Title: Johnson Controls, Inc. v. London Market

State: wisconsin

Issuer: Wisconsin Supreme Court

Document:

2010 WI 52 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2007AP1868 
COMPLETE TITLE: 
 
 
Johnson Controls, Inc., 
          Plaintiff-Respondent, 
     v. 
London Market, 
          Defendant-Appellant, 
AIU Insurance Company, American Home Assurance 
Company, Granite State Insurance Company, 
Landmark Insurance Company and National Union 
Fire Insurance Company of Pittsburgh, PA, 
          Defendants-Intervenors, 
Allstate Insurance Company, Allianz Underwriters 
Insurance Company, Affiliated FM Insurance 
Company, American Employers' Insurance Company, 
American Motorists Insurance Company, Associated 
International Insurance Company, Central 
National Insurance Company of Omaha, Employers 
Mutual Casualty Company, Employers Reinsurance 
Corporation, Federal Insurance Company, 
Highlands Insurance Company, Industrial 
Indemnity Company, International Surplus Lines 
Insurance Company, International Insurance 
Company, Westport Insurance Corporation, 
Stonewall Insurance Company, TIG Insurance 
Company, Transamerica Premier Insurance Company, 
United National Insurance Company and 
Westchester Fire Insurance Company, 
          Defendants. 
 
 
 
 
ON CERTIFICATION FROM THE COURT OF APPEALS 
 
 
OPINION FILED: 
June 24, 2010   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
February 23, 2010   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Milwaukee   
 
JUDGE: 
Patricia D. McMahon   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
ZIEGLER, J., dissents (opinion filed). 
ROGGENSACK and GABLEMAN, JJ., join the dissent.   
 
NOT PARTICIPATING:         
 
 
 
 
 
2 
ATTORNEYS: 
 
For 
the 
defendant-appellant 
there 
were 
briefs 
by 
Christopher J. Johnson and Beck, Chaet, Bamberger & Polsky, 
S.C., Milwaukee; Patrick T. Walsh and Hinkhouse Williams Walsh 
LLP, Chicago, Ill.; and Susan R. Tyndall and CMT Legal Group, 
LTD., Waukesha, and oral argument by Susan R. Tyndall. 
 
For the plaintiff-respondent there were briefs by William 
M. Cannon, Mark L. Thomsen, Allan M. Foeckler, Brett A. 
Eckstein, and Cannon & Dunphy, S.C., Brookfield, and oral 
argument by Mark L. Thomsen. 
 
For the defendants-intervenors there was a brief by Anne 
Berleman Kearney and Appellate Consulting Group, Milwaukee, and 
Margaret J. Orbon, Ilene M. Korey, and Clausen Miller P.C., 
Chicago, Ill., and oral argument by Anne Berleman Kearney. 
 
An amicus curiae brief was filed by Lynn R. Laufenberg and 
the Laufenberg Law Group, S.C., Milwaukee, on behalf of the 
Wisconsin Association for Justice. 
 
An amicus curiae brief was filed by Erin O’Connor and 
O’Connor Law Offices, LLC, Fox Point, on behalf of the 
Metropolitan Milwaukee Association of Commerce. 
 
An amicus curiae brief was filed by Thomas R. Schrimpf and 
Hinshaw & Culbertson LLP, Milwaukee, and Laura A. Foggan and 
Wiley Rein LLP, Washington, D.C., on behalf of Complex Insurance 
Claims Litigation Association, American Insurance Association, 
and Wisconsin Insurance Alliance. 
 
 
 
 
 
2010 WI 52
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  2007AP1868  
(L.C. No. 
1989CV16174) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Johnson Controls, Inc., 
 
          Plaintiff-Respondent, 
 
     v. 
 
London Market, 
 
          Defendant-Appellant, 
 
AIU Insurance Company, American Home Assurance 
Company, Granite State Insurance Company, 
Landmark Insurance Company and National Union 
Fire Insurance Company of Pittsburgh, PA, 
 
          Defendants-Intervenors, 
 
Allstate Insurance Company, Allianz 
Underwriters Insurance Company, Affiliated FM 
Insurance Company, American Employers' 
Insurance Company, American Motorists Insurance  
Company, Associated International Insurance 
Company, Central National Insurance Company of 
Omaha, Employers Mutual Casualty Company, 
Employers Reinsurance Corporation, Federal 
Insurance Company, Highlands Insurance Company, 
Industrial Indemnity Company, International 
Surplus Lines Insurance Company, International 
Insurance Company, Westport Insurance 
Corporation, Stonewall Insurance Company, TIG 
Insurance Company, Transamerica Premier 
Insurance Company, United National Insurance 
Company and Westchester Fire Insurance Company, 
 
          Defendants. 
 
FILED 
 
JUN 24, 2010 
 
David R. Schanker 
Clerk of Supreme Court 
 
 
 
 
2 
 
 
 
APPEAL from an order of the circuit court for Milwaukee 
County, Patricia D. McMahon, Judge.  Affirmed and cause 
remanded.   
 
¶1 
ANN WALSH BRADLEY, J.  This case is before the court 
on certification from the court of appeals1 pursuant to Wis. 
Stat. § (Rule) 809.61 (2007-08).2  We are asked to determine 
whether London Market had a duty to defend Johnson Controls.  If 
it did, we then must determine when, if at all, that duty was 
triggered.     
¶2 
London Market contends that it had no duty to defend 
Johnson Controls because its insurance policy is an indemnity-
only excess umbrella policy that does not promise a defense.  
Further, it asserts that the duty to defend set forth in the 
underlying Travelers insurance policies is not incorporated into 
the London Market excess policy.   
¶3 
In the alternative, London Market asserts that even if 
it had a duty to defend under the policy, that duty was never 
triggered because it is conditioned upon exhaustion of the 
                                                 
1 London Market filed for partial summary judgment.  The 
circuit court for Milwaukee County, Patricia D. McMahon, Judge, 
denied London Market's motion.  The court of appeals granted 
leave to appeal and ultimately certified the case to this court.  
2 All subsequent references to the Wisconsin Statutes are to 
the 2007-08 version unless otherwise indicated. 
No. 
2007AP1868   
 
3 
 
underlying insurer's policy limits, and those limits were never 
exhausted.  Further, London Market contends that Wisconsin law 
did not require it to drop down and defend Johnson Controls when 
the underlying insurer refused to defend. 
¶4 
Based on the language of the policies, we conclude 
that London Market had a duty to defend.  Although its excess 
umbrella policy does not have a duty to defend provision, it 
does contain a follow form provision that incorporates the duty 
to defend found in the underlying Travelers policies.   
¶5 
We further determine that its duty to defend was not 
conditioned 
upon 
exhaustion 
of 
the 
underlying 
Travelers 
policies.  Rather, under the terms of the "other insurance" 
provision, London Market's duty to defend was triggered when the 
underlying 
insurer 
"denie[d] 
primary 
liability 
under 
its 
policy."  Accordingly, we affirm the circuit court and remand 
for further proceedings.       
I 
¶6 
Johnson Controls is a manufacturing company based in 
Milwaukee, Wisconsin.  During the 1970s, it contracted with 
various insurers for a layered program of primary, umbrella, and 
umbrella excess commercial general liability (CGL) policies.  
This appeal specifically involves the umbrella excess policy 
issued to Johnson Controls by London Market, effective from 
December 31, 1973, to December 31, 1976 (the 1973-1976 London 
Market policy).  The London Market excess umbrella policy sat 
atop three successive policies issued by Travelers Indemnity 
Company (Travelers).   
No. 
2007AP1868   
 
4 
 
¶7 
Before delving into the specific issues presented, it 
is helpful to provide some historical background about this 
case, which has been ongoing for over 21 years.  In the mid-
1980s, Johnson Controls started to receive notification that it 
had been identified as a potentially responsible party (PRP) in 
connection with environmental contamination at various sites 
across the country.3  As a PRP, Johnson Controls could be 
required to contribute to the environmental restoration and 
remediation costs at these sites.       
¶8 
Johnson 
Controls 
asserts 
that 
it 
notified 
its 
insurers, seeking defense and indemnification.4  The insurers 
refused to provide defense or indemnification, justifying their 
refusal on the ground that their CGL policies did not cover 
environmental restoration and remediation costs imposed under 
the Comprehensive Environmental Response, Compensation, and 
Liability Act (CERCLA).5    
¶9 
In 1989, Johnson Controls filed suit against its 
various primary, umbrella, and excess insurers.  It sought a 
declaratory judgment that its insurers were obligated to provide 
                                                 
3 Some of the sites were lead smelting plants where Johnson 
Controls delivered lead acid batteries for recycling.  Others 
were contaminated landfills.  Johnson Controls v. Employers Ins. 
Wausau (Johnson Controls III), 2003 WI 108, ¶7, 264 Wis. 2d 60, 
665 N.W.2d 257. 
4 Id., ¶10.  Whether and when notification was tendered to 
each of its insurers are fact questions that have not been 
resolved by the circuit court.   
5 Id. 
No. 
2007AP1868   
 
5 
 
defense and indemnification under the terms of the insurance 
policies.  London Market, like many of the other insurers, 
answered and filed a motion for partial summary judgment.   
¶10 Before the circuit court made a determination on the 
insurers' obligations, this court decided City of Edgerton v. 
General 
Casualty 
Co. 
of 
Wisconsin, 
184 
Wis. 2d 750, 
517 
N.W.2d 463 (1994).  In that case, this court determined that 
environmental response costs under CERCLA constitute "equitable 
relief" rather than legal damages and that a CGL insurer has no 
duty to indemnify the insured for these expenses.  Id. at 782, 
784.  Further, this court determined that the receipt of a PRP 
letter or comparable letter from a state agency did not 
constitute a "suit," and therefore a CGL insurer's duty to 
defend was not triggered by the receipt of a PRP letter.  Id. at 
771.    
¶11 The circuit court applied the holding of Edgerton and 
granted summary judgment in favor of the insurers.  It 
determined that there was no duty to defend or indemnify Johnson 
Controls under any of the CGL policies.  The court of appeals 
affirmed in an unpublished decision, noting that "as long as 
City of Edgerton remains the law in this state" Johnson Controls 
could not prevail. Johnson Controls v. Employers Ins. of Wausau 
(Johnson Controls I), Nos. 95-179, 95-2591, unpublished slip op. 
at 4 (Wis. Ct. App., Oct. 13, 1998).   
¶12 The court of appeals remanded to the circuit court for 
factual determinations of whether all the sites fit within the 
rule outlined above.  On remand, the circuit court determined 
No. 
2007AP1868   
 
