The wording of the insurance policy is very important


General Liability Insurance (RGC) policies generally provide protection against claims for pecuniary damages (the “duty to indemnify”) and the cost of the services of legal counsel to provide defense to claims ( the “obligation to defend oneself”). The insurer has an obligation to defend a claim which is arguably covered by the policy and, as such, the obligation to defend is generally broader than the obligation to indemnify. In most cases it is clear that a claim is covered and the insurer will choose legal counsel to represent the insured in the defense of the claim or inform the insured that the claim is not covered by the policy. .

When an insurer believes that a claim is not covered but the question of coverage is not entirely clear, courts in Wisconsin have indicated that the correct course of action is for the insurer to assume the liability. defense and request a judicial declaration that the claim is not covered. The consequences of a wrongful denial of coverage and a breach of the insurer’s defense obligation are serious. The insurer is liable to the insured for damages caused by the breach and in egregious cases, may be liable for bad faith damages which may include punitive damages and attorney fees.

In Johnson Controls, Inc., v National Insurance Company of Omaha, Appeal No. 2014AP2050, issued April 25, 2018, the Wisconsin Court of Appeals, District I, was urged to apply these general principles to a supplemental insurance policy, and in doing so underscored the central importance of police language to determine when an excess carrier has a duty to defend when the underlying insurer (s) refuse to do so.

The case has a long history spanning nearly three decades. In the mid-1980s, Johnson Controls received what are commonly referred to as PRP letters indicating that it could be a potentially liable party under the Federal Comprehensive Environmental Liability and Indemnification Act (“CERCLA”) for remediation costs at sites where Johnson Controls delivered lead-acid batteries. Johnson Controls delivered the PRP letters to its main, umbrella and surplus CGL insurers, including Central National, requesting defense and indemnity coverage. All insurers concluded that their policies did not cover government claims under CERCLA and refused to provide defense or indemnity coverage. In 1989, Johnson Controls filed a complaint against all insurers.

While the original case was pending, the Wisconsin Supreme Court issued its Town of Edgerton decision in 1994, which ruled that environmental clean-up costs were not covered damage and that the government’s PRP letters were not the same as a “lawsuit” and did not trigger the duty to defend the insurer. The Johnson Controls the case was then dismissed, appealed, dismissed again, appealed again and ultimately led to the Wisconsin Supreme Court ruling in 2003 overturning Edgerton.

In 2005, Johnson Controls began to revive its claims against insurers, including Central National. Central National issued five CGL umbrella policies to Johnson Controls during the period 1954-1985. Each policy exceeded the main CGL policies issued by Wausau Insurance and the main umbrella policies issued by other insurers. It was not disputed that Central National’s excess insurance policies and the underlying policies provided the same scope of coverage for the environmental liabilities claimed in the case.

Johnson Controls claimed that Central National failed to defend itself in its policies by failing to step in and provide defense when Wausau Insurance and the major umbrella carriers failed to do so. Johnson Controls, which had already settled with the other insurers, sought to recover all of its costs from Central National based on its alleged breach of the duty to defend itself by arguing that when the other underlying insurers refused to providing a defense, the course for Central National was to step in and provide a defense while requesting a judicial declaration that it was under no obligation to defend. The trial court ruled in favor of Johnson Controls and Central National appealed.

On appeal, the Court of Appeal reversed, holding that the obligation to defend the language in the policies of Central National was decisive. The obligation to defend the language in the policies provided that Central National would provide a defense for “the events covered by this policy, but not covered under the underlying insurance, as set out in the attached appendix… ”(emphasis added)

As it was not disputed that the extent of coverage for environmental claims filed by Johnson Controls was the same in Wausau’s policies as in those of Central National, there was no scenario where Central National would have a duty to defend. If the claims were covered by Wausau’s policies, Central National had no obligation to defend itself because the wording of the policy required that the claim not be covered by the underlying insurance before Central National provided a defense. On the other hand, if the claim was not covered by the Wausau Police, it was also not covered by the National Central Police as they had similar coverage.

The court ruling underscores the central importance of policy wording in determining whether, and under what circumstances, umbrella and excess insurers have a duty to defend a claim against an insured. The refusal of the main CGL insurer to provide a defense does not necessarily mean that a company’s umbrella or excess carrier will step in and do so. Therefore, companies may be advised to review their umbrella and surplus policies to determine if there is a potential gap in defense coverage if their primary operator refuses to retain a lawyer to defend against a claim. claim.

© 2021 Davis | Kuelthau, sc All rights reservedRevue nationale de droit, volume VIII, number 129


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