Menasha Corp. v. Lumbermens Mut. Cas. Co.

• Decision Date: 18 March 2005
• Docket Number: No. 03-C-0570.,03-C-0570.
• Citation: 361 F.Supp.2d 887
• Parties: MENASHA CORPORATION Plaintiff, v. LUMBERMENS MUTUAL CASUALTY COMPANY and Great American Assurance Company Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

361 F.Supp.2d 887

MENASHA CORPORATION Plaintiff, v. LUMBERMENS MUTUAL CASUALTY COMPANY and Great American Assurance Company Defendants.

No. 03-C-0570.

United States District Court, E.D. Wisconsin.

March 18, 2005.

Erie VanVugt, Milwaukee, WI, Kent Withycombe, Washington, DC, Lars Gulbrandsen, Milwaukee, WI, for Plaintiff.

Todd Schenk, Chicago, IL, for Lumbermens.

Heidi Vogt, George Hall, Milwaukee, WI, for Great Am.

DECISION AND ORDER

ADELMAN, District Judge.

In 2003, plaintiff Menasha Corporation filed this action against defendants Lumbermens Mutual Casualty Company ("LMC") and Great American Assurance Company ("GAA"), alleging that defendants breached their duties to defend it in a lawsuit brought by Siemens VDO Automotive Corporation ("Siemens"). I have jurisdiction because the parties are diverse and the amount in controversy exceeds $75,000. See 28 U.S.C. § 1332. Before me now are the parties' cross-motions for summary judgment.

I. BACKGROUND

In June 2002, Siemens sued plaintiff in federal court in Virginia alleging breach of contract and breach of warranty in connection with a product that plaintiff manufactured for it. Siemens alleged that in the early 1990's it contracted to supply the Chrysler Corporation ("Chrysler") with fuel rail assemblies, devices that deliver fuel from an automobile's fuel line to its fuel injectors. Because Chrysler required the devices' fuel rails¹ to be molded from thermoset plastic,² and Siemens could not supply rails of this type, Siemens contracted with plaintiff to provide them. Thus, plaintiff supplied Siemens with fuel rails, Siemens incorporated the rails into fuel rail assemblies, and Chrysler used the assemblies in its sedans. In 1998, an investigation revealed that the fuel rails in Chrysler vehicles could crack, and Chrysler agreed to recall over 650,000 vehicles. In September 2000, Chrysler charged Siemens $35,000,000 in recall-related costs. Believing that the fuel rails created the potential for cracking, Siemens asked plaintiff to indemnify it, and when plaintiff declined, Siemens commenced suit.

Plaintiff presented Siemens's complaint to defendants, and defendants concluded that it did not give rise to coverage under their policies. They therefore advised plaintiff that they would not defend the suit on its behalf. Plaintiff defended the claim, eventually settling for $7,500,000, and then commenced the present action.

II. SUMMARY JUDGMENT STANDARD

Summary judgment is required "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The mere existence of some factual dispute does not defeat a summary judgment motion; "the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). For a dispute to be genuine, the evidence must be such that a "reasonable jury could return a verdict for the nonmoving party." Id. For the fact to be material, it must relate to a disputed matter that "might affect the outcome of the suit." Id.

In evaluating a motion for summary judgment, the court must draw all inferences in a light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). However, it is "not required to draw every conceivable inference from the record — only those inferences that are reasonable." Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d 232, 236 (7th Cir.1991). When both parties have moved for summary judgment, both are required to show that no genuine issues of fact exist, taking the facts in the light most favorable to the party opposing each motion. If issues of fact exist, neither party is entitled to summary judgment. Lac Courte Oreilles Band of Lake Superior Chippewa Indians v. Voigt, 700 F.2d 341, 349 (7th Cir.1983).

III. DISCUSSION

Under a typical liability insurance policy, an insurer must indemnify its insured for, and defend its insured in any lawsuit alleging, liability covered by the policy. See Elliott v. Donahue, 169 Wis.2d 310, 320, 485 N.W.2d 403 (1992).³ In the present case, plaintiff contends that defendants breached their respective duties to defend. However, I conclude that neither defendant was obliged to defend Siemens's suit against plaintiff and that, therefore, defendants' summary judgment motions must be granted.

