Wisconsin Court of Appeals Clarifies Insurers’ Duty to Defend

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[authors: Eryk Gettell]

Addressing a matter of first impression, the Wisconsin Court of Appeals held that an insurer under Wisconsin law does not have a continuing duty to defend its insured after the only potentially covered claim was settled and dismissed, leaving only uncovered claims.

Society Insurance v. Bodart, No. 2010AP2442, 2012 WL 2036037 (Wis. Ct. App. June 7, 2012), involved an insured, Rich Bodart dba Bodart Landscaping & Lawn Service, who had been sued in a complaint alleging five causes of action.  When Society Insurance commenced a declaratory relief action against Bodart, the circuit court determined that one cause of action was potentially covered, thereby triggering the duty to defend.  Society Insurance defended Bodart, but then settled three of the five causes of action, including the potentially covered cause of action. 

After the settled claims were dismissed, Society Insurance advised Bodart that it intended to withdraw its defense with respect to the two remaining uncovered claims.  Bodart filed a motion for contempt against Society Insurance on the ground that Society’s unilateral decision to withdraw its defense violated the circuit court’s duty-to-defend order.  The circuit court denied Bodart’s motion because it found that Society Insurance no longer had a duty to defend and Bodart appealed.

The Court of Appeals focused on the policy provision that stated, the insurer “will have no duty to defend the insured against any ‘suit’ … to which this insurance does not apply.”  The court found that a reasonable insured would understand this language to mean that Society Insurance has no duty to defend after it becomes clear that the suit does not involve any claim that is even arguably covered.  Relying on persuasive authority from the Seventh Circuit, Lockwood Int’l B.V. v. Volm Bag Co., 273 F.3d 741, 744 (7th Cir. 2001), and the Minnesota Supreme Court, Meadowbrook, Inc. v. Tower Ins. Co., 559 N.W.2d 411, 417 (Minn. 1997), the court adopted the “general rule” that an insurer’s duty to defend ceases after the potentially covered claims are settled and dismissed.  The Bodart court further noted that this general rule is consistent with Wisconsin’s well-established, duty to defend principles.

The Bodart court observed two exceptions to the rule that an insurer’s duty to defend terminates when potentially covered claims are settled and dismissed.  First, an insurer cannot withdraw from the action if such withdrawal would prejudice the insured’s defense of the remaining claims.  Second, the insurer’s settlement of the covered claims must not be done in bad faith.

 

Published In: Civil Remedies Updates, General Business Updates, Insurance Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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