Water Well Solutions Service Group Inc. v. Consolidated Insurance Company

Group Well Solutions Inc., Water Service Plaintiff-Appellant-Petitioner,

v. Company, Consolidated Insurance Defendant-Respondent.

Supreme Court argument No. 2014AP2484. Oral March June Decided

2016 WI 54 (Also 285.) reported in 881 N.W.2d plaintiff-appellant-petitioner, For the there were by Timothy Crueger, Hansen, briefs M. Charles J. Reynolds Dickinson Barton, and Hansen B. James by Timothy argument Crueger M. Hansen. LL, and oral by defendant-respondent, a brief there was For the Corey Wright Katt, J. A. Katt, Christina J. William Dicker, LLP, and & Edelman Elser Moskowitz Wilson argument Katt. William J. oral duty to BRADLEY, J. In this G. 1. REBECCA Group Inc. Service Solutions case, Water Well defend (Water Well) appeals' the court of reverse asks us to County affirming Circuit the Waukesha decision1 summary judgment of Con- in favor decision Court's2 Company, insurer. Well's Water Insurance solidated longstanding used to Applying rule four-corners triggers complaint a whether determine Doyle Engelke, 277, 284, 580 v. defend, see (1998), the court court and the circuit both N.W.2d appeals did not breach that Consolidated concluded of response, Well Water Water Well. to defend exception argues craft an this court should allowing extrinsic courts to consider rule four-corners unilaterally decided that an insurer has evidence when in the exclusions exists based on no to defend policy. insurance Specifically, asked to decide whether we are evidence of extrinsic allow admission

this court should exception rule to the four-corners a limited under (1) grant policy provides an initial cases where complaint, alleged coverage (2) in the facts based on insured a to defend its the insurer denies specific application exclusions on the based seeking from a determination without but Co., 2015 Ins. Grp. Inc. v. Consol. Well Sols. Serv. Water 2d 871 N.W.2d 276. App 365 Wis. WI presided. R. Kieffer The Honorable James (3) underlying court, and the insured asserts that the factually incomplete ambiguous. We are exception further asked determine, to absent an to compare rule, four-corners whether a court should complaint the four corners of the to the entire insur- policy, including exceptions, ance exclusions and or if comparing the court's review is limited to the com- plaint policy governing to the terms of the the initial grant coverage. We confirmed in Marks v. Houston Co., ¶¶ Cas. 53,WI 61-76, 369 Wis. 2d 547, 881 N.W.2d 309, that under the four-corners rule the entire policy including coverage- must examined, be granting exceptions any clauses, exclusions, and to applicable exclusions.3 Thus, we also decide whether any policy apply. exclusions in Consolidated's appeals 3. We affirm the court of and hold that Consolidated did not breach its to defend Water reject request First, Well. we Water Well's to craft a exception limited rule, four-corners which has long endured to the benefit of Wisconsin insureds. We persuaded exception are not that an to this rule is necessary. explain Second, as Marks, we in 369 Wis. 2d today ¶¶ conjunction 61-76, released with this requires decision, the four-corners rule a court to compare complaint to the terms of the entire policy determining insurance whether the to triggered. reject argu- defend is Thus, we Water Well's comparison ment that the court's is limited to review- ing policy's granting long- the insurance clause. The standing comparison applies four-corners rule in all including to defend cases, cases such as this one policy provides grant coverage, where the an initial 3 The court arguments heard oral in this case and in Marks v. Houston Cas. 881 N.W.2d 309 on the day, same March to a decision to refuse insurer made unilateral specific policy exclusions, and on

defend based factually underlying complaint is insured asserts the Finally, comparing incomplete ambiguous. after underlying to the terms four corners issue, at we conclude that of the insurance preclude coverage. applies to exclusion "YourProduct" not a Consolidated did breach result, As summary judg- entitled defend Water Well law; therefore, we affirm. ment as matter of

I. BACKGROUND (Waukesha) Utility Waukesha Water f perform on Well contracted with Water Well work City existing #10, an located in the of Waukesha. well existing to Waukesha hired Water Well remove pump, complete pump, reinstallations install a new and February pump pump. un- the well of pipe fell to of threaded a column and the bottom from the well. Company,4 Argonaut Waukesha's Insurance against in district

insurer, Water Well federal filed suit alleged Argonaut's complaint Well, that "Water court. neg- agents, representatives" employees were its and ligent in of the well the installation and reinstallations agents, employees pump Well, that "Water its and representatives" ob- breached their contractual and/or alleged ligations. Argonaut's complaint Specifically, pump separated and from that the "unthreaded well Pump, pipe in- column," which "caused Well approxi- cluding fall motor, to to the bottom of the pump that at is covered undisputed It is the well issue underlying policy Argonaut. In the under Waukesha's federal with suit, subrogee acted of Argonaut as Waukesha. mately 1910-foot-deep Argonaut well." asserted that setscrews, Water failed to Well install two "which operating torques allowed and vibrations to cause the Pump pipe Well to rotate unthread and from the Pump column and caused the Well to fall bottom Argonaut sought of the well." $300,465.48 subro- gated damages. pertinent paragraphs We set forth Argonaut's complaint analysis. in our

¶ 6. Well Water was insured under Commer- (CGL Liability Primary Policy policy) cial General alleged damages with Consolidated at the time the occurred.5 Water Well its tendered defense its in- by Argo- surer, Consolidated, in the action initiated parties dispute policy naut. The do not that the CGL provides grant coverage.6 an initial However, Con- stating solidated denied Water defense Well's tender it indemnify had no to defend or Water Well under the CGL "Your because the Work" the "Your applied Product" exclusions and removed for damages alleged Argonaut's complaint. 7. After Consolidated refused to defend Water f Argonaut action, Well in the Water Well obtained attorney's counsel, incurred fees and costs, even- tually Argonaut $87,500. settled with for Water Well against alleging then Consolidated, filed suit breached Consolidated defend Water Well in underlying by Argonaut. the action initiated Water alleged Well that also Consolidated acted in bad faith 5 policy The CGL at issue inwas effect from November 2010 until November provides grant coverage The an initial for damage" "occurrence," "property defined, that arises from which is part, as "an accident." provide a refused to defense.7

when it County Court The Waukesha Circuit f summary judg- granted Consolidated's motion for summary considering for ment after cross-motions applicable judgment. that Wis- It determined under compare law, court the four consin case a must complaint the to the terms the entire corners of deciding policy when an insurer insurance whether circuit its to defend its insured. The breached encompassed comparison this court concluded that policy's provisions exclusions, and but the support offered in not extrinsic evidence Water Well pre- work of its existing pipes triggered coverage that its subcontractor's on assertion policy.8 under the comparison Based complaint of the four corners of the on policy, and the terms of entire the circuit Argonaut in the court determined that Product" fell under both "Your claim its Water Well's bad faith was bifurcated from stayed by stipulation. claim The circuit court defend discovery proceedings pending on the bad faith claim defend claim. resolution of breach of motion, Along summary judgment its with Water Well operations manager, from its Steve submitted an affidavit The extrinsic evidence Judkins. Judkins affidavit contained argues supports position Well that the "Your Water apply Product" exclusion did not and the subcontractor ex ception coverage. "Your Work" exclusion restored "Your Therefore, Work" exclusions. it concluded that "there is no covered claim and therefore there was no duty to defend."9 appeals

¶ published 9. The court of affirmed Grp. decision. Water Well Sols. Serv. Inc. v. Consol. App ¶ Co., Ins. 2015 WI 1, 365 2d 223, Wis. majority's reasoning N.W.2d 276. The mirrored the Argo- circuit court's: it reviewed the four corners of complaint, compared naut's policy,

terms of the entire insurance and concluded that both the "Your Work" and the "Your Product" coverage. ¶¶ exclusions Id., eliminated 6-7, 10, 13, 16-18. granted petition 10. We Water Well's for re-

view.

II. STANDARD OF REVIEW independently grant 11. We review a of sum mary judgment using methodology the same appeals. Blasing circuit court and the court of v. Zurich Am. Ins. 2014 WI Summary judgment appropriate

N.W.2d 138. when genuine dispute there is no of material fact and the 9The circuit court also determined that since Consolidated defend, did not breach its Water Well could not "estab lish prerequisite' a 'fundamental to its bad faith claim." There fore, the circuit court dismissed the bad faith claim with prejudice. Water Well does claim not assert a bad faith in this court. judgment

moving party a matter of as is entitled 802.08(2) (2013-14);10 Biasing, § Stat. law. Wis. ¶ 21. 63, 2dWis. interpret requires

¶ the court to case 12. This an insurer to determine whether insurance Interpretation duty to defend its insured. breached presents question law of insurance contract of an Sustache v. Am. de novo. Estate that we review Family 2d 87, 18, 311 Wis. Ins. 2008 WI Mut. 548, 751 N.W.2d 845.

