Title: Maxwell v. Hartford Union High Sch. Dist.
Citation: 2012 WI 58
Docket Number: 2009AP002176
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: May 30, 2012

2012 WI 58 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2009AP2176 
COMPLETE TITLE: 
 
Dawn L. Maxwell, 
          Plaintiff, 
     v. 
Hartford Union High School District and Hartford 
Union High School Board of Education, 
          Defendants-Third-Party  
          Plaintiffs-Appellants, 
     v. 
Community Insurance Corporation, 
          Third-Party  
          Defendant-Respondent-Petitioner. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at 329 Wis. 2d 654, 791 N.W.2d 195 
(Ct. App. 2010-Published) 
 
 
OPINION FILED: 
May 30, 2012   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
September 14, 2011 
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
CIRCUIT 
 
COUNTY: 
WASHINGTON 
 
JUDGE: 
JAMES K. MUEHLBAUER 
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
CROOKS, J. (Dissent filed).  
ABRAHAMSON, C.J., joins dissent. 
BRADLEY, J., joins dissent.   
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the third-party-defendant-respondent-petitioner there 
were briefs filed by Lori M. Lubinsky, Sara K. Beachy and Axley 
Brynelson, LLP, Madison and oral argument by Lori M. Lubinsky. 
For the third-party plaintiffs-appellants there was a brief 
by James W. Mohr, Jr. and Mohr & Anderson, LLC, Hartford, and 
oral argument by James W. Mohr, Jr. 
 
 
2012 WI 58
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  2009AP2176   
(L.C. No. 
2007CV871) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Dawn L. Maxwell, 
 
          Plaintiff, 
 
     v. 
 
Hartford Union High School District and 
Hartford Union High School Board of 
Education, 
 
          Defendants-Third-Party  
          Plaintiffs-Appellants, 
 
     v. 
 
Community Insurance Corporation, 
 
          Third-Party Defendant- 
          Respondent-Petitioner. 
 
 
 
FILED 
 
MAY 30, 2012 
 
Diane M. Fremgen 
Clerk of Supreme Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Reversed.   
¶1 
DAVID T. PROSSER, J.   This is a review of a published 
decision of the court of appeals, Maxwell v. Hartford Union High 
School 
District, 
2010 
WI 
App 
128, 
329 
Wis. 2d 
654, 
791 N.W.2d 195, which reversed a judgment of the circuit court 
for Washington County, James K. Muehlbauer, Judge.  The circuit 
No. 
  2009AP2176 
 
2 
 
court 
granted 
summary 
judgment 
to 
Community 
Insurance 
Corporation (CIC) on a claim by the Hartford Union High School 
Board of Education and the Hartford Union High School District 
(collectively "the District") that insurance coverage had been 
created by virtue 
of the insurer's failure to issue a 
reservation of rights letter during its unsuccessful defense of 
the District in a contract lawsuit.  The court of appeals 
reversed, holding that "CIC is estopped from denying coverage 
because the District relied on CIC's defense to its detriment 
and was prejudiced thereby."  Id., ¶33.  The issue presented for 
review is whether an insurer's failure to issue a reservation of 
rights letter is sufficient to defeat, by waiver or estoppel, a 
coverage clause in an insurance contract that would otherwise 
justify the insurer's denial of coverage. 
¶2 
We conclude that the failure to issue a reservation of 
rights letter cannot be used to defeat, by waiver or estoppel, a 
coverage clause—as distinguished from grounds for forfeiture—in 
an insurance contract.  We strongly urge insurers to communicate 
with their insureds about their potential coverage defenses, but 
we do not see the failure to issue a reservation of rights 
letter as grounds to require an insurer to provide insurance 
coverage that does not otherwise exist in the insurance 
contract.  Consequently, we reverse the decision of the court of 
appeals. 
I. FACTUAL BACKGROUND 
¶3 
Dawn Maxwell (Maxwell) began her employment with the 
District in 2000, always serving in administrative capacities.  
No. 
  2009AP2176 
 
3 
 
She entered into a new employment contract with the District in 
2006.  It covered the time period from July 1, 2006, to June 30, 
2008.  In January 2007, however, Maxwell was informed that her 
position would be eliminated at the end of the 2006-2007 school 
year.  After a series of back and forth negotiations and events, 
including an interim settlement agreement, Maxwell was told that 
her employment would end on August 31, 2007.  
¶4 
On August 30, 2007, Maxwell filed a complaint against 
the District.  CIC, the District's insurer, was not named as a 
party to this suit.  Maxwell complained about the District's 
conduct in terminating her employment.  She sought injunctive 
relief for immediate reinstatement of her position, monetary 
damages, and declaratory relief interpreting the contract.  Her 
suit was based upon several alleged acts of misconduct by the 
District including breach of contract, breach of an interim 
agreement, violation of her due process rights under the 
Wisconsin Constitution, and violation of Wis. Stat. § 118.24.1   
¶5 
Hartford Union High School had a $10,000,000 Public 
Entity Liability Insurance Policy from Community Insurance 
Corporation that was in effect from October 1, 2006 to October 
1, 2007.  The policy included the following language:  
 
Various 
provisions 
in 
this 
policy 
restrict 
coverage.  Read the entire policy carefully to 
determine rights, duties and what is and is not 
covered.  
                                                 
1 All subsequent references to the Wisconsin Statutes are to 
the 2007-08 version unless otherwise indicated. 
No. 
  2009AP2176 
 
4 
 
. . . .  
SECTION II—DEFENSE AND SETTLEMENT   
We have the right and duty to defend any "suit" 
against the insured seeking monetary damages on 
account 
of 
"bodily 
injury", 
"personal 
injury", 
"property damage" or "errors and omissions" or any 
combination thereof . . . . 
"Defense costs" are payable in addition to the policy 
limit 
after 
any 
applicable 
deductible 
has 
been 
exhausted. . . .  
SECTION V—EXCLUSIONS 
This policy does not apply to: 
. . . .  
D. 
Any liability for:  
1. 
Any amount actually or allegedly due under 
the terms of any payment or performance contract or 
agreement, or  
2. 
for that part of any award or settlement 
which is, or reasonably could be deemed to be, 
compensation for loss of salary or fringe benefits of 
your employee(s). 
¶6 
Attorney James W. Mohr was general counsel to the 
District.  On September 4, 2007, he entered an appearance in the 
Maxwell case on behalf of the District in Washington County 
Circuit Court.  On September 5 he represented the District in 
opposing Maxwell's effort to obtain a temporary restraining 
order (TRO). 
¶7 
On September 7 Attorney Mohr forwarded the Summons and 
Complaint in the Maxwell matter to Brian Knee of Aegis 
Corporation 
(Aegis), 
the 
general 
administrator 
for 
CIC.  
Attorney Mohr acknowledged that Brian Knee had already spoken 
No. 
  2009AP2176 
 
5 
 
with Jerome Dudzik, the Director of Business Services for the 
District.  Mohr also said that he had "been in relatively 
constant contact with Attorney Alan Levy" and was seeking 
confirmation that "the defense has been assigned to Attorney 
Alan Levy so that I [Attorney Mohr] can begin working directly 
with him." 
¶8 
The next day, Brian Knee sent a letter via email to 
Attorney Levy to update Levy on the status of the litigation.  
He noted that Attorney Mohr had begun work on a response to the 
Complaint and had already appeared at the hearing on Maxwell's 
request for a TRO. 
¶9 
In early September, CIC assigned Attorney Levy to 
represent the District in the Maxwell case.  Attorney Levy 
entered a formal appearance on September 21, but had been 
present in an unofficial capacity at the TRO hearing on 
September 5.  Attorney Levy remained an attorney of record for 
the District until August 2009.  During this time, Attorney Levy 
did not represent CIC; and neither CIC nor Aegis (on CIC's 
behalf) sent a reservation of rights letter to the District or 
Attorney Mohr.   
¶10 Attorney Levy signed papers submitted on behalf of the 
District throughout the litigation.  Attorney Mohr remained an 
attorney of record until July 1, 2008, and participated in the 
case to some extent during this period after Attorney Levy was 
assigned.  For instance, he appeared with Levy at a motion 
hearing as a result of his personal knowledge of the events 
leading up to the termination of Maxwell's employment, and Brian 
No. 
  2009AP2176 
 
