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Insurable Interests - Insights on Insurance Law

Wisconsin Supreme Court dismisses appeal over parties’ failure to complete a full four corners analysis

Wisconsin State CapitolIn a strange turn of events, the Wisconsin Supreme Court recently dismissed its review of an insurance coverage appeal, pointing to the parties’ apparent failure to complete a full four corners analysis in their briefs.

The duty to defend in Wisconsin is determined under the four corners rule: The duty exists if there are allegations contained in the four corners of the complaint which, if proven, would give rise to recovery under the terms of the policy. In reviewing the policy, the court looks first to the insuring agreement to determine if there is an initial grant of coverage. If there is no initial coverage grant, the inquiry ends there. Otherwise, the court proceeds to examine the policy’s exclusions to determine whether they preclude coverage. See, generally, Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 2004 WI 2, ¶ 24, 268 Wis. 2d 16, 673 N.W.2d 65.

The Court granted review in Smith v. Anderson to address several issues of first impression concerning the duty to defend in cases involving third-party complaints. In its subsequent per curiam decision, three of the Court’s five participating justices concluded that dismissal of the appeal was warranted because the parties argued only whether there was an initial grant of coverage under the insuring agreement, without addressing relevant exclusions. Both the circuit court and the court of appeals below had determined there was no initial coverage grant, with the circuit court alone proceeding to hold that coverage was also barred by the “your work” exclusion.

The Court had a number of options at its disposal, aside from dismissal, had it wanted to resolve the issues for which review was granted. If the Court felt argument regarding the exclusion was necessary, it could have asked the parties for additional briefing. It could have remanded to the court of appeals for further proceedings consistent with its decision, including presumably a decision on the applicability of any exclusions. Or, as Chief Justice Roggensack’s tie-breaking concurrence highlights, the Court could have concluded that either the insured or the insurer had waived arguments on the policy exclusions’ effect by not raising them: The insured because it did not challenge the circuit court’s holding on the “your work” exclusion and the insurer because it did not argue alternative grounds in support of the court of appeals’ decision.

That the Court pursued none of these alternatives is perhaps a reflection that it could not reach a cohesive majority view on the issues that were presented, absent two of its members. This may be to the good fortune of the insurer, who walks away with the court of appeals’ no-coverage decision intact. Regardless, we believe Justice Roggensack was correct: The parties’ respective failure to address the exclusions they had previously raised before the circuit court and court of appeals was a risky approach – and not one future litigants should lightly follow.

July 10, 2017

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