were sued by their neighbors, Emmett and Amelia Kenefick ("the Keneficks"), who alleged that gasoline tanks on the Hitchcock's property had leaked and contaminated the groundwater. Kenefick,
The nature of [the Keneficks'] claim [against the Hitchcocks] is such that — ignoring, as we must at this stage of the inquiry, both the merits of the claim and any exclusionary or limiting terms and conditions of the policies and, further, resolving all doubts in favor of the insured — we cannot say that there was no duty on Federated's part to defend the action, at least up to the point that its policy defenses to coverage were resolved.
Id. at 232.
¶ 67. As noted in a treatise on Wisconsin insurance law, "that statement. . . does not cite to any supporting authority. This is probably because case after case in Wisconsin has held that an insurance company's obligation to defend is based on the entire contract." Sheila M. Sullivan et al., Anderson on Wisconsin Insurance Law § 7.23 (7th ed. 2015); see also Menasha Corp. v. Lumbermens Mut. Cas. Co.,
¶ 68. Moreover, the Kenefick court did not even apply the "estoppel" discussion in Grube; in fact, it recognized that unlike in Professional Office Buildings, the coverage and liability issues in Kenefick were bifurcated. Kenefick,
¶ 69. Radke is the last case for our consideration. We need spend even less time with Radke because it simply quoted the statement from Kenefick just discussed. Radke,
¶ 70. In sum, Marks' argument that we must ignore the business enterprise exclusion because Houston Casualty refused to defend him rests upon: (1) analysis in Grube based on a faulty reading of Professional Office Buildings; and (2) a statement in Kenefick that did not rely on any cases or other sources for support. We decline to rely on these statements, for multiple reasons.
¶ 71. First, as an original matter, a rule that an insurer who declines to provide a defense may not rely
¶ 72. Insurers are not allowed to contest coverage after a court has determined that the insurer has breached the duty to defend its insured because, having breached a contractual obligation, the insurer must pay damages flowing from that breach. Maxwell,
¶ 73. Second, as we have explained, Grube, Kenefick, and Radke are inconsistent with a long line of Wisconsin case law. See, e.g., Liebovich v. Minnesota Ins. Co.,
. ¶ 74. Grube, Kenefick, and Radke constitute a stunted strand of law that conflicts with our four-corners jurisprudence; it also has produced uncertainty. See Menasha Corp. v. Lumbermens Mut. Cas. Co.,
¶ 75. Grube, Kenefick, and Radke are "unsound in principle," and "detrimental to coherence and consistency in the law" insofar as they suggest that exclusions may not be considered in an analysis of whether an insurer has breached its duty to defend its insured simply because the insurer declined to defend its insured. Johnson Controls, Inc. v. Employers Ins. of Wausau,
E. Whether the Court of Appeals Complied with Cook v. Cook
¶ 77. We must address one final issue. As noted, the court of appeals below acknowledged it had erred in Grube, Kenefick, and Radke, stating, "Contrary to the approach that we applied in Professional Office Bldgs., in Grube and more explicitly in Kenefick and Radke, we imposed a different and illogical hurdle for insurers." Marks,
To the extent... that in Grube, Kenefick and Radke we modified Professional Office Bldgs, as we have described, we agree with the circuit court that we lacked the authority to do so under Cook v. Cook,208 Wis. 2d 166 , 189,560 N.W.2d 246 (1997) (the court of appeals "must speak with a unified voice" and may not overrule, modify or withdraw language from its prior published decisions[).] Likewise, court of appeals cases may not conflict with supreme court precedent. Id. (the supreme court is the only court in the State of Wisconsin with the power to "overrule, modify or withdraw language from a previous supreme court case[").] Consequently, Grube, Kenefick and Radke do not establish precedent for the modification of how a claim of breach of duty to defend is evaluated. See, e.g., State v. Bolden,2003 WI App 155 , ¶¶ 9-11,265 Wis. 2d 853 ,667 N.W.2d 364 .
Id., ¶ 15.
