Hamlin Inc. v. Hartford Acc. and Indem. Co.

Decision Date07 June 1996
Docket NumberNos. 95-3251,95-3255 and 95-3334,s. 95-3251
PartiesHAMLIN INCORPORATED, Plaintiff-Appellee, Cross-Appellant, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, Home Insurance Company, and Home Indemnity Company, Defendants-Appellants, Cross-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

James O. Huber, Michael G. McCarty (argued), Brett H. Ludwig, Foley & Lardner, Milwaukee, WI, for Hamlin Inc.

Thomas R. Schrimpf (argued), Susan R. Tyndall, Hinshaw & Culbertson, Milwaukee, WI, for Hartford Acc. & Indem. Co. Philip L. Bruner (argued), Bruce Jones, Faegre & Benson, Minneapolis, MN, Craig W. Nelson, Nelson, Dries & Zimmerman, Brookfield, WI, for Home Ins. Co., Home Indem. Co.

Before POSNER, Chief Judge, and RIPPLE and MANION, Circuit Judges.

POSNER, Chief Judge.

The DICKEY-john Corporation filed a suit against Hamlin Inc. for breach of contract and breach of warranty. The suit was eventually settled for $2.6 million and Hamlin turned around and brought the present suit, a diversity suit governed by Wisconsin common law, against two of its liability insurers (actually three, but two are affiliates and need not be distinguished), to recover the $2.6 million. Hamlin charges that the two insurers breached their duty to defend it against DICKEY-john's suit. The district court granted Hamlin's motion for summary judgment, awarding it the entire $2.6 million (plus interest and attorneys' fees) even though it is plain that no part of Hamlin's liability to DICKEY-john is within the scope of the insurance policies.

Most liability insurance policies provide that if the insured is sued and asks its insurer to defend the suit, the insurer must do so; and it must do so, the courts interpreting such policies hold, unless it is plain from the complaint that the plaintiff's claims of liability are not covered by the policy. Unless that condition is satisfied, the insurer will be deemed to have breached its duty to defend even if it should later be determined that the claims were indeed outside the coverage of the policy. Thus the duty to defend and the duty to indemnify (that is, to pay the insurance claim) are not coextensive, and the former, being triggered by arguable as distinct from actual coverage and determined by what the complaint says rather than by the actual facts underlying the claim of liability, is broader. City of Edgerton v. General Casualty Co., 184 Wis.2d 750, 517 N.W.2d 463, 470 (1994); Atlantic Mutual Ins. Co. v. Badger Medical Supply Co., 191 Wis.2d 229, 528 N.W.2d 486, 489 (App. 1995); United States Fire Ins. Co. v. Good Humor Corp., 173 Wis.2d 804, 496 N.W.2d 730, 734 (App. 1993); Curtis-Universal, Inc. v. Sheboygan Emergency Medical Services, Inc., 43 F.3d 1119, 1122 (7th Cir. 1994) (applying Wisconsin law).

An insurance company that refuses a tender of defense by its insured takes the risk not only that it may eventually be forced to pay the insured's legal expenses but also that it may end up having to pay for a loss that it did not insure against. If the lack of a defender causes the insured to throw in the towel in the suit against it, the insurer may find itself obligated to pay the entire resulting judgment or settlement even if it can prove lack of coverage. That is what happened in Newhouse by Skow v. Citizens Security Mutual Ins. Co., 176 Wis.2d 824, 501 N.W.2d 1 (1993), and is the reason why an insurance company that wants to avoid liability for breach of the duty to defend will often seek a declaratory judgment of noncoverage, to negate any inference of arguable coverage and hence of a duty to defend, before the company has to decide whether to accept the tender of the defense.

The district judge inferred from Newhouse that an obligation to pay the entire settlement or judgment is the automatic consequence of a finding of a breach of the duty to defend. Dicta in Newhouse and other cases interpreting the Wisconsin common law of insurance-contract interpretation, such as Grube v. Daun, 173 Wis.2d 30, 496 N.W.2d 106, 123 (App. 1992), and our own Carney v. Village of Darien, 60 F.3d 1273, 1277 (7th Cir. 1995), are consistent with this harsh view. And holdings to this effect can be found in two Wisconsin cases. United States Fire Ins. Co. v. Good Humor Corp., supra, 496 N.W.2d at 734-39, and Professional Office Buildings, Inc. v. Royal Indemnity Co., 145 Wis.2d 573, 427 N.W.2d 427, 431 (App. 1988). But there is a contrary dictum in Grube v. Daun, supra, 496 N.W.2d at 123, while Production Stamping Corp. v. Maryland Casualty Co., 544 N.W.2d 584, 586 (Wis.App. 1996), holds that a wrongful failure to defend will not estop the insurer to plead lack of coverage unless coverage is at least "fairly debatable." Only Newhouse is a case from Wisconsin's highest court, moreover-- and Newhouse is explicit that the insured must show that he was made worse off by the breach than he would have been had the breach not occurred. 501 N.W.2d at 7. This is also the majority view, 1 Allan D. Windt, Insurance Claims & Disputes: Representation of Insurance Companies and Insureds § 4.37, pp. 267-68 (3d ed. 1995), and it is inconsistent with a rule of always forbidding the insurer that has wrongfully refused to defend the insured's case to deny coverage.

