Insurance Duty to Defend.

Byline: Derek Hawkins

Case Name: Roger Choinsky, et al. v. Employers Insurance Company of Wausau and Wausau Business, et al.

Case No.: 2020 WI 13

Focus: Insurance Duty to Defend

The Germantown School District Board of Education and Germantown School District (collectively, the "School District") seek review of a court of appeals decision affirming the circuit court's order and judgment, which denied the School District's motion for attorney fees. The School District argues that its insurers, Employers Insurance Company of Wausau and Wausau Business Insurance Company (collectively, the "Insurer"), breached the duty to defend the School District in a lawsuit brought by retired employees; therefore, the School District claims its Insurer should pay, as a remedy for the breach, all the attorney fees incurred by the School District.

This case presents an insurance coverage duty-to-defend issue of first impression: does an insurer breach its duty to defend its insured when it denies a tendered claim and then follows the judicially preferred procedure of filing a motion to intervene and stay the underlying lawsuit pending a coverage determination, which is ultimately resolved in the insured's favor? Additionally, we consider the insurer's obligations in order to avoid breaching its duty to defend when the circuit court denies the motion to stay.

We conclude that when an insurer initially denies a tendered claim but promptly proceeds with one of our judicially preferred methods for determining coverage, it does not breach its duty to defend. If a circuit court denies any part of an insurer's motion to bifurcate the coverage issue from the underlying liability lawsuit and stay the latter, causing an insured to simultaneously defend the liability suit and litigate coverage against the insurer, an insurer must defend its insured in the liability lawsuit, retroactive to the date of tender, under a reservation of rights, until a court decides the coverage issue. Because the School District's Insurer followed this procedure, the Insurer did not breach its duty to defend and the Insurer is not responsible for any of the attorney fees the School District paid for the coverage dispute. See Newhouse v. Citizens Sec. Mut. Ins. Co., 176 Wis. 2d 824, 832-39, 501 N.W.2d 1 (1993) (when an insurer follows a judicially preferred method, the insurer "runs no risk of breaching its duty to defend"); see also Carney v. Village of Darien, 60 F.3d 1273, 1277 (7th Cir...