6 
 
Knee alleged in an affidavit that Attorney Mohr had "received 
drafts of every brief" before that brief was filed with the 
circuit court. 
¶11 On June 11, 2008, after receiving numerous filings, 
the circuit court granted partial summary judgment to Maxwell on 
her claim for breach of contract.  It awarded compensatory 
damages of $103,824.22 at a hearing September 8. 
¶12 As noted, Attorney Mohr withdrew from the suit on July 
1, 2008, after summary judgment had been granted but before 
damages had been awarded.  On July 24 he emailed Attorney Levy, 
Michael Kremer (the superintendent of the District), and Brian 
Knee "to make one point perfectly clear": that because CIC had 
furnished 
a 
defense 
to 
the 
District 
without 
issuing 
a 
reservation of rights letter, CIC could not deny coverage for 
any compensatory damages that might be awarded.  To support his 
position, Mohr cited Pouwels v. Cheese Makers Mutual Casualty 
Co., 255 Wis. 101, 37 N.W.2d 869 (1949), and Koehring Co. v. 
American Mutual Liability Insurance Co., 564 F. Supp. 303 (E.D. 
Wis. 1983).  Mohr notified CIC that CIC could proceed however it 
wished "as long as the claim is fully covered," and he 
threatened a claim for bad faith to secure coverage.  Mohr also 
requested a response from Brian Knee. 
¶13 On August 18, 2008, Knee, litigation manager for CIC 
via Aegis, sent a response by email—informing Mohr that CIC was 
not liable for any judgment for damages due under Maxwell's 
performance contract or any settlement for lost wages or lost 
benefits.  Knee cited Shannon v. Shannon, 150 Wis. 2d 434, 442 
No. 
  2009AP2176 
 
7 
 
N.W.2d 25 
(1989), 
and 
Ahnapee 
& 
Western 
Railway 
Co. 
v. 
Challoner, 34 Wis. 2d 134, 148 N.W.2d 646 (1967).  Knee notified 
Mohr that CIC would continue to defend the District, through 
appeal, but it was not liable for damages excluded from coverage 
in the policy. 
¶14 On October 30, 2008, after compensatory damages had 
been awarded by the court, Mohr filed a motion for leave to file 
a third-party complaint against CIC because CIC had denied 
coverage for the monetary damages in the lawsuit.  That 
complaint was filed in January 2009. 
¶15 On April 21, 2009, Jerome Dudzik sent Brian Knee a 
letter expressing discontent with Attorney Levy and alleging 
Levy had a conflict of interest because he was paid by and 
reported to CIC. 
¶16 Brian Knee responded to Dudzik on April 29, 2009, 
disputing that there was a conflict of interest on the part of 
Levy, but offering to provide the attorney that the District 
requested as long as the attorney reported to CIC and was paid 
directly by CIC. 
II. PROCEDURAL HISTORY 
¶17 On January 20, 2009, the District filed a Third-Party 
Complaint against CIC alleging eight "causes of action" seeking 
declaratory relief that the policy provided coverage and that 
CIC could "assert no coverage defenses, nor policy limit 
defenses."  Additionally, the District sought attorney fees and 
costs as well as punitive damages. 
No. 
  2009AP2176 
 
8 
 
¶18 On March 19, 2009, CIC moved to dismiss the complaint 
pursuant to Wis. Stat. § 802.06(2)(a)6., for failure to state a 
claim upon which relief can be granted.  The motion to dismiss 
relied on the policy's coverage exclusion and on Wisconsin law 
stating that insurance coverage cannot be created or expanded by 
waiver or estoppel. 
¶19 Attorney Mohr responded by filing a motion for summary 
judgment "that the policy of insurance issued by Third-Party 
Defendant 
[CIC] 
to 
Third-Party 
Plaintiffs 
[the 
District] 
provides coverage to Third-Party Plaintiffs for the claims 
asserted against them" by Dawn Maxwell.  The grounds for summary 
judgment were that: 
1. 
The Third-Party Defendant issued a policy of 
insurance to the Third-Party Plaintiffs which was in 
effect when this lawsuit arose. 
2. 
Third-Party Plaintiffs tendered the defense of 
this lawsuit to Third-Party Defendant which accepted 
it in September, 2007 without any reservation of 
rights whatsoever. 
3. 
Third-Party 
Defendant 
has 
never 
issued 
a 
reservation of rights letter to Third-Party Plaintiffs 
nor ever advised Third-Party Plaintiffs that there 
were coverage issues under their policy of insurance 
until after Third-Party Plaintiffs lost a Motion for 
Summary Judgment establishing Third-Party Plaintiffs' 
liability to the Plaintiff.  
4. 
Such delayed notice of a coverage denial has 
prejudiced the Third-Party Plaintiffs—both actually 
and as a matter of law. 
¶20 The District also submitted a brief responding to 
CIC's motion to dismiss the third-party complaint and in support 
of their summary judgment motion.  The District relied heavily 
No. 
  2009AP2176 
 
9 
 
on 
Pouwels 
and 
Koehring, 
as 
well 
as 
cases 
from 
other 
jurisdictions, for the proposition that estoppel can be applied 
to an insurer's failure to issue a reservation of rights letter 
and that prejudice must be presumed in these cases. 
¶21 After several other filings by the parties, the 
circuit court issued a decision on July 15, 2009, on both the 
motion to dismiss and the motion for summary judgment.  The 
court determined that the complaint alleged actual coverage for 
the claims asserted and thus under some circumstances a claim 
could proceed.  Therefore, the court denied CIC's motion to 
dismiss. 
¶22 However, the circuit court also denied the District's 
motion for summary judgment.  After discussing the language of 
the policy exclusions as well as the string of cases cited by 
each side, the court followed Shannon and held that there was no 
coverage for the salary and benefit claims and that CIC's 
conduct could not and did not create coverage for that aspect of 
the claim.  The court stated that "Hartford did not pay for 
coverage of employee salary or fringe benefits claims, and under 
existing Wisconsin law, [CIC's] conduct cannot be determined to 
create such coverage."  It granted summary judgment to CIC on 
that basis. 
¶23 As noted, the court of appeals reversed the circuit 
court.  After acknowledging the general rule that "coverage 
under an insurance policy cannot be created either by waiver or 
estoppel," Maxwell, 329 Wis. 2d 654, ¶17, the court of appeals 
distinguished Shannon, and Utica Mutual Insurance Co. v. Klein & 
No. 
  2009AP2176 
 