6 
 
that there was no coverage under any of the policies for any of 
the contaminated sites.      
¶13 Johnson Controls again appealed.  In 2002, the court 
of appeals determined that none of the circuit court's findings 
of fact was erroneous.  It concluded: "Although Johnson Controls 
argues that Edgerton was decided wrongly, we are obligated to 
follow its dictates."  Johnson Controls v. Employers Ins. of 
Wausau (Johnson Controls II), 2002 WI App 30, ¶5, 250 
Wis. 2d 319, 640 N.W.2d 205 (Ct. App. 2001).     
¶14 In 2003, this court reviewed the Johnson Controls II 
decision and reversed.  Overruling Edgerton, the court concluded 
that an insured's costs for "restoring and remediating damaged 
property, whether the costs are based on remediation efforts by 
a third party (including the government) or are incurred 
directly by the insured, are covered damages under applicable 
CGL policies, provided that other policy exclusions do not 
apply."  Johnson Controls v. Employers Ins. Wausau (Johnson 
Controls 
III), 
2003 
WI 
108, 
¶¶4-5, 
264 
Wis. 2d 60, 
665 
N.W.2d 257. 
¶15 It also concluded that Edgerton's discussion of the 
insurer's duty to defend in the context of CERCLA letters was 
"unworkable."  Id., ¶4.  The court determined that PRP letters 
constitute "the functional equivalent of a suit" because a PRP 
letter "marks the beginning of adversarial administrative legal 
proceedings that seek to impose liability upon an insured."  
Id., ¶¶5, 120.  Therefore, the receipt of such a letter triggers 
the insurer's duty to defend.  Id., ¶120.   
No. 
2007AP1868   
 
7 
 
¶16 Finally, the court stated that "[a]lthough this court 
would like to end this action after more than 13 years of 
litigation, we must remand the cause for further proceedings[.]"  
Id., ¶123.  The circuit court was instructed to determine 
whether other exclusions in the policies might apply and to 
determine the liability of the various insurers.  Id.  
¶17 Johnson Controls asserts that on remand, its case 
management strategy was to first seek judgments against those 
defendant insurers that had a duty to defend in addition to a 
duty to indemnify.  In 2005, Johnson Controls filed a motion for 
declaratory judgment against Employers Insurance of Wausau, one 
of its primary insurers, asserting that it had breached its duty 
to defend and seeking reimbursement for remediation and defense 
costs in excess of $150 million.  Johnson Controls settled its 
claims with Employers.  Then, it filed a similar motion against 
another of its insurers.  In the interim, Johnson Controls 
entered settlement agreement with several insurers, including 
Travelers, the insurer underlying the 1973-1976 London Market 
policy.   
¶18 At some point, it became apparent that Johnson 
Controls planned to file a similar motion for declaratory 
judgment against London Market.  In January 2007, London Market 
moved for partial summary judgment.  It contended that its 
policy was an indemnity-only excess umbrella insurance policy 
that contained no promise of defense.    
¶19 In its motion in support of partial summary judgment, 
London Market stated: "In order to resolve this issue so that 
No. 
2007AP1868   
 
8 
 
the parties can address the real coverage questions——whether the 
London policy indemnifies [Johnson Controls] for any of the [] 
pollution sites——London Market Insurers move this Court for a 
ruling, as a matter of law, that London Market Insurers' excess 
umbrella liability policy does not contain a duty to defend."  
In the alternative, London Market sought a declaration that "if 
the Court believes the London policy does have a duty to defend, 
the duty would not ripen unless and until the underlying 
policies have been exhausted."  
¶20 The circuit court concluded that London Market's 
follow form provision incorporated the duty to defend found in 
the Travelers policies.  Further, it concluded that "[n]othing 
in the policy suggests [London Market's] duty to defend is 
conditioned on exhaustion of the [underlying Travelers] policy."  
"[G]iven the failure of Travelers to provide a defense, [London 
Market] at a minimum has an obligation to drop down and provide 
a defense.  To hold otherwise would encourage insurers to breach 
their independent duties to defend whenever an underlying 
insurer refuses to defend and leave insureds without a defense 
for which they paid.  I think that is contrary to public policy 
expressed in appellate decisions in the state."  
¶21 The court of appeals certified two questions to this 
court: 
First, should a duty to defend be imported from an 
underlying umbrella insurance policy into an excess 
umbrella liability policy by language in the excess 
policy stating that it is subject to the same terms, 
definitions, 
exclusions 
and 
conditions 
as 
the 
No. 
2007AP1868   
 
9 
 
underlying 
policy 
"except 
as 
otherwise 
provided"? . . .  
Second, is the excess liability carrier's duty to 
defend primary in nature, such that it may be 
triggered even if the excess policy expressly requires 
exhaustion of the underlying policy as a precondition 
to liability and the underlying policy has not been 
exhausted? 
The court of appeals explained that both issues were matters of 
first impression in Wisconsin and both would have broad 
implications for the business community and the insurance 
industry.   
¶22 After we granted certification, five excess insurers 
involved in the litigation at the circuit court filed a motion 
to intervene under Wis. Stat. § 809.13, stating that the issues 
before the court could affect not only London Market but their 
excess policies as well.  We granted the defendant insurers' 
motion to intervene.  However, we clarified that the order 
granting this motion "did not alter or expand the issues to be 
decided by this court, which relate to the circuit court's 
summary 
judgment 
regarding 
plaintiff-respondent, 
Johnson 
Controls, Inc., and defendant-appellant, London Market[.]"6  
 
II 
¶23 This case requires us to determine whether the circuit 
court erred in denying London Market's motion for partial 
summary judgment.  We review the circuit court's denial of a 
motion for partial summary judgment independently, but using the 
                                                 
6 We 
do 
not 
determine 
here 
whether 
the 
defendants-
intervenors' policies contain duties to defend, and if so, when 
(if at all) those duties were triggered.   
No. 
2007AP1868   
 
10 
 
same methodology as employed by the circuit court.  Radke v. 
Fireman's Fund Ins. Co., 217 Wis. 2d 39, 42-43, 577 N.W.2d 366 
(Ct. App. 1998).  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.  Id.; see also Wis. 
Stat. § 802.08(2).     
¶24 Here, the parties dispute whether London Market had a 
duty to defend Johnson Controls under the terms of an insurance 
policy.  If it did, the parties contest when, if at all, that 
duty was triggered.  The construction of an insurance policy 
presents a question of law, reviewed independently of the 
determination rendered by the circuit court.  Plastics Eng'g Co. 
v. Liberty Mut. Ins. Co., 2009 WI 13, ¶27, 315 Wis. 2d 556, 759 
N.W.2d 613.     
¶25 An insurance policy is a contract for insurance.  
Policy language is construed as it would be understood by a 
reasonable person in the position of the insured.  Frost v. 
Whitbeck, 2002 WI 129, ¶20, 257 Wis. 2d 80, 654 N.W.2d 225; 
Kremers-Urban Co. v. Am. Employers Ins. Co., 119 Wis. 2d 722, 
735, 351 N.W.2d 156 (1984).  Provisions in an insurance policy 
should not be read in isolation, but rather should be read in 
the context of the policy as a whole.  Badger Mut. Ins. Co. v. 
Schmitz, 2002 WI 98, ¶61, 255 Wis. 2d 61, 647 N.W.2d 223.  It is 
sometimes necessary to look beyond a single clause or sentence 
to capture the essence of an insurance agreement.  Folkman v. 
Quamme, 2003 WI 116, ¶21, 264 Wis. 2d 617, 665 N.W.2d 857.   
No. 
2007AP1868   
 
11 
 
¶26 When the policy's language is unambiguous, we enforce 
the contract as written, without resorting to the rules of 
construction or principles from case law.  Plastics Eng'g Co., 
315 Wis. 2d 556, ¶27.  However, if the policy language is 
susceptible to more than one reasonable interpretation, it is 
ambiguous.  Id.  "[B]ecause the insurer is in a position to 
write its insurance contracts with the exact language it 
chooses——so long as the language conforms to statutory and 
administrative law——ambiguity in that language is construed in 
favor of an insured seeking coverage."  Froedtert Mem'l Lutheran 
Hosp. v. Nat'l States Ins., 2009 WI 33, ¶43, 317 Wis. 2d 54, 765 
N.W.2d 251.   
III. Duty to Defend 
¶27 We determine first whether London Market's policy 
contains a duty to defend.  London Market asserts that its 
umbrella excess policy was an indemnity-only policy that did not 
promise a defense.   
¶28 Contracts for insurance typically impose two main 
duties——the duty to indemnify the insured against damages or 
losses, and the duty to defend against claims for damages.  The 
duty 
to 
indemnify 
and the duty to defend are separate 
contractual obligations.  Radke, 217 Wis. 2d at 44.  A policy 
may provide one without providing the other.   
¶29 When a contract imposes a duty to defend, however, 
that duty is broader than the duty to indemnify.  Id.  The duty 
to defend arises when there is arguable, as opposed to actual, 
coverage under the policy.  Id.  It is the nature of the claim 
No. 
2007AP1868   
 
12 
 
alleged against the insured which triggers the duty to defend——
even though the suit may be groundless, false, or fraudulent.  
Sustache v. Am. Family Mut. Ins. Co., 2007 WI App 144, ¶10, 303 
Wis. 2d 714, 735 N.W.2d 186.  
¶30 In support of its assertion that its policy does not 
provide a duty to defend, London Market advances that it is 
contrary to the role of an excess insurer and the purpose of 
excess insurance to provide a duty to defend.  Such reliance on 
generalized statements about the role and purpose of excess 
coverage misses the mark. 
¶31 Instead, "[t]he duty to defend an insured is based on 
the language in the insurance contract."  Southeast Wis. Prof'l 
Baseball Park Dist. v. Mitsubishi Heavy Indust. Am. Inc., 2007 
WI App 185, ¶41, 304 Wis. 2d 637, 738 N.W.2d 87; see also Novak 
v. Am. Family Mut. Ins. Co., 183 Wis. 2d 133, 137, 515 
N.W.2d 504 (Ct. App. 1994).  In practice, most primary policies 
do contain a contractual duty to defend, and some umbrella and 
excess policies do as well.  To determine whether an insurer has 
a duty to defend, we examine the language of the policy. 
¶32 London Market asserts that it promised indemnification 
only, and that it did not promise to defend.  It points to its 
insuring agreement, which states that London Market agrees, 
"subject to the limitations, terms and conditions hereinafter 
mentioned, to indemnify the Assured for all sums which the 
Assured shall be obligated to pay by reason of" certain 
liabilities:   
No. 
2007AP1868   
 