¶ 78. The first of the two propositions cited by the court of appeals — the idea that the court of appeals need not follow a case that conflicts with an earlier
¶ 79. We need not express an opinion on the merits of the theory that, because "the court of appeals may not overrule, modify or withdraw language from a previously published decision of the court of appeals," Cook v. Cook,
It is our goal that the court of appeals speak with a unified voice . .. and it generally achieves that goal exceedingly well. However, when a perceived conflict arises, which is understandable given the huge volume of cases the court of appeals so capably handles, a certification to this court that points out the perceived conflict will best serve the public interest and will also aid this court in its law developing and clarifying function. However, overruling an earlier court of appeals decision is not an option.
State v. Johnson,
¶ 80. The court of appeals below was faced with a complex situation. However, we clarify that the court of appeals should have certified this case rather than resolved for itself whether Grube, Kenefick, and Radke misinterpreted Professional Office Buildings, and we instruct it to certify cases presenting similar types of conflicts in the future. Because we overrule portions of Grube, Kenefick, and Radke ourselves today, there is no reason to reverse the decision of the court of appeals.
IV. CONCLUSION
¶ 81. We conclude that the complaints and counterclaim against Marks do not allege facts which, if
By the Court.— The decision of the court of appeals is affirmed.
Notes
The Honorable Richard J. Sankovitz presided.
Although involved in these proceedings, Bedford Underwriters did not file a separate brief in this case and instead joins the positions taken by Houston Casualty. For simplicity, Bedford Underwriters will generally not be mentioned in this opinion.
One of the complaints filed against Titan (discussed infra) describes Titan as a "high-growth diversified holding company with a dynamic portfolio of companies engaged in emerging telecommunications markets and advanced technologies." A holding company is a "company formed to control other companies, usu. confining its role to owning stock and supervising management." Holding company, Black's Law Dictionary 339 (10th ed. 2014).
Houston Casualty supplied this date, which is not in the record. Marks does not dispute the fact and it is not relevant to the disposition of this case.
The allegations in this lawsuit concern a business relationship between Hawaii Global and the counterclaim defendants apparently gone sour. According to the complaint, Hawaii Global purchased prepaid phone cards from Oblio and Titan and sold them to distributors, retailers, and individual users. Hawaii Global alleges that the counterclaim defendants conspired to defraud Hawaii Global, among others, by "induc
conspired to use Titan and Oblio and other corporate shells to perpetrate a fraud upon Oblio's former distributors, including [Hawaii Global], with the intention of bankrupting them and eliminating them from the marketplace so that it could usurp their business for the benefit of a newly formed entity, Planet Direct, Inc.
These counterclaims are not in the record. The parties do not argue that these claims affect our analysis, so we do not address them.
"Generally, an account stated is defined as an agreement between parties who have had previous transactions of a monetary character that all the items of the account represent
The ILDN action concerns debts allegedly due ILDN by the defendants in that suit for telecommunications services provided to the defendants by ILDN, and allegedly false representations made by certain of the defendants to ILDN regarding payment of those debts.
The allegations in this lawsuit concern Titan's acquisition of a controlling interest in USAD, "a manufacturer and distributor of value priced and mid-priced laundry care products, household cleaners, personal care items, candles and air fresheners." The complaints allege that Titan's operation of USAD enriched the defendants at the expense of USAD and its creditors. More specifically, the complaint alleges that the defendants should have either recapitalized or liquidated
"Crescent" refers to Crescent Fuels, Inc. and its subsidiaries, including Crescent Oil Company, Inc., Crescent Corporation, Crescent Stores Corporation, Crescent Holdings, Inc., and Crescent Realty, Inc.
The Near action alleges that Near "lost his company, his life savings, and his business reputation by the repugnant, fraudulent, and unlawful conduct of the Defendants." Near contends that Titan acquired an interest in Crescent, a company involved in the fuel distribution industry, "looted" Crescent for "millions of dollars," terminated Near, who was once president and majority shareholder of Crescent Fuels, Inc., and left him liable to other entities for millions of dollars in personal guarantees.
The complaint is titled "Plaintiffs First Amended Original Petition." No other petition is in the record.
The Houillion action involves an alleged breach of a commercial lease agreement between the defendants in that case and Houillion.
The Appalachian action involves allegations that Titan became the 100 percent shareholder of Appalachian, after which Titan began "to cause [Appalachian] to transfer large amounts of cash to Titan for its own use . . . with full knowledge that [Appalachian] (i) was insolvent and (ii) did not have sufficient capital to operate."