III. ANALYSIS Typical A. Process used Duty to Defend Determinations reaching dispositive in this Before issue f governing general principles set forth case, we first pro- policies interpretation as well as the of insurance typically courts in to defend cases. cess used are subsequent references to the Wisconsin Statutes All unless otherwise indicated. to the 2013-14 version principles: 1. General Insurance contracts policies gener Insurance are contracts that ally "duty indemnify establish an insurer's the in against damages sured losses, and the to defend against damages." Farrar, claims for Olson v. 2012 WI interpret 27, 338 Wis. 2d 809 N.W.2d 1. We policies insurance in the same manner as other give contracting contracts —to effect to the intent of the parties. Family Am. Girl, Inc., Mut. Ins. Co. v.Am. ¶3, WI 673 N.W.2d 65. We construe policy language person position aas reasonable in the language. the insured would understand such Estate of ¶ Sustache, 311 548, Wis. 2d Longstanding requires

¶ 15. case law a court con- sidering duty an insurer's to defend its insured to compare underlying complaint the four corners of the to policy. e.g., See, id., the terms of the entire insurance Doyle, ¶ 20; n.3; 219 Wis. 2d at 284 & Grieb v. Citizens York, Cas. Co. New 33 552, 558, Wis. 2d 148 N.W.2d of (1967). prohibits 103 The four-corners rule a court from considering determining extrinsic evidence when duty whether an insurer breached its to defend. Estate ¶ Sustache, 548, 27; 311 Wis. 2d Fireman's Fund Ins. of Bradley Corp., ¶ Co. v. 33, 19, Wis. 2003 WI 261 of 4, have, however, Wis. 2d 660 N.W.2d 666. We consis- tently explained liberally that a court must construe the allegations underlying complaint, contained in as- allegations all sume reasonable inferences from the complaint, any ambiguity in made and resolve in in of the insured. Estate terms favor Sustache, 548, 2d 311 Wis. ¶ a when three-step process compar- 16. We use

¶ the terms of the policy to underlying complaint ing First, 22-23. Id,., cases.11 ¶¶ in to defend duty lan- whether the policy court determines reviewing set allegations initial for the guage grants Id., 22. If the set allegations in the complaint. forth fall within an initial in the do not forth extent, steps analyzing in the three used To an whether a court is determin contract are the same insurance ing indemnify. duty duty to defend or its an insurer's v. Am. Fam. Mut. Ins. Compare Estate Sustache 548, (detailing 87, 22-23, 311 Wis. 2d 751 N.W.2d ¶¶ WI context) with Am. Fam. steps in the to defend the three 16, Girl, Inc., 24, 268 2004 WI Wis. 2d Mut. Ins. Co. v.Am. indemnity (explaining steps the three 673 N.W.2d 65 context). in a determination of whether an This is because depends on whether it could surer breached its to defend indemnify, plaintiff proves if the found to have a be Farrar, complaint. v. 2012 WI allegations in the Olson N.W.2d 1. This, however, that a to defend does not mean court's analysis of indemnification. is the same as its consideration determinations, duty to defend extrinsic example, For unlike (or coverage disputes prove dis- evidence is admissible Id., complaint. set forth in the 33-34. prove) ¶¶ addition, disputes in indemnification the insured has the policy provides grant an initial of initial burden to show the the coverage "and if that is met the burden shifts to burden precludes insurer to show that an exclusion nevertheless Co., 24, 26, Day 2011 WI 332 coverage." ¶ v. Allstate Indem. Logically, this same Wis. 2d 798 N.W.2d 199. burden duty to defend determinations shifting implicated is not comparing documents it has it—the because a court is before and the insurance re- underlying complaint —without sort to extrinsic evidence. coverage, grant inquiry However, ends. Id. if the allegations grant coverage, fall within an initial any coverage court next considers whether exclusions policy apply. any applies, ¶ Id., 23. If exclusion exception the court next considers whether an applies coverage. If exclusion to restore Id. by exception exclusion,

not restored to an then duty Girl, there Inc., is no defend. See Am. policy, If Wis. 2d considered in its en- tirety, provides coverage for at least one of the claims underlying suit, in the the insurer has a to defend alleged its insured on all the claims in the entire suit. Fireman's Fund Ins. Wis. 2d ¶ 17. It is also well-established that an insurer's to defend insured is than broader its indemnify. Olson, 29. This is be- cause the four-corners rule dictates that the determined defend is alleged against "the nature of the claim though . the insured . . even suit may groundless, Grieb, be false fraudulent." " '[T]he obligation 2d Wis. at 558. insurer is under an only indemnify to defend if it could be held bound to assuming injured person proved insured, that the complaint, regardless of the (quoting Jur., actual outcome of the case.1" Id. 29AAm. added). (1960)(emphasis § 1452, Insurance at 565 2. The four-corners rule urges ¶ 18. Water Well this court to establish exception limited to the four-corners rule that would dispute allow it to submit extrinsic evidence to Con- solidated's unilateral decision to refuse to defend Wa- Argonaut ter in the suit on Consolidated's Well based policy precluded position in the cover- that exclusions age. Ultimately, to create an Water Well asks this court exception rule in to defend to four-corners (1) policy provides grant an initial cases when coverage alleged complaint, in on facts based (2) the insurer declines to defend its insured based on specific policy application of exclusions but without seeking coverage determination from the circuit (3) underlying court, and the insured asserts that the factually incomplete ambiguous. is We reject request exception an Water Well's to create to rule. four-corners Grieb, this court set forth the general rule use to determine whether an that courts Grieb, insurer breached its defend its insured. Essentially, rejected 33 Wis. 2d at 558-59. we Grieb's implied duty argument that to defend arises when policy's indemnity clause, from a the four-corners rule apply. not Id. We held that an insurer's does regardless origin, compari- depends on a defend, of its underlying complaint son of the four corners of the reasoning: policy, the terms of the third-party Whether a suit comes within the cov- erage defense-coverage [the clause] of this clause or an indemnity implied to defend under an clause allegations depends upon its which are referred to as a general rule as the measure the first instance. These must state or claim a cause of action liability against indemnity for the insured or for which any paid in order for the suit to come within defense express defense unless coverage is broader. setting rule,

Id. at 557-58. After forth the four-corners exceptions "[t]here stated are at least four we general determining rule the extent of the insurer's generally to defend and the insurer who declines peril. prob so at his These and allied to defend does extensively Liability Anno., lems are covered Duty Defend, Grieb, to 50 A.L.R.2d 458." 33 Insurer — only are the Wis. 2d at 558. These two sentences regarding exceptions discussion in Grieb to the four- actually adopt apply any rule; did not or of corners we exceptions rule this refere to the four-corners Instead, nce.12 duty we held that Grieb's insurer had no allegations in the to defend Grieb because stating complaint a "could not be considered as cause liability negligence, omissions, for mis of action for words, we limited takes or errors." Id. at 559. other of whether Grieb's insurer breached our determination allegations in the four to defend Grieb [the complaint: under corners of the "It is not sufficient might policy alleged insurance] under that the facts unin circumstances characterized as acts of other be negligence, error, mistake or omission." Id. tentional ¶ courts, Grieb, Since Wisconsin with one Berg Fall, 115, v. Wis. 2d 405 N.W.2d deviation 138 (Ct. 1987), App. consistently have stated that an 701 depends insured on the insurer's to defend its exceptions from appeals The court of later set forth the A.L.R. that Grieb referenced: involving special [T]here are a number of cases situations not also directly by general special rules. . . These situations covered . allegations particularly a of exist where there is conflict facts, allegations ambiguous incomplete, are

known where the allegations partly partly outside where the state facts within finally allegations policy, and where the facts. contain conclusions instead of statements of 11, Co., 144, App 2007 WI v. Am. Fam. Mut. Ins. Sustache 186, 714, aff'd, nom. Estate Wis. 2d 735 N.W.2d sub 2d Family Mut. Ins. 2008 WI 311 Wis. Sustache v.Am. 751 N.W.2d allegations contained in the four corners of the com ("Wisconsin E.g., plaint. Olson, 338 Wis. 2d allegations complaint, is clear. If the in the liberally, appear give coverage, construed to rise to required provide insurers are a until defense coverage question by court."); final resolution of the ("The duty Sustache, Estate 311 Wis. 2d triggered by defend is contained within complaint."); Doyle, the four corners of the ("In determining at 284 apply defend, insurer's we allegations present

