Sustache v. American Family Mut. Ins. Co.

• Decision Date: 30 May 2007
• Docket Number: No. 2006AP939.,2006AP939.
• Citation: 735 N.W.2d 186,2007 WI App 144
• Parties: Estate of James B. SUSTACHE, by its Special Administrator, James Sustache and Antoinette Sustache, Plaintiffs, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant-Respondent, Larry Mathews and Jeffrey W. Mathews, Defendants-Appellants<SMALL><SUP>†</SUP></SMALL> Carrie A. Roman, Defendant.
• Court: Wisconsin Court of Appeals

735 N.W.2d 186

2007 WI App 144

Estate of James B. SUSTACHE, by its Special Administrator, James Sustache and Antoinette Sustache, Plaintiffs, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant-Respondent Larry Mathews and Jeffrey W. Mathews, Defendants-Appellants^† Carrie A. Roman, Defendant.

No. 2006AP939.

Court of Appeals of Wisconsin.

Submitted on Briefs January 11, 2007.

Opinion Filed May 30, 2007.

On behalf of the defendants-appellants, the cause was submitted on the briefs of

John V. O'Connor of O'Connor, Dumez, Alia & McTernan, S.C. of Kenosha.

On behalf of the defendant-respondent, the cause was submitted on the brief of Terry J. Booth, of Piper & Schmidt of Milwaukee.

Before SNYDER, P.J., BROWN and NETTESHEIM, JJ.

¶ 1 NETTESHEIM, J

This is an insurance duty-to-defend case. The usual mechanism for determining whether an insurer owes a duty to defend is the "four corners" of the complaint. Doyle v. Engelke, 219 Wis.2d 277, 284 and n. 3, 580 N.W.2d 245 (1998). The question posed by this case is whether there is an exception to the four-corners rule where (1) a third party's complaint alleges an intentional act, (2) the insurance policy does not cover such acts, and (3) the insured affirmatively defends on grounds of self-defense.

¶ 2 We hold that the most recent decisions from our supreme court have tacitly overruled court of appeals and supreme court opinions which recognized exceptions to the four-corners rule. Because the complaint in this case alleges an intentional act by the insured and because the insurance policy excludes such intentional acts from coverage, we hold that the trial court properly ruled at summary judgment that the insurer owed no duty to defend.

FACTS AND PROCEDURAL HISTORY

¶ 3 James B. Sustache, a teenager, was killed as the result of a punch thrown by Jeffrey W. Mathews, another teenager, during a physical altercation between the two during a party. Sustache's parents and his estate sued Jeffrey and his insurer, American Family Mutual Insurance Company. The amended complaint alleged that Jeffrey had committed an intentional battery against James and that Jeffrey's actions were willful, wanton and malicious warranting an award of punitive damages.¹ Jeffrey affirmatively defended on the grounds that he was exercising his right of self-defense when he delivered the fatal blow to James during the fight.

¶ 4 American Family moved for summary judgment, arguing that it had no duty to defend Jeffrey. As factual support, American Family relied on the allegations in the complaint that Jeffrey had acted intentionally, willfully, wantonly and maliciously and on the policy provision excluding such acts from coverage. As legal support, American Family cited to the four-corners rule, which holds that an insurer's duty to defend is measured solely from the allegations contained in the complaint, not extrinsic facts. See Atlantic Mut. Ins. Co. v. Badger Med. Supply Co., 191 Wis.2d 229, 236, 528 N.W.2d 486 (Ct. App.1995).

¶ 5 Jeffrey resisted the motion, relying on Berg v. Fall, 138 Wis.2d 115, 405 N.W.2d 701 (Ct.App.1987), where, as in this case, the plaintiff alleged an intentional act by the insured and the insured defended on the basis of self-defense. The Berg court acknowledged the four-corners rule, but nonetheless held that in a self-defense situation, the intentional acts exclusion language was rendered ambiguous. Id. at 121-22, 405 N.W.2d 701. Construing the ambiguity against the insurer, the court held that the insurer had a duty to defend. Id. at 121-23, 405 N.W.2d 701.

¶ 6 In a written decision, the trial court acknowledged the factual similarity of this case with Berg. But the court also noted that the supreme court had criticized Berg in Doyle and reaffirmed that the four-corners rule was the law in Wisconsin. Doyle, 219 Wis.2d at 284 n. 3, 580 N.W.2d 245. The court concluded that it was bound by the supreme court's holding in Doyle, and granted American Family's motion for summary judgment. The estate and James' parents appeal.

DISCUSSION

¶ 7 We review a decision on summary judgment using the same methodology as the circuit court. See Green Spring Farms v. Kersten, 136 Wis.2d 304, 314-15, 401 N.W.2d 816 (1987). Summary judgment is appropriate where the record demonstrates 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. WIS. STAT. § 802.08(2). Where the facts are not in dispute, there remain only questions of law, which we review de novo. Teschendorf v. State Farm Ins. Cos., 2006 WI 89, ¶ 9, 293 Wis.2d 123, 717 N.W.2d 258. Here, the facts relating to the duty to defend are not in dispute. Therefore, the issue is one of law and proper grist for summary judgment methodology.

