Baumann v. Elliott

• Decision Date: 20 July 2005
• Docket Number: No. 2004AP2177.,2004AP2177.
• Parties: Edward BAUMANN and Elite Protection Specialists, LLC, Plaintiffs, v. Matthew F. ELLIOTT and Security Arts Corporation, Defendants-Appellants, CINCINNATI INSURANCE COMPANY, Intervenor-Respondent.
• Court: Wisconsin Court of Appeals

286 Wis.2d 667

2005 WI App 186

704 N.W.2d 361

Edward BAUMANN and Elite Protection Specialists, LLC, Plaintiffs, v. Matthew F. ELLIOTT and Security Arts Corporation, Defendants-Appellants, CINCINNATI INSURANCE COMPANY, Intervenor-Respondent.

No. 2004AP2177.

Court of Appeals of Wisconsin.

Submitted on briefs May 16, 2005.

Decided July 20, 2005.

On behalf of the defendants-appellants, the cause was submitted on the briefs of Joseph J. Voelkner of Olsen, Kloet, Gunderson & Conway of Sheboygan.

On behalf of the intervenor-respondent, the cause was submitted on the brief of Stephanie L. Dykeman of Litchfield Cavo of Brookfield.

Before Anderson, P.J., Brown and Nettesheim, JJ.

¶ 1. BROWN, J.

This case comes to us on summary judgment. The court found that an insurer had no duty to indemnify its insured or to provide him with a defense in an action for defamation of character because the policy required an "occurrence" to trigger coverage for "personal injury." The defendant claims the court should have limited its duty-to-defend analysis to the "four corners" of the plaintiff's complaint and that even if the policy does not cover the allegations in the complaint, we should read coverage into his policy because coverage limited to "accidental" defamation is illusory. We hold that a court need not confine itself to the "four corners" of a plaintiff's complaint when deciding whether an insurance policy requires an insurer to defend the policyholder where it has already determined that the insurer has no duty to indemnify. The duty to defend exists only where coverage remains fairly debatable, and no debate remains once the court has resolved the coverage issue. We further hold that the "four corners" analysis may look to the ad damnum clause for clarification of the factual allegations where the allegations are otherwise sufficient to state a claim. Finally, we conclude that "negligent defamation" is not a contradiction in terms and Wisconsin law recognizes the possibility of recovery by a plaintiff even where the defendant does not deliberately and intentionally defame the plaintiff. For these reasons, we affirm.

¶ 2. Edward Baumann, the Chief of Police of the Village of Pewaukee,¹ and his security firm, Elite Protection Specialists, LLC (EPS), filed a complaint on December 23, 2003, against Matthew F. Elliott and Security Arts Corporation (SAC), Elliott's competing business. The complaint also named Elliott's insurer, later identified as Cincinnati Insurance Company (Cincinnati). The complaint stated three causes of action against the defendants: (1) tortious interference with contracts and prospective contracts, (2) defamation, and (3) threats to injure or accuse of a crime.

¶ 3. The pertinent allegations in the complaint read:

JURISDICTION AND VENUE

....

10. [T]he acts committed by Defendant, Elliott and SAC were published in new[s] media primarily circulated in Waukesha County . . . .

FIRST CAUSE OF ACTION:

TORTIOUS INTERFERENCE

11. Paragraphs 1 th[r]ough 10 are hereby incorporated by reference as if set forth at length.

....

14. That EPS entered into contracts and had prospective contracts with various entities to provide security services for special events, including, but not limited to events such as, Summerfest and the Harley-Davidson 100th Anniversary Celebration.

15. The Defendant, Elliott interfered with the said contracts and prospective contracts, by intentionally interfering with the relationship between EPS and their prospective clients. Further, Defendant, Elliott acting as an agent for SAC intentionally interfered with the relationship between EPS and their prospective clients.

16. That the intentional interference by Elliott and SAC resulted in EPS suffering damages for unrealized revenues and profits, along with damages to its reputation and marketability in the marketplace.

. . . .

SECOND CAUSE OF ACTION:

DEFAMATION

19. Paragraphs 1 th[r]ough 18 are hereby incorporated by reference as if set forth at length[.]

20. That Defendants, Elliott and SAC made false, defamatory statements to persons other than the Plaintiff, Baumann, that were not privileged, that directly and proximately harmed Baumann's reputation, thereby deterring third parties for [sic] associating and conducting business with Baumann and EPS.

21. That Defendants, Elliott and SAC made false, defamatory statements to persons other than the Plaintiff, EPS, that were not privileged, that directly and proximately harmed EPS's reputation, thereby deterring third parties for [sic] associating and conducting business with Baumann and EPS.

