An insurer’s decision whether to defend a lawsuit against its insured can be a critical issue involving tens of thousands, if not millions, of dollars for Wisconsin companies who are sued. The Wisconsin Supreme Court recently refused to join the national trend that allows insureds to use information not contained in the plaintiff’s complaint to prove that their insurer owes them a defense. Wisconsin thus remains one of the minority of states in which courts are to look only at the “four corners” of the plaintiff’s complaint when deciding whether the lawsuit raises a claim that the insurer must defend.
In Water Well Solutions Service Group, Inc. v. Consolidated Insurance Company, 2016 WI 54, a 5-2 decision, the court reaffirmed Wisconsin’s longstanding “four-corners” rule and rejected an invitation to join the majority of states that allow the use of other information when deciding whether the insurer has a duty to defend the suit. This is a disappointing decision for insureds. It means that whether they are entitled to a defense from their insurer depends on how their opponent in litigation chooses to frame the issues in the complaint.
Water Well arose when, because of allegedly improper work by Water Well Solutions, a pump and associated equipment fell to the bottom of a City of Waukesha water well. It cost Waukesha over $300,000 to repair the well. Its insurer, Argonaut, paid the claim and then sued Water Well Solutions to recover that amount. Water Well tendered the defense of the case to its insurer, Consolidated, but Consolidated denied the tender. Consolidated based its refusal to defend on two policy exclusions. The first eliminated coverage for claims for products made, sold, or handled by Water Well (the “Your Product” exception). The second eliminated coverage for claims arising out of the insured’s work (the “Your Work” exception).
Argonaut’s complaint against Water Well did not clearly allege that equipment not supplied by Water Well was damaged in the accident, even though that was the case. Likewise, the complaint did not assert that some work on the well was done by a subcontractor under the direction of Water Well, even though that was also the case. These omissions in the complaint were significant because the “Your Product” exception did not apply if other products were damaged, and the “Your Work” exception did not apply to damages caused by a subcontractor. Water Well thus faced a situation where, under the four...
