Maxwell v. Hartford Union High Sch. Dist.
| Citation | 160 Lab.Cas. P 61,329 Wis.2d 654,262 Ed. Law Rep. 318,2010 WI App 128,791 N.W.2d 195 |
| Decision Date | 08 February 2011 |
| Docket Number | No. 2009AP2176.,2009AP2176. |
| Parties | Dawn L. MAXWELL, Plaintiff, v. HARTFORD UNION HIGH SCHOOL DISTRICT and Hartford Union High School Board of Education, Defendants-Third-Party Plaintiffs-Appellants, v. Community Insurance Corporation, Third-Party Defendant-Respondent.FN† FN† Petition for Review filed. |
| Court | Court of Appeals of Wisconsin |
On behalf of the defendants-third-party plaintiffs-appellants, the cause was submitted on the briefs of James W. Mohr, Jr. of Mohr & Anderson, LLC, Hartford.
On behalf of the third-party defendant-respondent, the cause was submitted on the brief of Lori M. Lubinsky and Sara K. Beachy of Axley Brynelson, LLP, Madison.
Before BROWN, C.J., NEUBAUER, P.J., and ANDERSON, J.
¶ 1 The Hartford Union High School District and Hartford Union High School Boardof Education (collectively, the District) appeal from summary judgment granted to Community Insurance Corporation (CIC) declaring that it did not owe the District coverage for Dawn L. Maxwell's breach of contract lawsuit. The District contends that CIC, in assuming full dominion and control over the defense of the lawsuit, without a reservation of rights, is estopped from denying coverage after it lost the case. We agree. When an insurer forgoes a reservation of rights and exclusively controls the defense of a lawsuit, obtaining a result to the detriment and prejudice of the insured, it is barred from denying coverage. Therefore, we reverse.
¶ 2 In 2007, the District gave notice to Maxwell that for budgetary reasons it was terminating her contract as director of special ed/pupil services at the end of the 2006-07 school year. Since Maxwell had a contract that included the 2007-08 school year, she filed a breach of contract action against the District. At the time, the District carried a public entity liability policy issued by CIC and administered by Aegis Corporation.
¶ 3 After being served, the District's director of business services, Jerry Dudzik, contacted Kim R. Hurtz, vice president of sales for Aegis. Hurtz was the District's contact for claims or potential claims but did not make any decisions as to coverage of claims. Hurtz told Dudzik that "CIC would provide a defense to the Maxwell lawsuit but that CIC would only hire an attorney from CIC's approved list." Hurtz referred Dudzik to Brian J. Knee, litigation manager for Aegis. In an affidavit, Knee stated:
¶ 4 In ruling on a series of partial summary judgment motions brought by Maxwell, first, on June 11, 2008, the circuit court found the District was liable for breach of Maxwell's employment contract. Next, on September 8, 2008, the court awarded Maxwell compensatorydamages of $103,824.22 in salary and benefits but rejected her request for attorney fees of $44,672.60.
¶ 5 Shortly after the June 11, 2008 determination of liability, Dudzik wrote to Knee demanding a new attorney because the District believed that, based on Knee's representation that the damages were not covered, Levy had a conflict of interest. While disputing whether there was a conflict of interest, Knee agreed to appoint the District's current general counsel to replace Levy.
¶ 6 On July 24, 2008, Mohr emailed Knee claiming that CIC was obligated to pay the damages that might be assessed by the circuit court. Knee responded, asserting that the CIC policy issued to the District contained a clause specifically excluding coverage for amounts due under a performance contract and for lost wages and benefits.2 Knee invoked a series of Wisconsin cases to support his assertion that a "coverage clause" cannot be waived nor defeated through estoppel. He ended his response by stating that while CIC would notpay for any liability attributed to the District, it would continue to represent the District.