13 
 
Underwriters hereby agree, subject to the limitations, 
terms 
and 
conditions 
hereinafter 
mentioned, 
to 
indemnify the Assured for all sums which the Assured 
shall 
be 
obligated 
to 
pay 
by 
reason 
of 
the 
liability . . . for . . . Property 
Damage 
. 
. 
. 
arising out of the hazards covered by and as defined 
in the underlying [Travelers policies].  
London Market's insuring agreement promises indemnification but 
is silent regarding defense.       
¶33 London Market is correct that the language of the 
insuring 
agreement——read in isolation——does not impose an 
obligation to defend.  However, this insuring agreement does not 
exist in isolation. 
A. Follow Form Policy   
¶34 Rather, the excess umbrella policy issued by London 
Market is a "follow form" policy, meaning that the policy is 
relatively brief and incorporates many of the provisions of an 
underlying policy——in this case, the excess umbrella policies 
issued by Travelers.7  One of the conditions "hereinafter 
mentioned" in the London Market policy is the follow form 
provision: 
This Policy is subject to the same terms, definitions, 
exclusions and conditions (except as regards the 
premium, the amount and Limits of Liability and except 
as otherwise provided herein) as are contained in or 
                                                 
7 "An excess policy may be written in two forms: as a stand-
alone policy or as a policy that 'follows form.' . . . A stand-
alone excess policy is an independent insuring agreement.  In 
contrast, a follows form excess policy incorporates by reference 
the terms of the underlying policy and is designed to match the 
coverage provided by the underlying policy."  23 Eric Mills 
Holmes, Holmes' Appleman on Insurance 2d § 145.1 (interim vol. 
2003); see also 2 Arnold P. Anderson, Wisconsin Insurance Law 
§ 11.16 (5th ed. 2004). 
No. 
2007AP1868   
 
14 
 
as may be added to the Underlying [Travelers policies] 
prior to the happening of an occurrence for which 
claim is made hereunder.    
Thus, to determine the terms, definitions, exclusions, and 
conditions of the London Market policy, it is necessary to turn 
to the Travelers policies.8   
¶35 Among 
other 
provisions, 
the 
underlying 
Travelers 
policies contain a duty to defend as well as a duty to 
indemnify: 
Liability.  The company will pay on behalf of the 
insured all sums which the insured shall become 
legally obligated to pay as damages . . . , and the 
company shall have the right and duty to defend any 
suit against the insured seeking damages on account of 
such injury or damage . . . , but the company shall 
not be obligated to pay any claim or judgment or to 
defend any suit filed after the applicable limit of 
the company's liability has been exhausted by payments 
of judgments or settlements.  
(Emphasis added.) 
¶36 To determine whether Travelers' duty to defend is 
incorporated into London Market's policy, we must examine the 
language of London Market's follow form provision.  It states 
that the policy "is subject to the same terms, definitions, 
exclusions and conditions (except as regards the premium, the 
                                                 
8 The dissent is critical of our reliance on terms in the 
Travelers policies.  Dissent, ¶¶91, 94, 96.  This criticism 
ignores the fact that the London Market policy specifically 
directs the insured and the court to refer to the Travelers 
policies when determining the "terms, definitions, exclusions 
and conditions" of coverage.  Due to the nature of the follow 
form provision, the scope of London Market's contractual 
obligations cannot be understood without reference to the 
Travelers policies.    
No. 
2007AP1868   
 
15 
 
amount and Limits of Liability and except as otherwise provided 
herein) as are contained in" the underlying Travelers policies.   
¶37 London 
Market's 
follow 
form 
provision 
does 
not 
expressly disclaim the duty to defend found in the Travelers 
policies.  Rather, it explicitly sets forth three ways in which 
the London Market policy differs from the underlying Travelers 
policies: (1) the premium; (2) the amount and Limits of 
Liability; and (3) "except as otherwise provided herein."   
¶38 No argument is made about the first two areas of 
difference.  The parties focus on the third area of difference, 
"except as otherwise provided herein." 
B. "Except as Otherwise Provided Herein" 
¶39 London Market asserts that its policy does "otherwise 
provide" that there is no duty to defend.  It contends that by 
omitting a promise to defend from the insuring agreement, it 
"otherwise provided" that there would be no duty to defend.   
¶40 This argument is circular.  As discussed above, the 
insuring agreement that London Market relies upon refers the 
insured to the follow form provision and to the terms of the 
underlying 
Travelers 
policies. 
 
Although 
London 
Market's 
insuring agreement does not promise a defense, the follow form 
provision incorporates the terms, definitions, exclusions, and 
conditions of the Travelers policies.  One of those terms is 
Travelers' duty to defend, a duty that the London Market policy 
does not disclaim.     
¶41 The phrase "except as otherwise provided herein" 
suggests that to "otherwise provide," there must be a provision.  
No. 
2007AP1868   
 
16 
 
London Market can point to nothing except the void in its own 
agreement——an agreement which by its own terms is incomplete and 
incorporates those provisions in the Travelers policies that are 
not excepted.  Due to the nature of the follow form provision, 
London Market cannot rely on the absence of a provision as 
"otherwise providing" that there would be no duty to defend.   
¶42 Given that Travelers imposes a duty to defend and 
London Market's silence regarding that duty, a reasonable person 
in the position of the insured would interpret London Market's 
policy as incorporating the duty to defend found in the 
Travelers policies.  Although it is not certain whether London 
Market intended to provide a duty to defend when it drafted the 
policy, we do not construe insurance policies based on what we 
believe the intentions of the insurer may have been.  Frost, 257 
Wis. 2d 80, ¶20.  Accordingly, we refuse to rewrite insurance 
contracts by filling in gaps left in the draftsmanship.9  Rather, 
we look to the policy language itself, as it would be understood 
by a reasonable insured.   
¶43 Even if we were to determine that it was unclear 
whether the follow form's duty to defend was incorporated into 
                                                 
9 An insurance company that uses a follow form policy must 
be cautious because it may inadvertently bind itself to 
unintended obligations.  We have previously stated, "too often 
the insurance companies come to the courts asking that the 
courts supply the lacunae in their contract.  Certainly, when 
the dispute concerns legal rights and obligations as between 
insurance companies, it is not too much to ask that they make 
specific provisions, either in their contracts or by treaties of 
understanding between themselves."  Loy v. Bunderson, 107 
Wis. 2d 400, 431, 320 N.W.2d 175 (1982). 
No. 
2007AP1868   
 
17 
 
the 
London 
Market 
policy, 
given 
London 
Market's 
silence 
regarding defense, we would conclude that the policy language 
should be construed to incorporate the duty to defend.  It is 
axiomatic that policy language which is unclear and susceptible 
to more than one reasonable interpretation is ambiguous and is 
construed in favor of coverage.  Plastics Eng'g Co., 315 
Wis. 2d 556, ¶27.  In interpreting the policy language, we 
conclude that London Market had a duty to defend.     
¶44 Our interpretation is supported by case law.  In 
another case addressing an excess insurer's contractual duty to 
defend, the Second Circuit Court of Appeals examined an excess 
policy containing a follow form provision.  See Home Ins. Co. v. 
Am. Home Prods. Corp., 902 F.2d 1111 (2d Cir. 1990).  Similar to 
London Market's policy, the policy in Home stated that it was 
"subject to the same warranties, terms and conditions [as the 
underlying policy] (except as otherwise provided herein)[.]"  
¶45 In that case, the underlying policy covered payments 
for defense costs.  However, Home's policy expressly excluded 
"all expenses and Costs" and further defined costs to include 
"legal expenses."  Id. at 1113.  Given Home's express exclusion 
of defense costs, the Second Circuit stated that the underlying 
policy 
"conflict[ed] 
with 
the 
subject 
Home 
policy 
No. 
2007AP1868   
 
18 
 
which . . . excludes from payment those expenses and costs" 
covered by the underlying policy.10  Id. at 1114. 
¶46 Here, unlike in Home, there is no conflict between the 
Travelers policies and the London Market policy with respect to 
the duty to defend.  As discussed above, the Travelers policies 
provide a duty to defend, and there is nothing in the London 
Market policy that "otherwise provides" that there will be no 
defense.   
IV. Parties' Arguments Extrinsic to the Policy Language 
¶47 Having examined the language of the relevant policies 
and determined that London Market has a contractual duty to 
defend, we turn to address two additional arguments advanced by 
the parties in support of their respective positions regarding 
whether London Market's policy incorporates Travelers' duty to 
defend.  Both arguments rely on evidence that is extrinsic to 
the language of the policy.  We address each argument in turn. 
A. Subsequent Policies Expressly Exclude Any Duty to Defend 
¶48 Johnson Controls asserts that evidence that London 
Market's 1973-1976 policy contains a duty to defend is found by 
the fact that four subsequent and otherwise identical policies 
issued by London Market expressly excluded any duty to defend.  
                                                 
10 See also American Motorists Ins. Co. v. Trane Co., 544 F. 
Supp. 669, 698-99 (W.D. Wis. 1982) (holding that under Wisconsin 
law, a follow form provision in St. Paul Fire and Marine 
Insurance Company's policy did not incorporate the primary's 
duty to defend because the very next provision stated that St. 
Paul "at its own option, may, but is not required to, 
participate in the . . . defense of any claim"). 
No. 
2007AP1868   
 
19 
 
One policy stated that London Market "shall have the right but 
not the duty to assume . . . the defense of any suit[.]"  
Another policy provided that London Market "shall not be called 
upon to assume charge of the settlement or defense of any 
claim[.]"   
¶49 We do not find Johnson Controls' reliance on the 
subsequent policies to be helpful for two reasons.  First, we do 
not believe that London Market's subsequent modification of its 
standard insuring agreement sheds light on the language of the 
1973-1976 agreement.  The question is what the language of the 
1973-1976 contract does provide, not what the language could 
provide or what is provided for in a contract executed by the 
parties years later.  
¶50 Second, even if subsequent policies were relevant in 
determining what the language of the 1973-1976 policy provides, 
it is unclear what conclusion we would reach.  We could 
conclude, as Johnson Controls suggests, that the express 
disclaimer demonstrates that London Market knew how to disclaim 
the duty to defend but did not intend to do so in the 1973-1976 
policy.  We could also conclude, as suggested by London Market, 
that the fact that Johnson Controls continued to purchase excess 
coverage that expressly disclaimed the duty to defend indicates 
that Johnson Controls never expected defense from its excess 
insurer.    
B. Premium Charged 
¶51 We turn next to London Market's arguments about the 
premium it charged for the umbrella excess policy.  London 
No. 
2007AP1868   
 