10 
 
Son, Inc., 157 Wis. 2d 552, 460 N.W.2d 763 (Ct. App. 1990), to 
find an exception to the general rule when "the insurer agree[s] 
to defend the insured without a reservation of rights, retain[s] 
counsel, and actively defend[s] the insured through to a final 
judgment detrimental to the insured, only then to decline to 
provide coverage."  Maxwell, 329 Wis. 2d 654, ¶18.   
¶24 The court of appeals relied on Couch on Insurance and 
case law from other jurisdictions to establish the framework for 
its analysis.  Id., ¶¶24-27.  It then turned to Pouwels and 
Koehring 
to 
establish 
that 
Wisconsin 
cases 
supported 
an 
application of waiver or estoppel to preclude the insurer from 
asserting the policy defense of noncoverage.  Id., ¶28-29.  
After this discussion and emphasis on the importance of a 
reservation of rights letter, id., ¶32, the court of appeals 
held that "CIC is estopped from denying coverage because the 
District relied on CIC's defense to its detriment and was 
prejudiced thereby."  Id., ¶33. 
¶25 CIC filed a petition for review which the court 
granted on February 8, 2011.   
III. STANDARD OF REVIEW 
¶26 This review arises from a challenge to the circuit 
court's grant of summary judgment.  It is reviewed de novo 
applying Wis. Stat. § 802.08(2) in the same manner as the 
circuit court.  Green Spring Farms v. Kersten, 136 Wis. 2d 304, 
315, 401 N.W.2d 816 (1987).  The legal issue before the court, 
whether estoppel or waiver apply in this case when an insurer 
failed to issue a reservation of rights letter, "is a question 
No. 
  2009AP2176 
 
11 
 
of law which this court decides independently without deference 
to the decision of the circuit court or the court of appeals."  
Shannon, 150 Wis. 2d at 450.   
IV. ANALYSIS 
¶27 The CIC policy excluded coverage "for that part of any 
award or settlement which is, or reasonably could be deemed to 
be, compensation for loss of salary or fringe benefits of your 
employee(s)."  The circuit court had no difficulty determining 
that the exclusion applied to the monetary damages claimed by 
Maxwell.  That the CIC policy excludes coverage is not in 
dispute. 
¶28 Thus, the issue presented is whether, because CIC 
failed to issue a reservation of rights letter to its insureds 
(before or during the time that it provided an unsuccessful 
defense in the contract suit against them), CIC either waived or 
may be estopped from asserting its noncoverage defense, thereby 
requiring CIC to provide insurance coverage that is not in the 
insurance contract.   
¶29 "The general rule is well established that the 
doctrine of waiver or estoppel based upon the conduct or action 
of the insurer or its agent is not applicable to matters of 
coverage 
as 
distinguished 
from 
grounds 
for 
forfeiture."  
Shannon, 150 Wis. 2d at 450-51.  This rule has been the law of 
Wisconsin since 1896.  McCoy v. Nw. Mut. Relief Ass'n, 92 Wis. 
577, 66 N.W. 697 (1896).  
¶30 The McCoy case illuminates the governing principles.  
Northwestern Mutual Relief Association issued a life insurance 
No. 
  2009AP2176 
 
12 
 
contract to McCoy.  The application for the policy read: "I 
hereby agree that the association assumes no liability in case 
of suicide" and the policy included language that "[s]uicide or 
self-destruction of the member herein named, whether voluntary 
or involuntary, sane or insane, at the time thereof, is not a 
risk assumed by this association."  Id. at 578-79 (statement of 
the case) (internal quotation marks omitted).  In the face of 
arguments that the suicide clause should not be applied because 
of actions by the association, the court said: 
[W]e are unable to see how the settled rules under 
which it is held that a forfeiture or condition of 
forfeiture may be waived applies here.  What is 
insisted 
upon 
is 
not 
really 
the 
waiver 
of 
a 
forfeiture, or an equitable estoppel against insisting 
upon a condition of the policy, the violation of which 
would otherwise work a forfeiture.  It is a misuse of 
the term to so speak of the loss of benefits under the 
certificate in question.  What is here sought is not 
to prevent a forfeiture, but to make a new contract; 
to radically change the terms of the certificate so as 
to cover death by suicide, when by its terms that is 
expressly excluded from the contract.  We do not 
understand that the doctrine of estoppel or waiver 
goes that far.  After a loss accrues, an insurance 
company may, by its conduct, waive a forfeiture; or by 
some act before such loss it may induce the insured to 
do or not to do some act contrary to the stipulations 
of the policy, and thereby be estopped from setting up 
such violation as a forfeiture; but such conduct, 
though in conflict with the terms of the contract of 
insurance and with the knowledge of the insured and 
relied upon by him, will not have the effect to 
broaden out such contract so as to cover additional 
objects of insurance or causes of loss. . . .  While a 
forfeiture of benefits contracted for may be waived, 
the 
doctrine 
of 
waiver 
or 
estoppel 
cannot 
be 
successfully 
invoked 
to 
create 
a 
liability 
for 
benefits not contracted for at all. 
Id. at 584-85 (emphasis added). 
No. 
  2009AP2176 
 
13 
 
¶31 McCoy was cited approvingly in Ahnapee in 1967: 
The rule that estoppel may apply to a forfeiture 
of benefits contracted for but cannot be successfully 
invoked to create a liability for benefits or coverage 
not contracted for was first laid down in this state 
in McCoy.  The McCoy case has been regarded as one of 
the early and important cases on the subject.   
Ahnapee, 34 Wis. 2d at 141 (citation omitted).   
¶32 Ahnapee strongly reinforced McCoy's principles: 
[W]hile estoppel may be used to prevent an insurer 
from 
insisting 
upon 
conditions 
which 
result 
in 
forfeiture, estoppel has not been used in this state 
or in the majority of states as a means whereby the 
scope of coverage of an insurance policy can be 
expanded to include coverage which was not provided 
for or was excluded in the contract. 
Id. at 140.  "Estoppel rules have consistently been held by this 
court not to apply to extend coverage in other types of 
insurance contracts."  Id. at 141. 
As a general rule, conditions and terms, either of an 
inclusionary or exclusionary nature in the policy, go 
to the scope of the coverage or delineate the risks 
assumed, as distinguished from conditions and terms 
which furnish a ground for the forfeiture of coverage 
or defeasance of liability.  Only in a few states can 
the doctrine of estoppel be used to enlarge the 
coverage of an insurance policy. 
Id. at 142. 
 
¶33 McCoy, 
Ahnapee, 
and 
other 
authorities 
such 
as 
Rosenthal v. Insurance Co. of North America, 158 Wis. 550, 557, 
149 N.W. 155 (1914), support the strong affirmation of these 
principles in 1989 in Shannon, 150 Wis. 2d at 451-52.2  See also 
                                                 
2 See note 5, infra. 
No. 
  2009AP2176 
 
14 
 
Utica, 157 Wis. 2d at 560, 562 ("The waiver and estoppel issues 
are controlled by Shannon . . . .  The principle underlying 
Shannon is that '[i]nsurance contracts cannot be created by 
estoppel.'").3 
¶34 The rationale behind the rule is as sound today as it 
was in 1896.  An insurer is liable for all risks it agrees to 
assume in the insurance contract.  Exclusions in the contract 
are written to limit coverage.  The insurer bases premiums on 
anticipated risks and the realization that ambiguities in the 
policy are likely to be construed against the insurer.  An 
insured is entitled to the coverage it has paid for, provided 
that it does not forfeit that coverage by violating some 
provision of the contract.  A contract of insurance should not 
be rewritten to bind the insurer to a risk it did not 
contemplate and for which it has not been paid. 
¶35 Waiver and estoppel cannot be used to supply coverage 
from the insurer to protect the insured against risks not 
                                                 
3 Wisconsin courts have held in other cases that waiver and 
estoppel 
do 
not 
apply 
to 
coverage 
clauses 
in 
insurance 
contracts.  Two Rivers Dredge & Dock Co. v. Md. Cas. Co. of 
Baltimore, 168 Wis. 96, 99, 169 N.W. 291 (1918) ("To enforce an 
estoppel as claimed by plaintiff would not only nullify a part 
of the policy agreed to by both parties, but would also operate 
to extend the contract to a liability which the parties 
understood and expressly agreed should not be covered by the 
contract."); Budget Rent-A-Car Sys., Inc. v. Shelby Ins. Group, 
197 Wis. 2d 663, 671-72, 541 N.W.2d 178 (Ct. App. 1995) (the 
court refused to apply waiver and estoppel to expand coverage); 
Hoeft v. U.S. Fire Ins. Co., 153 Wis. 2d 135, 144, 450 
N.W.2d 459 (Ct. App. 1989) ("The rule in Wisconsin is that 
estoppel can neither create an insurance contract where none 
exists, nor enlarge existing coverage."). 
No. 
  2009AP2176 
 
