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Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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In the 

United States Court of Appeals 

For the Seventh Circuit ____________________

No. 15‐1973

STATE OF WISCONSIN LOCAL GOVERNMENT

PROPERTY INSURANCE FUND,

Plaintiff‐Appellee,

v.

LEXINGTON INSURANCE COMPANY,

Defendant‐Appellant,

v.

CINCINNATI INSURANCE COMPANY,

Defendant‐Appellee.

____________________

Appeal from the United States District Court for the

Eastern District of Wisconsin.

No. 15‐CV‐00142‐JPS — J. P. Stadtmueller, Judge.

____________________

ARGUED FEBRUARY 19, 2016 — DECIDED OCTOBER 21, 2016

____________________

Case: 15-1973 Document: 37 Filed: 10/21/2016 Pages: 15
2 No. 15‐1973

Before MANION and ROVNER, Circuit Judges, and BLAKEY,

District Judge.



BLAKEY, District Judge. This dispute arises from the 2013

fire at the Milwaukee County Courthouse (the “Court‐

house”). Milwaukee County (the “County”) maintained its

primary insurance policy covering the Courthouse with the

State of Wisconsin Local Government Property Insurance

Fund (the “Fund”). The Fund in turn engaged defendant Lex‐

ington Insurance Company (“Lexington”) as either its rein‐

surer or excess insurer (the parties disagree). The County also

maintained a separate insurance policy with The Cincinnati

Insurance Company (“Cincinnati”) that covered machinery

and equipment at the Courthouse.

Shortly after the fire, the County filed a claim with the

Fund. The Fund paid all but a small portion of the County’s

claimed losses. The Fund insisted that the remaining unpaid

portion of the County’s claim should be paid by Cincinnati.

Pursuant to separate Joint Loss Agreements in the County’s

policies with the Fund and Cincinnati, the Fund and Cincin‐

nati agreed to arbitrate their dispute.  

This appeal concerns Lexington’s attempt to insert itself in

that arbitration between the Fund and Cincinnati. The district

court denied Lexington’s motion to compel arbitration after

concluding that Lexington’s participation was not contem‐

plated by the plain language of the Joint Loss Agreements.

Lexington appealed. For the reasons explained below, we

AFFIRM.

                                                   Of the Northern District of Illinois, sitting by designation.

Case: 15-1973 Document: 37 Filed: 10/21/2016 Pages: 15
No. 15‐1973 3

I. Background & Procedural History

At the time of the fire in July 2013, the County held two

separate insurance policies covering the Courthouse. The pri‐

mary policy (the “Fund Policy”) was issued by the Fund, and

explicitly excluded from coverage certain forms of electrical

damage. The County held an additional policy with Cincin‐

nati (the “Cincinnati Policy”) that specifically covered electri‐

cal and mechanical failure.

Both the Fund Policy and the Cincinnati Policy contain a

Joint Loss Agreement (“JLA”). Even though the two JLAs dif‐

fer in several material respects, both provide that, if the insur‐

ers dispute which of them bears the cost of certain damage,

the County may compel each to pay one‐half of the disputed

amount. The insurers then would submit their dispute re‐

garding the paid claim to arbitration. The purpose of the JLAs

is to make the County whole quickly, while allowing the in‐

surers to resolve their own dispute separately.

After the fire, the County initially filed a claim for approx‐

imately $19 million with the Fund pursuant to the Fund Pol‐

icy. The Fund paid the County approximately $17.4 million,

but disputed the remaining $1.6 million under the theory that

the remainder should be paid by Cincinnati. In response, the

County invoked its rights under the JLAs with Cincinnati and

the Fund. Consequently, the Fund and Cincinnati, consistent

with their JLA obligations, each paid one‐half of the disputed

amount ($800,000) to the County and agreed to arbitrate their

dispute.

Meanwhile, the Fund and Lexington maintained a sepa‐

rate policy that provided coverage for the Fund in the event it

paid on a claim worth $1.8 million or more (the “Lexington

Case: 15-1973 Document: 37 Filed: 10/21/2016 Pages: 15
4 No. 15‐1973

Policy”). After the Fund made its initial payment to the

County, the Fund filed a claim with Lexington under the Lex‐

ington Policy, seeking reimbursement for amounts paid by

the Fund to the County. Lexington paid the Fund $5 million

but disputes that it owes anything more.

In an attempt to secure a declaration regarding the rights

and obligations of the respective parties, the Fund initiated

this case in the Circuit Court of Milwaukee County. Lexington

removed the case to the United States District Court for the

Eastern District of Wisconsin and filed a motion to compel

Cincinnati and the Fund to allow Lexington to participate in

the arbitration contemplated by the JLAs.