the factual in the disputed policy."); to the terms of the insurance New Co., house v. Citizens Sec. Mut. Ins. 176 Wis. 2d (1993) ("The duty 835, 501 N.W.2d 1 to defend is triggered by allegations contained within the four complaint."); Bldgs., corners of the 'l Inc. v. Prof Office Royal Indent. 580-81, 427 N.W.2d (Ct. 1998) ("[W]e App. believe the rule of Grieb v. Casualty Co., Citizens (1967), 2d 552, Wis. 148 N.W.2d 103 controlling compels

and similar cases, is duty dependent the determination that the to defend is ."). solely complaint. on the of the . . Despite application ¶ 21. this consistent appeals Berg rule, four-corners the court of in consid- ered extrinsic evidence to determine that an insurer duty Berg, had a to defend its insured. 138 Wis. 2d at Berg, Berg alleged 123. In Robin that James Fall punched him in the face. Id. insurer, at 117. Fall's Company, joined State Farm Insurance was aas de- fendant in the suit. Id. at 116. The central issue before appeals the court of was whether the State Farm policy, "bodily injury which excluded for 'ex- " pected by applied or intended the insured,' where punched Fall claimed he acted in self-defense when he Berg. appeals Id. at 117. The court of held that (1) summary judgment improper a mate- was because Fall acted in self-defense—was dis- rial fact—whether (2) puted privileged act of self-defense is not "that a coverage by lan- from State Farm's excluded guage." appeals The court of concluded Id. at 119-20. though Fall Farm had a to defend even that State complaint allege Berg's in did not that Fall acted appeals the court of cited self-defense. Id. at 122. While general to defend is rule —that the Grieb and to the four corners of the determined reference "[b]ecause underlying complaint the re- held that —it support facts sufficient to an inference cord shows summary judg- reasonably self-defense, in Fall acted inappropriate Farm owes him a ment and State was omitted). (footnote By Id. at 123 of defense." appeals relying evidence, the court of on extrinsic Berg departed four-comers from the well-established rule. Doyle recognized when we 22. We this Berg, suggest-

soundly rejected assertion, based on beyond ing the four corners of the a court should look had to determine whether an insurer Doyle, 219 Wis. 2d at to defend. breached Doyle, again citing year later, footnote in we n.3. A our exception recognize an to the four-corners declined to Katz, 798, 2d Smith v. 226 Wis. to defend rule. (1999). 815-16, 595 N.W.2d Family Co., Ins. v. Am. Mut. Sustache f any exception appeals considered whether the court of given rule existed in Wisconsin to the four-corners (1) exceptions" to the least four Grieb referenced "at (2) of id., 558, at the court rule, 33 Wis. 2d four corners Berg appeals evidence to deter- in relied on extrinsic insured, and defend its mine an insurer's (3) Berg rely rejected on court an invitation this

Doyle explicitly Berg's Smith, but did not overrule Family reliance on extrinsic evidence. Sustache v.Am. App Co., ¶¶ 144, 11-13, 15-16, Mut. Ins. 2007 WI 714, Wis. 2d 735 N.W.2d 186 sub nom. Estate aff'd Family Sustache v.Am. Mut. Ins. 2008 WI appeals 2d 548, Wis. 751 N.W.2d 845.13The court of explained goes beyond "the dilemma in this case Doyle/Smith Berg. tension between If we should supreme tacitly Berg, hold that the court has overruled supreme opinion, Grieb, it remains that court is still appeals supreme books, on the and no court of court opinion question." has ever called Grieb into Sustache, appeals 303 Wis. 2d 17. The court of concluded required that it was to follow this court's most recent regarding application decisions of the four-corners rule in Id., to defend cases. 19. It concluded opinions Doyle "tacitly that our and Smith over- recognition [our] exceptions ruled . . . logically four-corners rule in Grieb. From that it fol- Doyle tacitly lows that and Smith have also overruled Berg." Sustache, 303 Wis. 2d 19. It concluded: sum, "In rule four-corners is the law in Wisconsin measuring when defend, insurer's and the exceptions supreme rule knows no until court unequivocally holds otherwise." Id. 13This court appeals affirmed the court of decision in grounds Sustache on different specifically and did not address

whether recognizes any Wisconsin law exception to the four- Sustache, corners rule. Estate 28-29 ¶¶ (determining that provided because the insurer an initial defense and the case had moved to a determination of cover served). age, purpose of the four-corners rule had been unequivocally is no hold that there 24. We now exception rule in to defend the four-corners position is consistent with in Wisconsin. This cases passing precedent, including long-standing Our Grieb. exceptions to the "at least four in Grieb to reference general not be read as rule," 33 Wis. 2d at should any exception adoption rule. to the four corners Reports, by American Law this Rather, citation to the exceptions merely recognized passage that in Grieb adopt jurisdictions. That Grieb did not exist in other any exceptions rule is further to the four-corners specifically by supported the fact that Grieb never any exception to the four- enumerated or described analysis in Grieb Furthermore, our corners rule. plainly not consider extrinsic reveals that we did applied four-corners rule to evidence; rather, we against Grieb in the that conclude coverage pro- taxpayer's did not fall within suit policy at 559. We at issue. Id. vided the insurance Berg suggesting any language that evi- overrule may beyond four corners of considered dence complaint be determining to defend an insurer's its insured.14 Berg, Appeals in factual scenarios similar to fairness conduct but complaint alleges intentional plaintiffs

where the self-defense, courts to create an argues entreat the defendant of fairness rule. Considerations exception to the four-comers of the insurance override the contractual terms cannot to defend is based: on which plaintiff only cases, alleged, negligence not is In these if is seeking damages act. If self-defense because of an intentional plaintiff recovery proved, intentional acts. Often there is no for negligence alleges and intentional both will file a negligence, allegation com- the insurance conduct. With this plaintiff fast on pany If the stands will have a to defend.... applied ¶ 25. We have rule, four-corners exceptions, duty long without in to defend cases for so generally because it favors Wisconsin The insureds.15 efficiently rule ensures that courts are to able deter duty defend, mine an insurer's to which results in less underlying distraction from the merits of the Also, suit. supports policy the four-corners rule that an insur duty duty er's to defend is broader than its to indem nify. ¶ Sustache, Estate of 311 548, Wis. 2d 20. That is intentional-act-or-nothing position, coverage, there is no nor is duty indemnify.

there a compelling to defend or . .. There is no exception complaint need to carve out an test for defendant- up fistfights plaintiffs allege insureds who end in with who do not negligent. the insured was al., Sheila M. Sullivan et Anderson on WisconsinInsurance (7th 2015). Law case, 7.27 at 29-30 ed. Policy § this the CGL duty relieves Consolidated of its to defend Water Well when the damages property suit seeks damage for policy to which the does apply. not Because the negates "YourProduct" exclusion cover- age, policy apply does not Argonaut's to claims made in complaint. acknowledge We that the four-corners rule benefits insurer require as well because it does "not an insurer to in order to speculate beyond the written complaint words of the imagine a claim plaintiff might making that a be or to determine potential all evaluating sought issues that could be when the insurer is to defend." State Farm Fire & Cas. v.Co. Sols., Easy LLC, 9, 8, PC App 2016 WI 366 Wis. 2d N.W.2d grounded 585. The to defend is in the insurance contract entered between the insurer Recogniz and its insured. ing exceptions to the require four-comers rule would the insurer only to not draw language reasonable inferences from the evaluating defend, its contractual but to imagine plaintiff might claims the Imposing have made. this judicially-created would, burden on insurers in practical appli cation, rewrite the triggered contractual to defend to be any only whenever claim is made rather than those claims covered under the actual terms. " alleged against [i]t is the nature the claim because though controlling even the suit the insured which is may groundless, Grieb, 33 false or fraudulent." be "[t]he at four-corners rule Wis. 2d 558. Adherence ' expecta [s] that insurers do frustrate the ensure not by [prematurely] resolving their tions of insureds favor[.]'" Olson, in their own issue (quoting Elliot, v. 2005 WI Wis. 2d Baumann 361) App 186, 704 N.W.2d (brackets original). rule, the four-corners Without outright would be incentivized to refuse insurers hope the later their insureds and that facts defend coverage Olson, that 338 Wis. 2d revealed no existed. ¶ 215, 32. The end result of strict adherence may duty "the rule is that insurer have no four-corners ultimately proves a that meritorious to defend claim coverage against no for because there is insured may Conversely, the have a clear that claim. insurer utterly specious duty because, to defend a claim that meritorious, Smith, it covered." if it were would be 798, 2d Wis. ultimately in- 26. The four-corners rule favors way. plaintiffs in com-