20 
 
Market contrasts the relatively small premium it charged with 
the larger premium Johnson Controls paid for the umbrella 
coverage provided by Travelers.11  London Market asserts that the 
relatively low premium paid for its excess policy is evidence 
that the parties did not contract for London Market to provide a 
defense.  It contends that this argument is borne out by 
Oelhafen v. Tower Ins. Co., 171 Wis. 2d 532, 539, 492 N.W.2d 321 
(Ct. App. 1992), which explained that "the intent of umbrella 
policies to serve a different function from primary policies 
with excess clauses is reflected in the rate structure of the 
two types of policies." 
¶52 London Market's argument is unpersuasive for two 
reasons.  First, contract interpretation should be based on the 
language of the policy rather than a court's conjecture about 
extrinsic information.  Second, even if we considered the 
relative size of the two premiums in our analysis, we would not 
be persuaded that the lower premium evinces an absence of the 
duty to defend.  There are additional reasons apart from defense 
costs that an umbrella excess policy might be less expensive 
than a primary policy or an umbrella policy.   
¶53 In Davis v. Allied Processors, Inc., the court of 
appeals explained that insurance companies calculate premiums 
based upon statistics.  214 Wis. 2d 294, 300, 571 N.W.2d 692 
                                                 
11 The premium for the London Market excess policy was 
$20,000, in comparison to $195,000 and $273,500 for two of the 
three underlying umbrella policies.  The record does not reflect 
the premium for the third underlying policy.   
No. 
2007AP1868   
 
21 
 
(Ct. App. 1997).  Excess policies may be less expensive because 
most judgments and settlements will be within the limits of the 
primary policy, leaving no exposure for the excess policy.  Id.  
Excess coverage is normally not reached except in the case of a 
catastrophic loss: 
[I]t was far more likely that payment would be 
required for compensatory damages under the underlying 
policy than would be required for a compensatory loss 
of over [the limits of the underlying policy] through 
the umbrella policy.  Because the risk was diminished 
for the umbrella policy, it could and did charge a 
smaller premium.   
Id.  
¶54 We conclude that the extrinsic evidence offered by 
both parties is not helpful in our determination of whether the 
1973-1976 London Market policy contains a duty to defend.  
Rather, for the reasons mentioned above, we conclude that London 
Market's policy incorporates the duty to defend provided in the 
underlying umbrella policies issued by Travelers.         
V. When the Duty to Defend Is Triggered  
¶55 Having 
determined 
that 
London 
Market's 
policy 
incorporates the duty to defend found in the Travelers policies, 
we turn to address if and when that duty was triggered under 
these facts.  Both London Market and the excess intervenors 
appear to assert that as a matter of law, an excess carrier's 
No. 
2007AP1868   
 
22 
 
duty to defend may not be triggered until the limits of the 
underlying Travelers policies have been exhausted.12   
¶56 In its brief, London Market explains: 
Wisconsin law is clear.  An excess insurer is just 
that.  It is not a co-primary insurer, responsible for 
providing a defense from dollar one.  That obligation 
falls solely on the primary insurer. . . . This court 
should reaffirm Wisconsin law, holding that an excess 
insurer is not required to provide a defense where the 
primary is required to do so. 
London Market further asserts that the provisions of its policy 
are consistent with this general rule. 
¶57 We agree that a primary insurer generally has the 
primary duty to defend a claim.  "An excess insurer usually is 
not required to contribute to the defense of the insured so long 
as the primary insurer is required to defend."  2 Arnold P. 
Anderson, Wisconsin Insurance Law § 11.33 (5th ed. 2004); see 
also Southeast Wis. Prof'l Baseball Park Dist., 304 Wis. 2d 637, 
¶64.  "True excess coverage attaches when a single insured has 
two policies that cover the same loss but only one policy is 
                                                 
12 The unusual facts of this case complicate the exhaustion 
issue here.  It is undisputed that the underlying policies were 
not exhausted during the 1980s and 1990s because Travelers, like 
all of the insurers, refused to indemnify Johnson Controls for 
its environmental response expenses.  After 2003, when this 
court determined that these types of expenses could be covered 
under the insurance policies, Johnson Controls settled its 
breach of contract claims with several of its insurers, 
including Travelers.   
It is unclear whether these settlements are relevant to an 
inquiry about whether the limits of the underlying policies were 
exhausted.  In any event, the settlement agreements are not in 
the record.   
No. 
2007AP1868   
 
23 
 
written with the expectation that the primary insurer will 
conduct all investigations, negotiations, and defense of claims 
until its limits are exhausted."  Id., § 11.17. 
¶58 However, this does not establish an immutable rule of 
law requiring exhaustion of all primary policies before an 
excess insurer's duty to defend can be triggered.  Rather, it 
depends on the language of the policies.  
¶59 Wisconsin case law instructs that the language of the 
policy should be our initial focus.  After focusing on the 
policy language, we turn to examine Wisconsin cases that have 
held that an excess insurer's duty to defend may be triggered 
prior to the exhaustion of the primary policy. 
A. Policy Language 
¶60 As stated above, the London Market policy incorporates 
the provisions of the Travelers policies unless otherwise 
provided.  The Travelers policies explain when Travelers' duties 
to indemnify and to defend end——upon exhaustion of Travelers' 
limits of liability: 
[Travelers] shall not be obligated to pay any claim or 
judgment or to defend any suit filed after the 
applicable limit of the company's liability has been 
exhausted by payments of judgments or settlements. 
¶61 According 
to 
the 
follow 
form 
provision, 
London 
Market's duty to defend would also be terminated upon the 
exhaustion of its limits of liability.  Although the above 
language determines when Travelers and London Market's duties to 
indemnify and defend end, this language is silent regarding the 
question of when the duty to defend begins.  
No. 
2007AP1868   
 
24 
 
B. Other Insurance Provision 
¶62 However, 
a 
separate 
provision 
in 
the 
Travelers 
policies, the "other insurance" provision, sheds light on the 
inquiry.  This provision explains that if another insurer denies 
primary liability, Travelers will respond as though the other 
insurance were not available.13  It provides: 
[I]f the insurer affording other insurance to the 
named insured denies primary liability under its 
policy, [Travelers] will respond under this policy as 
though such other insurance were not available.   
(Emphasis added.)  A reasonable person in the position of the 
insured would interpret this provision as promising that, where 
the excess insurer has a contractual duty to defend, it will 
                                                 
13 London Market's policy also has an other insurance 
provision.  However, it does not address how London Market will 
respond when the underlying insurance is not "available" because 
the underlying insurer denies liability and refuses to defend.  
It states as follows:  
If other valid and collectible insurance with any 
other Insurer is available to [Johnson Controls] 
covering a loss also covered by this Policy, other 
than insurance that is specifically stated to be in 
excess of this Policy, the insurance afforded by this 
Policy shall be in excess of and shall not contribute 
with such other insurance.   
This provision explains that London Market's policy is 
excess over "other valid and collectible insurance" that is 
"available" to Johnson Controls.  There is no conflict between 
London Market's other insurance provision and Traveler's promise 
to "respond under this policy as though such other insurance 
were not available." 
No. 
2007AP1868   
 
25 
 
step in and provide a defense in the event that the primary 
insurer refuses to do so.14  
¶63 Under the follow form provision, the language of the 
"other insurance" provision is incorporated into the London 
Market policy "unless otherwise provided herein."  Thus, London 
Market would be required to "respond under [its] policy as 
though such other insurance were not available" in the event 
that the underlying insurer "denies primary liability under its 
policy"——unless the London Market policy otherwise provides. 
¶64 We examine next whether the London Market policy does 
indeed otherwise provide.  Our focus is directed to the meaning 
of the word "liability." 
C. Interpreting the Term "Liability" 
¶65 London Market asserts that under the limits of 
liability provision in its policy, its duty to defend did not 
                                                 
14 Travelers' other insurance provision also explains that, 
in the event of the primary insurer's refusal to defend and 
Travelers responding as though the primary policy were not 
available, Travelers would be subrogated to the rights of the 
insured against its primary insurer: "Thereafter, [Travelers] 
shall be subrogated to all rights of the insured to such other 
insurance and the insured shall do all things necessary to 
enforce such rights."  This policy language appears to recognize 
that although Travelers would provide a defense, the insured 
might have a breach of contract or bad faith claim against its 
primary insurer.  If so, Travelers could be subrogated to those 
claims.   
The Travelers policies go on to explain that "[i]n the 
event of any payment under this policy, [Travelers] shall be 
subrogated 
to 
all 
the 
insured's 
rights 
of 
recovery 
therefor . . . and 
the 
insured 
shall 
execute 
and 
deliver 
instruments and papers and do whatever else is necessary to 
secure such rights." 
No. 
2007AP1868   
 
26 
 
"attach" until the limits of the underlying Travelers policies 
were exhausted.  The limits of liability provision states that 
"liability shall attach" to London Market only after Travelers 
has paid or has been held liable to pay its limits:  
It is expressly agreed that liability shall attach to 
the Underwriters only after the Underlying Umbrella 
Insurers have paid or have been held liable to pay the 
full amount of their respective net loss liability[.] 
¶66 The limits of liability provision discusses when 
London Market's "liability" begins——after Traveler's has paid or 
has been held liable to pay the full amount of its net loss 
liability.  However, it does not expressly state when the duty 
to defend begins.  In isolation, it is unclear whether the term 
"liability" encompasses the duty to defend. 
¶67 Although 
the London Market policy provides that 
"liability" does not attach until the underlying policies have 
been exhausted, it does not define the term "liability."  An 
examination of the term "liability" as it is used in the context 
of the London Market policy indicates, however, that "liability" 
refers to indemnification for injuries or property for which 
Johnson Controls is held liable.  It does not refer to the duty 
to defend.   
¶68 For 
instance, 
London 
Market's 
coverage 
section 
provides that it promises "to indemnify the Assured for all sums 
for which the Assured shall be obligated to pay by reason of the 
liability" for damages on account of personal injuries, property 
damage, or advertising liability.  In this context, liability is 
synonymous with indemnification.  
No. 
2007AP1868   
 
27 
 
¶69 The 
term 
"liability" 
appears 
to 
be 
used 
interchangeably 
with 
"indemnification" 
in 
other 
places 
throughout London Market's policy.  The "non cumulation of 
liability" provision equates liability with payment for personal 
injury or property damage: 
[I]n the event that personal injury or property damage 
arising out of an occurrence covered hereunder is 
continuing at the time of the termination of this 
Policy [London Market] will continue to protect the 
Assured for liability in respect of such personal 
injury 
or 
property 
damage 
without 
payment 
of 
additional premium. 
Further, its "notice of occurrence" provision discusses injuries 
and damage for which the insured will be held liable: 
Whenever the Assured has information from which they 
may reasonably conclude that an occurrence covered 
hereunder involves injuries or damage which, in the 
event that the Assured shall be held liable, is likely 
to involve this Policy, notice shall be sent . . . .   
¶70 It therefore appears that the exhaustion provision's 
discussion of when "liability" attaches means that London Market 
will not indemnify Johnson Controls for injury or property 
damage until the indemnification limits of the underlying 
policies 
have 
been 
exhausted. 
 
