Steadfast Ins. Co. v. Greenwich Ins. Co., 2016AP1631

Decision Date25 January 2019
Docket NumberNo. 2016AP1631,2016AP1631
Citation2019 WI 6,922 N.W.2d 71,385 Wis.2d 213
Parties STEADFAST INSURANCE COMPANY, Plaintiff-Respondent, v. GREENWICH INSURANCE COMPANY, Defendant-Appellant-Petitioner.
CourtWisconsin Supreme Court

For the defendant-appellant-petitioner, there were briefs filed by Pamela J. Tillman, Esq., Michael J. Cohen, Esq., and Meissner Tierney Fisher & Nichols S.C., Milwaukee; with whom on the briefs were Thomas G. Drennan, Esq., and Dinsmore & Shohl LLP, Chicago, Illinois. There was an oral argument by Michael J. Cohen.

For the plaintiff-respondent, there was a brief filed by Monte E. Weiss, Charles W. Kramer, and Weiss Law Office, S.C., Mequon. There was an oral argument by Monte Weiss.


¶1 We review a decision of the court of appeals1 affirming the circuit court's2 grant of summary judgment to Steadfast Insurance Company (Steadfast). Summary judgment granted Steadfast the right to recover from Greenwich Insurance Company (Greenwich) based on Steadfast's and Greenwich's relationships with Milwaukee Metropolitan Sewerage District (MMSD), who was sued for alleged negligent inspection, maintenance, repair, and operation of Milwaukee's sewerage system.

¶2 MMSD tendered its defense to both Steadfast and Greenwich. Steadfast accepted the tender; Greenwich did not, claiming that its policy was excess to Steadfast's based on its "other insurance" clause. Steadfast disagreed and sued Greenwich to recover the defense costs it paid to MMSD and the attorney fees incurred in suing Greenwich to reimburse it for those defense costs.

¶3 First, we conclude that Greenwich, who insured the risk that United Water Services Milwaukee, LLC (United Water) would negligently perform services for MMSD, thereby causing damage, and Steadfast, who for a different period of time insured the risk that Veolia Water Milwaukee, LLC (Veolia) would negligently perform services for MMSD, thereby causing damage, were both primary and successive insurers in regard to MMSD, their common additional insured.3

¶4 Second, we conclude that Greenwich breached its contractual duty to defend MMSD. Third, we conclude that Steadfast's contractual subrogation claim against Greenwich was timely filed as it comes within the six-year statute of limitations for contract actions.

¶5 Fourth, we conclude Steadfast had a contractual duty to defend MMSD that was not abrogated by Greenwich's breach of its contractual duty to defend MMSD. Therefore, we apply a pro-rata allocation of defense costs Steadfast paid to MMSD based on Steadfast's and Greenwich's respective policy limits of $30 million and $20 million. Fifth, and finally, we conclude that Steadfast is entitled to recover attorney fees from Greenwich due to Steadfast's stepping into the shoes of MMSD through contractual subrogation to force Greenwich to pay defense costs.

¶6 Accordingly, we affirm the decision of the court of appeals in part and reverse it in part.


¶7 This dispute arises out of historic rains that occurred in Milwaukee in June 2008. Those heavy rains overwhelmed MMSD's sewerage system, which resulted in raw sewage backing up into more than 8,000 homes. Lawsuits were filed against United Water, Veolia and MMSD because of sewage backups, alleging negligence in the repair, maintenance, and operation of the sewerage system both before and during the heavy rains.4

¶8 Beginning in 1998, MMSD entered into Operating Agreements with private companies to operate and maintain its sewerage system. United Water provided operational services for many years. MMSD's Operating Agreement with United Water required United Water to maintain comprehensive liability insurance, naming MMSD as an additional insured. United Water contracted with Greenwich for liability insurance with the last contract of insurance beginning July 24, 2007 and ending July 24 2008; it named MMSD as an additional insured. The Greenwich policy limits were $20 million. United Water maintains that it last provided services under an Operating Agreement with MMSD on February 29, 2008.

¶9 Beginning on March 1, 2008, and continuing through the June 2008 heavy rains, MMSD contracted with Veolia to operate and maintain its sewerage system. Their Operating Agreement similarly required Veolia to maintain comprehensive liability insurance, naming MMSD as an additional insured. Steadfast provided the required insurance to Veolia, with policy limits of $30 million.

¶10 The Greenwich policy obligated it to defend any claim against its insureds, United Water and MMSD, as well as to provide indemnification:

With respect to the insurance afforded by this Policy, the Company shall defend any CLAIM against the INSURED seeking DAMAGES to which this insurance applies, even if any of the allegations are groundless, false or fraudulent. Defense counsel may be designated by the Company or designated by the INSURED....