Neither party argues that it was improper to bring this suit in Wisconsin.
The policy at issue in this appeal is numbered H708-15868. When Marks notified Houston Casualty of the lawsuits against him, he listed the applicable policy as policy H708-15868. Five out of the six letters sent from Houston Casualty to Marks listed the applicable policy as policy H708-15868. However, the letter tied to the Hawaii Global action lists the applicable policy as policy H707-16515. This is the number of a previous policy Marks had obtained from Houston Casualty and which had a policy term of October 28, 2007, to October 28, 2008.
The reason for this discrepancy is likely because Hawaii Global filed its counterclaim on April 7, 2008, a date within the policy term of policy H707-16515, not policy H708-15868. However, Marks' complaint against Houston Casualty discusses policy No. H708-15868, arguing that "[t]here is at least one claim within the four corners of each and every one of the complaints in the six lawsuits that arguably and/or actually triggers coverage under the Policy" (the "Policy" being policy H708-15868). The complaint notes only in passing that "[t]he Policy was a renewal of policy H707-16515." Unfortunately, the parties do not discuss these seemingly significant facts.
We will address Marks' arguments as he has made them. We note that the letter from Houston Casualty denying cover
Although, only one count had been asserted in Hawaii Global's original counterclaim, the supplemental counterclaims began at count three. The filing, does, however, refer to "claims and allegations set forth in .. . the Complaint transferred from Hawaii [Global] ... and consolidated in this action." The parties do not discuss any such transferred complaint, so we do not address it. See also supra, ¶ 5 & n.6.
As we will discuss below, the court of appeals tussled with some of its prior cases before arriving at its conclusion. See, e.g., Marks v. Houston Cas. Co.,
All subsequent references to the Wisconsin Statutes are to the 2013-14 version unless otherwise indicated.
See also infra, ¶ 63 n.29.
When an insurer receives a tender of defense from its insured, it can proceed in several different ways. See generally Sheila M. Sullivan et al., Anderson on Wisconsin Insurance Law § 7.54 (7th ed. 2015). For instance, it can: (1) "deny the tender of defense and state the grounds for deciding that the complaint does not trigger any obligation to defend under the policy," id.; see Liebovich v. Minnesota Ins. Co.,
In the current case, Houston Casualty decided on the first of the approaches listed above: deny the tender of defense and explain why it was doing so. When an "insurance company refuses to defend, it does so at its own peril." Elliott v. Donahue,
Certain of our past cases have "strongly encourage[d]" insurers to avoid "unilateral 0 refusfal]" to defend their insureds. Liebovich,
We have significant doubts that Marks' policy provides even an initial grant of coverage in this case. Were we to determine that Marks' policy does not provide an initial grant of coverage, however, our analysis would end and we might not reach the important issues set forth in Marks' petition for review.
We refer to this exclusion as the "business enterprise exclusion" because it bears a resemblance to "a standard [type of] exclusion in lawyers' professional liability insurance policies" sometimes referred to as a business enterprise exclusion. See, e.g., Am. Guarantee & Liab. Ins. Co. v. Timothy S. Keiter, P.A.,
At least with respect to lawyers' professional liability insurance policies,
Some courts have explained that standard business enterprise exclusions have two purposes:
1) "to prevent collusive suits whereby malpractice coverage could be used to shift a lawyer's business loss onto the malpractice carrier" and 2) to avoid the circumstance where an insured so intermingles his business relationships with his law practice that an insurance carrier incurs additional risk of having to cover the insured for legal malpractice claims relating to the conduct of business, rather than solely out of the professional practice.
Id. at 17 (citation omitted).
Marks points us to Black's Law Dictionary, which defines a "business enterprise" as "[a] for-profit company, business, or organization that provides financial, commercial, or industrial goods and services." Business Enterprise, Black's Law Dictionary 240 (10th ed. 2014).