The district court identified “two overarching issues” im‐

plicated by Lexington’s motion to compel arbitration. The

first is whether the Lexington Policy incorporated the JLA

from the Fund Policy. The district court answered this ques‐

tion in the affirmative, pursuant to the “follow form” provi‐

sion in the Lexington Policy. The second issue is whether the

Fund Policy JLA, as incorporated into the Lexington Policy,

compelled Lexington’s participation in the arbitration. The

district court rejected this proposed participation because: (1)

Lexington’s participation was inconsistent with the specific

text of the Fund Policy JLA; and (2) Lexington failed to meet

the Fund Policy JLA’s contractual prerequisites to arbitration.

We reexamine both issues on appeal.

II. Analysis

We review the district court’s denial of Lexington’s mo‐

tion de novo. See Sgouros v. TransUnion Corp., 817 F.3d 1029,

1033 (7th Cir. 2016) (“Our review of the issues on this ap‐

peal—the question whether an agreement to arbitrate arose,

Case: 15-1973 Document: 37 Filed: 10/21/2016 Pages: 15
No. 15‐1973 5

and the denial of TransUnion’s motion to compel arbitra‐

tion—is de novo.”).

In doing so, we apply Wisconsin law. The district court

presumed that Wisconsin law controls. Given that the Fund

and the County are Wisconsin entities, the Courthouse is lo‐

cated in Wisconsin, and the Cincinnati Policy contains Wis‐

consin‐specific endorsements, we agree. Indeed, no party

challenged the application of Wisconsin law.

A. Courts Decide Gateway Questions

The parties dispute the existence of an arbitration agree‐

ment between Lexington and any other entity. Under govern‐

ing precedent, this is a question reserved for the judiciary. See

Contʹl Cas. Co. v. Am. Nat. Ins. Co., 417 F.3d 727, 730 (7th Cir.

2005) (“Whether the parties have agreed to arbitrate is a ques‐

tion normally answered by the court rather than by an arbi‐

trator. The issue is governed by state law principles govern‐

ing contract formation.”). As such, we reject Lexington’s sug‐

gestion that the question posed by this appeal should be re‐

solved by an arbitrator. Courts, not arbitrators, are charged

with deciding “gateway matters, such as whether the parties

have a valid arbitration agreement at all or whether a conced‐

edly binding arbitration clause applies to a certain type of

controversy.” Green Tree Financial Corp. v. Bazzle, 539 U.S. 444,

452 (2003); see also Sphere Drake Ins. Ltd. v. All Am. Ins. Co., 256

F.3d 587, 589, 591 (7th Cir. 2001) (reaffirming “the principle

that courts, rather than arbitrators, usually determine

whether the parties have agreed to arbitrate” and that “the

judiciary rather than an arbitrator decides whether a contract

came into being”).

Case: 15-1973 Document: 37 Filed: 10/21/2016 Pages: 15
6 No. 15‐1973

B. Policy In Favor Of Arbitration  

    Does Not Apply In This Case

As a general policy matter, federal courts favor arbitration.

Lewis v. Epic Sys. Corp., 823 F.3d 1147, 1159 (7th Cir. 2016)

(“The [Federal Arbitration Act] contains a general policy fa‐

voring arbitration and a liberal federal policy favoring arbi‐

tration agreements.”) (internal quotation omitted). But that

general preference yields to explicit contrary contractual lan‐

guage. As we explained in Andermann v. Sprint Spectrum L.P.,

the “federal policy favoring arbitration” was originally for‐

mulated to simply “make clear, as had seemed necessary be‐

cause of judges’ historical hostility to arbitration, that arbitra‐

tion was no longer to be disfavored.” 785 F.3d 1157, 1159 (7th

Cir. 2015). For unambiguous contracts, however, the agree‐

ment, as reflected by the document’s explicit terms, controls.

Id. (holding that a court must respect the parties’ “dispute‐

resolution preferences as embodied in an arbitration clause”);

see also Granite Rock Co. v. Intʹl Bhd. of Teamsters, 561 U.S. 287,

303 (2010) (reiterating that “it is the court’s duty to interpret

the [parties’] agreement and to determine whether the parties

intended to arbitrate grievances concerning a particular mat‐

ter [such that] the presumption of arbitrability [applies] only

where a validly formed and enforceable arbitration agree‐

ment is ambiguous about whether it covers the dispute at

hand”) (internal quotation omitted).  

