PUBLISHED OPINION
Case No.: 95-2044
†Petition for
Review Filed
Complete Title
of Case:
DELTA GROUP, INC.,
a Wisconsin corporation,
Plaintiff-Appellant,
v.
DBI, INC.,
a Wisconsin corporation,
Defendant,†
MARYLAND CASUALTY
COMPANY,
a foreign insurance
corporation,
Defendant-Third
Party
Plaintiff-Respondent,
v.
V. OLSON CONTRACTORS,
INC.,
AAA INSURANCE COMPANY,
AMERICAN ASPHALT
PAVING, INC.,
BBB INSURANCE COMPANY,
CUSTOM EXCAVATORS,
INC. and
CCC INSURANCE COMPANY,
Third
Party Defendants.
Oral Argument: August 15, 1996
COURT COURT OF APPEALS OF WISCONSIN
Opinion Released: September 25. 1996
Opinion Filed: September
25, 1996
Source of APPEAL Appeal from orders
Full Name JUDGE COURT: Circuit
Lower Court. COUNTY: Waukesha
(If
"Special", JUDGE: ROGER P. MURPHY
so indicate)
JUDGES: Anderson, P.J., Brown and Nettesheim, JJ.
Concurred:
Dissented:
Appellant
ATTORNEYS On behalf of the plaintiff-appellant, the
cause was
submitted on the briefs and oral argument
of Ronald L. Wallenfang of Quarles & Brady of
Milwaukee.
Respondent
ATTORNEYSOn behalf of the Defendant-Third Party Plaintiff-
Respondent, the cause was submitted on the
briefs of
John T. Juettner and Kathleen A. Rinehart of Mentkowski
& Steeves, S.C. of Milwaukee.
There was
oral argument by Timothy F. Mentkowski
of Mentkowski & Stevens, S.C. of Milwaukee.
|
COURT OF
APPEALS DECISION DATED AND
RELEASED SEPTEMBER
25, 1996 |
NOTICE |
|
A party may file with the Supreme Court a petition to review an
adverse decision by the Court of Appeals.
See § 808.10 and Rule
809.62, Stats. |
This opinion is subject to further editing. If published, the official version will appear in the bound
volume of the Official Reports. |
No. 95-2044
STATE OF WISCONSIN IN
COURT OF APPEALS
DELTA
GROUP, INC.,
a
Wisconsin corporation,
Plaintiff-Appellant,
v.
DBI,
INC.,
a
Wisconsin corporation,
Defendant,
MARYLAND CASUALTY COMPANY,
a foreign insurance corporation,
Defendant-Third Party
Plaintiff-Respondent,
v.
V. OLSON CONTRACTORS, INC.,
AAA INSURANCE COMPANY,
AMERICAN ASPHALT PAVING, INC.,
BBB INSURANCE COMPANY,
CUSTOM EXCAVATORS, INC. and
CCC INSURANCE COMPANY,
Third Party Defendants.
APPEAL from orders of the circuit
court for Waukesha County: ROGER P.
MURPHY, Judge. Reversed and cause
remanded.
Before Anderson, P.J., Brown and
Nettesheim, JJ.
ANDERSON, P.J. Delta Group, Inc. (Delta), appeals
from orders dismissing its breach of contract claim against Maryland Casualty
Company (Maryland) for failure to prosecute.[1] On appeal, Delta argues that Maryland
breached its duty to defend its insured, DBI, Inc., and Maryland subsequently
lost its right to reopen and contest the damages award made by the
arbitrator. Since DBI assigned its rights
to Delta, Delta maintains it is now entitled to summary judgment against
Maryland for the amounts in the arbitration award.[2] We conclude that Maryland breached its duty
to defend and is therefore bound by the terms of the arbitration agreement.[3] Accordingly, we reverse and remand.[4]
In February 1990, Delta entered into
a contract with DBI for the design and construction of a new office and
smelting facility, including site work.
The construction was completed in 1990.
Within one year of the construction, substantial deterioration occurred
both on site and with the building. The
deterioration included corrosion of the building walls, the asphalt drives
failed to withstand anticipated wear and tear, and the location of driveways
and design of loading docks failed to allow adequate clearance for the loading
and unloading of tractors and trailers.
On August 6, 1991, before litigation
was commenced, DBI filed a general liability loss notice with Maryland. Maryland investigated the “claim under a
Reservation of Rights.” Maryland
concluded, and notified DBI by letter dated September 24, 1991, that the
damages qualified as work-product and were excluded under the policy. Maryland “disclaim[ed] coverage for this
claim.”