Marks points out that on October 28, 2009, he notified Houston Casualty that Hawaii Global and TransPac had filed a "Motion for Leave to File Supplemental and Amended Counterclaims." But "[t]he duty to defend is based solely on the allegations 'contained within the four corners of the complaint,1 without resort to extrinsic facts or evidence," Fireman's Fund Ins. Co. v. Bradley Corp.,
Although there was brief reference to it in the proceedings below, we are not faced with a developed argument that Houston Casualty separately breached a duty to defend on January 25, 2010, a date which is outside of the applicable policy period. Such a claim would face its own hurdles, including: (1) the question of whether these counterclaims survive the business enterprise exclusion; (2) application of Marks' policy's intentional acts exclusion (in fact, although the circuit court concluded otherwise, Marks conceded before the circuit court that "Hawaii Global alleged only intentional acts"); and (3) an
This statement of law is, in some sense, incomplete. Generally, the insurer's understanding of the contract is also of critical concern when reforming a policy. See infra, n.27; Vandenberg v. Continental Ins. Co.,
"Reformation is an equitable remedy which emanates from the maxim that equity treats that as done which ought to have been done.... Reformation may be granted only in two narrow circumstances: Mutual mistake, or unilateral mistake plus fraudulent concealment." 27 Williston on Contracts § 70:19 (4th ed.). With regard to the first of these circumstances,
[t]he purpose of reforming a contract on the basis of mutual mistake is to make a defective writing conform to the agreement of the parties upon which there was mutual assent. While the erroneous instrument must be made to correctly express the real agreement between the parties, no court can make a new contract for the parties.
Id. (emphases added) (citations omitted); see also 2 Steven Plitt et al., Couch on Insurance § 26:1 (3d ed. 2015) ("[A]n insurance policy is subject to reformation precisely as any other written instrument upon the same grounds and subject to the same limitations. .. . Reformation is a proper remedy where the parties have reached a definite and explicit agreement. There must be an understanding that there is an agreement, but whether by mutual or common mistake, or mistake on one side and fraud or inequitable conduct on the other, the written contract fails to express the agreement; in which case, the policy will be corrected so as to make it conform to their real intent, and the parties will be placed as they would have stood if the mistake had not occurred." (citations omitted)).
Such are the general principles. Also present in Wisconsin case law is the recognition that "[i]n insurance cases less is required to make out a cause of action for reformation than in
This reasoning applies with equal force to Marks' contention that because the business enterprise exclusion is supposedly ambiguous, Houston Casualty was obligated to defend him. The fact that portions of Marks' policy not at issue (the trustee/trust portion of the business enterprise exclusion) may be ambiguous does not render the portion of the exclusion upon which Houston Casualty relied in denying Marks a defense (the officer-director/business enterprise portion of the business enterprise exclusion) ambiguous.
Lest we inadvertently undo recent work of this court, we observe our statement from a few years ago:
When an insurer breaches a duty to defend its insured, the insurer is on the hook for all damages that result from that breach of its duty. .. .
While these damage awards are sometimes framed as the insurer being "estopped" from denying coverage, see, e.g., Grube v. Daun,173 Wis. 2d 30 , 74,496 N.W.2d 106 (Ct. App. 1992). . ., they are the measure of damages actually caused by an insurer's breach of the contractual duty to defend, not an estoppel based on some otherwise inequitable conduct in the eyes of the insured.
Maxwell v. Hartford Union High Sch. Dist.,
It is not clear that examination of exclusions in the Secura policy would have changed the result in that case. The trial court in that case had concluded that an exclusion "for damage to the insured's own property did not apply as the property was no longer owned by Achter." Grube,
In Kenefick the court concluded that Federated did not breach its duty to defend, although Federated did not, apparently, request bifurcation until six months after the complaint against the Keneficks was filed. Kenefick v. Hitchcock,
See supra, ¶ 63 n.29.
Indeed, even Marks seemingly recognized this conflict in his motion for summary judgment below, in which he noted "apparent tension in the law" between Grube, Kenefick, and Radke and "cases like Production Stamping [Corporation v. Maryland Casualty Company,
Determining the theoretical validity of this principle would likely require interpretation of Article VII of the Wisconsin Constitution ("Judiciary") and Wis. Stat. § 752.41 ("Decisions"). See, e.g., Cook v. Cook,
Concurrence Opinion
¶ 82. {concurring). I agree with the majority's conclusion that the four-corners rule includes consideration of exclusions as well as exceptions to those exclusions in an insurance policy. Majority op., ¶ 40.