C.   The Lexington Agreement Incorporates  

The JLA Set Forth In The Fund Policy

The district court held that the Lexington Policy incorpo‐

rates the Fund Policy’s JLA. The court grounded its reasoning

in Endorsement A to the Lexington Policy, which provides

Case: 15-1973 Document: 37 Filed: 10/21/2016 Pages: 15
No. 15‐1973 7

that: “Policy follows form and is excess over the [Fund Policy]

and endorsements.” App’x 5 at 32.

Following form “is an insurance industry term of art that

is typically understood by insurance professionals to suggest

that an excess or umbrella policy incorporates the terms of an‐

other underlying policy.” Wadzinski v. Auto‐Owners Ins. Co.,

818 N.W.2d 819, 829 (Wis. 2012) (citation omitted). As such,

absent explicit limitations to the contrary, a follow form pro‐

vision incorporates the terms, definitions, exclusions, and

conditions of the underlying policy “to ensure that the same

terms of coverage are maintained between primary and ex‐

cess levels of insurance.” Id.

Here, the district court determined that: (1) the Lexington

Policy, pursuant to its Endorsement A, followed the form of

the Fund Policy; (2) no other provisions of the Lexington Pol‐

icy removed the Fund Policy’s JLA from the scope of the Lex‐

ington Policy’s follow form provision; and therefore, (3) the

Lexington Policy incorporated the Fund Policy’s JLA. The

Fund concedes this argument on appeal, and with good rea‐

son. We affirm the district court’s finding that the Lexington

Policy incorporates the Fund Policy’s JLA.

D. The JLA Does Not Compel Lexington’s  

Participation In The Arbitration  

We now turn to whether the Fund Policy’s JLA entitles

Lexington to insert itself in the arbitration between Cincinnati

and the Fund. In this case, the only potential basis for such an

imposition is the Fund Policy’s JLA, as incorporated into the

Lexington Policy. As always, we begin with the operative text.

See State ex rel. Journal/Sentinel, Inc. v. Pleva, 456 N.W.2d 359,

362 (Wis. 1990) (reiterating that the “cornerstone of contract

Case: 15-1973 Document: 37 Filed: 10/21/2016 Pages: 15
8 No. 15‐1973

construction is to ascertain the true intentions of the parties as

expressed by the contractual language”).

E.   The JLA Provisions Are Clear

The Fund Policy’s JLA, incorporated into the Lexington

Policy by virtue of the latter’s follow form provision, states as

follows:

In the event of damage to or destruction of

property, at a location designated in this policy

and also designated in a Boiler and Machinery

Insurance Policy(ies) and there is a disagree‐

ment between the insurers with respect to:

(1) Whether such damage or destruction was

caused by a peril insured against by this policy

or by a peril insured against by such Boiler and

Machinery Insurance Policy(ies) or

(2) The extent of participation of this policy and

of such Boiler and Machinery Insurance Pol‐

icy(ies) in a loss of which is insured against, par‐

tially or wholly, by any or all of said policies.

This company shall, upon written request of the

insured, pay to the insured one‐half of the

amount of the loss which is in disagreement, but

in no event more than this company would have

paid if there had been Boiler and Machinery In‐

surance Policy(ies) in effect, subject to the fol‐

lowing conditions:

(1) The amount of loss which is in disagreement,

after making provisions for any undisputed

claims payable under the said policies and after

Case: 15-1973 Document: 37 Filed: 10/21/2016 Pages: 15
No. 15‐1973 9

the amount of the loss is agreed upon by the in‐

sured and the insurers, is limited to the mini‐

mum amount remaining payable under either

the Boiler and Machinery or Fire Policy(ies);

(2) The Boiler and Machinery insurer(s) shall

simultaneously pay to the insured one‐half of

said amount which is in disagreement;

(3) The payments by the insurers hereunder and ac‐

ceptance of the same by the insured signify the agree‐

ment of the insurers to submit to and proceed with

arbitration within 90 days of such payments; the ar‐

bitrators shall be three in number, one shall be

appointed by the Boiler and Machinery insurer,

one shall be appointed by the Fund, and the

third appointed by consent of the othertwo. The

decision by the arbitrators shall be binding on

the insurers and that judgment upon such

award may be entered in any court of compe‐

tent jurisdiction;

(4) The insured agrees to cooperate in connec‐

tion with such arbitration but not to intervene

therein;  

(5) The provisions of this endorsement shall not

apply unless such other policy(ies) issued by the

Boiler and Machinery insurance company(ies)

is similarly endorsed; and  

(6) Acceptance by the insured of some payment

pursuant to the provisions of this endorsement,

including an arbitration award, shall not oper‐

Case: 15-1973 Document: 37 Filed: 10/21/2016 Pages: 15
10 No. 15‐1973

ate to alter, waive, surrender or in any way af‐

fect the rights of the insured against any of the

insurers.