15 
 
included in the policy or expressly excluded therefrom, for that 
would force the insurer to pay a loss for which it has not 
charged a premium.  Moreover, if courts entertained the prospect 
that insureds could gain unpurchased coverage on account of 
collateral action by the insurer, unprotected insureds would 
have obvious incentive to pursue litigation. 
¶36 By its terms, the rule stated does not preclude waiver 
and estoppel from being used "to prevent an insurer from 
insisting upon conditions which result in forfeiture."  Ahnapee, 
34 Wis. 2d at 140.  An insurer must act timely and forthrightly 
on a forfeiture defense to avoid the risk of waiver or estoppel, 
inasmuch as the insured is seeking to invoke coverage it has 
paid for while the insurer is seeking to deny that coverage. 
¶37 The rule as to forfeiture is reiterated in Rosenthal: 
"There might be waiver [by the insurer] of a forfeiture or of a 
breach of contract [by the insured], but waiver as a ground for 
extending the scope of a written contract beyond the usual and 
ordinary meaning of the language employed would be quite a 
novelty."  Rosenthal, 158 Wis. at 557. 
¶38 Stated differently: 
Estoppel may prevent an insurer from enforcing certain 
policy provisions against its insured.  However, even 
where the relationship of insurer and insured exists, 
estoppel cannot be used to enlarge the coverage of an 
insurance policy, for then the effect would be to 
create a new contract providing coverage for which no 
premium has been paid. 
No. 
  2009AP2176 
 
16 
 
Madgett v. Monroe Cnty. Mut. Tornado Ins. Co., 46 Wis. 2d 708, 
710-11, 
176 
N.W.2d 314 
(1970) 
(internal 
quotation 
marks 
omitted). 
¶39 The use of waiver and estoppel to prevent the 
enforcement of a forfeiture provision is illustrated in Von Uhl 
v. Trempealeau County Mutual Insurance Co., 33 Wis. 2d 32, 41, 
146 N.W.2d 516 (1966) (after continuing to accept late payments 
from the insured, the insurer was estopped from insisting upon 
enforcing a forfeiture clause); Nolden v. Mutual Benefit Life 
Insurance Co., 80 Wis. 2d 353, 367-70, 259 N.W.2d 75 (1977) (the 
court held that the misrepresentation clause was subject to 
waiver or estoppel); and Nugent v. Slaght, 2001 WI App 282, 
¶¶19-35, 249 Wis. 2d 220, 638 N.W.2d 594 (determining that the 
cancellation clause at issue was a forfeiture clause and that 
the elements of estoppel were present and thus remanding to the 
circuit court to determine whether to apply estoppel). 
¶40 Providing a defense does not give rise to estoppel or 
waiver of a coverage clause.  Fitzgerald v. Milwaukee Auto. Ins. 
Co., 226 Wis. 520, 526-27, 277 N.W. 183 (1938) (insurer 
participated in defense of insured, but the court held that 
coverage did not exist and insurer was not estopped from denying 
coverage).  Cf. Wis. Transp. Co. v. Great Lakes Cas. Co., 241 
No. 
  2009AP2176 
 
17 
 
Wis. 523, 531, 6 N.W.2d 708 (1942) ("[A]n insurer does not waive 
its defenses by defending an action.").4  
¶41 On the other hand, providing and assuming full control 
of a defense may be grounds for establishing waiver or estoppel 
of a forfeiture clause when the insurer fails to issue a 
                                                 
4 In Wisconsin Transportation, the insurer breached its duty 
to defend after an insured refused to execute a specific 
reservation of rights agreement.  Wis. Transp. Co. v. Great 
Lakes Cas. Co., 241 Wis. 523, 527-31, 6 N.W.2d 708 (1942).  The 
court stated that defending an action does not waive an 
insurer's defenses, and the court explained how providing a 
reservation of rights to an insured (regardless of whether the 
insured executes a reservation of rights agreement) preserves 
defenses.  Id.  At issue in Wisconsin Transportation were the 
sufficiency of a reservation of rights, a breach of the duty to 
defend, and even bad faith, not what types of clauses could be 
overcome by waiver or estoppel.  While the insurer may have been 
contesting the scope of coverage rather than preserving a 
forfeiture defense, nothing in the court's opinion suggests that 
the court was modifying nearly one half century of law regarding 
creation of insurance coverage by estoppel.  This point is 
supported by the fact that in Wisconsin Transportation the court 
was relying on Hickey v. Wisconsin Mutual Ins. Co., 238 Wis. 
433, 300 N.W. 364 (1941), a case that discussed waiver of 
forfeitures.  Id. at 531.  Wisconsin Transportation has not been 
understood by other court decisions, except perhaps Pouwels v. 
Cheese Makers Mutual Casualty Co., 255 Wis. 101, 37 N.W.2d 869 
(1949), to permit estoppel and waiver to apply to coverage 
clauses. 
No. 
  2009AP2176 
 
18 
 
reservation of rights.5  In Hickey v. Wisconsin Mutual Insurance 
Co., 238 Wis. 433, 300 N.W. 364 (1941), the court discussed a 
notice provision in an insurance contract—a forfeiture clause—
which provided that the insured must give the insurer notice 
within five days of an accident to receive coverage under the 
policy.  Id. at 434 (statement of the case).  The court 
determined that the coverage at issue was within the scope of 
the policy and that the insurer's actions in defending the suit 
without raising the forfeiture clause defense could constitute 
waiver of the forfeiture clause.  Id. at 436-38.   
¶42 The District and the court of appeals rely on Pouwels, 
with the court of appeals asserting that it is "directly on 
point."  Maxwell, 329 Wis. 2d 654, ¶28.  The argument is made 
that Pouwels contradicts the rule in the cases previously cited. 
¶43 Pouwels is an unusual case in which a bicyclist was 
injured when a driver negligently opened a car door.  The driver 
                                                 
5 In Shannon, the insurer defended under an insufficient 
reservation of rights.  Shannon v. Shannon, 150 Wis. 2d 434, 442 
N.W.2d 25 (1989).  The insurer designated an attorney to 
represent 
both 
the 
Shannons 
and 
the 
insurer, 
failed 
to 
specifically plead the family member exclusion in its answer, 
and forwarded to the Shannons a nonspecific reservation of 
rights which did not single out the family member exclusion 
defense.  Id. at 450.  The court held that the insurer could not 
waive or be estopped from enforcing a coverage clause, even 
under an insufficient reservation of rights.  Id. at 455.  The 
court of appeals, relying on Hickey, had held that the insurer 
had waived an exclusion clause.  Shannon v. Shannon, 145 
Wis. 2d 763, 774-78, 429 N.W.2d 525 (Ct. App. 1988).  However, 
this court held that waiver and estoppel do not apply to 
coverage clauses, even though they can be applied in the 
forfeiture context.  Shannon, 150 Wis. 2d at 450-51. 
No. 
  2009AP2176 
 