However, 
defense 
and 
indemnification are separate duties.  Radke, 217 Wis. 2d at 44.  
Even if London Market's duty to indemnify does not attach until 
exhaustion of the underlying policies, that does not mean that 
No. 
2007AP1868   
 
28 
 
its duty to defend requires exhaustion to attach.15  An insurer 
can have a duty to defend even under circumstances when there 
will ultimately be no indemnification under the policy.  See id. 
¶71 London Market makes one additional argument in support 
of its assertion that its duty to defend was not triggered until 
exhaustion of the Travelers policies.  It shifts from examining 
the language of its own policy to focusing on the language of 
the Travelers policies.  It points to the paragraph in the 
Travelers policies that imposes both the duty to indemnify and 
the duty to defend and explains that the first word in that 
paragraph is "liability":    
Liability.  The company will pay on behalf of the 
insured all sums which the insured shall become 
legally obligated to pay as damages . . . , and the 
company shall have the right and duty to defend any 
suit against the insured seeking damages on account of 
such injury or damage[.] 
¶72 Thus, London Market contends, the term "liability" 
encompasses both defense and indemnification obligations.  At 
oral argument, counsel for London Market explained:  "[I]f the 
term 'liability' is dependent upon what the Travelers policy 
says, it is clear that Travelers considers both the duty to 
defend 
and 
the 
duty 
to 
indemnify 
as 
part 
of 
liability. . . . Under that analysis, . . . then the duty to 
                                                 
15 See Gen. Accident Ins. Co. Am. v. Safety Nat. Cas. Corp., 
825 F. Supp. 705, 709 (E.D. Penn. 1993) (interpreting a nearly 
identical exhaustion provision about when "liability shall 
attach" and concluding that "[i]t says nothing . . . about the 
nature of [the excess insurer's] duty to defend.").  
No. 
2007AP1868   
 
29 
 
defend and the duty to indemnify cannot attach until such time 
as there is exhaustion."   
¶73 London 
Market's 
argument 
rests 
on 
an 
infirm 
foundation.  In examining the language of the Travelers 
policies, it is far from "clear that Travelers considers both 
the duty to defend and the duty to indemnify as part of 
liability."  The term "liability" is not set forth in the 
definition section of the Travelers policies.  Although not 
specifically defined, it appears in many places throughout the 
policies.  In most places, the term "liability" is used to refer 
to the obligation to indemnify, and defense is treated as a 
separate obligation.16   
¶74 Given a lack of definition and the disparate use of 
the term "liability" in the Travelers policies, it is not at all 
clear that the Travelers policies intend that "liability" 
                                                 
16 For instance, the supplemental payments section treats 
costs for indemnification separately from defense costs.  It 
provides that the company will pay, "in addition to the 
applicable limit of liability . . . all expenses incurred by the 
company, and all costs taxed against the insured in any suit 
defended by the company."  Further, Travelers' limits of 
liability section discusses costs incurred for bodily injury and 
property damage——not those costs incurred in defending: "The 
limits of liability . . . is the combined total limit of the 
company's liability for all damages, including damages for care 
and loss of services, because of bodily injury and property 
damage . . . ."   
We recognize that Travelers' Limits of Liability section is 
supplanted by London Market's Limits of Liability section under 
the express terms of the follow form provision.  We discuss it 
here only as an example of how the term "liability" is used 
throughout the policies. 
No. 
2007AP1868   
 
30 
 
be defined to include the duty to defend.  Even if it were 
clear, however, such usage would conflict with the usage of the 
term "liability" in London Market's own policy.  There, the term 
"liability" is consistently used to mean indemnification.  As we 
previously explained, if there is a conflict between the London 
Market policy and the Travelers policies, the terms of the 
London Market policy control.  See supra, ¶¶44-46 & n.10. 
¶75 We conclude that although London Market's duty to 
indemnify is conditioned upon exhaustion of the underlying 
Travelers policies, its duty to defend is not so conditioned.  
Rather, under the "other insurance" provision, London Market was 
required to "respond under [its] policy as though such other 
insurance 
were 
not 
available" because Travelers "denie[d] 
primary liability under its policy."  Thus, London Market was 
required to assume the defense.  
D. Supportive Case Law 
¶76 Contrary to the assertion of London Market, this 
conclusion does not fly in the face of an overarching rule of 
law requiring exhaustion of all primary policies before the duty 
to defend can be triggered.  Quite the contrary.  Wisconsin case 
law recognizes that an excess insurer's duty to defend may under 
certain circumstances be triggered prior to the exhaustion of 
the primary policy.   
¶77 In Teigen v. Jelco Wis., Inc., 124 Wis. 2d 1, 367 
N.W.2d 806 (1985), for example, this court approved a settlement 
agreement between a primary insurer and the plaintiff who 
brought suit against the insured.  The settlement agreement was 
No. 
2007AP1868   
 
31 
 
for less than the limits of the primary policy.  It released all 
claims against the primary and the insured, but it left the 
excess carrier potentially liable.17  Although the excess insurer 
argued that the primary wrongfully attempted to avoid its 
responsibility to defend the suit until it fully paid its policy 
limits, the court rejected that argument.  Id. at 9-10.  Thus, 
it concluded that the excess carrier was required to defend the 
suit, regardless of the fact that the underlying primary policy 
had not been fully exhausted.   
¶78 Teigen is not alone.  In American Motorists Insurance 
Co. v. Trane Co., 544 F. Supp. 669, 692 (W.D. Wis. 1982), 
American Motorists' excess policy promised to defend against 
suits for losses covered by the American Motorists policy but 
not covered by the underlying policy.  Id. at 692.  The federal 
district court applied Wisconsin law to the policy and concluded 
that the excess insurer with a contractual duty to defend was 
required to do so in the event that the primary insurer refused 
to defend:18 
                                                 
17 Importantly, the settlement agreement provided the excess 
carrier would not be responsible for paying any damages below 
the primary's limits of liability, $500,000.  Thus, the excess 
insurer could only be held liable for damages exceeding 
$500,000, and could not be held liable for the difference 
between the primary's $500,000 limit of liability and the amount 
of settlement, $390,000.     
18 There, the insured tendered the defense to all four 
layers of insurers.  The complaint alleged facts sufficient to 
impose on the primary insurer a duty to defend.  Am. Motorists 
Ins. Co., 544 F. Supp. at 685.  Nevertheless the primary insurer 
denied coverage and refused to defend against the lawsuit. 
No. 
2007AP1868   
 
32 
 
If the underlying insurer has refused to defend, 
asserting 
that 
there 
is 
no 
coverage 
under 
the 
substantive provisions of the underlying policy, the 
excess insurer will have a duty to defend, provided 
there is coverage under the excess policy and the 
claim falls within the policy limits of the excess 
insurer.  
Id.  Additionally, the court concluded that a complaint which 
alleges damages in excess of the limits of the underlying policy 
triggers an excess insurer's duty to defend, even if the 
underlying insurer undertakes the defense as well.  Id.    
¶79 Eleven years later, the Wisconsin court of appeals 
revisited the holdings of American Motorists.  In Azco Hennes 
Sanco, 
Ltd. 
v. 
Wisconsin 
Insurance 
Security 
Fund, 
177 
Wis. 2d 563, 502 N.W.2d 887 (Ct. App. 1993), a suit was filed 
against the insured, Azco, seeking damages in excess of the 
limits on Azco's primary insurance policy.  Azco's primary 
insurer defended against the lawsuit.  Additionally, Azco also 
hired a second attorney who was instrumental in ensuring that 
the case settled within the primary policy limits.  Azco then 
sent the bills for the second attorney to its excess insurer, 
asserting that it was required to pay them under American 
Motorists.19  The excess insurer refused, asserting that its duty 
to defend had not been triggered even though the complaint 
against Azco alleged damages in excess of the primary policy's 
limits.   
                                                 
19 The excess policy stated that it would defend the insured 
against any suit regarding "occurrences covered under this 
policy, but not covered under the underlying insurance." Azco 
Hennes-Sanco, Ltd. v. Wisconsin Ins. Sec. Fund, 177 Wis. 2d 563, 
566, 502 N.W.2d 887 (Ct. App. 1993). 
No. 
2007AP1868   
 
33 
 
¶80 The court of appeals noted that it was not bound to 
follow a federal district court's opinion on Wisconsin law.  Id. 
at 568.  It rejected the conclusion in American Motorists that 
alleged damages in excess of the primary policy's limits were 
sufficient to trigger an excess insurer's duty to defend.  Id.   
¶81 However, it did not disturb the other conclusion in 
American Motorists——that an excess insurer with a contractual 
duty to defend might be obligated to assume the defense if the 
primary insurer refused to do so.  The Azco court stated that 
the American Motorists case "is distinguishable on its facts.  
In American Motorists the primary insurer refused to defend, 
whereas in this case Azco's primary insurer undertook its 
defense in the action."  Id.  
¶82 American Motorists was also cited in a recent decision 
of 
the 
Wisconsin 
court 
of 
appeals, 
Southeast 
Wisconsin 
Professional 
Baseball 
Park 
District 
v. 
Mitzubishi 
Heavy 
Industries America, 2007 WI App 185, 304 Wis. 2d 637, 738 
N.W.2d 87.  In that case, the primary insurer refused to defend 
despite the circuit court ordering it to defend on three 
separate occasions.  Id., ¶13.  As a result, an excess carrier 
provided a defense.  Id., ¶8.   
¶83 In a footnote, the court of appeals cited American 
Motorists and explained: "If the underlying insurer has refused 
to defend, asserting that there is no coverage under the 
substantive provisions of the underlying policy, the excess 
insurer will have a duty to defend, provided there is coverage 
under the excess policy and the claim falls within the policy 
No. 
2007AP1868   
 
