LAW NOTES from the Law Offices of
Kay & Andersen, LLC
October, 2012
What Every Insurer Should Know . . . . . . . . . . . . . . .
ABOUT THE EVOLVING DUTY TO DEFEND WHEN MULTIPLE CLAIMS ARISE
Kay & Andersen, LLC
October, 2012
What Every Insurer Should Know . . . . . . . . . . . . . . .
ABOUT THE EVOLVING DUTY TO DEFEND WHEN MULTIPLE CLAIMS ARISE
Disclaimer: The information contained on this page is not legal advice. The information provided on this website is for general informational purposes and is not necessarily updated to account for changes in the law. You should consult with an attorney for legal advice regarding your individual circumstances.
Until recently, the Wisconsin courts had never ruled on the question of whether an insurance carrier has a continuing duty to defend after the only arguably covered claim in a lawsuit is settled and dismissed, leaving only non-covered claims. That question was recently answered in the negative in Society Insurance v. Bodart, 2012 WI App. 75, 819 N.W.2d 298 (June 7, 2012). In that case, a civil lawsuit alleging five unspecified claims against Bodart was filed in Michigan. Society filed a separate declaratory judgment action in Wisconsin relating to its duty to defend Bodart in the Michigan lawsuit. The Wisconsin circuit court determined that the underlying policy provided at least arguable coverage for one of the five claims and therefore Society had a duty to defend against the Michigan lawsuit. Society subsequently assumed the defense and eventually settled three of the five claims, including the only claim the circuit court had concluded was at least arguably covered. When Society informed Bodart of its intention to withdraw its defense as to the remaining two claims, Bodart filed a motion for contempt, which was denied by the circuit court. On appeal, the Court of Appeals noted the policy contained a provision stating that the insurer “will have no duty to defend the insured against any ‘suit’ to which this insurance does not apply.” This policy language does not create a duty to defend a “suit” when insurance coverage does not apply to the “suit.” Id, ¶11. A reasonable insured would understand this language to mean that once arguably covered claims are settled and dismissed and are no longer part of the lawsuit, the insurance no longer applies to that suit. Id, ¶12. While no Wisconsin case had previously decided the precise question of an insurer’s continuing duty to defend following settlement and dismissal of covered claims, the general rule consistently reflected in existing authority is that an insurer’s duty to defend ends after all arguably covered claims are settled and dismissed. Id, ¶13. While the underlying complaint will be construed liberally, and any doubts regarding a duty to defend are resolved in favor of the insured, all doubt has been resolved against the insurer’s duty to defend once all covered claims have been settled and dismissed. Id, ¶17. This holding is also consistent with the principle that insurance policies will not be construed to cover risks that the insurer did not contemplate and for which the insurer had not received a premium. Id, ¶20. In issuing this ruling, the Court of Appeals noted that there are exceptions to the general rule. For example, the rule may not apply when the insurer’s withdrawal from the action would prejudice the insured’s defense of the remaining, non-covered claims, or when the insurer has purported to settle claims out of a case but has done so in bad faith. Id, ¶22. In light of this decision, insurers providing coverage in Wisconsin may comfortably withdraw their defense of an insured following settlement and dismissal of any covered claims, provided the insured is not prejudiced as to its defense of the remaining claims and the insurer has acted in good faith.
Law Offices of Kay & Andersen, LLC is recognized for securing favorable verdicts and settlements for insurance companies and their insureds and has received an AV rating from Martindale-Hubbell. We are also proud to be listed in Best’s Directory of Recommended Insurance Attorneys and Adjusters. Feel free to contact us with any of your insurance defense needs.
Law Offices of Kay & Andersen, LLC is recognized for securing favorable verdicts and settlements for insurance companies and their insureds and has received an AV rating from Martindale-Hubbell. We are also proud to be listed in Best’s Directory of Recommended Insurance Attorneys and Adjusters. Feel free to contact us with any of your insurance defense needs.