¶ 83. Additionally, I agree with its determination that "the complaints and counterclaim against Marks do not allege facts which, if proven, would constitute claims covered under the insurance policy Marks obtained from Houston Casualty." Majority op., ¶ 3.
¶ 84. I write separately, however, because I disagree with the majority's determination that "only two documents are germane in any four-corners analysis: the insurance policy and the complaint against the insured. No examination of extrinsic facts or evidence takes place." Majority op., ¶ 39 (citing Fireman's Fund Ins. Co. of Wis. v. Bradley Corp.,
¶ 85. The issue of whether the four-corners rule allows for an exception to consider the known facts extrinsic to the complaint is not before the court in this case. Instead, it is presented in Water Well Sols. Serv. Grp. Inc. v. Consol. Ins. Co.,
¶ 86. My dissenting opinion in Water Well sets forth the analysis in support of my conclusion that when the complaint is factually incomplete or ambiguous, Wisconsin should adopt a narrow known fact exception to the four-corners rule. Consequently, I will not repeat the entirety of my dissent, but instead incorporate that conclusion and its analysis here.
¶ 87. Accordingly, I respectfully concur.
¶ 88. I am authorized to state that Justice SHIRLEY S. ABRAHAMSON joins this concurrence.
The majority opinion is internally inconsistent because on one hand it says the duty to defend decision is based solely on the four-corners of the complaint while on the other hand it encourages insurers to investigate in order to inform its decision, acknowledging that "the applicability of an exclusion is rarely obvious from the allegations in the complaint." Majority op., ¶ 41 (citing Peter F. Mullaney, Liability Insurers' Duty to Defend, Wis. Law., at 10-11 (July 1995). See also Water Well Sols. Serv. Grp. Inc. v. Consol. Ins. Co.,
Concurrence Opinion
¶ 89. (concurring). I join the majority in affirming the court of appeals. I write separately, however, to address two important issues. First, although the majority reaffirms Cook v.
I. COOK V. COOK
f 90. In Bolden, the court of appeals' disposition depended upon two cases, State v. Jackson,
¶ 91. Bolden, relying on Cook's statement prohibiting the court of appeals from overruling itself, reasoned that district II in Kuehl did not have the power to overrule district I's Jackson decision, and therefore relied on Jackson to affirm Bolden's conviction. Bolden,
¶ 93. The majority emphasizes that Cook and Johnson hold that the court of appeals does not have the power to overrule itself. The majority explains why it is so important that the court of appeals does not disregard one opinion and choose to follow an earlier opinion: (1) the court of appeals does not have the authority to do so; (2) choosing to follow an earlier case is overruling the more recent case; and (3) courts' interpretations of whether cases conflict can widely differ. Majority op., ¶ 79. Also, as noted in Cook, allowing the court of appeals to follow the first-decided case because it believes a later case conflicts would interfere with "predictability, certainty and finality relied upon by litigants" and encourage forum shopping in the four districts of the court of appeals. Cook,
¶ 94. In this case, both the circuit court and the court of appeals decided that Grube,
II. GRUBE
¶ 95. The majority overrules Grube,
¶ 97. In determining whether a duty to defend exists under a policy, the court compares the four corners of the complaint to the entire policy, including exclusions. Estate of Sustache,
¶ 98. This basic principle, together with a lack of consistency of language used in insurance cases, is what has created confusion in the Grube line of cases. Grube, Kenefick, and Radke are often cited to argue that a court, which is asked to rule on a duty-to-defend question, cannot consider exclusions if an insurer unilaterally denied a defense to its insured. Of course, this is not the law. A duty-to-defend analysis always requires a comparison of the complaint to the entire policy, regardless of whether the insurer unilaterally denied a defense or chose one of the preferred methods to determine if a duty to defend was triggered by a complaint. It is only when a court determines an insurer breached its duty to defend, after the court
¶ 99. In Grube, the circuit court determined the insurer breached its duty to defend after the court considered the entire policy, including exclusions. Grube,
¶ 100. This case, and a companion insurance case heard the same day, Water Well Solutions Service Group Inc. v. Consolidated Insurance Co.,
¶ 101. For these reasons, I respectfully concur.
This language in State v. Swiams,
The other two cases were Kenefick v. Hitchcock,
The language in Grube v. Daun,