sureds another Even if a first trigger plaint allegations that does not contain plaintiff defend, a of a insurer has defendant's to opportunity incentive file an and the both discovery complaint in addi- when results amended alleged complaint, that, facts if in an amended tional "[I]f trigger complaint a does a to defend: would allege claim, true facts will come out not covered discovery. alleged will Sooner or later those facts be plaintiff will in an amended because coverage for the defendant-insured. When want happens, triggered." to defend is Sheila M. al., Sullivan et Anderson on Wisconsin Insurance Law (7th 2015). § 7.27 at 29 ed. strictly applying 27. Water Well asserts that encourages

four-corners rule insurers to refuse de- disagree. fend insureds close cases. We We continue strongly encourage insurers to follow one of the judicially-preferred approaches rather than make a unilateral determination to refuse to defend an insured. See Liebovich v. Minnesota Ins. 2008 WI example: 751 N.W.2d 764. For (1) may request An insurer a bifurcated trial on coverage stay

the issue of and move to all proceedings liability on until a deter- Id.; Donahue, mination is made. Elliot v. (1992). Wis. 2d 318, 485 N.W.2d 403 Un- approach, company der this "the insurance breaching runs no risk of to defend." Newhouse, 176 Wis. 2d at 836.

(2) may agree- An insurer enter into "a nonwaiver agree

ment which the insurer would to acknowledge defend, and the insured would right coverage." of the insurer to contest Daun, Grube v. 173 30, 75, Wis. 2d 496 N.W.2d (Ct. 1992), App. overruled on other grounds, Marks, 173 Wis. 2d 75. An may proceed insurer also under a reservation rights provides under which the insured defense, controls its own but the insurer legal remains liable for incurred costs. Id. (3) may provide Finally, an choose to an insurer judg- declaratory and seek

initial defense coverage.16 Liebovich, ment on We reiterate: re- are not absolute procedures

While these encourage insurers strongly quirements, we liability coverage to avail wishing contest rather procedures of one of these themselves A unilateral unilaterally refuse to defend. than attempting to first to defend without refusal can result judicial support for that refusal seek expenses and efforts avoidable otherwise courts, of their litigants deprive insureds estop insurers protections, and contracted-for challenge coverage. being able to further from Id. "[d]eny option to has the An insurer also grounds for state the of defense and

the tender any trigger deciding complaint does not policy." obligation M. Sheila under to defend Law Insurance al., Anderson on Wisconsin et Sullivan 2015). (7th insurer however, an § If, ed. at 51 7.54 peril." Elliot, option "it so at its own this does chooses declining By insured, to defend 2d at 321. 169 Wis. note that: We liability if a company to defend breaches its An insurance during determination goes the time a no forward trial company does not defend appeal pending and the insurance on liability on a lower an insurer relies trial. When insured at the defend, the risk that it takes ruling has no that it court appeal. ruling on will be reversed Co., 176 Wis. 2d Mut. Ins. Sec. Newhouse v. Citizens (1993). N.W.2d 1 an insurer opens itself to a up myriad of adverse if consequences its unilateral duty to defend determi- nation turns out to be wrong. For example, insurer that breaches its to defend is liable for all costs Newhouse, naturally from the flowing breach. Wis. 2d at 837; Maxwell v. Union High Sch. Hartford Dist.,, 2012 WI 58 55-56, 341 ¶¶ Wis. 2d N.W.2d 484 that a (explaining breach of the duty to defend results in damages naturally flowing from breach, that but does not expand coverage). This liability is not limited to policy limits:

Damages naturally which flow from an insurer's (1) breach of its to defend include: the amount of judgment against or settlement plus the insured (2) interest; costs attorney fees incurred (3) defending suit; insured in any additional costs that the insured can naturally show resulted from the breach.

Newhouse, 176 Wis. 2d at 838. Liability for costs and attorneys fees may potentially greater be than what the insurer would have paid had it defended its insured in the first instance because an insurer refuses to defend its insured cedes control of the defense to its insured and is liable for all reasonable expenses. Patrick v. Head of the Lakes Elec. Co-op Ass'n, (1980) Wis. 2d 72-23, 295 N.W.2d 205 ("As long as [the] defense is reasonable and coverage is found, defense."). the insurer must pay for the In addition, an insurer that breaches its defend its insured places itself at risk that insured will pursue a successful first-party bad faith action against it. See Anderson v. Cont'l Ins. (1978) Wis. 2d 675, 687, 271 N.W.2d 368 (recognizing faith); v. intentional tort of bad Brethorst Allstate Prop. ¶ Co., 5, 334 Wis. 2d & Cas. Ins. 2011 WI (holding of contract 467 that breach 23, 798 N.W.2d first-party prerequisite claim for a bad faith is a insurer). first-party against an In a successful levied may against insurer, an faith action an insured bad damages. punitive & See Weiss v. United Fire recover 365, 393, Cas. 197 Wis. 2d N.W.2d (1995). long-standing prec-

¶ sum, In follow our we duty-to-defend governed cases are edent that exceptions.17 rule, four-corners with no policy 3. The terms duty defend Water Well 31. Consolidated's to Policy, originates which Consoli- from the CGL under duty right defend the have the to dated "will [bodily injury against any seeking or 'suit' insured [Consolidated] property] damages. However, will against any duty 'suit' to defend the insured have no damages 'bodily injury' 'property seeking dam- for apply." age' insurance does not Wiscon- to which this its an insurer breached sin courts determine whether duty by comparing the four defend its insured underlying complaint to the terms of corners of the well- supports rule Although the four-corners its that an insurer's to defend principle established Olson, indemnify, duty to insured is broader than its may in recognize there be isolated Wis. 2d we based on has no to defend stances in which insurer owes a allegations, but nevertheless complaint's dur evidence considered later indemnify on extrinsic based case is not Our decision this ing a determination. Regardless, in such by hypothetical possibilities. influenced coverage. bargained-for the insured will obtain situations policy. Doyle,

the insurance See 219 Wis. 2d at 284. argues recognize Water Well that if this court does not any exception rule, to the four-corners then it should only limit consideration of the those terms governing grant coverage. an initial Consistent reject argument. Marks, with Marks, we this we held to defend cases a court must compare the four corners of the policy, including terms of the entire exclusions. See analyze Marks, 76. We therefore next whether Consolidated breached its to de- by comparing fend Water Well the four corners of the Argonaut complaint policy. to the entire insurance Duty Comparison:

B. to Defend Complaint Policy Terms Argonaut complaint

1. The Argonaut, ¶ 32. insurer, Waukesha's filed suit against alleging negligence Water Well and breach of complaint, pertinent part, provides: contract. The Upon belief, 10. information and from on or about May September of Water Well installed the Pump, Well including performing but not limited to inspections well, repairs and of providing the a new seal, pump, motor, Centrilift providing heavy and new pipe, wall column providing pump cable, new provid- ing required, providing flow sleeve if check valves as needed, providing pipe couplings needed, as rethread- ing needed, pipe as providing lines, two new air reassembling work, pipe performing log, a video and setting-up testing and pumping equipment the and Installation"). testing pump ("Original the Upon belief, information and Sep- or about tember to December of Water Well reinstalled to, cutting including not limited Pump, the Well but heavy pipe, replac- rethreading twelve-inch wall and seal, replacing and ing couplings, replacing the motor. January Water Well also

12. On or about Pump, including but not limited reinstalled the Well ends, to, rethreading installing cutting and at least 17 installing at least 1 new couplings, at least 7 new and (collectively, pipe the "Reinstal- fourteen-foot section lations"). belief, performing while Upon information and Reinstallations, Water Well failed to install two setscrews, setscrews were where locations for two end, which pipe joint at each located to secure to cause the operating torques and vibrations allowed pipe Pump to and unthread from Well rotate Pump the Well to fall to the bottom column and caused well. forego- proximate and result of 15. As a direct 6, 2011, Pump February the Well ing, on or about pipe separated from the column unthreaded motor, Pump, including to fall to caused the Well 1910-foot-deep well. approximately the bottom of belief, Well, Water its Upon information and 18. duty to representatives, had a agents, employees and install, configure, inspect, reasonably prudently and test, in such a perform the Reinstallations and/or torques and prevent operating vibrations manner as to Pump and unthread causing the Well to rotate from Pump fall pipe cause the Well to from the column and of the well. to the bottom Well, belief, its Water Upon

