October 13, 2019

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Wisconsin Court of Appeals Holds That When An Insurer Provides a Defense to Its Insured, Extrinsic Evidence Must be Considered by the Court on the Question of Coverage

Stimac Family Trust v. Wis. Power & Light Co., No. 2016AP748 (Wis. App. Apr. 19, 2017) (recommended for publication)

In Stimac Family Trust v. Wis. Power & Light Co., No. 2016AP748, unpublished op. (Wis. App. Apr. 19, 2017), the Wisconsin Court of Appeals held that when an insurer provides a defense to its insured, any extrinsic evidence offered by either party must be considered by the court on the question of coverage.

Wisconsin Power and Light Company ("WPL") severed a sewer line causing flood damage to The Stimac Family Trust's ("Stimac") property. WPL hired Aquire Contracting and Restoration, Inc. ("Aquire") to perform the restoration work. After completion of the restoration work, Stimac observed mold growth and an odor of sewage. WPL and Aquire denied responsibility.

Stimac filed suit, claiming Aquire was negligent in its restoration efforts. Aquire's insurer accepted the tender of defense under a reservation of rights and bifurcated the coverage issue. The insurer moved for summary judgment on coverage issues based on the four corners of the complaint and policy, whereas Aquire relied upon affidavits. The circuit court granted the insurer's motion, and agreed that the coverage analysis should be confined to the four corners of the complaint and policy.

Relying on two Wisconsin Supreme Court cases, Estate of Sustache v. Am. Family Mut. Ins. Co., 2008 WI 87 and Olson v. Farrar, 2012 WI 3, the court of appeals ruled that when an insurer provides a defense to its insured, any extrinsic evidence offered by either party must be considered by the court on the question of coverage. The court reasoned that like the insurers in Sustache and Olson, the insurer had provided a defense to Aquire under a reservation of rights, was granted bifurcation of the coverage issues, and had proceeded to summary judgment on coverage. Thus, the court determined the case had gone beyond the initial duty to defend stage and had advanced to a determination of coverage where extrinsic evidence is permitted to resolve coverage. Accordingly, the court of appeals reversed and remanded the lower court's ruling having determined that the circuit court should have considered the extrinsic evidence.

The court did not address the Wisconsin's Supreme Court decision in Water Well Solutions v. Consolidated Ins., in which the court "unequivocally" held "there is no exception to the four-corners rule" in duty to defend cases. 2016, WI 54, ¶ 24.

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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...

Jason R. Fathallah, Von Briesen Roper Law Firm, Milwaukee, Corporate, Incurance and Litigation Law Attorney

Jason is a Shareholder in the firm’s Litigation and Risk Management Practice Group. He works with clients to provide creative dispute resolution outcomes that avoid litigation, minimize business interruption and reduce costs. When litigation cannot be avoided, Jason draws on his substantial experience successfully litigating numerous cases in state and federal courts throughout the country. Jason has achieved favorable results for clients in a broad range of insurance coverage matters, commercial and business disputes, product liability claims, intellectual property disputes and general litigation matters.

Jason previously spent nine months as in-house legal counsel at a publicly traded, Fortune 150 corporation. Jason’s in-house experience gives him a unique business perspective on the issues his clients deal with both internally and externally.

Jason is recognized as one of Wisconsin’s Rising StarsSM. He is a member of the State Bar of Wisconsin, American Bar Association, Milwaukee Bar Association and Outagamie County Bar Association. Jason is also licensed to practice in Michigan.