¶ 7 The District reacted to CIC's denial of coverage by seeking leave to file a third-party complaint, which the circuit court granted. In the third-party complaint, the District sought a declaratory judgment that the policy provides coverage and CIC was barred from asserting coverage defenses and policy limit defenses. A flurry of motions resulted in a hearing on the District's motion for summary judgment and CIC's motion to dismiss the third-party complaint for failure to state a claim and for a declaration that there is no coverage under the terms of the insurance policy.
¶ 8 In a thoughtful decision, the circuit court identified the critical issue as "whether, regardless of [the exclusion of coverage] Community's conduct has created coverage where none would otherwise exist." The court recognized:
There is no question but that a split of authority exists as to whether based on waiver, estoppel, negligence, failure to disclaim, or substantial prejudice, an insurer's conduct can create coverage where none otherwise exists. It is interesting to note that the disagreement among appellate courts has been described by Appleman as an "eroding majority rule" of no coverage, by the Wisconsin Court of Appeals as a "misapplication of estoppel and waiver." Utica Mutual Insurance Company v. Klein & Son, 157 Wis.2d [552, 564, 460 N.W.2d 763 (Ct.App.1990) ], and by the Illinois Court of Appeals as an "emerging trend" towards finding coverage, Nationwide Mutual Insurance Company v. Filos, 285 Ill.App.[3d] 528, 535 [220 Ill.Dec. 678, 673 N.E.2d 1099] (Ct.App.1996).
¶ 9 Ultimately, the circuit court elected to follow "the latest Wisconsin Supreme Court decision dealing with the subject of insurance coverage by waiver orestoppel, namely Shannon v. Shannon [, 150 Wis.2d 434, 442 N.W.2d 25 (1989) ]."
In applying Shannon, this court rules regardless of Hartford's claim that Community (1) assured Hartford that coverage existed, (2) failed to expressly reserve its right to disclaim coverage, and (3) prejudiced Hartford's rights by waiting until after an adverse decision on liability to disclaim coverage, there is simply no coverage for Maxwell's salary and benefits claims. Hartford did not pay for coverage of employee salary or fringe benefits claims, and under existing Wisconsin law, Community's conduct cannot be determined to create such coverage.
¶ 10 The District appeals.
¶ 11 We review the circuit court's grant of summary judgment de novo, using the same methodology as the circuit court. Mullen v. Walczak, 2003 WI 75, ¶ 11, 262 Wis.2d 708, 664 N.W.2d 76. Summary judgment is appropriate if the pleadings and other information on file show there is no "genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Id.; Wis. Stat. § 802.08(2) (2007-08). Here, the pertinent facts are undisputed, leaving only an issue of law for our consideration. Specifically, this case involves the question of whether CIC's exercise of dominion over the underlying lawsuit, without a reservation of rights, operates to provide coverage to the District. This question is a question of law, which this court decides independently, without deference to the decision of the circuit court. See Shannon, 150 Wis.2d at 450, 442 N.W.2d 25.
¶ 12 A little background on the law of contesting coverage under an insurance policy is helpful in understanding our discussionthat follows. In Grube v. Daun, 173 Wis.2d 30, 47, 71, 496 N.W.2d 106 (Ct.App.1992), Secura Insurance Company refused to provide a defense or coverage to its insured, who was being sued for environmental contamination of land the insured owned when the land was befouled with gasoline. Secura argued that it owed no duty to defend because certain policy exclusions applied which denied coverage to the insured's own property. Id. at 71, 496 N.W.2d 106. The insured filed a third-party complaint against Secura, demanding that it provide him with a defense and insurance coverage for damages in an action brought by the parties required to remediate the gasoline contamination. Brief and Appendix of Defendant Louis Achter at 6, Grube, 173 Wis.2d 30, 496 N.W.2d 106.
¶ 13 We held that Secura had a duty to defend the entire action against its insured even if some allegations fell outside of the scope of the insurance coverage. Grube, 173 Wis.2d at 73, 496 N.W.2d 106. We also held that it was "estopped from raising any challenges to coverage; it must both defend and indemnify [its insured] because Secura...
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