19. information and that breached agents, employees representatives and install, reasonably prudently duty by failing to and test, configure, inspect, perforin and/or the Reinstalla- prevent operating torques tions in such a manner as to causing Pump and from the Well to rotate vibrations pipe and unthread from the column and cause the Well Pump to fall to the bottom of the well. Specifically, duty by Water Well breached that setscrews,

failing to install two where locations for two joint pipe setscrews were located to secure the at each end, operating torques which allowed and vibrations Pump cause the Well to rotate and unthread from the pipe Pump and column caused the Well to fall to the bottom of the well. belief, Upon Well, information and Water

agents, employees representatives also breached duty by failing reasonably prudently that perform the Reinstallations so as to discover Pump's operation hazardous condition that the Well causing pipe excessively was threads to become worn, indicating pipe was that pos- threads were round, sibly causing part out of was marks from a dragging axially pipe tips, over the thread and/or that pump pulling collar; and, was out of this hazardous Pump's operation oper- condition of the Well allowed ating torques Pump and vibrations to cause the Well pipe rotate and unthread from the column and caused Pump the Well to fall to the bottom of the well.

2. The CGL policy 33. The parties agree Consolidated's policy with Water Well an initial provides grant of coverage for the contained in Argonaut's complaint. We therefore move to two and step compare pertinent paragraphs Argonaut complaint, de- above, scribed to the "Your Product" exclusion found the policy and invoked Consolidated to cover- deny age. Because we conclude that the "Your Product"

636 applies, whether another we do not consider exclusion upon Consolidated relies—the "Your exclusion which applies. one exclusion exclusion—also When Work" coverage, inapplicability applies preclude of to coverage. See Am. exclusion does not restore another ("We analyze ¶ 24 each Girl, Inc., 2dWis. inapplicability separately; of one exclu- exclusion coverage where another exclu- sion will not reinstate it.").18 precluded has sion Product" exclusion

a. "Your policy an exclusion for 34. The CGL contains "Damage Product" exclu- Product." The "Your To Your " damage' 'Property precludes for: sion any arising part 'your product' it." out of it or policy "Property damage" defined the CGL is tangible property" "[p]hysical injury as well include tangible property physi- "[l]oss that is not as cally injured." of use of addition, defines "Your "goods products, other than real include Product" to property, sold, handled, distributed or manufactured, by" disposed insured, Water Well. argues that the "Your Product" 35. Water Well Argonaut apply com-

exclusion does not because actually property plaint ambiguous was is as to what damaged pump from the unthreaded when well pipe well, it that column and fell to the bottom damaged, existing pipes were also reasonable to infer any uncertainty resolved in Water must be position, Contrary we favor. to Water Well's Well's grounds possible. on the narrowest We decide cases Connell, 64, WI Maryland P'ship Arms Ltd. v. 2d 786 N.W.2d 15.

Wis. complaint any that the does not contain conclude ambiguity property damaged. as to what was Argonaut complaint The 36. contains no alle- any gation damage anything that occurred to other products. complaint alleges than Water Well's The that Water Well's failure to install two setscrews resulted in pump unthreading pipe column, the well from the pump which caused the well to fall to the bottom of the Argonaut complaint pump well. The the defines well as Hughes 5-stage "[A]Baker Centrilift Model WME2700 pump, pumping submersible vertical turbine system, including and the pipes, limited to, a but not column of couplings, pump, pump screws, seal, motor, a a and Paragraph complaint . . . ." cable 10 of the details the products allegedly provided, Water Well which in- components specifically cluded each of the detailed pump: pump, the heavy seal, motor, definition of the well pipe, pump sum, wall column and cable. complaint alleges pump that the well fell to the bottom pump comprised well, of the components, the well of various provided and Water Well each of the well pump components. ambiguity see no We in these allegations. absolutely Further, there is no indication in complaint any damage anything that occurred to pump. argues

other than the well Water Well that an allegations inference can be made from complaint damage preexisting pipes that occurred to that would not fall within the "Your Product" exclu- points allegations sion. Water Well in performed rethreading argues pipes that it of and that these establish doubt about whether the applies. disagree "YourProduct" exclusion We and see nothing Argonaut complaint suggesting any in the preexisting products, including preexisting pipes, were Argonaut complaint alleges damaged. Instead, nothing damages pump in the to the well alone pump suggests it well that was com- definition of the any preexisting products. prised of urges The inference Water Well us draw type guess-work supposition require the would duty-to-defend ju repeatedly rejected in Wisconsin's e.g., risprudence. See, Sch. Dist. Shorewood v. Wau 82, Cos., 347, 374, 2d 488 N.W.2d 92 sau Ins. 170 Wis. (1992), grounds by abrogated Johnson Con on other Emp'rs Ins., 60, 2d trols, v. 2003 WI 264 Wis. Inc. Easy 257; Fire & Cas. Co. v. PC 665 N.W.2d State Farm App Sols., LLC, 2d 2016 WI Wis. Again reject we the notion "that insurers

N.W.2d 585. beyond speculate the written words of the com must plaint damages imagine of claims for and what kinds actually making." Midway plaintiffs Motor are Lodge Grp., 23, 36, 2d v. Ins. 226 Wis. Hartford (Ct. 1999). App. not mind "Insurers are N.W.2d 852 poten they to determine all readers; are not able every sought plaintiff have for tial issues that a could against complaint A them." Id. liberal construc filed complaint should does not mean the court tion of the plaintiff. loosely pled imagine even facts not reached is a conclusion Instead, a reasonable inference reasoning, imagina evidence and not on the basis of speculation. American Heri See The tion or Inference (5th English Language tage Dictionary ed. 2011) process "[t]he (defining as act or "inference" premises deriving logical or known conclusions from reasoning "[t]he true[]" act of from to be assumed evidence."). knowledge reason We cannot factual any language complaint ably infer from the pump. damage property other then the well comparing the four corners of the com- f plaint policy terms, we determine that the "Your applies. exceptions Product" exclusion There are no coverage Therefore, the "Your Product" exclusion. barred, Consolidated did not breach its to defend Argonaut action, Water in the Well Consolidated is summary judgment entitled to as a matter of law.

IV. CONCLUSION longstanding ¶ 40. We conclude that four- requires corners rule in to defend cases the court compare language in the to the terms policy, considering of the entire insurance without unilaterally evidence, extrinsic even when an insurer declines to defend its insured. We also conclude that policy applies the "YourProduct" exclusion in the CGL exceptions coverage; and no to this exclusion restore therefore, based on set forth in the four complaint, corners of the no exists under the policy. Accordingly, Consolidated did not breach its Argonaut to defend Water Well in the action and summary judgement Consolidated is entitled to as a matter of law.

By appeals the Court.—The decision of the court of is affirmed. {dissenting).

¶ 41. BRADLEY, ANN WALSH J. I agree majority with the the four-corners rule excep- includes consideration of exclusions as well as policy. tions to those exclusions in an insurance I write separately disagree majority's I because with the con- exception clusion to foreclose a narrow to the four- Majority op., corners rule. majority's today logger- 42. The decision is at puts

heads with the national trend. It Wisconsin among dwindling jurisdic- the 14 and ever number of clearly recognize any excep- tions that have declined to tions to the four-corners rule. majority

¶ 43. In contrast, a of states allow for exceptions proposed exception to the rule. The here is scope comparison narrower in and more modest exceptions adopted by many jurisdictions. other merely being step 44. But it is more than out of compels with a national trend that the conclusion that majority opinion eye is infirm. It turns a blind well-recognized principles basic and heretofore of in- investigate, privity, surance law: and the application broad to defend. egregious,

¶ 45. Most however, is that the ma- jority's approach system justice. is offensive to our of gives jury a different context, when a court its charge trial, at the close of the the court states: "let your speak may truth, verdict whatever the truth majority opinion contrary. be."1 The advises to the According majority, ¶ 46. to the facts known to support the insurer that could to defend cannot deny be Rather, considered. the insurer has license to appear to defend unless those known facts complaint. system within the four corners A justice encourages cannot countenance a rule that defy reality by ignoring insurers to known facts ben- eficial to its insured. Such a rule distorts rather than promotes concepts justice. of fairness and Contrary majority,