On January 15, 1992, Delta filed
suit against DBI alleging breach of contract and negligence. DBI denied the allegations and moved to stay
the proceedings until arbitration occurred in accordance with the terms of the
agreement. As per the contract, the
parties stipulated to stay the disposition of the case pending arbitration in
July 1992. It was agreed that Delta had
until September 1, 1992, to join any insurance company as a party to the
action.
On August 31, 1992, Delta filed an
amended complaint, joining Maryland as a party to the action. Maryland denied the allegations. Delta and DBI were then referred to arbitration
which was set for April 6, 1993, with a mediation date set for October 19,
1992. The trial court had also set a
scheduling conference for November 24, 1992.
Maryland received notice of these meetings, but only attended the
scheduling conference.
On November 15, 1992, DBI signed a
partial settlement agreement allowing the entry of a default arbitration award,
not to exceed $600,000, to be entered against it. Under the agreement, DBI agreed to pay $30,000 and Delta agreed
to execute the remainder of the award against the proceeds of DBI’s insurance
policy. DBI also assigned “any and all
claims, causes of action, and rights it may have against Maryland” to
Delta. The arbitration award
effectuating the settlement was signed on November 23, 1992.
On April 15, 1993, Delta moved for
summary judgment against Maryland in the amount of $600,000, plus twelve
percent interest, and costs and attorney’s fees. Maryland also moved for summary judgment against Delta declaring
the claimed damages were excluded under its policy and Maryland had no duty to
defend. The trial court concluded that
Maryland did not breach its duty to defend DBI as to Delta, but that Maryland
must defend DBI for other nonwork-product damages and for the faulty work
performed by the subcontractors.
Accordingly, the trial court denied both motions for summary judgment in
an order dated September 16, 1993.
On January 3, 1994, Maryland filed a
third-party complaint against the subcontractors involved in the construction
of the smelting facility. After
protracted discovery and numerous motions to compel, Delta moved for an
adjournment due to a grand jury investigation of Delta which involved several
potential witnesses and records necessary in this civil action in April
1995. In May 1995, both Maryland and
American Asphalt Paving, Inc., a third-party defendant, moved to dismiss for
Delta’s failure to prosecute. The trial
court concluded that Delta failed to show a nexus between the criminal matters
that might be pending and Delta’s civil claim and therefore granted the motion
to dismiss as to American Asphalt and as to Maryland. Delta appeals.
Delta’s principal contention is that
it is entitled to summary judgment because Maryland breached its duty to defend
DBI and is now liable for the amount due as a result of the default arbitration
award. We review a motion for summary
judgment using the same methodology as the trial court. M & I First Nat’l Bank v.
Episcopal Homes, 195 Wis.2d 495, 496, 536 N.W.2d 175, 182 (Ct. App.
1995); § 802.08(2), Stats. That methodology is well known, and we will
not repeat it here except to observe that summary judgment is appropriate when
there is no genuine issue of material fact and the moving party is entitled to
judgment as a matter of law. See
M & I First Nat'l Bank, 195 Wis.2d at 496-97, 536 N.W.2d at
182; see also § 802.08(2).
Prior to addressing the duty to
defend claim, we must first determine whether Delta has standing to seek
enforcement of the arbitration award against Maryland. The application of undisputed facts to a
legal standard is a question of law which we review independently. See Towne Realty, Inc. v.
Zurich Ins. Co., 201 Wis.2d 260, 267, 548 N.W.2d 64, 66 (1996).
DBI and Maryland had a policy for
commercial general liability insurance.
On November 18, 1992, DBI agreed to assign to Delta “any and all claims,
causes of action, and rights it may have against Maryland Casualty Co., arising
out of or related in any way to the Case.”
An assignee of a cause of action stands in the shoes of the assignor. Newhouse v. Citizens Sec. Mut. Ins.
Co., 170 Wis.2d 456, 464, 489 N.W.2d 639, 641 (Ct. App. 1992), rev'd
on other grounds, 176 Wis.2d 824, 501 N.W.2d 1 (1993). This principle has been applied in the
context of insurance coverage. See
id. at 464-66, 489 N.W.2d at 641-42. Accordingly, we conclude that Delta does have standing to enforce
the arbitration agreement against Maryland.