22. That the Defendants['] false defamatory comments include, but are not limited to, allegations that Plaintiff Baumann abused his public office, as police chief of Pewaukee. That EPS and Baumann personally, were taking cash payments for rendering security services. And that, EPS and Baumann was [sic] having its employees perform their EPS duties in police issued uniforms . . . .

THIRD CAUSE OF ACTION[:]

THREATS TO INJURE OR ACCUSE OF CRIME

25. Paragraphs 1 th[r]ough 24 are hereby incorporated by reference as if set forth at length.

26. That Defendant, Elliott, maliciously threatened and accused Plaintiff, Baumann of a crime and threatened injury to Baumann's profession, intentionally and specifically for his own pecuniary advantage, contrary to Wis. Stat. § 943.30.

. . . .

28. That Defendant, SAC, through its agent, Elliott, maliciously threatened and accused Plaintiff, Baumann of a crime and threatened injury to Baumann's profession, intentionally and specifically for his own pecuniary advantage, contrary to Wis. Stat. § 943.30.

¶ 4. Elliott tendered the defense of the matter to Cincinnati. Cincinnati assigned counsel to defend Elliott but did so under a reservation of rights. Cincinnati's answer to the complaint denied that its policy provided coverage, and Cincinnati subsequently moved for summary judgment.

¶ 5. The motion sought a declaration that Cincinnati had no duty to defend or indemnify Elliott. Cincinnati relied on language in its policy. Coverage E provides for coverage and a duty to defend "[i]f a claim is made or a suit is brought against any `insured' for damages because of . . . `personal injury' . . . arising out of an occurrence to which this coverage applies." The policy defines "personal injury" in relevant part as "injury to others arising out of libel, slander, defamation of character." It defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period, in . . . `personal injury.'" Cincinnati explained that although the complaint alleges defamation, a "personal injury" which the policy covers, it did not allege an "occurrence," which is required in order to trigger personal injury coverage. Occurrences, it asserted, do not include knowing, intentional defamation, as alleged in the complaint.

¶ 6. Elliott did not contest that the complaint failed to allege an occurrence. Instead, he asserted that the coverage was illusory if an occurrence was required to trigger indemnity for personal injury. The circuit court rejected this argument. Accordingly, it granted summary judgment on behalf of Cincinnati, declaring that Cincinnati had no duty to defend the suit or to indemnify Elliott should he incur liability.

¶ 7. Elliott appeals. He first contends that the circuit court improperly relied on evidence outside of the "four corners" of the complaint when it determined that the complaint did not give rise to Cincinnati's duty to defend. He relies on Elliott v. Donahue, 169 Wis. 2d 310, 485 N.W.2d 403 (1992). The supreme court in Elliott stated that the duty to defend is "predicated on allegations in a complaint which, if proved, would give rise to recovery under the terms and conditions of the insurance policy." Id. at 320-21. This duty exists independent of the merits of the claim, so it makes no difference whether the plaintiff ultimately recovers. See id. at 321. It is the nature of the claim that controls. Kenefick v. Hitchcock, 187 Wis. 2d 218, 232, 522 N.W.2d 261 (Ct. App. 1994). Any doubts about coverage must be resolved in favor of the insured. Elliott, 169 Wis. 2d at 321. Because our focus is on the complaint, courts refer to this rule as the "four corners" analysis.

¶ 8. We review de novo whether an insurance company has a duty to defend its insured. Grube v. Daun, 173 Wis. 2d 30, 72, 496 N.W.2d 106 (Ct. App. 1992). We hold that Elliott does not control this case. The insurer in Elliott refused to provide a defense on the merits pending the outcome of the circuit court's coverage decision, despite the fact that coverage was "fairly debatable," because it unilaterally decided its policy afforded no coverage. See Elliott, 169 Wis. 2d at 317-18

. Grube made clear that an insurer should not make an independent determination of this sort but rather should first submit the issue to the court. Grube, 173 Wis. 2d at 75. An insurer may raise the coverage issue in a variety of ways: (1) It may seek a declaratory judgment; (2) it may enter into an agreement with the insured to defend while retaining the right to challenge coverage; (3) similarly, it may afford a defense under a reservation of rights, as Cincinnati did in this action; (4) finally, it may seek a bifurcated trial, in which the court decides the coverage issue in a separate action from the action on the merits of the complaint. See id. at 75.

¶ 9. The insurer breaches its duty to defend if it refuses to provide a defense before the court decides the issue of coverage, Elliott, 169 Wis. 2d at 318, but the duty to defend ends once the court resolves the coverage issue in favor of the insurer. See Kenefick, 187 Wis. 2d at 235

("[W]here the insurer disputes coverage, its duty to defend continues only `until the issue of coverage is resolved.'"). Although we recognized that the insurer in Kenefick...