App’x 4 at 24 (emphasis added).

The JLA is not ambiguous. See Tufail v. Midwest Hosp., LLC,

833 N.W.2d 586, 594 n.8 (Wis. 2013) (“Ambiguity is found

where a contract is fairly susceptible of more than one con‐

struction, not necessarily where different constructions are ar‐

gued.”) (internal quotation omitted). Wisconsin contract law

provides that “terms incorporated by reference within the

contract (but which the contract does not go on to define) do

not create an ambiguity.” Matthews v. Wisconsin Energy Corp.,

534 F.3d 547, 554 (7th Cir. 2008) (citation omitted). So long as

“the extrinsic terms are clearly identifiable, the parties agree

to abide by those terms just as they agree to the other terms in

the contract.” Id. (citation omitted); see also Barrons v. J. H.

Findorff & Sons, Inc., 278 N.W.2d 827, 831 (Wis. 1979) (terms of

a preceding contract “incorporated by reference in the [oper‐

ative] contract” govern). This principle of interpretation is

particularly forceful when, as here, the provision at issue is

incorporated wholesale by virtue of a follow form provision.

See Wadzinski, 818 N.W.2d at 829 (following form “is typically

understood by insurance professionals to suggest that an ex‐

cess or umbrella policy incorporates the terms of another”) (em‐

phasis added); see also Tufail, 833 N.W.2d at 592 (“Contract

language is construed according to its plain or ordinary

meaning, consistent with what a reasonable person would

understand the words to mean under the circumstances. For

a business contract, that is the manner that it would be under‐

stood by persons in the business to which the contract re‐

lates.”) (internal quotations omitted).

Case: 15-1973 Document: 37 Filed: 10/21/2016 Pages: 15
No. 15‐1973 11

In sum, the terms of the Fund Policy JLA mean the same

thing whether they are read within the Fund Policy or incor‐

porated into the Lexington Policy. Thus, “insured,” as origi‐

nally used in the Fund Policy JLA (and as incorporated in the

Lexington Policy) means the County. This is hardly revela‐

tory—unambiguous language remains unambiguous when it

is incorporated into another contract. Ourtask now is to apply

this same unambiguous language “according to its literal

terms and consistent with what a reasonable person would

understand the words to mean under the circumstances.”

Fabco Equip., Inc. v. Kreilkamp Trucking, Inc., 841 N.W.2d 542,

546 (Wis. Ct. App. 2013) (internal quotation omitted).

F. The JLA Does Not Constitute An Agreement

To Arbitrate With Lexington

The Fund Policy JLA, by its “literal terms,” is not an agree‐

ment to arbitrate at all. Instead, the Fund Policy JLA merely

codifies a procedure whereby the parties can potentially agree

to arbitrate. App’x 4 at 24 (“The payments by the insurers ...

and acceptance of the same by the insured signify the agreement

of the insurers to submit to and proceed with arbitration

within 90 days of such payments.”) (emphasis added). That

procedure, as spelled out above, requires a demand by the in‐

sured; a dispute between the insurers about liability; payment

by each insurer of half the disputed amount; and acceptance

of payment by the insured. Only by completing each of these

enumerated steps can the parties form an agreement to arbi‐

trate under the Fund Policy JLA. None of these steps occurred

with respect to Lexington.

To be clear, the Fund Policy JLA’s payment‐and‐ac‐

ceptance process is not merely a procedural mechanism at‐

Case: 15-1973 Document: 37 Filed: 10/21/2016 Pages: 15
12 No. 15‐1973

tendant to an already‐enforceable arbitration agreement. In‐

stead, this procedure is the means by which the parties form

an agreement to arbitrate. The stark contrast provided by Cin‐

cinnati and the Fund underscores this critical difference. Both

the Fund and Cincinnati disputed the demands made by the

County. Both the Fund and Cincinnati paid the County one‐

half of the disputed amount in response to the County’s invo‐

cation of its rights under the two JLAs. By the JLAs’ literal

terms, the Fund and Cincinnati were only obligated to arbi‐

trate their dispute upon the County’s acceptance of those

same payments. In other words, the “literal terms” of the

Fund Policy JLA provide the method by which the parties can

“signify” their agreement to arbitrate.