¶ 8 The legal issue is whether the four-corners rule is absolute or whether it is subject to the exception adopted by the Berg court when the insured defends against an intentional act allegation on the basis of self-defense. However, Berg was not the first Wisconsin appellate court to recognize an exception to the four-corners rule. Twenty years earlier, the supreme court recognized exceptions to this rule in Grieb v. Citizens Casualty Co., 33 Wis.2d 552, 148 N.W.2d 103 (1967).

¶ 9 In Grieb, a taxpayer suit alleged that Grieb, an architect, had engaged in a conspiracy with another to defraud Milwaukee county. Id. at 556, 148 N.W.2d 103. Grieb successfully defended the suit and then commenced an action against his insurer to recover his costs and fees. Id. at 554, 148 N.W.2d 103. The issue before the supreme court was whether Grieb's professional liability errors-and-omissions insurance policy covered the allegations in the taxpayer's complaint. Id. at 556, 148 N.W.2d 103. The policy covered Grieb's liability "arising out of any act of negligence, error, mistake or omission in rendering professional architectural services." Id. at 555, 148 N.W.2d 103. The insurer claimed it owed no coverage, and hence no duty to defend, on the basis of the policy exclusion for "dishonest, fraudulent, criminal or malicious acts or omissions and those of a knowingly wrongful nature intentionally committed." Id. at 556, 148 N.W.2d 103.

¶ 10 The supreme court agreed with the insurer. The court said, "We think [the insurer's] duty to defend under its policy is not so broad as contended for by [the architect]." Id. In so holding, the court followed what is now known as the four-corners rule: "It is the nature of the claim alleged against the insured which is controlling even though the suit may be groundless, false or fraudulent." Id. at 558, 148 N.W.2d 103.

¶ 11 Although holding that the insurer owed no duty to defend under the four-corners rule, the supreme court noted certain exceptions to the rule:

There are at least four exceptions to the general rule determining the extent of the insurer's duty to defend and generally the insurer who declines to defend does so at [its] peril. These and allied problems are extensively covered in Anno. Liability Insurer—Duty to Defend, 50 A.L.R. (2d) 458.

Grieb, 33 Wis.2d at 558, 148 N.W.2d 103. However, the supreme court's opinion did not go further to set out these exceptions or analyze them. We do so here, quoting a portion of the A.L.R. annotation cited by the court:

[T]here are also a number of cases involving special situations not covered directly by the general rules . . . . These special situations exist particularly where there is a conflict of allegations and known facts, where the allegations are ambiguous or incomplete, where the allegations state facts partly within and partly outside the coverage of the policy, and finally where the allegations contain conclusions instead of statements of facts.

C.T. Drechsler, Annotation, Allegations in Third Person's Action Against Insured as Determining Liability Insurer's Duty to Defend, 50 A.L.R.2d 458, § 3 (1956) (footnotes omitted).

¶ 12 That brings us to Berg. There, Berg sued Fall and his insurer alleging injury as the result of a physical altercation with Fall. Berg, 138 Wis.2d at 117, 405 N.W.2d 701. Like Jeffrey in this case, Fall contended that because he acted in self-defense, the insurer's exclusion for intentional conduct did not bar coverage. Id. The court of appeals agreed, holding that "reasonable acts of self-defense are legally privileged, not wrongful." Id. at 121, 405 N.W.2d 701. The court further held that the exclusion language in the policy was ambiguous "with respect to privileged acts of self-defense." Id. As a result, the court construed the ambiguous language against the insurer and concluded that the insurer owed a duty to defend. Id. at 121-23, 405 N.W.2d 701.

¶ 13 Ironically, the Berg court cited to Grieb for the four-corners rule, see Berg, 138 Wis.2d at 122, 405 N.W.2d 701, but not to Grieb's reference to the exceptions to the rule. Instead, the Berg court looked to a well-known and respected insurance treatise:

The insurer cannot safely assume that the limits of its duties to defend are fixed by the allegations a third party chooses to put into his complaint, since an insurer's duty is measured by the facts, particularly where the pleadings allege facts that are within an exception to a policy but the true facts are within, or potentially within, policy coverage and are known or are reasonably ascertainable by the insurer.

7C Appleman, Insurance Law and Practice, § 4683 at 56 (1979).

Berg, 138 Wis.2d at 122-23, 405 N.W.2d 701 (emphasis added).

¶ 14 Shortly after Berg, a different district of the court of appeals issued its opinion in Professional Office Buildings, Inc. v. Royal Indemnity Co., 145 Wis.2d 573, 427 N.W.2d 427 (Ct.App.1988). There, the trial court, relying on certain federal authority, went beyond the four corners of the complaint in holding that the insured owed a duty to defend. Id. at 580, 427 N.W.2d 427. The court of appeals disagreed with this approach, ruling that the four-corners...