19 
 
did not own the vehicle.  He was the brother of the owner who 
was present when the accident occurred.  The bicyclist sued the 
owner and what he thought was the owner's insurer, Cheese Makers 
Mutual Insurance Company, to recover damages.  Both defendants 
were represented by Attorney Howard Lehner.  During the course 
of the liability trial, Lehner succeeded in getting Cheese 
Makers Mutual Insurance Company dismissed because the car owner, 
Al Ginsburg, had a policy with Cheese Makers Mutual Casualty 
Company, not the named defendant.  Ginsburg later lost at trial 
and on appeal. 
¶44 The bicyclist then sued the proper insurance company 
which denied coverage because its policy covered business use of 
the Ginsburg auto, not personal use.  After listening to the 
evidence, the circuit court reformed the insurance contract 
because Ginsburg had specifically asked an agent of the insurer 
for dual coverage, and both he and the agent thought he had 
received it.  On appeal, Cheese Makers asserted noncoverage, 
claiming that the "agent" wasn't really its agent. 
¶45 One of the arguments in the plaintiff's brief was that 
Cheese Makers had waived the right to assert the defense of 
noncoverage.  After deciding against the insurer on the merits, 
the court proceeded to address the issue of waiver, opining that 
"[t]he insurance company by its conduct waived its right to 
assert the policy defense of noncoverage."  Pouwels, 255 Wis. at 
107. 
¶46 Examination of the briefs shows that the court's 
language and authorities were taken uncritically from the 
No. 
  2009AP2176 
 
20 
 
plaintiff's brief.6  No party cited McCoy or Rosenthal.  As the 
Shannon court later observed: 
Nowhere in Pouwels is there a discussion of the issue 
of whether an exclusion [of coverage] in a policy can 
be waived.  Furthermore, there is no discussion on 
whether Cheese Makers Mutual Casualty Company was 
attempting to base its noncoverage argument on an 
exclusion provision or a forfeiture provision.  As a 
result, we find the case of limited instructive value 
for the situation before us. 
Shannon, 150 Wis. 2d at 452 n.4. 
 
¶47 In 
Utica, 
the 
court 
of 
appeals 
dismissed 
the 
importance of Pouwels, first, by quoting from the critique in 
Shannon and, second, by correctly observing that "the Pouwels 
court's finding of waiver was not necessary to its decision."  
Utica, 157 Wis. 2d at 564-65. 
¶48 Pouwels was cited in Ahnapee by Justice Hallows in his 
discussion of reformation of a contract: 
 
An insurance policy like any other contract may 
be reformed because of mutual mistake when the policy 
does not contain the provisions intended by the 
parties to be included.  But, the contract must be 
reformed 
to 
conform 
to 
some 
oral 
agreement 
or 
understanding which the written document was intended 
to express. 
Ahnapee, 34 Wis. 2d at 137. 
                                                 
6 The court cited Wisconsin Transportation Co. v. Great 
Lakes Casualty Co., 241 Wis. 523, 6 N.W.2d 708 (1942), and 
Hickey v. Wisconsin Mutual Insurance Co., 238 Wis. 433, 300 N.W. 
304 (1941).  Pouwels, 255 Wis. at 107.  These cases are 
distinguishable, the first involving the breach of a duty to 
defend, the second involving a forfeiture clause, not a coverage 
clause. 
No. 
  2009AP2176 
 
21 
 
¶49 Justice Hallows had no problem citing Pouwels in an 
opinion in which he exuberantly affirmed the principles stated 
in McCoy and Rosenthal.  Pouwels was a case in which coverage 
was 
created 
by 
reformation, 
not 
by 
waiver 
or 
estoppel.  
Reformation is not covered by the rule at issue because 
reformation is not rewriting a contract to create something 
unintended; it is rewriting the contract to conform it to the 
parties' prior agreement. 
¶50 We find no Wisconsin case other than Pouwels that even 
arguably contradicts the many cases cited.  Koehring, also 
relied upon by the court of appeals, is a federal case not 
binding on this court, especially in an interpretation of 
Wisconsin law.  In Koehring, the United States District Court 
found coverage for claims of malicious prosecution and abuse of 
process, as well as punitive damages, in the insurance contract.  
Although the court acknowledged that its findings made it 
"unnecessary to go further," the court went on to suggest that 
the insurer was estopped from denying coverage.  Koehring, 564 
No. 
  2009AP2176 
 
22 
 
F. Supp. at 312-13.7  The court cited Pouwels as authority.  Id.  
However, because "waiver and estoppel" did not create coverage, 
the Koehring decision is not particularly relevant to this case. 
¶51 As noted above, reformation, if based on adequate 
proof, falls outside the McCoy-Ahnapee-Shannon rule.  There are 
two other exceptions that require discussion. 
¶52 Insurers have multiple duties to their insureds.  
These duties include a duty to defend their insureds and a duty 
to act in good faith toward their insureds.  When insurers 
breach these duties that arise out of the insurance contract, 
they may be subject to a measure of damages not limited by the 
contract. 
¶53 Liability insurance coverage usually includes a duty 
to defend and a duty to indemnify.  "The duty to indemnify and 
the duty to defend are separate contractual obligations.  A 
policy may provide one without providing the other.  When a 
                                                 
7 Koehring was the result of over 20 years of litigation, 
leading Judge Evans to describe the case as a "quixotic legal 
odyssey."  Koehring Co. v. Am. Mut. Liability Ins. Co., 564 F. 
Supp. 303, 303-04 (E.D. Wis. 1983).  The events that gave rise 
to Judge Evans' suggestion regarding estoppel were these:  After 
initially defending under a reservation of rights, the insurer, 
in "a deliberate and well considered" decision, expressly 
withdrew the reservation of rights and affirmatively represented 
to the insured that it was providing coverage.  Id. at 308-09.  
The insurer wrote "'Since it has been decided by the American 
Mutual to afford coverage in protection of the Hyde litigation, 
we hereby withdraw or [sic] Notice of Reservation of Rights 
furnished your company.'"  Id. at 309.  Even though the insurer 
later attempted to avoid coverage, the court held that coverage 
existed not because of estoppel but because of the terms of the 
policy.   
No. 
  2009AP2176 
 
23 
 
contract imposes a duty to defend, however, that duty is broader 
than the duty to indemnify."  Johnson Controls, Inc. v. London 
Market, 2010 WI 52, ¶28-29, 325 Wis. 2d 176, 784 N.W.2d 579 
(citations omitted).  "[W]hen an insurance policy provides 
coverage for even one claim made in a lawsuit, the insurer is 
obligated to defend the entire suit."  Fireman's Fund Ins. Co. 
of Wis. v. Bradley Corp., 2003 WI 33, ¶21, 261 Wis. 2d 4, 660 
N.W.2d 666; see also Wis. Transp. Co. v. Great Lakes Cas. Co., 
241 Wis. 523. 
¶54 When an insurer breaches a duty to defend its insured, 
the insurer is on the hook for all damages that result from that 
breach of its duty.  As the court said in Newhouse v. Citizens 
Security Mutual Insurance Co., 176 Wis. 2d 824, 501 N.W.2d 1 
(1993),  
a party aggrieved by an insurer's breach of its duty 
to defend is entitled to recover all damages naturally 
flowing 
from 
the 
breach . . . .  
Damages 
which 
naturally flow from an insurer's breach of its duty to 
defend include: (1) the amount of the judgment or 
settlement against the insured plus interest; (2) 
costs and attorney fees incurred by the insured in 
defending the suit; and (3) any additional costs that 
the insured can show naturally resulted from the 
breach.   
Id. at 830, 838.   
¶55 In Newhouse, the court determined that these damages 
could include damages beyond the policy limits.  Id. at 838.  
While these damage awards are sometimes framed as the insurer 
being "estopped" from denying coverage, see, e.g., Grube v. 
Daun, 173 Wis. 2d 30, 74, 496 N.W.2d 106 (Ct. App. 1992) 
No. 
  2009AP2176 
 