34 
 
limits of the excess insurer."  Id., ¶8, n.4.  Given that the 
primary had breached its primary duty to defend, however, the 
court required it to reimburse the excess insurer for the 
defense costs it incurred.  Id., ¶¶61-64. 
¶84 The United States Court of Appeals for the Tenth 
Circuit also relied on American Motorists when it addressed a 
situation strikingly similar to the facts of this case.  See 
Hocker v. New Hampshire Ins. Co., 922 F.2d 1476 (10th Cir. 
1991).  There, an umbrella insurer asserted that its duty to 
defend was never triggered because the primary policy limits had 
not been exhausted.  Id. at 1481.  The court rejected the 
argument, concluding that the language of the umbrella policy 
promised to defend suits "not covered, as warranted" and 
established that the umbrella insurer must drop down and defend 
upon the primary insurers' wrongful refusal to do so.  Id. at 
1482.   
¶85 The court explained that "as written," the umbrella 
policy "explicitly addresses the possibility that the primary 
insurer will wrongfully deny coverage for occurrences that it 
had warranted would be covered by its primary policy."  Id.  In 
those circumstances, "[t]he excess carrier must then drop down 
and provide a defense."  Id.  The court further clarified that 
had the umbrella insurer fulfilled this obligation, it would be 
able to maintain a subrogation claim against the primary insurer 
to recoup the legal expenses incurred.  Id. at 1483, n.6. 
¶86 Some courts appear to have recognized a general rule 
that an insured that has purchased layers of coverage——including 
No. 
2007AP1868   
 
35 
 
layers of a contractual duty to defend——should not be left 
without a "prompt and proper defense[.]"  New Hampshire Indem. 
Co., Inc. v. Budget Rent-a-Car Systems, Inc., 64 P.3d 1239 
(Wash. 2003).  For example, the Washington Supreme Court stated: 
"[I]f a primary insurer fails to assume the defense, for any 
reason, the secondary insurer which has a duty to defend should 
provide the defense[.]"  Id. at 1243; see also Anderson, supra, 
§§ 11.26, 11.33; Grossman v. Am. Family Mut. Ins. Co., 461 
N.W.2d 489 (Minn. App., 1990).  We need not and do not adopt a 
general rule to resolve this case, however, given that the 
language of the policies provides that London Market was 
required to assume the defense.20   
                                                 
20 The dissent miscasts and inflates the scope of our 
analysis.  The fundamental error of the dissent is its failure 
to recognize that our analysis is driven by policy language——not 
generalizable concepts about the role of excess insurance and 
the duties of excess insurers.  Focusing on concepts rather than 
policy language, the dissent makes a series of predictions about 
the effect that this opinion will have on all excess insurance 
policies, regardless of policy language.   
As a result of this error, the dissent speaks in broad 
terms.  For example, the dissent forecasts that "after today, 
the excess insurer becomes a surety for the performance of the 
underlying umbrella and the primary insurer's obligations[.]"  
Dissent, ¶104.  "Even if an insurance policy . . . fails to 
mention even one word about defending, the majority opinion 
imposes an unqualified obligation to defend."  Id., ¶103.  
"[T]he majority creates an obligation for the excess insurer to 
defend as soon as a primary insurer fails to follow through with 
its obligation to defend."  Id., ¶89.     
Our decision will have no such transformative effect on 
Wisconsin law because our analysis is driven by the specific 
policy language at issue in this case.  A different result is 
contingent upon different policy language.   
No. 
2007AP1868   
 
36 
 
VI 
¶87 In sum, based on the language of the policies, we 
conclude that London Market had a duty to defend.  Although its 
excess umbrella policy does not have a duty to defend provision, 
it does contain a follow form provision that incorporates the 
duty to defend found in the underlying Travelers policies.   
¶88 We further determine that its duty to defend was not 
conditioned 
upon 
exhaustion 
of 
the 
underlying 
Travelers 
policies.  Rather, under the terms of the "other insurance" 
provision, London Market's duty to defend was triggered when the 
underlying 
insurer 
"denie[d] 
primary 
liability 
under 
its 
policy."  Accordingly, we affirm the circuit court and remand 
for further proceedings.     
By the Court.—The order of the circuit court is affirmed, 
and the cause is remanded.     
No.  2007AP1868.akz 
 
1 
 
¶89 ANNETTE 
KINGSLAND 
ZIEGLER, 
J.   (dissenting). 
 
I 
dissent because the majority opinion creates a duty to defend 
for London Market that is not found in the contract of 
insurance.  In so doing, the majority undermines the plain 
language of the London Market policy, which promises only 
indemnification.  The majority conveniently picks and chooses 
terms from another company's separate, underlying policy in 
order to craft a duty to defend.  Moreover, even if one were to 
assume, arguendo, that the London Market policy did incorporate 
a duty to defend from an underlying policy, such a duty could 
not arise until all primary policies were exhausted.  This is so 
because the London Market policy is an excess policy wherein 
London Market's obligation is conditioned upon the exhaustion of 
all underlying policies.  By ignoring the clear language of the 
excess policy, the majority creates an obligation for the excess 
insurer to defend as soon as a primary insurer fails to follow 
through with its obligation to defend.  Because the majority 
opinion transforms the excess insurer into a primary insurer by 
imposing 
a 
duty 
to 
defend 
on 
the 
excess 
insurer, 
in 
contravention of the terms of the London Market insurance 
policy, I must respectfully dissent. 
A. The majority decision is contrary to longstanding 
principles of insurance law 
¶90 True excess coverage "exists as a part of layered 
coverage created by specific design and is intended to come into 
play only when the limits of underlying primary coverage are 
exhausted."  14 Lee R. Russ & Thomas F. Segalla, Couch on 
No.  2007AP1868.akz 
 
2 
 
Insurance § 200:39 (3d ed. 2007).  As a general rule, an excess 
insurer is not required to defend until the primary insurer's 
policy limits are exhausted, even when the claim exceeds the 
primary insurer's policy limits or when the primary insurer 
refuses to defend.  Id., §§ 200:41-43.  While insurers and 
insureds are free to contract around these general rules, here, 
the parties did not do so.  
¶91 The majority weaves together separate and distinct 
policies from different insurers to reach a particular outcome.  
In the same breath, the majority also concludes that the London 
Market policy's language is ambiguous.  Essentially, the 
majority concludes that the policy is ambiguous because it does 
not specifically pen every conceivable limitation or exclusion.  
In so doing, the majority effectively imposes a requirement that 
insurance policies list all possible limitations and exclusions 
regardless of relevance to avoid ambiguity.  The majority for 
the first time concludes that silence on an issue creates 
ambiguity and, thus, a duty. 
¶92 The duty to defend is separate from the duty to 
indemnify.  Neither common law nor statute mandates that an 
insurer always defend its insured.  Novak v. Am. Family Mut. 
Ins. Co., 183 Wis. 2d 133, 137, 515 N.W.2d 504 (Ct. App. 1994); 
14 Russ & Segalla, supra, § 200:5 ("An insurer does not have a 
duty to defend if there is no contractual obligation to 
defend.").  The majority decision upsets these longstanding 
principles and creates new contractual obligations that have 
never before been required or recognized. 
No.  2007AP1868.akz 
 
3 
 
B. The London Market policy does not  
provide a duty to defend 
¶93 The 
London 
Market 
policy 
is 
a 
policy 
of 
indemnification and does not provide a duty to defend its 
insured, Johnson Controls.  Absent an express promise to defend, 
no reasonable insured would expect an excess insurance policy to 
provide a duty to defend, especially in light of the general 
rule that excess policies do not include a duty to defend.  To 
the contrary, with respect to primary insurance policies, the 
standard industry practice is to provide a defense along with 
indemnification.  Compare Gross v. Lloyd's of London Ins. Co., 
121 Wis. 2d 78, 84, 358 N.W.2d 266 (1984) (noting that primary 
insurance policies "impose two duties on the insurer with 
respect to the insured—the duty to indemnify and the duty to 
defend") with 2 Arnold P. Anderson, Wisconsin Insurance Law 
§§ 11.16-.18 (5th ed. 2004) (noting that specific excess 
insurance and true excess insurance generally do not contain a 
duty to defend).  Here, consistent with industry practice, 
London Market's policy is an excess policy that does not provide 
a duty to defend.   
¶94 The majority cannot find a duty to defend within the 
terms of the London Market policy itself; therefore, it resorts 
to importing that duty from the Travelers policy by way of the 
London Market policy's "follow form" provision.  In so doing, 
the majority rewrites the insurance policy in order to impose on 
London Market a duty for which it did not contract, that neither 
it nor its insured contemplated, and for which it was not paid.   
No.  2007AP1868.akz 
 
4 
 
¶95 The majority determines that the duty to defend was 
triggered, not upon the exhaustion of the underlying policies, 
but rather, upon the underlying insurer's denial of primary 
liability.  Majority op., ¶¶4-5.  The majority nonetheless 
acknowledges that "it is not certain whether London Market 
intended to provide a duty to defend when it drafted the policy" 
but nevertheless concludes that the proper, and only, inquiry is 
not what the policy says, but rather, how the policy language 
could be understood by the insured.  Majority op., ¶42.  Because 
"[a]n insurance policy is construed to give effect to the intent 
of the parties as expressed in the language of the policy,"  
Folkman v. Quamme, 2003 WI 116, ¶12, 264 Wis. 2d 617, 665 
N.W.2d 857, I turn to the policy language at issue.   
¶96 The pertinent parts of the London Market policy's 
insuring agreement are as follows: 
INSURING AGREEMENTS 
1. COVERAGE 
[London Market] hereby agree[s], subject to the 
limitations, 
terms 
and 
conditions 
hereinafter 
mentioned, to indemnify [Johnson Controls] for all 
sums, which [Johnson Controls] shall be obligated to 
pay . . . . 
. . . . 
CONDITIONS 
. . . . 
2. MAINTENANCE OF UNDERLYING UMBRELLA INSURANCE 
This policy is subject to the same terms, definitions, 
exclusions and conditions (except as regards the 
premium, the amount and Limits of Liability and except 
No.  2007AP1868.akz 
 