Now we turn to the alleged breach of
the duty to defend. Delta contends that
Maryland breached its duty to defend by failing to move to bifurcate the
coverage and liability issues, or otherwise protect DBI’s interest while
contesting coverage. Maryland counters
that DBI failed to tender a defense, and once suit was filed, Maryland informed
Delta that coverage was disputed and would be addressed before the trial court.
Determining if an insurance company
has a duty to defend is a question of law that we review de novo and without
deference to the trial court. Grube
v. Daun, 173 Wis.2d 30, 72, 496 N.W.2d 106, 122 (Ct. App. 1992). In Wisconsin, an insurer’s duty to defend is
predicated on the allegations in the complaint. See Elliott v. Donahue, 169 Wis.2d 310,
320-21, 485 N.W.2d 403, 407 (1992). The
duty of defense depends on the nature of the claim, not the merits, and any
doubts must be resolved in favor of the insured. Id. at 321, 485 N.W.2d at 407. If the insurance company refuses to defend,
it does so at its own peril. Id.
We conclude that Delta’s October 2,
1992, letter coupled with DBI’s 1991 notice of loss and Delta’s 1992 amended
complaint, which joined Maryland as a party, are controlling. In August 1991, DBI filed a general liability
loss of notice with Maryland. Maryland
investigated the claim. By September
1991, Maryland had denied the claim concluding that the claimed damages fell
under DBI’s work-product exclusion. On
August 31, 1992, Delta filed an amended complaint joining Maryland as a party
to the suit. Delta alleged that
Maryland’s insurance policy provided coverage for some or all of the damages
claimed against DBI entitling Delta to judgment in an amount determined in
arbitration, or based upon the provisions of the policy.[5]
The next correspondence of record
was Delta’s October 2, 1992, letter to Maryland. The pertinent portions of the letter read:
The issues between Delta Group, Inc. and
DBI, Inc. have been referred to arbitration ¼ [which] is set for April 6, 1993 ¼.
You should also be aware that there is a
conciliation conference with Judge Decker set for Monday, October 19, 1992, ¼ I would both invite
and encourage you to attend.
....
One
solution you may wish to consider is having the policy issues decided in the
same arbitration as the underlying issues.
I recognize that would require your consent, because Maryland Casualty
has not agreed to arbitrate. However,
if you don’t participate, and don’t offer DBI a defense, why wouldn’t you be
bound by whatever relevant factual findings are made by Judge Decker?
Then in an October 15, 1992,
correspondence, Delta informed Maryland that it would be seeking damages not
only for DBI’s work-product, but also for repair work, interference with
production and increased processing costs from iron mixing with the aluminum.
At this point, it is unclear whether
DBI required a defense. However, there
is no doubt that as of October 2, 1992, Maryland had notice that a suit had
been initiated and that DBI may have required a defense. A tender of defense occurs once an insurer
has been put on notice of a claim against the insured. Towne Realty, 201 Wis.2d at
267, 548 N.W.2d at 67. “[I]f it is
unclear or ambiguous whether the insured wishes the insurer to defend the suit,
it becomes the responsibility of the insurer to communicate with the insured
before the insurer unilaterally forgoes the defense.” Id. at 269, 548 N.W.2d at 67. An insurer cannot simply “assume” that the
insured does not need a defense; rather, “it has an affirmative duty to specifically
determine that a defense is not desired.”
Id. at 270, 548 N.W.2d at 68.
Despite its clear obligation to
resolve the coverage issues, Maryland took the position that “it is in the best
interest of all involved to continue with discovery focusing on the issues of
insurance coverage.” Under existing
law, this position is untenable. We
conclude that as of October 2, 1992, Maryland had an obligation to resolve the
coverage issue as soon as possible—at a minimum, it was required to attend the
conciliation meeting to protect its own interests.
We also reject Maryland’s position
that Towne Realty should not be applied retroactively in this
case. We first note the difference
between Towne Realty and this case: the foremost issue in Towne Realty was the
sufficiency of the tender of the defense, not the question of coverage. See id. at 266-67, 548
N.W.2d at 66. Moreover, we interpret Towne
Realty as simply restating and clarifying well-established law under Grieb
v. Citizens Casualty Co., 33 Wis.2d 552, 557-58, 148 N.W.2d 103, 106
(1967); Professional Office Bldgs. v. Royal Indem. Co., 145
Wis.2d 573, 580-81, 427 N.W.2d 427, 430 (Ct. App. 1988); Elliott,
169 Wis.2d at 320-21, 485 N.W.2d at 407; Grube, 173 Wis.2d at
72-76, 496 N.W.2d at 122-23; and Newhouse v. Citizens Sec.