¶ 47. I conclude that factually incomplete ambigu- when a adopt ous, Wisconsin should the narrow known fact exception presented by to the four-corners rule as Water Well. (2016). Wis JI —Civil 191 at 3

¶ the "Your Product" I also conclude that 48. reaching oppo- coverage. In an exclusion does not bar majority pays lip to, service but conclusion, site longstanding must rule that courts does not follow the complaint liberally construe the in- in favor of the all reasonable inferences assume sured. Finally, the "Your Work" 49. I conclude f coverage preclude does not because

exclusion likewise exception exclu- to the "Your Work" the subcontractor Accordingly, respectfully applies. I dissent. sion

t—I reaching "unequivocal ¶ conclusion exceptions rule, the four-corners that there are no to majority the limited circum- fails to account for refusing consider known facts stances in which deny unfairly extrinsic to the would it entitled. the benefit of a defense to which is insured Majority op., ¶ 24. exception seeks a limited 51. Water Well (1) policy pro- where:

four-corners rule cases grant alleged an initial based on facts vides (2) complaint; in the the insurer denies a specific application of defend its insured based on the seeking coverage deter- exclusions but without (3) court; from a the insured asserts that mination underlying complaint factually incomplete ambiguous. majority op., See exception at is con- 52. The limited issue here exceptions for sistent with the national trend to allow al., Plitt et to the four-corners rule. See Steven 2015) (3d § 200:17 at 200-30 ed. Couch on Insurance ("A a reason- modern trend is for insurers conduct investigation prior making able of the claims particular determination on the to defend a Consequently, jurisdictions lawsuit. some look to ac- knowledge tual of facts or extrinsic facts, in addition to complaint, determining when an duty."). insurer's majority exceptions 53. A of states allow for exception

the four-corners rule.2 Water Well seeks scope compari- that is narrower in and more modest in 2 Currently, thirty-one exceptions states allow for to the determining four-comers rule in whether a to defend Co., exists. Chandler v. Alabama Mun. Ins. 1365, 585 So. 2d (Ala. 1991); Co., 1367 Williams v. GEICO 1220, Cas. 301 P.3d (Alaska 2013); Homes, Regal Ins., 1225 Inc. v. CNA 217 P.3d (Ariz. 610, App. 2007); 19 Ct. Ins. Co. America v. Safeco of (Ct. Co., Fireman's Fund Ins. Rptr. 844, 55 Cal. 3d App. 850 2007); Cas. Co., Ins. Co. v. Mut. Fire Ins. Hartford Litchfield (Conn. 1139, 876 A.2d 2005); 1145 — 1146 v. Am. States Shafe (Ga. Co., 870, 2007); Ins. 653 S.E.2d 874 Sentinel Ins. Co. v. (Haw. Haw., 894, First Ins. Co. 875 1994); P.2d 905 Shriver (Ill. Agency Co., Ins. 1253, v. Utica Mut. Ins. 750 N.E.2d 1259 2001); Co., Talen Emp'rs 395, v. Mut. Cas. 703 N.W.2d 406 424 (Iowa 2005); Westport Corp., 419, Miller v. Ins. 200 P.3d (Kan. 2009); Cochran, Aetna 859, Cas. & Sur. Co. v. 651 A.2d (Md. 1995); Sullivan, 864 Co., Herbert A. Inc. v. Utica Mut. Ins. (Mass. 522, 788 2003); N.E.2d 530 Bumper Am. Mfg. & Co. v. (Mich. Co., 475, Fire Ins. 1996); 550 N.W.2d 452 Hartford Pedro Cos. v. Ins., (Minn. Sentry 49, 518 N.W.2d 51 App. Ct. 1994);Auto. Ins. Co. Lipscomb, 557, v. 75 So.3d 559 of Hartford (Miss. 2011); Co., Allen v. 548, Cont'l W. Ins. 436 S.W.3d (Mo. 2014); Industries, 552-53 Revelation Inc. v. St. Paul Fire (Mont. Co., 919, & Marine Ins. 2009); 206 P.3d 926 Peterson v. (Neb. Group, 765, Ohio Cas. 724 2006); N.W.2d 773-774 Ross v. (N.H. Co., 654, 2001); Home Ins. 773 A.2d 657 Abouzaid v. (N.J. Assocs., LLC, Mansard 2011); Gardens 23 A.3d 347 Coil, Co., Sw. Steel v. Casualty Inc. Redwood Fire & Ins. 148 (N.M. 2006); Farms, P.3d Cumberland Inc. v. Tower (N.Y. Inc., Grp., App. 2016); N.Y.S.3d Div. Duke University Co., v. St. Paul Fire & Marine Ins. 386 S.E.2d jurisdic- many adopted exceptions other to the

son Washington, example, are two there For tions. exceptions v. Fireman's four-corners rule. Woo 2007). (Wash. if First, 454, 459 P.3d Fund Ins. clear from it is not provides investigate

coverage, the insurer must give there is a the doubt that the insured benefit duty to defend. Id. allega- here, if the is the case Second, as facts known or conflict with in the

tions readily allega- if the insurer, the or ascertainable inadequate, ambiguous complaint are or in the tions Co., (N.C. Ins. 621 1990); Co. v. Great Am. Ins. 764 Hartford (Ohio 1993); Turley Fid. & 796, Bank v. First 798 N.E.2d of (Okla. 1996); Co., 298, City 303 928 P.2d Deposit Ins. of Fund, 574, Fin. 677 S.E.2d Mun. Ins. & Risk Hartsville v. S.C. (S.C. Harbert, & Cas. Co. v. 741 2009); Farm Fire State 578-79 (S.D. 2007); Exchange v. Estate 228, Fire Ins. 234 N.W.2d of (Utah Vallee, 2001); R.L. Therkelsen, 555, 24-25 27 P.3d ¶¶ Co., 428, Supp. 2d 431 F. Specialty Lines Ins. Inc. v.Am. Intern. (D. Co., 2d 2006); Title Ins. 166 Wash. Campbell v. Ticor 438 Vt. 466, 471 (Wash. Va. 2009); Mechs. Mut. Ins. Co. Farmer & of W. (W. 2001). Cook, 801, Va. S.E.2d 806 v. 557 cases, states, conflicting it is unclear In four because rule. exceptions to the four-corners they allow for whether Co., Surplus Lines Ins. 90 Corp. Empire v.Am. Compare Cotter (Colo. 2004), Co. v. 814, United Fire & Cas. with P.3d 829 (10th Residential, LLC, 951, 960-61 633 F.3d Plaza Boulder Kopko, 570 2011); Services v. compare Transamerica Ins. Cir. (Ind. 1991), Co. 1283, 1285 Ind. Farmers Mut. Ins. with N.E.2d (Ind. 1258, Inc., 1268 Ct. Forge, 917 N.E.2d Drop v. N. Vernon 2009) Harvey, 842 N.E.2d (citing Ins. Co. v. App. Auto-Owners (Ind. 2006); Graham Brown 1279, compare James 1291 Co., 814 S.W.2d Found., Fire & Marine Ins. Inc. v. St. Paul Co., Ins. 260 1991), Lenning v. Commer. Union (Ky. with 279 (6th 2001); Elite Ins. Co. compare GuideOne Cir. F.3d 581 (Tex. Church, 197 S.W.3d Baptist v. Fielder Road Liberty Mut. Fire Realty Mgmt Co. v. 2006), Weingarten with 2011). (Tex. App. Ct. S.W.3d 859 Ins. complaint may facts outside the be considered. Id. Additionally, although may trigger extrinsic facts may rely to defend, an insurer on not extrinsic deny to facts defend. Id. provides example. 55. Kansas another (Kan. Westport Corp., v.

Miller Ins. P.3d 2009), explained the court that an insurer "must look beyond pleadings effect of and must consider any brought any facts its attention facts which it reasonably determining could discover in whether it approach, has Under defend." this "the th[e] potential [for universe information from which coverage] greater must ascertained be is much than approach the universe pleading used in limited to the . . . (in- policy." applicable and the insurance Id. omitted). quotation ternal citations and II only majority opinion step ¶ 56. Not out of majority with national trend and at odds with principles states, of it also of contravenes basic insur- ance law.