Based upon the undisputed record here, Lexington simply

did not employ the signifying procedure to trigger an agree‐

ment to arbitrate. Lexington never received a request for pay‐

ment from the County, and Lexington never made a payment

to the County.1Moreover, neither Cincinnati nor the Fund nor

the County communicated any of the enumerated signals to

Lexington. Consequently, the parties did not agree to arbi‐

trate a dispute with Lexington under the Fund Policy JLA.

G. This Court’s Reading Remains Consistent

With Madison Teachers

Lexington argues that, under Wisconsin law, “the failure

to satisfy one condition in an agreement to proceed to arbitra‐

tion” may not “thwart the intent of an arbitration provision,

                                                  1

Lexington did pay $5 million to the Fund. Under the Fund Policy

JLA, however, the County (not the Fund) is the “insured.” Moreover, Lex‐

ington does not argue that this transfer had anything to do with the Fund

Policy JLA’s payment‐and‐acceptance process.

Case: 15-1973 Document: 37 Filed: 10/21/2016 Pages: 15
No. 15‐1973 13

which is to resolve a dispute with an arbitrator rather than in

a courthouse.” Appellant Br. at 36 (citing Madison Teachers,

Inc. v. Wisconsin Educ. Ass’n Council, 703 N.W.2d 711 (Wis. Ct.

App. 2005)). This principle is true (so far as it goes), but not

controlling here.

In Madison Teachers, the parties’ arbitration agreement spe‐

cifically named an individual to serve as arbitrator; however,

the named individual was not available at the time of the par‐

ties’ dispute. Madison Teachers, Inc., 703 N.W.2d at 717. The

trial court held that the parties were no longer bound to arbi‐

trate in the absence of the named arbitrator. Id. at 713. The

Wisconsin Court of Appeals reversed on the grounds that the

named arbitrator’s absence was not “more important than the

arbitration process itself.” Id. at 717. Indeed, the court took

pains to note that the use of the named arbitrator in that case

was not a “condition precedent ... central to” the parties’ ar‐

bitration agreement. Id. at 715–16.

Madison Teachers is clearly not this case. Madison Teachers

involved an express agreement to arbitrate. The Fund Policy

JLA does not contain an express agreement to arbitrate, but

merely provides a means by which the parties may express an

agreement to arbitrate, and no party ever agreed to arbitrate

any dispute with Lexington. Nor did Lexington engage in the

Fund Policy JLA’s payment‐and‐acceptance process.  

H.   This Court’s Reading Gives Full Force And

Effect To The Provisions Of The JLA

Lexington also argues that if we do not interpret the Fund

Policy JLA to compel its participation in the arbitration be‐

tween the Fund and Cincinnati, we render the Fund Policy

Case: 15-1973 Document: 37 Filed: 10/21/2016 Pages: 15
14 No. 15‐1973

JLA a nullity in contravention of established principles of con‐

tractual interpretation. Appellant Br. at 22. Not so. The plain

text of the Fund Policy JLA provides a means by which the

“insured” and the “insurers” can “signify” their agreement to

arbitrate. The JLA, both as it is originally found in the Fund

Policy and as incorporated into the Lexington Policy, retains

this meaning today. It is merely dormant here because, as a

factual matter, no party availed itself of this procedure vis‐à‐

vis Lexington.

I. Lexington’s Status As A Reinsurer Or Excess

Insurer Remains Irrelevant  

The parties have spent considerable time on appeal debat‐

ing a question left unanswered by the district court, namely,

whether Lexington is an “excess insurer” or a “reinsurer.” We

agree with the district court that there is no need to answer

this particular question.

The only possible ground for granting Lexington the relief

it seeks is the JLA, as incorporated into the Lexington Policy

from the Fund Policy. The JLA, in turn, is an unambiguous

contractual provision, which we interpret according to its lit‐

eral terms. The parties’ dueling characterizations of the nature

of the Lexington Policy are simply not implicated by that pro‐

cess.

III. Conclusion

The Fund Policy JLA provides a procedure whereby the

parties could “signify” an agreement to arbitrate. No such sig‐

nals were exchanged between Lexington and any party here

and, as a result, no agreement to arbitrate exists between Lex‐

Case: 15-1973 Document: 37 Filed: 10/21/2016 Pages: 15
No. 15‐1973 15

ington and the otherinsurers. Absent such an agreement, Lex‐

ington is not entitled to insert itself into the arbitration be‐

tween the Fund and Cincinnati.

For these reasons, the judgment of the district court is

AFFIRMED.

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