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Court May Consider Extrinsic Evidence When Analyzing Duty To Defend

Olson v. Farrar, 2012 WI 3 (Jan. 31, 2012)

In Olson v. Farrar, the Wisconsin Supreme Court held that in some cases a circuit court making a determination on whether an insurer owes a duty to defend may consider extrinsic evidence because the four-corners rule is satisfied once an insurer assumes the defense of its insured. Olson purchased a mobile home trailer and asked Farrar's assistance in moving it to a different location. Farrar hitched the mobile home trailer to his tractor, which stalled in transit. As a result, the mobile home trailer rolled backwards and crashed into Olson's vehicle. Olson sued, alleging Farrar was liable for the damage to Olson's mobile home trailer and vehicle.

Farrar's insurer initially agreed to provide a defense to Farrar, but, after it intervened and the circuit court bifurcated the coverage issues from the liability/damages issues, the insurer sought a declaration that it did not have a duty to defend or indemnify Farrar. Due to certain exclusions within the policy, there would be coverage only if three conditions were met: (a) the property damage "resulted from" a mobile home trailer; (b) the mobile home trailer was not attached to a "motor vehicle"; and (c) the damaged property was not "occupied by, used by, or in the care of" Farrar. Farrar opposed his insurer's motion and, in doing so, submitted an affidavit that recounted his version of the accident and contained information about his tractor. The circuit court concluded there was no coverage, and the court of appeals reversed.

The Wisconsin Supreme Court considered two issues: (1) whether the four-corners rule prevented the consideration of the extrinsic evidence Farrar presented; and (2) whether there was coverage under the policy. As to the first issue, the court held that the extrinsic evidence may be considered. It reasoned that the purpose of the four-corners rule—to ensure that insurers do not frustrate the expectations of their insureds by prematurely resolving coverage issues in their own favor—is served once the insurer elects to provide a defense pending a final determination on coverage. On the one hand, the court observed that there are times when the issue of coverage is strictly a matter of interpretation of the insurance policy. In such circumstances, circuit courts may not need to consider any extrinsic evidence to make a coverage determination; they can simply rely on the provisions of the policy and the allegations in the complaint. On the other hand, the supreme court also observed that there are times when the facts bearing on the issue of coverage are disputed and a coverage determination cannot be made until the factual disputes are resolved in the circuit court. On those latter occasions, a circuit court may consider extrinsic evidence relevant to the coverage issue when it makes a coverage determination.

As to whether there was coverage for the claim itself, the court reviewed the three issues listed above. The court concluded that the policy terms "results from" and "motor vehicle" were ambiguous. However, because there remained a factual dispute concerning the "occupied by, used by, or in the care of" exclusion, the supreme court remanded the case for resolution of the factual dispute.

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About this Author

Heidi Vogt, von Briesen Roper Law Firm, Milwaukee, Insurance and Litigation Law Attorney

Heidi Vogt is a Shareholder and Co-Chair of the Litigation and Risk Management Practice Group as well as the Chair of the Insurance Coverage and Risk Management Section. Her practice focuses on insurance coverage litigation, commercial disputes, constitutional law, and complex litigation. She has represented insurance companies in Wisconsin and across the country in both state and federal courts in complex insurance coverage matters for more than 20 years.

She represents and counsels insurance clients on a wide variety of...

Douglas Raines, Von Briesen Roper Law Firm, Milwaukee, Real Estate, Insurance And Litigation Law Attorney

Doug Raines is a Shareholder in the firm’s Litigation and Risk Management Practice Group. His practice focuses primarily on commercial litigation, insurance defense, and appellate work.

Doug has helped clients achieve positive outcomes through settlement of numerous cases ranging from slip-and-fall, breach of contract, landlord-tenant, and insurance coverage issues.

Before joining von Briesen, Doug served as the law clerk to the Hon. Patience D. Roggensack of the Wisconsin Supreme Court (2007 – 2008 term).

Doug is the author or co-author of multiple law review articles. His work on affirmative action jurisprudence, New Federalism, and Wisconsin’s risk contribution doctrine has been published in the Marquette Law ReviewBoston University Law Review (co-author with Scott A. Moss), and Pace Environmental Law Review (co-author with Peter G. Earle and Fidelma Fitzpatrick), respectively.