A principle ¶ 57. A basic of insurance law is that investigate insurer the is to the facts when a claim is Trinity Evangelical made. Lutheran Church and Sch.- ¶ Co., 46, 54, Freistadt v. Tower Ins. 2003 261 WI 333, Wis. 2d 661 789. N.W.2d principle supported ¶ 58. This is Marks v. ¶ Cas. 2016 WI Houston Wis. 2d being concurrently 881 N.W.2d which is released today. explain Marks, this we with decision that " rarely applicability '[t]he however, is exclusion, of an complaint. allegations in Insurers from the the obvious rely investigation, discovery and other have to on often complaint not in the to determine information stated applies.'" (citing Id. Peter F. an exclusion whether Liability Duty Mullaney, Defend, to Wis. Insurers' 1995)). (July Law., at 10-11 concurrently opinions ¶ The released to- 59. two regards duty day appear facially in to the inconsistent investigate, duty investigate. supports to Marks the to contravening majority discards it. In this and the here majority principle law, of basic insurance the incentiv- investigation disregard its izes an insurer to factual pretend see fact that it cannot a known which give rise to a defend. would exceptions The to the four-corners rule in jurisdictions recognize principle. this basic For other example, Washington, from if it is not clear the coverage, policy provides that in- investigate" give the insured the surer "must Woo, there is a to defend. that benefit doubt P.3d at 459. Likewise, an insurer has a Oklahoma presence it ascertains the of to defend "whenever liability give potential of under facts rise Turley policy." Deposit v. First Bank Fid. and Ins. (1996). Co. 928 P.2d An insurer's of Md., to defend is determined on provided basis of information pleadings, insurer from the in sured, and other available to the insurer. Id. sources

B integral law, 62. Also to insurance and contract general, concept privity. Judge Riley As law in aptly explains approach below, in his dissent the taken majority negates concept privity. the the of Water Grp. Well Sols. Serv. Inc. v. Co., Consol. Ins. 2015 WI App ¶ (Reilly, 24, 365 Wis. 2d 223, 871 N.W.2d 276 dissenting). "[i]t P.J. He admonishes that is absurd to entity privity allow an that has no of contract to dictate provides whether the coverage." contract defense and Emphasizing problem Id. with the unilateral con- third-party, trol of majority's a he observes that approach litigant party "allows a who is not a to a unilaterally contract insurance control [] provides coverage whether . . . the when that litigant privity has ¶ no in the Id., contract." again, jurisdictions 63. Yet other allow for an exception to third-party the four-corners rule when a privity not in allege to an insurance contract fails to complaint. facts relevant to the to defend in its As Supreme explained, Court of Montana an insurer ignore knowledge cannot complaint of facts because a by third-party allege drafted does not facts of which knowledge. the insurer has Revelation Indus. Inc. v. St. (Mont. Paul Fire & Marine Ins. 206 P.3d 2009). may Under these circumstances, an insurer not "ignore possession may give information in its that rise coverage simply because the fails to recite thereupon it, and refuse to defend." Id.

C principle 64. A third basic of insurance law is that to defend is broader than the indemnify. Bradley Fireman's Fund Ins. Co. Wis. v. Corp., ¶ 2003 WI 20, Wis. 2d 660 N.W.2d majority opinion just 666. Nevertheless, does opposite and circumscribes the to defend. Supreme 65. The Connecticut Court eschewed approach majority

the absolutist em- now approach would an that such and determined braces explained duty that a "wooden It to defend. the narrow the "render application" rule would the four-corners of indemnify." to than the narrower to defend Mut. Fire Ins. v. Ins. Co. Cas. Litchfield Hartford (Conn. 2005); Fitzpatrick see also 1139, 1146 876 A.2d 1991) (N.Y. 90, 92 Co., 575 N.E.2d Motor Am. Honda v. ("where attempting itself from to shield is the insurer despite responsibility actual knowl- to defend the edge event, wooden a covered lawsuit involves that the complaint' rule application the corners of of the 'four the narrower than to defend would render result."). unacceptable indemnify clearly an — that "the sounder court reasoned Thus, Hartford provide require a defense approach the insurer is to establishing knowledge a of facts actual it has when coverage." possibility Id. of reasonable

1—1 1—1 1-H | likewise have decisions Prior Wisconsin exception when rule to the four-corners considered complaint with the conflict allegations are the case or where facts of known incomplete: ambiguous involving special cases a number of

[T]here are also rules . . . directly by general covered situations not there particularly where special situations exist These [and] facts where allegations and known a conflictof incomplete .... ambiguous or allegations are WI App 2d 11, 303 Wis. of Sustache, Estate sub nom. Estate aff'd, N.W.2d 714, of Sustache Family 2d 87, 311 Wis. Co., 2008 WI Mut. Ins. v. Am. (citation omitted); also Grieb see 548, 751 N.W.2d 552, 148 York, 33 Wis. 2d New Cas. Co. v. Citizens (1967). N.W.2d 103 appeals explained ¶ 67. As the court of in Sus- tache, it is reasonable consider a situation where the third-party facts of a defense, case merit a but the allege fails to those facts. 303 Wis. 2d ¶ 20. In that situation "it would seem that the insured should be entitled to a defense for which the insurer paid premium. has been The four-corners rule shuts down that entitlement." Id. already

¶ 68. Furthermore, Wisconsin has al- complaint lowed known facts extrinsic to the to be exceptions in considered limited to the four-corners Berg Fall, rule. In v. 138 Wis. 2d 122 405 N.W.2d (Ct. 1987), App. appeals 701 the court of considered extrinsic facts because there was a conflict between the allegations complaint in the and the actual facts Berg emphasized case. The court an that insurer's may require to defend consideration of extrinsic facts pleadings allege "the when facts that are within an exception to a but the true are within, facts potentially policy coverage within, and are known or reasonably are ascertainable the insurer." Id. at (citing Appleman, 122-123 7C Insurance Law and (1979)). Practice, sec. 4683 at Admittedly, previously ¶ 69. this court has de- Berg. Doyle Engelke, clined to follow In a in footnote v. explained Berg contrary "long we that to a line of cases this state which indicate that courts are to coverage solely make conclusions on issues based on allegations complaint." within the 219 Wis. 2d (1998); n.3, Katz, 580 N.W.2d 245 see also Smith v. (1999). 798, 815-16, N.W.2d possi- However, none of these decisions foreclosed the exception bility allowing in cases a fact for known complaint are in the such as this when ambiguous.3 incomplete or

IV acknowledge there are Rather than analy limited a to defend circumstances which may facts extrinsic for consideration of known sis allow rigid majority complaint, asserts that its to the analysis after its benefits insured even four-corners coverage. Majority op., unilaterally ¶ 26. denies insurer majority, According rule "a under the four-corners plaintiff opportunity and the incentive to has both the discovery complaint" if in addi an amended results file trigger would to defend. Id. tional facts that plaintiff majority that because a will Thus, the reasons defendant-insured, it will amend want for the (citing trigger to defend. Id. al., et Anderson on WisconsinInsur Sheila M. Sullivan (7th 2015)).4 § 7.27 at 29 ed.

ance Law 3 Sustache, appeals In Estate the court of examined exceptions acknowledged rule whether the to the four-corners Smith, by Doyle in mately had foreclosed but ulti Griebe been supreme only concluded that "this issue warrants court Sustache, point comment at some in the future." Estate 2007 AppWI 735 N.W.2d 186. ¶ 4 plaintiff will a assumption The that a amend trigger coverage a after new facts to insurance for defendant discovery by Atlantic Mut. Co. v. arise in is undermined Ins. 229, 241, 2d 528 N.W.2d Badger Supply Medical Wis. (1995), arguing coverage in favor of which defendant alleged depositions triggered insurance that facts discovered However, coverage. the Atlantic court determined that no complaint supported in the amended the insured's argument. Id. majority's hypothetical

¶ to 71. The solution unfair denial of the to defend fails to take into litigation. assumption the realities of An that account apply plaintiff will does not a seek insurance every plaintiff apply case, in pressure such as when a wishes to capacity satisfy a defendant who has the to

to judgment plaintiff if a without insurance. Even is complaint, inclined to amend the a defendant whose unilaterally insurer has denied the to defend will provide to for the costs of its own defense until have may plaintiff some unknown date when complaint. amend the every Not insured can bear the costs of its during prolonged litigation may defense own be necessity. forced to settle a meritless claim out of majority's repeated ¶ case, refrain this rings the four-corners rule benefits the insured ("we majority op., reject hollow. See Water Well's request exception to craft a limited to the four-corners long rule, has endured to the which benefit of Wisconsin ("We insureds"); majority op., applied see also have exceptions, in rale, the four-comers without long generally defend cases for so because it favors ("The insureds."); majority op., ¶ 26 four- Wisconsin ultimately in another comers rule favors insureds way."). majority's