24 
 
(insurer that breached its duty to defend "is estopped from 
raising any challenges to coverage"), they are the measure of 
damages 
actually 
caused 
by 
an 
insurer's 
breach 
of 
the 
contractual duty to defend, not an estoppel based on some 
otherwise inequitable conduct in the eyes of the insured.  See 
Newhouse, 176 Wis. 2d at 838.  This principle is at work in many 
of the cases that the District cites,8 e.g., Professional Office 
Buildings, Inc. v. Royal Indemnity. Co., 145 Wis. 2d 573, 585-
86, 427 N.W.2d 427 (Ct. App. 1988) (insurer breached its duty to 
                                                 
8 Several of the cases the District cites also relate to how 
insurers can avoid breaching their duty to defend and what 
liability insurers are subject to when they breach their duty to 
defend.  Mowry v. Badger State Mut. Cas. Co., 129 Wis. 2d 496, 
385 N.W.2d 171 (1986) (discussing bifurcation of coverage and 
liability); Elliott v. Donahue, 169 Wis. 2d 310, 485 N.W.2d 403 
(1992) (discussing 
insurers' role in determining disputed 
coverage while providing initial defense and holding that 
insured 
can 
collect 
attorney 
fees 
incurred 
in 
defending 
coverage); Liebovich v. Minn. Ins. Co., 2007 WI App 28, ¶4, 299 
Wis. 2d 331, 728 N.W.2d 357 (discussing duty to defend and 
suggesting insurers seek judicial determination of coverage as a 
way to avoid breaching duty to defend).   
Other cases cited by the District are inapplicable to this 
case.  Midwest Mut. Ins. Co. v. Nicolazzi, 138 Wis. 2d 192, 405 
N.W.2d 732 (Ct. App. 1987) (involved non-compliance by the 
insurer with a statute); Peterman v. Midwestern Nat’l Ins. Co., 
177 Wis. 2d 682, 698, 503 N.W.2d 312 (Ct. App. 1993) (the issue 
was "whether ERISA, under its federal common law, recognizes 
claims supported by the doctrine of estoppel" and thus the case 
is inapplicable to Wisconsin law);  Valley Bancorporation v. 
Auto Owners Ins. Co., 212 Wis. 2d 609, 619-23, 569 N.W.2d 345 
(Ct. App. 1997) (determined that underlying conduct of a cause 
of action determined insurance coverage (not the label in a 
verdict form) and the policy was read against the insurer in 
favor of coverage when insurer had not, through litigation, done 
well to distinguish what claims were being brought). 
No. 
  2009AP2176 
 
25 
 
defend and therefore was required to provide coverage for 
insured), as well as many of the cases cited in the dissent. 
¶56 The scope of coverage in these cases is not expanded 
by waiver or estoppel.  Rather, when an insurer breaches the 
insurance contract by breaching its duty to defend its insured, 
the insurer is liable for the damages resulting from that breach 
of contract. 
¶57 The insurer also has a duty to act in good faith 
towards its insured.  See Anderson v. Cont'l Ins. Co., 85 
Wis. 2d 675, 686-87, 271 N.W.2d 368 (1978).  When an insurer 
breaches that duty, the insurer is liable in tort for the 
damages the insurer causes.  Id.  These damages are not an 
expansion of the coverage under the insurance policy as a result 
of waiver or estoppel.  They are a reflection of the insurer's 
tortious conduct.  See also Hilker v. W. Auto. Ins. Co. of Fort 
Scott, Kan., 204 Wis. 1, 231 N.W. 257 (1930) (discussing the 
duty of an insurer to act in good faith when controlling the 
defense of an insured when the potential damages exceed policy 
limits). 
¶58 Bad faith and breach of the duty to defend are not 
situations in which an insurer becomes liable for insurance 
coverage not included in the insurance contract; in these cases 
insurers are liable for the damages they cause by breach of 
contract or by tortious breach of duties arising from the 
contract.  While at times these cases have been explained in 
terms of "estoppel," the cases do not refer to estoppel in the 
No. 
  2009AP2176 
 
26 
 
traditional sense and the estoppel referred to does not expand 
or create coverage. 
¶59 In this case, CIC provided a defense—fulfilling its 
duty to defend the District.  While the District raised several 
claims in its third-party complaint against CIC, the issue 
before this court is whether CIC's failure to send a reservation 
of rights letter while defending the District is enough, under 
waiver or estoppel, to prevent CIC from invoking its defense of 
noncoverage.  CIC's failure to issue a reservation of rights 
letter in this case did not constitute a breach of the duty to 
defend or bad faith.  Thus, CIC did not breach its duties to the 
District.  The exclusion clause relates to the scope of coverage 
contracted for and is thus not waived by the collateral conduct 
of the insurer. 
¶60 We pause to emphasize the importance of insurers 
communicating with their insureds.  An insurer is in a "superior 
position to the insured in relation to the formation and 
interpretation of the insurance contract."  Towne Realty, Inc. 
v. Zurich Ins. Co., 201 Wis. 2d 260, 269, 548 N.W.2d 64 (1996).9  
This principle underlies the expansive duty for insurers to 
defend their insureds and to communicate with their insureds in 
the event it is unclear whether an insured has tendered the 
                                                 
9 Towne 
Realty 
involved 
interpretation 
of 
"tender 
of 
defense" as well as insurer liability after breach of a duty to 
defend for pre-tender defense expenses and for countersuit 
expenses. 
 Towne 
Realty, Inc. v. Zurich Ins. Co., 201 
Wis. 2d 260, 264, 548 N.W.2d 64 (1996). 
No. 
  2009AP2176 
 
27 
 
defense of a suit to the insurer.  Id. at 268-69.  Communication 
on other critical issues is strongly encouraged. 
¶61 In short, this opinion must not be interpreted as a 
license for insurers not to communicate forthrightly with their 
insureds—especially 
when 
insurers 
dispute 
coverage. 
 
It 
certainly would have been better practice for CIC to send a 
reservation of rights letter in this case.  Its failure to do so 
has created ill will and completely overshadowed CIC's extensive 
costs in providing a defense.  As CIC conceded in oral argument, 
this case would not be here if CIC had sent a reservation of 
rights letter.  The lesson here is that CIC could have avoided 
the costs of this appeal by issuing a reservation of rights 
letter.  A reservation of rights letter can not only head off 
litigation but also preserve forfeiture defenses at a time when 
an insurer may not know whether such a defense exists.  As we 
have clearly stated, forfeiture defenses can be waived, because 
the insured has purchased the coverage the insurer seeks to 
deny.   
¶62 Communication between the insurer and the insured, 
whether in the form of a reservation of rights letter or other 
form, demonstrates good faith, prevents surprises and hard 
feelings, and tends to avoid litigation between insurers and 
their insureds. 
¶63 Nonetheless, we hold that the failure of CIC to issue 
a reservation of rights letter to the District, before or during 
its defense of the District, does not defeat the coverage 
exclusion in the insurance contract by waiver or estoppel.   
No. 
  2009AP2176 
 
28 
 
¶64 Consequently, we reverse the decision of the court of 
appeals. 
V. CONCLUSION 
¶65 In reaching our decision, we have applied longstanding 
Wisconsin law.  We conclude that the failure to issue a 
reservation of rights letter cannot be used to defeat, by waiver 
or estoppel, a coverage clause—as distinguished from grounds for 
forfeiture—in an insurance contract.  We strongly urge insurers 
to communicate with their insureds about their potential 
coverage defenses, but we do not see the failure to issue a 
reservation of rights letter as grounds to require an insurer to 
provide insurance coverage that does not otherwise exist in the 
insurance contract.  Consequently, we reverse the decision of 
the court of appeals. 
¶66 By the court—The decision of the court of appeals is 
reversed. 
 