A. Applicable Legal Rules

Under Wisconsin law, an insurer has a duty to defend its insured in a lawsuit when the complaint alleges facts which, if proven, would create liability covered by the policy. See, e.g., Doyle v. Engelke, 219 Wis.2d 277, 284-85, 580 N.W.2d 245 (1998). In determining whether an insurer has a duty to defend, the complaint must be liberally construed and all reasonable inferences drawn in favor of the insured. Id. at 284, 580 N.W.2d 245. Any doubt as to whether the complaint triggers an insurer's duty to defend must be resolved in favor of the insured. Wausau Tile, Inc. v. County Concrete Corp., 226 Wis.2d 235, 266, 593 N.W.2d 445 (1999). In other words, an insurer has a duty to defend its insured when the complaint at least "arguably" asserts liability covered by the policy. Hamlin Inc. v. Hartford Accident & Indem. Co., 86 F.3d 93, 94 (7th Cir.1996).⁴ However, because complaints are not always accurate, one cannot be certain from reading one that it will not lead to the insured's being subject to liability covered by the insurance policy. Id. at 96. Yet, a complaint does not trigger an insurer's duty to defend unless there is a "plausible" interpretation of it that brings its allegations within the scope of the policy. Id. Thus, the question presented is whether under any plausible interpretation, Siemens's complaint alleged covered liability. Before addressing this question, however, I must discuss several preliminary arguments asserted by plaintiff.

1. Consideration of Extrinsic Evidence

Plaintiff first argues that in determining whether defendants had duties to defend, I may consult materials other than Siemens's complaint and the relevant insurance policies. However, in addressing whether an insurer has a duty to defend, a court may not go beyond the four corners of the complaint and the relevant insurance policy. See Doyle, 219 Wis.2d at 285 n. 3, 580 N.W.2d 245 (disapproving suggestion that courts may go beyond four corners of complaint and stating that suggestion was "contrary to a long line of cases in [Wisconsin] which indicate that courts are to make conclusions on coverage issues based solely on the allegations within the complaint"). In support of its argument, plaintiff cites two federal cases, American Motorists Insurance Co. v. Trane Co., 544 F.Supp. 669 (W.D.Wis.1982), and Pfeifer v. Sentry Insurance, 745 F.Supp. 1434 (E.D.Wis.1990). However, a Wisconsin court has stated that insofar as it holds that a court may consider extrinsic evidence, Trane was wrongly decided, see Prof'l Office Bldgs., Inc. v. Royal Indem. Co., 145 Wis.2d 573, 580-83, 427 N.W.2d 427 (1988), and Pfeifer simply cites Trane in dicta without acknowledging Professional Office Buildings, Pfeifer, 745 F.Supp. at 1439. Thus, in determining whether defendants were obliged to defend plaintiff, I will not consider extrinsic evidence.

2. Estoppel

Next, plaintiff argues that when an insured asks an insurer to defend a suit, the insurer must defend under a reservation of rights or seek to intervene in the suit and ask the court to determine whether there is coverage before any proceedings on liability occur, and that if the insurer does neither, it may not subsequently contest whether it had a duty to defend.⁵ However, plaintiff's argument misstates Wisconsin law. Under Wisconsin law, when an insured asks an insurer to defend a suit, the insurer is not obliged to do so unless it has a duty to defend and, as discussed, a duty to defend is only triggered by a complaint that plausibly alleges covered liability. See, e.g., Hamlin, Inc., 86 F.3d at 96. Thus, plaintiff's assertion that "Wisconsin insurance law requires insurance companies to provide a defense if there is any possibility, however remote, that the claim against their policyholder may result in covered liability," (Pl.'s Mem. in Reply [R. 78] at 1 (emphasis in original)), is incorrect. Secondly, under Wisconsin law, when an insured asks an insurer to defend a suit and the insurer neither defends under a reservation of rights nor asks the court to determine coverage before liability, it breaches its duty to defend only if a court ultimately determines that it had a duty to defend. If the insurer had no duty to defend in the first place, it will suffer no adverse consequences. See Midway Motor Lodge of Brookfield v. Hartford Ins. Group, 226 Wis.2d 23, 37-38, 593 N.W.2d 852 (1999); Prod. Stamping Corp. v. Maryland Cas. Co., 199 Wis.2d 322, 331 n. 4, 544 N.W.2d 584 (1996); Arnold P. Anderson, Wisconsin Insurance Law § 7.51 (5th ed.2004).

Plaintiff appears to misread Wisconsin cases indicating that when an insurer is uncertain as to whether it has a duty to defend, the "proper" procedure is to defend under a reservation of rights or seek a coverage determination prior to a liability determination. See Newhouse v. Citizens Sec. Mut. Ins. Co., 176 Wis.2d 824, 833-37, 501 N.W.2d 1 (1993); see also Elliott, 169 Wis.2d at 318, 485 N.W.2d 403; Mowry, 129 Wis.2d at 527-30, 385 N.W.2d 171. These cases mean only that it is prudent for an insurer to follow the above procedure because if does not and a court eventually determines that it had a duty to defend the suit, it will have breached the duty to defend and be liable "for all the damages that naturally flow from the breach." Newhouse, 176 Wis.2d at 835-39, 501 N.W.2d 1. They do not hold that an insurer will...