5 
 
as otherwise provided herein) as are contained in [the 
underlying Travelers policy] . . . . 
(Emphasis added.)  The part of Travelers policy that the 
majority incorporates into London Market's policy in order to 
create a duty to defend, reads as follows: 
Liability.  The company . . . shall have the right and 
duty to defend any suit against [Johnson Controls] 
seeking 
damages 
on 
account 
of 
[a 
covered 
incident]. . . . 
(Emphasis added.)  The majority must cut and paste that duty 
from the Travelers policy to the London Market policy in order 
to find a duty to defend. 
¶97 The plain language of the London Market policy, 
however, shows that no duty to defend is incorporated because 
the duty to defend does not in any way modify or affect the duty 
to indemnify.1  Simply stated, the London Market policy: (1) 
promises to indemnify its insured; (2) subjects that promise of 
indemnification to various conditions; and (3) points to the 
Travelers policy for additional "terms, definitions, exclusions 
and conditions" to which the duty to indemnify is subject.  The 
                                                 
1 London Market undertook "to indemnify [Johnson Controls] 
for all sums which [Johnson Controls] shall be obligated to pay 
by reason of liability [] imposed upon [Johnson Controls] by law 
. . . for damages on account of: (i) Personal Injuries[;] (ii) 
Property Damage[;] (iii) Advertising Liability caused by or 
arising out of each occurrence . . . ."  London Market's own 
insuring language set forth the extent of its obligations on the 
policy and while it agreed to follow the terms of the underlying 
policies it did so "except as otherwise provided herein."  By 
the majority imposing a duty to defend on London Market, it 
fails to give effect to the contractual provisions of the 
policy.  Here, the excess policy terms explicitly preclude 
liability until after the underlying insurers "have paid or have 
been held liable to pay the full amount of their [limits]."   
No.  2007AP1868.akz 
 
6 
 
follow form provision, however, does not incorporate the entire 
Travelers policy by reference. 
¶98 The 
majority 
opinion 
employs 
the 
London 
Market 
policy's follow form provision to incorporate the Travelers 
policy's obligation to defend.  Instead of determining that the 
follow form addressed the level of underlying coverage and the 
type of claims that were covered so that the London Market 
policy remained truly an excess umbrella policy, the majority 
creates a duty to defend.  In so doing, the majority operates 
contrary to the language of the insurance contract and the 
general rule for excess liability policies.  2 Anderson, supra, 
§ 11.16. 
¶99 Instead of acknowledging this plain reading of London 
Market's insurance policy, the majority sidesteps this point and 
incorporates 
a 
portion 
of 
the 
Travelers 
policy's 
"other 
insurance" clause into the London Market policy.  The majority 
claims that under this clause "London Market would be required 
to 'respond under [its] policy as though such other insurance 
were not available' in the event that the underlying insurer 
'denies primary liability under its policy'——unless the London 
Market policy otherwise provides."  Majority op., ¶63.   
¶100 In order to accomplish this additional rewriting of 
the contract, the majority ignores the "other insurance" clause 
already present in the London Market policy.  The London Market 
policy's "other insurance" clause explicitly limits the policy 
to excess coverage, which is antithetical to dropping down to 
provide a primary defense.  See infra Part C.  Therefore, the 
No.  2007AP1868.akz 
 
7 
 
London Market policy does provide terms other than the "other 
insurance" clause in the Travelers policy.  As such, the 
Travelers 
policy's 
"other 
insurance" 
clause 
cannot 
be 
incorporated into London Market's policy, even under the 
majority's logic.2 
¶101 Particularly troublesome here is that the plaintiff 
seeks to recover defense costs for an action commenced 25 years 
ago.  Notwithstanding this, the majority has chosen to transform 
an excess insurance policy into a primary insurance policy.  
Under the majority's logic, when a primary insurer fails to 
defend, even if this occurs as soon as a lawsuit is commenced, 
an excess insurer must provide a defense to the insured.   
¶102 The majority also concludes that any consideration of 
the cost of the premiums is "not helpful" in reaching its 
conclusion and states that "contract interpretation should be 
based on the language of the policy rather than a court's 
conjecture about extrinsic information."  Majority op., ¶¶54, 
52.  In this case, the relatively low cost of the premiums could 
at least inform some part of the analysis as to the expectations 
of the parties in obtaining excess coverage, especially in light 
of the fact that the duty to defend does not appear anywhere in 
                                                 
2 The majority designs its definition of liability by 
concluding that liability is not otherwise provided in the 
London Market policy.  As a result, once again, the majority 
picks and chooses which terms in which policy meet the outcome 
that it desires.  
No.  2007AP1868.akz 
 
8 
 
the London Market policy.3  See 2 Anderson, supra, § 11.16 ("An 
insurer typically charges a lower premium for specific or 
following-form excess insurance based on the decreased risk of a 
judgment or settlement within higher layers of coverage, as well 
as the absence of a duty to defend the insured.") (emphasis 
added). 
¶103 In the end, the consumers of excess insurance policies 
will be the ones who pay for the majority's decision.  No longer 
will an excess insurance carrier be able to charge only $20,000 
for a $10 million policy of indemnity coverage as an excess 
policy.  Under the holding of the majority opinion, a duty to 
defend can begin at the inception of the lawsuit because its 
holding causes the excess insurer to become the primary insurer 
whenever the primary insurer does not perform.  Even if an 
insurance policy, such as the London Market policy here, fails 
to mention even one word about defending, the majority opinion 
imposes an unqualified obligation to defend.  It matters not, 
according to the majority, that the London Market insurance 
policy specifically requires that the underlying insurance 
remain in full force and effect before any liability may arise 
for London Market.   
                                                 
3 With respect to the underlying policy, Travelers was paid 
yearly premiums of $195,000 and $273,500 to provide $7 million 
of 
umbrella 
coverage, 
including 
both 
indemnification 
and 
defense.  In comparison, London Market was paid a yearly premium 
of $20,000 to provide $10 million of coverage excess to the 
Travelers policy for indemnification.  The majority would have 
you believe that the $20,000 premium compensates London Market 
for not only the $10 million of indemnification, but also for 
providing a legal defense against all claims from day one.  
No.  2007AP1868.akz 
 
9 
 
¶104 Thus, after today, the excess insurer becomes a surety 
for the performance of the underlying umbrella and the primary 
insurer's obligations, even if the primary insurer has breached 
its duty to defend.   
C. Even assuming, arguendo, that a duty to defend exists, 
the policy first requires exhaustion of the primary policy   
¶105 Even if one were to conclude that the London Market 
policy incorporates a duty to defend from the Travelers policy, 
I must dissent because the London Market policy is an excess 
policy 
to 
the 
Travelers 
policy 
and 
is 
conditioned 
upon 
exhaustion of the Travelers policy.  As previously stated, an 
"'excess insurer is not obligated to defend until the primary 
[policy] limits are exhausted.'"  Azco Hennes-Sanco, Ltd. v. 
Wis. Ins. Sec. Fund, 177 Wis. 2d 563, 568, 502 N.W.2d 887 (Ct. 
App. 1993)(citation omitted).4  London Market's policy makes 
clear, in at least two places that any duty it has to Johnson 
                                                 
4 See also 2 Arnold P. Anderson, Wisconsin Insurance Law 
§ 11.14 (5th ed. 2004) ("Excess or secondary insurance coverage 
attaches only after a predetermined amount of primary coverage 
is exhausted."); 1 Allen D. Windt, Insurance Claims & Disputes 
§ 4.11 (5th ed. 2007) ("Most courts have held that an excess 
insurer that has a duty to defend is not obligated to provide a 
defense if the primary insurer is so obligated."); 14 Lee R. 
Russ & Thomas F. Segalla, Couch on Insurance § 200:43 (3d ed. 
2007) ("As a general rule, a true excess insurer's duty to 
defend is not automatically triggered when the primary insurer 
denies coverage."). 
No.  2007AP1868.akz 
 
10 
 
Controls is conditioned upon the exhaustion of the Travelers 
policy.5   
¶106 The London Market policy clearly defines itself as an 
excess policy.  The pertinent language at "Conditions" reads as 
follows: 
5. OTHER INSURANCE 
If other valid and collectible insurance with any 
other Insurer is available to [Johnson Controls] 
covering a loss also covered by this Policy, other 
than insurance that is specifically stated to be in 
excess of this Policy, the insurance afforded by this 
Policy shall be in excess of and shall not contribute 
with such other insurance. 
(Emphasis added.)  This clause solidifies London Market's place 
in the hierarchy of insurance policies——below all policies that 
specifically state they are in excess to London Market's policy 
and above all other policies. 
¶107 Furthermore, the London Market policy at "Excess 
Umbrella Liability" expressly conditions its performance on 
exhaustion of the Travelers policy limits: 
2. LIMIT OF LIABILITY-UNDERLYING LIMITS 
It is expressly agreed that liability shall attach to 
[London Market] only after [Travelers] ha[s] paid or 
                                                 
5 The Travelers policy is not the only policy that underlies 
the London Market policy.  However, the Travelers policy did not 
condition either its duty to defend or its duty to indemnify on 
the exhaustion of policies that underlie the Travelers policy, 
as the London Market policy did.  Instead, the Travelers policy 
provided that Travelers would "defend any suit against the 
insured seeking damages on account of [a covered] injury" and 
would share indemnification costs with the underlying insurance 
policies on one of two pro rata bases, depending on the language 
in the other insurance contract.  For simplicity's sake, this 
dissent treats the Travelers policy as if it were primary. 
No.  2007AP1868.akz 
 
11 
 
ha[s] been held liable to pay the full amount of [its] 
respective ultimate net loss liability . . . . 
"[U]ltimate net loss" is the $7 million underlying limits in the 
Travelers policy. 
¶108 While it is true that the policy issued by London 
Market is a follow form insurance policy, its duties arise only 
after liability reaches a certain "excess" monetary level.  See 
Allmerica Fin. Corp. v. Certain Underwriters at Lloyd's, London, 
871 N.E.2d 418, 426 (Mass. 2007) ("Follow form language thus 
allows an insured to have coverage for the same set of potential 
losses (and with the same set of exceptions) in each layer of 
the insurance program.  The language does not, however, bind the 
various insurers to a form of joint liability should coverage at 
a prior layer fail.  The layer of risk each insurer covers is 
defined and distinct."); see also 2 Anderson, supra, § 11.18 
("'An excess policy covering the same risks that are covered by 
the underlying policy is known as a "following form" policy.'") 
(quoting Coleman Co., Inc. v. California Union Ins. Co., 960 
F.2d 1529, 1530 n.1 (10th Cir. 1992)). 
¶109 The 
majority's 
interpretation 
of 
London 
Market's 
"limits of liability" (or exhaustion) provision is somewhat 
confusing.  Majority op., ¶¶65-75.  The majority concedes that 
the limits of liability provision provides that "'liability' 
does not attach until the underlying policies have been 
exhausted."  Id., ¶67.  However, the majority concludes that 
this provision is limited to the duty to indemnify and not the 
duty to defend.  The majority inconsistently concludes that when 
it comes to indemnification, "liability" does not attach until 
No.  2007AP1868.akz 
 