¶11 In a similar fashion, the Steadfast policy gave Steadfast "the right and duty to assume the adjustment, defense and settlement of any 'claim' to which this insurance applies." Steadfast's policy, which insured Veolia and MMSD, also contained a subrogation clause, which stated in relevant part:

In the event of any payment under this policy, we shall be subrogated to all an "insured's" rights of recovery against any person or organization. An "insured" shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. An "insured" shall do nothing to prejudice such rights.

¶12 After MMSD tendered its defense to both Steadfast and Greenwich, it opted to hire its own counsel. The lawsuits were settled without MMSD paying plaintiffs' claimed damages. Steadfast participated in MMSD's defense by reimbursing MMSD for $1.55 million in defense costs. However, when MMSD tendered its defense to Greenwich and Steadfast, there was no way of knowing that settlement would be achieved without paying something toward claimed damages.

¶13 Greenwich, who had refused MMSD's tender, had sent MMSD a letter explaining that "we fail to see how [United Water] could be liable for causing a sewage backup in June 2008 when its services for MMSD terminated in February 2008." Greenwich further argued that "there is ample evidence that when [United Water] turned over operational responsibilities to Veolia and MMSD in February 2008, all systems, equipment, and machinery at the subject sewage overflow diversion chamber were functioning according to operational protocols."

¶14 One year later, MMSD renewed its tender to Greenwich. It informed Greenwich that United Water had been named as a defendant in lawsuits that resulted from the 2008 sewage backups. Greenwich responded five months later, acknowledging that "there may be a potential for coverage" and requesting "additional information in order to determine Greenwich's current coverage obligations." After receiving the requested information, including confirmation that MMSD had satisfied its $250,000 self-insured retention amount, Greenwich continued to refuse the tender of MMSD's defense. Instead, it unilaterally determined based on its "other insurance" clause that its policy was excess to Steadfast's $30 million liability limit.

¶15 After the conclusion of the lawsuits that resulted from the sewage backups, Steadfast sued Greenwich to recover the $1.55 million in defense costs that it had paid to MMSD. The circuit court granted summary judgment in favor of Steadfast, awarding it the entire amount Steadfast paid MMSD, as well as $325,000 in attorney fees that Steadfast incurred bringing this lawsuit.

¶16 The court of appeals affirmed. Steadfast Ins. Co. v. Greenwich Ins. Co., 2018 WI App 11, ¶ 4, 380 Wis. 2d 184, 908 N.W.2d 502. The court of appeals based its decision on the following conclusions:

(1) Greenwich's policy provided primary, not excess, coverage for claims against MMSD; (2) MMSD has established that it met the $250,000 risk retention amount by incurring $594,302.23 in defense costs; (3) Steadfast's equitable subrogation claim is timely because the six-year statute of limitations in Wis. Stat. § 893.43 applicable to contract claims applies to Steadfast's claim, which is premised on Greenwich's breach of the duty to defend MMSD; (4) under the facts of this case, because Greenwich breached its duty to defend MMSD, Greenwich is not equitably entitled to an allocation of MMSD's defense costs; and (5) under the facts of this case, Steadfast is equitably entitled to recover attorney fees in this lawsuit.

Id. We granted Greenwich's petition for review, and now affirm in part and reverse in part.

A. Standard of Review

¶17 We review summary judgment decisions independently, applying the same methodology as the circuit court and the court of appeals, while benefitting from their discussions. Dufour v. Progressive Classic Ins. Co., 2016 WI 59, ¶ 12, 370 Wis. 2d 313, 881 N.W.2d 678.

¶18 We also review insurance contract clauses independently of decisions of the circuit court and court of appeals, while again benefitting from their discussions. Wadzinski v. Auto-Owners Ins. Co., 2012 WI 75, ¶ 10, 342 Wis. 2d 311, 818 N.W.2d 819. Therefore, whether a party is entitled to attorney fees based on contractual subrogation is a question of law for our independent review. Estate of Kriefall v. Sizzler USA, 2012 WI 70, ¶ 16, 342 Wis. 2d 29, 816 N.W.2d 853.

¶19 Determining which statute of limitations applies to contract issues involves a question of law that we also decide independently. Zastrow v. Journal Commc'ns, Inc., 2006 WI 72, ¶12, 291 Wis. 2d 426, 718 N.W.2d 51. And finally, the proper measure of damages for an insurer's breach of a contractual duty to defend is likewise a question of law that we review independently. Newhouse v. Citizens Sec. Mut. Ins. Co., 176 Wis. 2d 824, 837, 501 N.W.2d 1 (1993).

B. Contract Interpretation

¶20 The issues in this case all stem from Greenwich's insurance contract with...

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