¶ 73. One has to wonder if the abso- application lutist of the four-corners rule is as benefi- majority proclaims, why cial to insureds as the then losing here? the insured regarding proffered the consid- Its concerns equally unpersuasive. facts are

eration of extrinsic According majority, recognizing exceptions require "imag- rule the four-corners would insurers Majority plaintiff might ine claims the have made." majority conjures op., a scenario in 25 n. 15. The judicially-created would "rewrite which "this burden" duty triggered to defend to be when- the contractual only any than those claims ever claim is made rather under the actual terms." Id. covered majority's reasoning misguided The is be- 75. allowing extrinsic facts in this cause consideration of imagine any require not Consolidated to case would already plaintiff al- than those the has claims other leged. majority acknowledges, Consolidated As the dispute grant that there is an initial does not coverage alleged complaint. in on the claims based Majority op., ¶ Instead, Water Well seeks to intro- sup- in order to duce facts extrinsic to port argument exclusion, that the "Your Product" in its unilateral denial of its invoked Consolidated duty apply. defend, does not presumption A create a rule that would an to defend is consistent favor of insured's with e.g., See, an insurer's broad to defend. Olson v. Farrar, 2012 WI 338 Wis. 2d 809 N.W.2d 1. any repeatedly [i] declared," As this court has f there is defend, it doubt about the must be resolved Donahue, Elliot v. favor insured." (1992). 310, 321, 485 N.W.2d 403 majority regarding ¶ 77. The recites the law acknowledges defend, insurer's broad may duty. majority its decision circumscribe that See op., majority recognizes 30 n. 17. Given that even the f that an insurer's unilateral refusal to defend disfa- encourages vored, I fail to understand how a rule that provide, refuse, insurers to rather than a defense is prec- consistent with this court's well-established (citing Majority op., ¶ 27 Liebovich v. Minn. edent.5 ¶ 2008 WI Ins. 764).

N.W.2d analysis, majority ¶ heart of its the 78. At the exception efficacy protests the of the known fact consequences adopted. pro- predicts if it is Such dire step predictions out of with the national tests and are majority prove unpersuasive. The of states trend reported adopted exceptions not the that have have majority. quagmires hypothetical forewarned the sky has not fallen. Indeed, the above those states

V obliga majority pays lip ¶ to its 79. The service liberally allegations in construe the contained tion complaint, all inferences from assume reasonable any complaint, and made in the resolve ambiguity Majority op., ¶ of the insured. favor 21). (citing 2d How Estate Wis. of Sustache, analysis ever, it fails to follow this directive policy. exclusion in Consolidated's "YourProduct" excludes for 80. Consolidated's " 'your product' arising 'Property damage' out of it or "[a]ny goods any part product" of it." It defines "Your as property, products, manufactured, other than real by you." disposed sold, handled, distributed or of G argues that that the "YourProd- 81. Water Well complaint apply not is uct" exclusion does because property damaged ambiguous was when the as to what According pump ofthe well. well fell to bottom majority judicially-preferred forth the Although sets coverage, approach to approaches determining its absolutist unilaterally may rule incentive insurers to the four-corners deny coverage instead.

majority, Argonaut complaint allega- "[t]he contains no any damage anything tion that occurred to other than Majority products." op., ¶ 36; Water Well's see also ("there Majority op., absolutely ¶ 37 no indication in any damage anything occurred to pump."). majority Thus, other than the well con- applies cludes that that "Your Product" exclusion that Consolidated had no to defend Water Well. Contrary majority, ¶ 82. to the I would draw all Although in favor of the reasonable inferences insured. allegation damage any pre-existing there is no product, allegation there is also no that when the pump damage fell to the bottom of the well the was exclusively products. just to Water Well's It is as products damaged reasonable to infer that other were only products as it is to infer that damaged. Water Well's were particular, complaint alleges In 83. the that damaged pump pipes." the well included a "column of allegations complaint, Based on the in the it is reason- pipes pipe able to infer that the column of consisted of product. example, that was not Water Well's For complaint alleges "install[ed] that Water Well at least pipe." alleges 1 new fourteen-foot section It also that "rethread[ed] pipe Well Water as needed." it Thus, is also reasonable to infer that only pipe Water Well one installed new section of only repaired existing pipe that it some of the other as resolving ambiguity needed. After all in favor of the insured, I conclude that the "Your Product" exclusion apply not does and Consolidated had a to defend Water Well. Alternatively,

¶ 85. if the known facts extrinsic considered, to the are it is undeniable that apply. the "Your Product" exclusion not does summary judgment court, the circuit for before motion that that introduced uncontested evidence Water Well damage damage city alleged well included product. product Well's Water that was not Water manager operations in an affidavit that averred Well's although pipe in the well did contain new column pre- provided by pipe Well, it also contained Water existing pipe. that Water The affidavit further stated pipe pre-existing sections and reused most of the Well (through only rethreaded the work of sub- cut and contractor) pre-existing pipe that those sections of repairing. needed ap- Considering it affidavit, Water Well's products

pears Well's, Water such as that other than damaged pump pre-exiting pipe, fell when the were These are known facts to the bottom of well. explicitly in the not included are complaint. these extrinsic However, if we consider exception apply does not and facts, the "YourProduct" have a to defend Water Well. Consolidated would VI the "YourProduct" 87. Because I conclude that apply, I must examine whether exclusion does not applies.6 Consolidated's "Your Work" exclusion " arising 'your 'Property damage'" work' excludes any part However, there is an of it. . ." out of it or exception The "YourWork" exclusion to the exclusion. exclusion not address the "YourWork" majority The does ap exclusion that the "Your Product" it determines because plies. Family Mut. Ins. Co. v. (citing Am. Majority op., ¶ Girl, Inc., 2d 673 N.W.2d 268 Wis. Am. 2004 WI 65). apply damaged

does not "if the work or the work out of damage performed your which arises was on behalf by a subcontractor." argues

¶ 88. Water Well the "Your Work" apply exclusion does not exception because the subcontractor coverage. Although restores specifically allege per- does not that a subcontractor damage formed the work out of which the arose, the complaint repeatedly in the refer to "Water agents, employees representatives." Well, its and "agent" very ¶ 89. The term broad and can be assuming understood to include a subcontractor when all reasonable inferences in See, favor of the insured. (10th 2014) (defin- e.g., Dictionary Black's Law ed. "[sjomeone ing "agent" as who is authorized to act for place representative"); or in of another; a see also (Third) (Am. Agency, § Restatement 1.01 Law Inst. 2006) ("Agency fiduciary relationship is the that arises (a person 'principle') when one manifests asset (an person 'agent') agent another that the shall act on principal's subject principal's behalf and agent control, and the manifests assert or otherwise act."). exception consents so to Thus, the subcontractor ought apply to the "Your Work" exclusion to rein- coverage. state Alternatively,

¶ if we consider the known complaint, facts extrinsic to the there is no doubt that exception applies the subcontractor to restore summary judg- under the "Your Product" exclusion. At ment, Water Well introduced evidence that a subcon- performed including cutting tractor well, work on the rethreading pipe drilling tapping screw holes. Attached to Water Well's affidavit is an invoice detailing from a subcontractor its work on the well pump. Considering affidavit, the at- 91. Water Well's per- receipt substantiates that a subcontractor

tached pump. Thus, on well the known facts formed work complaint that the sub- demonstrate extrinsic exception to the "Your Work" exclusion contractor coverage. restores

VII sum, I conclude that when 92. factually incomplete ambiguous, Wisconsin exception adopt known fact should the narrow presented Water Well. To do rule as four-corners unfairly the benefit of a denies an insured otherwise it is entitled. defense to which Prod- I that neither the "Your also conclude f Work" exclusion bars uct" exclusion nor "Your coverage. Accordingly, respectfully dissent. I SHIR- I am authorized to state that Justice joins dissent. LEY S. ABRAHAMSON this

Case Details

Case Name: Water Well Solutions Service Group Inc. v. Consolidated Insurance Company

Court Name: Wisconsin Supreme Court

Date Published: Jun 30, 2016

Citation: 881 N.W.2d 285

Docket Number: 2014AP002484

Court Abbreviation: Wis.