In the present case--a case of multiple insurers, to which the dicta we have referred, which assume that the insured is defending himself, id., § 4.33, p. 256, do not speak--another of Hamlin's insurers, not one of the defendants, accepted the tender of the defense. This insurer did not pay the entire bill for Hamlin's defense. But neither is Hamlin some hapless individual who could not afford a good defense unless his insurer or insurers picked up the full tab. Hamlin was defended by Foley & Lardner, one of the best law firms in the United States. Had the insurance companies that are the present defendants helped pay Foley & Lardner's bills, Hamlin would have benefited to the extent that the insurer which did accept the tender of defense did not cover those bills in their entirety. But it would not have been better off to the tune of $2.6 million. That would imply that if only the defendants had contributed to the...

To continue reading

Request your trial
34 cases
  • Southeast Wisconsin v. Mitsubishi
    • United States
    • Wisconsin Court of Appeals
    • July 3, 2007
    ...automatic consequence of a finding of a breach of the duty to defend.'" Id. at 47, 577 N.W.2d 366 (citing Hamlin Inc. v. Hartford Accident & Indem. Co., 86 F.3d 93, 94 (7th Cir.1996)). "A breach of the duty to defend constitutes `a breach of contract which renders [the insurer] liable to th......
  • Andrew v. Century Sur. Co.
    • United States
    • U.S. District Court — District of Nevada
    • September 28, 2015
    ...when an insurer refuses to defend its insured, a probable result is that the insured will default. See Hamlin Inc. v. Hartford Acc. & Indem. Co., 86 F.3d 93, 94 (7th Cir.1996) ("An insurance company that refuses a tender of defense by its insured takes the risk not only that it may eventual......
  • Steadfast Ins. Co. v. Greenwich Ins. Co.
    • United States
    • Wisconsin Court of Appeals
    • January 17, 2018
    ...the judgment or settlement—not whether it could recover defense costs.14 Id. , ¶ 59. After discussing Hamlin Inc. v. Hartford Accident and Indemnity Co. , 86 F.3d 93, 95 (7th Cir. 1996), which held that awarding the insured the entire jury verdict would be a windfall, the Burgraff court sta......
  • Burgraff v. Menard, Inc.
    • United States
    • Wisconsin Supreme Court
    • February 24, 2016
    ...or proximate result of the breach." Id. at 838, 501 N.W.2d 1.¶ 62 As the Seventh Circuit explained in Hamlin Inc. v. Hartford Accident and Indem. Co., 86 F.3d 93, 95 (7th Cir.1996), Newhouse "is explicit that the insured must show that he was made worse off by the breach than he would have ......
  • Request a trial to view additional results
2 books & journal articles
  • CHAPTER 7 Comprehensive General Liability Exclusions for Coverage A
    • United States
    • Full Court Press Insurance for Real Estate-Related Entities
    • Invalid date
    ...CG 00 01 10 01.[156] See ISO Form CG 00 01 10 01.[157] See ISO Form CG 00 01 10 01.[158] Hamlin, Inc. v. Hartford Accident & Indemnity Co., 86 F.3d 93, 96 (7th Cir. 1996).[159] Standard Fire Insurance Co. v. Chester O’Donley & Associates, 972 S.W.2d 1, 10 (Tenn. App. 1998).[160] Id.[161] Se......
  • Chapter 6
    • United States
    • Full Court Press Business Insurance
    • Invalid date
    ...2d 1243 (1952).[156] See ISO Form CG 00 01 10 01.[157] See ISO Form CG 00 01 10 01.[158] Hamlin, Inc. v. Hartford Accident & Indemnity Co., 86 F.3d 93, 96 (7th Cir. 1996).[159] Standard Fire Insurance Co. v. Chester O’Donley & Associates, 972 S.W.2d 1, 10 (Tenn. App. 1998).[160] Id.[161] Se......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT