Johnson Controls Inc v. London Mkt.

• Decision Date: 24 June 2010
• Docket Number: No. 2007AP1868.,2007AP1868.
• Citation: 325 Wis.2d 176,784 N.W.2d 579,2010 WI 52
• Parties: JOHNSON CONTROLS, INC., Plaintiff-Respondent,v.LONDON MARKET, Defendant-Appellant,AIU Insurance Company, American Home Assurance Company, Granite State Insurance Company, Landmark Insurance Company and National Union Fire Insurance Company of Pittsburgh, PA, Defendants-Intervenors,Allstate Insurance Company, Allianz Underwriters Insurance Company, Affiliated FM Insurance Company, American Employers' Insurance Company, American Motorists Insurance Company, Associated International Insurance Company, Central National Insurance Company of Omaha, Employers Mutual Casualty Company, Employers Reinsurance Corporation, Federal Insurance Company, Highlands Insurance Company, Industrial Indemnity Company, International Surplus Lines Insurance Company, International Insurance Company, Westport Insurance Corporation, Stonewall Insurance Company, TIG Insurance Company, Transamerica Premier Insurance Company, United National Insurance Company and Westchester Fire Insurance Company, Defendants.
• Court: Wisconsin Supreme Court

325 Wis.2d 176

784 N.W.2d 579

2010 WI 52

JOHNSON CONTROLS, INC., Plaintiff-Respondent,v.LONDON MARKET, Defendant-Appellant,AIU Insurance Company, American Home Assurance Company, Granite State Insurance Company, Landmark Insurance Company and National Union Fire Insurance Company of Pittsburgh, PA, Defendants-Intervenors,Allstate Insurance Company, Allianz Underwriters Insurance Company, Affiliated FM Insurance Company, American Employers' Insurance Company, American Motorists Insurance Company, Associated International Insurance Company, Central National Insurance Company of Omaha, Employers Mutual Casualty Company, Employers Reinsurance Corporation, Federal Insurance Company, Highlands Insurance Company, Industrial Indemnity Company, International Surplus Lines Insurance Company, International Insurance Company, Westport Insurance Corporation, Stonewall Insurance Company, TIG Insurance Company, Transamerica Premier Insurance Company, United National Insurance Company and Westchester Fire Insurance Company, Defendants.

No. 2007AP1868.

Supreme Court of Wisconsin.

Argued Feb. 23, 2010.

Decided June 24, 2010.

COPYRIGHT MATERIAL OMITTED

For the defendant-appellant there were briefs by Christopher J. Johnson and Beck, Chaet, Bamberger & Polsky, S.C., Milwaukee; Patrick T. Walsh and Hinkhouse Williams Walsh LLP, Chicago, Ill.; and Susan R. Tyndall and CMT Legal Group, LTD., Waukesha, and oral argument by Susan R. Tyndall.

For the plaintiff-respondent there were briefs by William M. Cannon, Mark L. Thomsen, Allan M. Foeckler, Brett A. Eckstein, and Cannon & Dunphy, S.C., Brookfield, and oral argument by Mark L. Thomsen.

For the defendants-intervenors there was a brief by Anne Berleman Kearney and Appellate Consulting Group, Milwaukee, and Margaret J. Orbon, Ilene M. Korey, and Clausen Miller P.C., Chicago, Ill., and oral argument by Anne Berleman Kearney.

An amicus curiae brief was filed by Lynn R. Laufenberg and the Laufenberg Law Group, S.C., Milwaukee, on behalf of the Wisconsin Association for Justice.

An amicus curiae brief was filed by Erin O'Connor and O'Connor Law Offices, LLC, Fox Point, on behalf of the Metropolitan Milwaukee Association of Commerce.

An amicus curiae brief was filed by Thomas R. Schrimpf and Hinshaw & Culbertson LLP, Milwaukee, and Laura A. Foggan and Wiley Rein LLP, Washington, D.C., on behalf of Complex Insurance Claims Litigation Association, American Insurance Association, and Wisconsin Insurance Alliance.

ON CERTIFICATION FROM THE COURT OF APPEALS

¶ 1 ANN WALSH BRADLEY, J.

This case is before the court on certification from the court of appeals ¹ pursuant to Wis. Stat. § (Rule) 809.61 (2007-08). ² We are asked to determine whether London Market had a duty to defend Johnson Controls. If it did, we then must determine when, if at all, that duty was triggered.

¶ 2 London Market contends that it had no duty to defend Johnson Controls because its insurance policy is an indemnity-only excess umbrella policy that does not promise a defense. Further, it asserts that the duty to defend set forth in the underlying Travelers insurance policies is not incorporated into the London Market excess policy.

¶ 3 In the alternative, London Market asserts that even if it had a duty to defend under the policy, that duty was never triggered because it is conditioned upon exhaustion of the underlying insurer's policy limits, and those limits were never exhausted. Further, London Market contends that Wisconsin law did not require it to drop down and defend Johnson Controls when the underlying insurer refused to defend.

¶ 4 Based on the language of the policies, we conclude that London Market had a duty to defend. Although its excess umbrella policy does not have a duty to defend provision, it does contain a follow form provision that incorporates the duty to defend found in the underlying Travelers policies.