Mut. Inc. Co., 176 Wis.2d 824, 836, 501 N.W.2d 1, 5-6 (1993). Under this line of cases, once notified of a suit, the insurer
has a duty to immediately seek a determination of the coverage issue. See Professional Office Bldgs.,
145 Wis.2d at 585, 427 N.W.2d at 431.
Where coverage is disputed, the insurer should “request a bifurcated
trial on the issues of coverage and liability and move to stay any proceedings
on liability until the issue of coverage is resolved.” Newhouse, 176 Wis.2d at 836, 501
N.W.2d at 6; see also Grube, 173 Wis.2d at 75-76, 496
N.W.2d at 123-24. If the insurer
follows this procedure, then it does not run the risk of breaching its duty to
defend. Newhouse, 176
Wis.2d at 836, 501 N.W.2d at 6.
Maryland also argues, based upon
Delta’s October 6, 1992, correspondence to Judge Murphy, that there was a tacit
understanding that the “interplay between the arbitration and the coverage
issues” would be discussed at the November 24, 1992, conference with the judge.
However, Maryland did not raise
this argument before the trial court, nor in the briefs on appeal. So this contention, advanced during oral
arguments before this court, is held to have been waived and we decline to
consider it. Sturgis v. Margetts,
47 Wis.2d 733, 735, 177 N.W.2d 609, 609-10 (1970).
Even if the parties had a “tacit
understanding” to address the coverage issues at a later date, Grube
makes it crystal clear that Maryland could not rely on an understanding instead
of raising the issue in court. See
Grube, 173 Wis.2d at 75, 496 N.W.2d at 123. Maryland was required to solemnize this
understanding not only with Delta, but with its insured as well. Otherwise, it would run the risk of
breaching its duty to defend and could be held liable to its insured for all
damages that naturally flow from the breach.
Newhouse, 176 Wis.2d at 837, 501 N.W.2d at 6.
As a final matter, we conclude that
as of October 2, 1992, Maryland had more than sufficient notice that a suit had
been initiated and that it was obligated to clarify DBI’s position on a
defense. Maryland denied coverage based
upon the belief that the claims contained in the complaint were not covered by
the insurance policy. Refusing to
defend is a breach of the insurer’s obligation under the contract. As a result, the insured is not bound to his
or her contractual duty to allow the insurer to control the defense. Grube, 173 Wis.2d at 76, 496
N.W.2d at 124. Therefore, we conclude
that Maryland is bound by DBI’s agreement to entry of the default arbitration
award in the amount of $600,000 and DBI’s assignment of its rights to Delta to
collect this amount.
Accordingly, we reverse the trial
court’s order granting Maryland’s motion to dismiss for failure to
prosecute. We further reverse the trial
court’s order denying Delta’s summary judgment motion for damages and we
remand.
By the Court.—Orders reversed and cause remanded.
[1] Delta’s notice
of appeal only contests the order for dismissal entered on June 21, 1995. However, earlier in the litigation, Delta
and Maryland filed summary judgment motions; both were denied by order of the
trial court dated September 16, 1993.
Delta appeals from this order as well.
[2] Delta entered
into a partial settlement agreement dated November 18, 1992, with DBI,
Maryland's insured. DBI performed its
obligation pursuant to the settlement agreement and paid the $30,000 required
to secure the release. Accordingly, we
entered an order on October 11, 1995, removing DBI as a respondent on appeal.
[4] Because of our
resolution of the summary judgment motion, the remaining issues—whether Delta
failed to prosecute under § 805.03, Stats.,
and whether Delta was entitled to an adjournment due to a grand jury
investigation involving Delta’s employees and records—are rendered moot and we
need not address them. See Skrupky
v. Elbert, 189 Wis.2d 31, 47, 526 N.W.2d 264, 270 (Ct. App. 1994) (if a
decision on another point disposes of the appeal, the appellate court will not
decide other issues raised).
[5] Maryland’s
policy provided that the insurer had the right and duty to defend any “suit”
seeking damages. “Suit” is defined in
the policy as a civil proceeding in which damages, caused by property damage,
were alleged and also included “an arbitration proceeding in which such damages
are claimed ¼.”