 
 
 
No.  2009AP2176.npc 
 
1 
 
 
¶67 N. PATRICK CROOKS, J.   (dissenting).  Our case law is 
absolutely clear about the proper procedure that an insurer must 
follow to contest coverage.  "In cases where the coverage and 
liability issues are not bifurcated, insurance companies can 
protect themselves by defending under a reservation of rights. 
In this way the insurer gives up none of its rights should it 
ultimately be determined that coverage does not exist under the 
policy."  Newhouse v. Citizens Sec. Mut. Ins. Co., 176 Wis. 2d 
824, 839, 501 N.W.2d 1 (1993).  This case illustrates precisely 
the kind of unfairness that reservation of rights letters are 
intended to prevent.  The majority does away with a perfectly 
clear and effective rule that was intended to protect insureds 
without providing any good reason to do so. 
¶68 This dispute could have been avoided easily if 
Community Insurance Corporation ("CIC") had issued a reservation 
of rights letter when it provided a defense to its insured, 
Hartford Union High School District and Hartford Union High 
School Board of Education (collectively "the District").  If CIC 
had done so, there would be no question that CIC could later 
challenge coverage.  Instead, CIC now denies coverage to the 
District despite controlling its defense throughout litigation 
on the merits that resulted in an adverse judgment, and only 
later raising coverage issues.   
¶69 The majority’s error begins with its presentation of 
the 
issue 
as 
"whether an insurer’s failure to issue a 
reservation of rights letter is sufficient to defeat, by waiver 
No.  2009AP2176.npc 
 
2 
 
or estoppel, a coverage clause in an insurance contract that 
would otherwise justify the insurer's denial of coverage."  
Majority op., ¶1.  This leads the majority to erroneously 
conclude that this case is controlled by a "general rule" that 
waiver or estoppel applies only where the insurer seeks to 
assert a forfeiture clause as a defense to coverage and not if 
the clause at issue is a coverage clause. 
¶70 The issue should be stated more precisely, and more 
faithfully to the specific facts presented, as whether CIC has 
waived, or is estopped from asserting, any coverage defense 
because 
it 
controlled 
the 
District’s 
defense 
throughout 
litigation 
resulting 
in 
an 
adverse 
judgment 
against 
the 
District, and only later contested coverage.  When the issue is 
examined in this way, Wisconsin law clearly provides that CIC 
has waived, or is estopped from asserting, a defense to coverage 
because it failed to follow the proper procedure for contesting 
coverage when providing a defense to its insured.  See, e.g., 
Pouwels v. Cheese Makers Mut. Cas. Co., 255 Wis. 101, 37 
N.W.2d 869 (1949); Koehring Co. v. Am. Mut. Liab. Ins. Co., 564 
F. Supp. 303 (E.D. Wis. 1983). 
¶71 The majority’s decision leaves the District without a 
remedy for the prejudice it suffered.  It conflicts with well-
established case law that holds an insurer accountable if it 
fails to give proper notice, in advance, that it intends to deny 
coverage.  It also conflicts with the "strong policy of 
[Wisconsin] that an insurer should not be able to purport to 
provide coverage and then escape liability when a claim is made 
No.  2009AP2176.npc 
 
3 
 
for reimbursement."  Koehring, 564 F. Supp. at 312.  There is no 
good reason to do away with this perfectly sound rule.  For 
those reasons, I respectfully dissent. 
I 
¶72 On August 30, 2007, Dawn Maxwell (Maxwell) filed suit 
against the District based on an alleged breach of her 
employment contract.  The District provided its insurer, CIC, 
with notice of the suit around September 7, 2007.  CIC agreed to 
tender a defense and provided counsel to the District who was 
approved and retained by CIC.  CIC did not notify the District 
that it was contesting coverage, did not issue a reservation of 
rights letter, and did not move to bifurcate the trial in order 
to contest coverage before defending the District, either in a 
trial on the merits or on a motion for summary judgment.   
¶73 Counsel for the District was provided by CIC and 
ultimately lost the case on summary judgment.  The circuit court 
granted Maxwell’s motion for partial summary judgment on June 
11, 2008, concluding that the District breached Maxwell’s 
employment 
contract. 
 
The 
circuit 
court 
awarded 
Maxwell 
$103,824.22 in compensatory damages. 
¶74 Only after the circuit court determined that the 
District was liable did CIC contest coverage for the first time, 
sometime between August and October 2008.  As a result, the 
District filed a third-party complaint against CIC seeking a 
declaratory 
judgment 
that 
there 
was 
coverage 
under 
the 
District’s policy, and that CIC had waived, or was estopped from 
asserting, any coverage defenses.  CIC conceded that it did not 
No.  2009AP2176.npc 
 
4 
 
issue a reservation of rights or contest coverage prior to the 
liability finding but asserted that waiver and estoppel do not 
apply to coverage clauses such as the exclusion that CIC argues 
applies here.  The circuit court agreed with CIC and granted 
summary judgment in its favor on the basis that waiver and 
estoppel cannot be employed to create coverage where none 
otherwise exists. 
¶75 The court of appeals disagreed, reversed and remanded 
to the circuit court.  Maxwell v. Hartford Union High Sch. 
Dist., 2010 WI App 128, 329 Wis. 2d 654, 791 N.W.2d 195.  The 
court 
of 
appeals 
distinguished 
Shannon 
v. 
Shannon, 
150 
Wis. 2d 434, 442 N.W.2d 25 (1989), and Utica Mut. Ins. Co. v. 
Klein & Son, Inc., 157 Wis. 2d 552, 460 N.W.2d 763 (Ct. App. 
1990), which held, in the context of those cases, that waiver or 
estoppel could be applied only to forfeiture and not to coverage 
clauses.  Maxwell, 329 Wis. 2d 654, ¶¶18-23.  Instead, the court 
of appeals concluded that Wisconsin case law, treatises, and 
case law from other jurisdictions provide that in this precise 
situation, the doctrines of waiver or estoppel preclude CIC from 
asserting a coverage defense.  Id., ¶¶24-33 (providing that 
"where a liability insurer assumes the insured's defense with 
knowledge of facts indicating noncoverage and without declaring 
a 
reservation 
of 
rights 
or 
obtaining 
a 
nonwaiver 
agreement . . . all 
policy 
defenses, 
including 
those 
of 
noncoverage, are waived" (quoting 14 Lee R. Russ & Thomas F. 
Segalla, Couch on Insurance § 202:54, at 202-127 (3d ed. 2005)), 
No.  2009AP2176.npc 
 
5 
 
and relying on Pouwels, 255 Wis. 101, Koehring, 564 F. Supp. 
303, and case law from other jurisdictions).1 
II 
¶76 An insurer has a duty to provide its insured with a 
defense if the policy provides arguable coverage for the claims 
asserted based on the complaint.  Estate of Sustache v. Am. 
Family Mut. Ins. Co., 2008 WI 87, ¶20, 311 Wis. 2d 548, 751 
N.W.2d 845.  But an insurer does not waive its right to later 
contest the existence of actual coverage by providing a defense 
to its insured.  Hickey v. Wis. Mut. Ins. Co., 238 Wis. 433, 
366, 300 N.W. 364 (1941).  An insurer has several options to 
comply with its duty to defend while preserving its right to 
challenge coverage. 
There are several procedures insurers can use to raise 
the coverage issue and thus retain their right to 
challenge coverage. The insurer and the insured could 
enter into a nonwaiver agreement in which the insurer 
would 
agree 
to 
defend, 
and 
the 
insured 
would 
acknowledge the right of the insurer to contest 
coverage. However, the insured is not obligated to 
sign such an agreement. Alternatively, the insurer 
could request a bifurcated trial or a declaratory 
judgment so that the coverage issue would be addressed 
separately by a court.  In addition, the insurer could 
give the insured notice of intent to reserve rights. 
When a reservation of rights is made, the insured can 
pursue his own defense not subject to the control of 
the insurer, but the insurer still would be liable for 
legal fees incurred.  
                                                 