12 
 
the underlying policy is exhausted, but that "liability" 
attaches before exhaustion when it comes to the duty to defend.  
Its rationale is inconsistent and cannot be reconciled.  
¶110 Specifically, the London Market excess umbrella policy 
states: "[L]iabilities shall attach to [London Market] only 
after the Underlying Umbrella Insurers have paid or have been 
held liable to pay" their policy limits.  Thus, despite the 
majority's creativity, any assumed duty to defend under the 
excess umbrella policy cannot arise when the coverage under the 
excess umbrella policy is yet to be invoked. 
¶111 Simply stated, the majority wishes to have its cake 
and eat it too.  On the one hand, the majority concludes that 
the London Market policy does not define the term "liability" 
and so it imports Travelers policy's definition in its rewriting 
of the contract to create that duty to defend.  Thus, even if 
liability includes the duty to defend, as the majority would 
redefine it, such duty can reasonably attach only after 
Travelers has paid or been liable to pay the full amount of its 
ultimate net loss liability, that is, $7 million.  This 
disparity magnifies the majority's overreaching when it comes to 
creating the duty to defend, because in point of fact, even if 
it can be said that there is a duty to defend, that duty can 
attach only after Travelers has exhausted its policy limits.   
¶112 The majority's reasoning errs in its conclusion that 
once Travelers refuses to defend Johnson Controls, London Market 
is required to drop down to fill Travelers' shoes and provide a 
defense.  It requires that London Market's duty to defend is in 
No.  2007AP1868.akz 
 
13 
 
full force and effect.  At the same time, Travelers' duty to 
defend is triggered, that is, from the day Johnson Controls 
tendered the defense to its insurers.  If the majority indeed 
believes that Travelers' duty to defend was fully incorporated 
into London Market's policy and is not subject to the exhaustion 
requirement, the logical conclusion is that London Market's duty 
to defend is triggered on day one and converts an excess insurer 
into a primary insurer when it comes to the duty to defend.  
This conclusion misreads both the insurance policy's provisions 
and misstates Wisconsin law.   
¶113 London Market's policy contains no promise to drop 
down in the event of denial of defense by Travelers.  As just 
noted, London Market's policy attaches, at most, only after the 
Travelers policy is exhausted.   
¶114 The majority states that there is no absolute rule of 
law that an excess insurer's duty to defend is never triggered 
until the underlying policy limits are exhausted.  Of course 
this is true, since insurers and insureds can contract so that 
an excess insurer's duty to defend is triggered prior to the 
exhaustion of the underlying policy limits.  However, the 
parties did not so contract here.  Moreover, the majority 
opinion lacks any Wisconsin case in which a court required an 
excess insurer to provide a defense before the underlying policy 
limits were exhausted.   
¶115 For example, the majority reads Teigen v. Jelco of 
Wisconsin, Inc., 124 Wis. 2d 1, 367 N.W.2d 806 (1985), as 
requiring a defense by the excess insurer before exhaustion of 
No.  2007AP1868.akz 
 
14 
 
primary insurance.  This reading of Teigen is far from complete.  
In Teigen, the insured plaintiff had executed a Loy6 release, in 
which the plaintiff accepted a settlement sum less than the 
defendant's primary insurer's policy limits, but in exchange 
released the defendant and his primary insurer for the full 
amount of the policy limits and for any amount above the limits 
of the excess insurer, specifically reserving a cause of action 
against the excess insurer.  Id.  The court held that the excess 
insurer had a duty to defend after the release was executed.  
Id. at 11-12. 
¶116 While the plaintiff in Teigen was not paid the primary 
insurer's full policy limits, those limits were exhausted 
because the insured received the full protection of the primary 
policy for which he had bargained.  Id. at 8 ("The trial court 
correctly concluded that [the primary insurer] has exhausted its 
liability by virtue of the Loy release.  The effect of the 
settlement is that [the primary insurer] has discharged in toto 
its obligation to its insured.")(emphasis added). 
¶117 Loy and Teigen highlight, rather than abrogate, the 
necessity of exhausting a primary insurer's policy limits before 
an excess insurer can be required to provide a defense.  Absent 
a Loy release that exhausts a primary insurer's limits, a 
settlement below those limits does not trigger an excess 
insurer's duty to defend if the insurer had contracted to 
defend.  See Azco, 177 Wis. 2d at 567 (holding that an excess 
insurer had no duty to defend a claim that settled within the 
                                                 
6 Loy v. Bunderson, 107 Wis. 2d 400, 320 N.W.2d 175 (1982). 
No.  2007AP1868.akz 
 
15 
 
primary insurer's limits, even where the original claim brought 
exceeded the primary insurer's limits). 
¶118 The majority also cites American Motorists Insurance 
Co. v. Trane Co., 544 F. Supp. 669, 692 (W.D. Wis. 1982), for 
the proposition that "[i]f the underlying insurer has refused to 
defend . . . , the excess insurer will have a duty to defend . . 
. ."  However, this reasoning was explicitly rejected in Azco.  
177 
Wis. 
2d 
at 
568 
("Azco . . . argues 
that 
we 
should 
nonetheless follow the district court's reasoning.  We decline 
to do so . . . ."). 
¶119 The Azco court went further than rejecting Trane; it 
endorsed and adopted the view of a majority of jurisdictions, 
which hold that an excess insurer has no obligation to defend 
its insured until the primary insurer's limits are exhausted, 
absent express policy language otherwise.  Id. at 568 (citing 
No.  2007AP1868.akz 
 
16 
 
Firemen's Fund Ins. Co. v. Rairigh, 475 A.2d 509, 518 (Md. Ct. 
Spec. App. 1984) cert. denied, 482 A.2d 501 (1984)).7 
¶120 Finally, 
the 
majority 
relies 
on 
a 
footnote 
in 
Southeast Wisconsin Professional Baseball Park District v. 
Mitsubishi Heavy Industries America, Inc., 2007 WI App 185, ¶8 
n.4, 304 Wis. 2d 637, 738 N.W.2d 87, which says that an excess 
insurer must drop down and defend when a primary insurer fails 
to do so.  Reliance on this footnote is likewise misplaced.  
First, the question of whether an excess insurer was required to 
defend was not before the court.  Second, the footnote cites to 
the opinion of the federal district court in Trane and ignored 
                                                 
7 The Azco court went on to cite numerous other sources 
demonstrating the majority rule.  Azco Hennes-Sanco, Ltd. v. 
Wis. Ins. Sec. Fund, 177 Wis. 2d 563, 569, 571–72 & nn.3–4, 502 
N.W.2d 887 (Ct. App. 1993) (citing Signal Cos. v. Harbor Ins. 
Co., 612 P.2d 889 (Cal. 1980); Southgate State Bank & Trust Co. 
v. United Pac. Ins. Co., 588 P.2d 486 (Kan. Ct. App. 1979); 
James M. Fredericks, Comments, Excess Insurer's Duty to Defend 
After Primary Insurer Settles Within Policy Limits: Wisconsin 
After Loy and Teigen, 70 Marq. L. Rev. 285, 294-95 (1987); 
American Concept Ins. Co. v. Certain Underwriters at Lloyds of 
London, 467 N.W.2d 480 (S.D. 1991); Am. Sur. Co. v. State Farm 
Mut. Auto. Ins. Co., 142 N.W.2d 304 (Minn. 1966); Hartford 
Accident & Indem. Co. v. Cont'l Nat'l Am. Ins. Cos., 861 F.2d 
1184 (9th Cir. 1988); P.L. Kanter Agency, Inc. v. Cont'l Cas. 
Co., 541 F.2d 519 (6th Cir. 1976); West Am. Ins. Co. v. Allstate 
Ins. Co., 295 F.2d 513 (10th Cir. 1961); Colo. Farm Bureau Mut. 
Ins. Co. v. N. Am. Reinsurance Corp., 802 P.2d 1196 (Colo. Ct. 
App. 1990); Occidental Fire & Cas. Co. v. Underwriters at 
Lloyd's, London, 311 N.E.2d 330 (Ill. App. Ct. 1974); Mission 
Nat'l Ins. Co. v. Duke Transp. Co., Inc., 792 F.2d 550 (5th Cir. 
1986); Radar v. Duke Transp. Inc., 492 So.2d 532 (La. Ct. App. 
1986)). 
No.  2007AP1868.akz 
 
17 
 
Azco's rejection of that opinion.8  Also, in Trane, unlike the 
case now before this court, the excess insurer elected to defend 
and later sought reimbursement from the primary insurer.   
CONCLUSION 
¶121 An insurance policy is a contract.  There is no common 
law or statutory duty to defend.  There is a duty to operate in 
good faith; a violation of that duty is a tort, not a breach of 
contract.9  Here, London Market's excess policy does not provide 
a duty to defend.  Furthermore, even if one were to assume, 
arguendo, that there is a duty to defend, it cannot be invoked 
until the primary policy is exhausted because of the London 
Market policy language. 
¶122 In sum, 
the majority's conclusion increases the 
likelihood of nonperformance by primary insurers or underlying 
insurers as it shifts costs to excess insurance providers.   
¶123 London Market issued an excess liability policy that 
did not include a contractual undertaking to defend the 
policyholder.  Judicially creating a duty to defend under this 
excess umbrella policy may benefit certain parties in the case 
at issue, but it adversely affects the future costs of excess 
                                                 
8 The court of appeals is not permitted to overrule its own 
holdings, which the footnote in Southeast tacitly does.  See 
Cook v. Cook, 208 Wis. 2d 166, 189-90, 560 N.W.2d 246 (1997) 
("[O]nly the supreme court, the highest court in the state, has 
the power to overrule, modify or withdraw language from a 
published opinion of the court of appeals.").  Thus, footnote 4 
from Southeast has no precedential value. 
9 Under the majority's logic, what happens to a bad faith 
claim now?  Does the excess carrier become the injured party 
with respect to that cause of action? 
No.  2007AP1868.akz 
 
18 
 
coverage and ignores fundamental principles of insurance law, 
which underlie our system of justice.   
¶124 For the foregoing reasons I dissent. 
¶125 I am authorized to state that Justices PATIENCE DRAKE 
ROGGENSACK and MICHAEL J. GABLEMAN join this dissent. 
 
No.  2007AP1868.akz 
 
 
 
1