¶ 5 We further determine that its duty to defend was not conditioned upon exhaustion of the underlying Travelers policies. Rather, under the terms of the “other insurance” provision, London Market's duty to defend was triggered when the underlying insurer “denie[d] primary liability under its policy.” Accordingly, we affirm the circuit court and remand for further proceedings.

I

¶ 6 Johnson Controls is a manufacturing company based in Milwaukee, Wisconsin. During the 1970s, it contracted with various insurers for a layered program of primary, umbrella, and umbrella excess commercial general liability (CGL) policies. This appeal specifically involves the umbrella excess policy issued to Johnson Controls by London Market, effective from December 31, 1973, to December 31, 1976 (the 1973-1976 London Market policy). The London Market excess umbrella policy sat atop three successive policies issued by Travelers Indemnity Company (Travelers).

¶ 7 Before delving into the specific issues presented, it is helpful to provide some historical background about this case, which has been ongoing for over 21 years. In the mid-1980s, Johnson Controls started to receive notification that it had been identified as a potentially responsible party (PRP) in connection with environmental contamination at various sites across the country.³ As a PRP, Johnson Controls could be required to contribute to the environmental restoration and remediation costs at these sites.

¶ 8 Johnson Controls asserts that it notified its insurers, seeking defense and indemnification.⁴ The insurers refused to provide defense or indemnification, justifying their refusal on the ground that their CGL policies did not cover environmental restoration and remediation costs imposed under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). ⁵

¶ 9 In 1989, Johnson Controls filed suit against its various primary, umbrella, and excess insurers. It sought a declaratory judgment that its insurers were obligated to provide defense and indemnification under the terms of the insurance policies. London Market, like many of the other insurers, answered and filed a motion for partial summary judgment.

¶ 10 Before the circuit court made a determination on the insurers' obligations, this court decided City of Edgerton v. General Casualty Co. of Wisconsin, 184 Wis.2d 750, 517 N.W.2d 463 (1994). In that case, this court determined that environmental response costs under CERCLA constitute “equitable relief” rather than legal damages and that a CGL insurer has no duty to indemnify the insured for these expenses. Id. at 782, 784, 517 N.W.2d 463. Further, this court determined that the receipt of a PRP letter or comparable letter from a state agency did not constitute a “suit,” and therefore a CGL insurer's duty to defend was not triggered by the receipt of a PRP letter. Id. at 771, 517 N.W.2d 463.

¶ 11 The circuit court applied the holding of Edgerton and granted summary judgment in favor of the insurers. It determined that there was no duty to defend or indemnify Johnson Controls under any of the CGL policies. The court of appeals affirmed in an unpublished decision, noting that “as long as City of Edgerton remains the law in this state” Johnson Controls could not prevail. Johnson Controls v. Employers Ins. of Wausau ( Johnson Controls I ), Nos. 95-179, 95-2591, unpublished slip op. at 4, 1998 WL 710621 (Wis.Ct.App., Oct. 13, 1998).

¶ 12 The court of appeals remanded to the circuit court for factual determinations of whether all the sites fit within the rule outlined above. On remand, the circuit court determined that there was no coverage under any of the policies for any of the contaminated sites.

¶ 13 Johnson Controls again appealed. In 2002, the court of appeals determined that none of the circuit court's findings of fact was erroneous. It concluded: “Although Johnson Controls argues that Edgerton was decided wrongly, we are obligated to follow its dictates.” Johnson Controls v. Employers Ins. of Wausau ( Johnson Controls II ), 2002 WI App 30, ¶ 5, 250 Wis.2d 319, 640 N.W.2d 205 (Ct.App.2001).

¶ 14 In 2003, this court reviewed the Johnson Controls II decision and reversed. Overruling Edgerton, the court concluded that an insured's costs for “restoring and remediating damaged property, whether the costs are based on remediation efforts by a third party (including the government) or are incurred directly by the insured, are covered damages under applicable CGL policies, provided that other policy exclusions do not apply.” Johnson Controls v. Employers Ins. Wausau ( Johnson Controls III ), 2003 WI 108, ¶¶ 4-5, 264 Wis.2d 60, 665 N.W.2d 257.

¶ 15 It also concluded that Edgerton's discussion of the insurer's duty to defend in the context of CERCLA letters was “unworkable.” Id., ¶ 4. The court determined that PRP letters constitute “the functional equivalent of a suit” because a PRP letter “marks the beginning of adversarial administrative legal proceedings that seek to impose liability upon an insured.” Id., ¶¶ 5, 120. Therefore, the receipt of such a letter triggers the insurer's duty to defend. Id., ¶ 120.

¶ 16 Finally, the court stated that “[a]lthough this court would like to end this action after more than 13 years of litigation, we must remand the cause for further proceedings[.]” Id., ¶ 123. The circuit court was instructed to determine whether other exclusions in the policies might apply and to determine the liability of the various insurers. Id.

¶ 17 Johnson Controls asserts that on remand, its case management strategy was to first seek judgments against those defendant insurers that had a duty to defend in addition to a duty to indemnify. In 2005, Johnson Controls filed a motion for declaratory judgment against Employers Insurance of Wausau, one of its primary insurers, asserting that it had breached its duty to defend and seeking reimbursement for remediation and defense costs in excess of $150 million. Johnson Controls settled its claims with Employers. Then, it filed a similar motion against another of its insurers. In the...