1 See Nationwide Mut. Ins. Co. v. Filos, 673 N.E.2d 1099, 
1103-04 (Ill. App. Ct. 1996); Emp'rs Liab. Assurance Corp., Ltd. 
v. Vella, 321 N.E.2d 910, 914 (Mass. 1975); Royal Ins. Co. v. 
Process Design Assocs., Inc., 582 N.E.2d 1234, 1240 (Ill. App. 
Ct. 1991); Mgmt. Specialists, Inc. v. Northfield Ins. Co., 117 
P.3d 32, 38 (Colo. Ct. App. 2004); Utica Mut. Ins. Co. v. 215 W. 
91st St. Corp., 283 A.D.2d 421, 422-23 (N.Y. App. Div. 2001). 
No.  2009AP2176.npc 
 
6 
 
Grube v. Daun, 173 Wis. 2d 30, 75, 496 N.W.2d 106 (Ct. App. 
1992) (footnote omitted).     
¶77 Our precedent makes clear that an insurer providing a 
defense to its insured must do something to retain its right to 
challenge coverage; it must, in some manner, notify the insured 
of its intent to challenge coverage.  Id. at 75-76 (providing 
the procedures available to insurers to "raise the coverage 
issue and thus retain their right to challenge coverage" when 
providing an initial defense) (emphasis added); see also 
Pouwels, 255 Wis. at 106-07; Koehring, 564 F. Supp. at 312-13; 
Wisconsin Transp. Co. v. Great Lakes Cas. Co., 241 Wis. 523, 
531, 6 N.W.2d 708 (1942). 
 
¶78 The majority wrongly concludes that the only penalty 
for an insurer's failure to follow these procedures is that it 
waives any forfeiture clauses.  According to the majority, 
waiver or estoppel cannot be applied to coverage clauses.  This 
court, in Shannon, 150 Wis. 2d at 453-54, has described a 
coverage 
clause 
as 
one 
"of 
either 
an 
inclusionary 
or 
exclusionary nature going to the scope of the coverage assumed," 
and a forfeiture clause as one "furnishing a ground for the 
forfeiture of coverage or defeasance of liability."  There is no 
question that the exclusion relied upon by CIC here to dispute 
coverage is a coverage clause. 
 
¶79 Despite 
the 
majority's 
attempt 
to 
graft 
the 
forfeiture/coverage clause distinction into every insurance case 
alleging waiver or estoppel, examples abound in which an insurer 
has been precluded from asserting any coverage defense, whether 
No.  2009AP2176.npc 
 
7 
 
based on a coverage or forfeiture clause, through waiver or 
estoppel.  See, e.g., Prof'l Office Bldgs., Inc. v. Royal Indem. 
Co., 145 Wis. 2d 573, 586, 427 N.W.2d 427 (Ct. App. 1988) ("We 
conclude, therefore, that Royal, having breached its duty to 
defend the Mississippi action, may not now challenge or 
otherwise litigate the coverage issues."); Grube, 173 Wis. 2d at 
76 ("We conclude that Secura, by not contesting coverage in 
court and by breaching its duty to defend Achter, is estopped 
from raising any challenges to coverage and must indemnify 
Achter up to the limits of his policy."); Benjamin v. Dohm, 189 
Wis. 2d 352, 365, 525 N.W.2d 371 (Ct. App. 1994) (recognizing 
that "[a]n insurer will lose its right to contest coverage and 
to control the defense when it improperly refuses to defend the 
insured," but concluding that the insurer did not breach its 
duty to defend); Radke v. Fireman's Fund Ins. Co., 217 
Wis. 2d 39, 48, 577 N.W.2d 366 (Ct. App. 1998) ("Wisconsin law 
is clear. When an insurer wrongfully refuses to defend on the 
grounds that a claim against its insured is not within the 
coverage of the policy, the insurer cannot later contest 
coverage, but is liable to the insured."); Wisconsin Transp. 
Co., 241 Wis. at 531 ("Under the terms of the policy in question 
the defendant was obligated to defend the action. If it desired 
to negative any waiver of its rights by so defending all that 
was necessary for it to do was to notify the defendant in that 
action and the plaintiff in this action that by so doing it was 
not waiving any of its rights or defenses with respect to 
coverage or liability.").  The majority recognizes that these 
No.  2009AP2176.npc 
 
8 
 
cases depart from its "general rule."  The majority dismisses 
this disparity by concluding that waiver or estoppel was applied 
in these cases only because it did not operate to expand 
coverage, but instead provided damages to the insured flowing 
from the breach.   
 
¶80 Similar to cases involving an insurer's breach of one 
of its contractual duties are other cases involving conduct by 
an insurer that prejudices an insured during litigation.  
Wisconsin law provides that an insurer may have waived, or will 
be estopped from asserting, any coverage defense based on 
certain conduct, such as CIC's conduct in this case: providing a 
defense to the District without issuing a reservation of rights 
or otherwise contesting coverage and controlling the defense 
throughout litigation resulting in an adverse judgment against 
the District.  Pouwels, 255 Wis. 101; Koehring, 564 F. Supp. 
303; Arnold P. Anderson, Wisconsin Insurance Law § 7.91, at 83 
(6th ed. 2011).  As in duty to defend cases, an insurer can be 
held liable to cover damages for which it would have otherwise 
had a valid defense based on the insurer's own actions during 
litigation that have prejudiced the insured.  Pouwels and 
Koehring, cases that addressed this precise situation, compel 
the conclusion that CIC's own conduct in providing a defense to 
the District without properly contesting coverage results in 
waiver or estoppel of its coverage defenses. 
 
¶81 In Pouwels, the insurer, Cheese Makers Mutual Casualty 
Company (Cheese Makers), defended itself and also provided a 
defense for its insured, Al Ginsberg (Ginsberg), in a liability 
No.  2009AP2176.npc 
 
9 
 
action arising from an automobile accident.  255 Wis. at 102-03.  
Cheese Makers was dismissed from the liability action, but it 
continued to provide a defense to Ginsberg, ultimately resulting 
in a judgment against Ginsberg.  Id.  Ginsberg sued Cheese 
Makers for coverage, asserting that either the insurance 
contract had to be reformed to provide coverage or that coverage 
should be afforded because Cheese Makers waived its right to 
assert a coverage defense by providing a defense without 
properly raising coverage issues.  Id. at 103-06.  In regard to 
waiver of its coverage defenses, this court explained, "There 
had been no denial of liability, no notice of reservation of 
rights, and no attempt of any kind had been made by the company 
to reserve any of its rights under the policy.  The insurance 
company by its conduct waived its right to assert the policy 
defense of non-coverage."  Id. at 107 (emphasis added).  Pouwels 
is directly on point and controls in this situation, as the 
United States District Court for the Eastern District of 
Wisconsin recognized in Koehring, 564 F. Supp. 303. 
 
¶82 Many years of litigation preceded the court's decision 
in Koehring.  Suffice it to say that American Mutual Liability 
Insurance Company (American Mutual) issued an insurance policy 
to Koehring Company (Koehring), and when Koehring was sued, 
American Mutual provided a defense under a reservation of rights 
but later withdrew its reservation of rights and stated that 
there was coverage.  Id. at 308-09.  Koehring was found liable 
for actual and punitive damages.  Id. at 310.  Only after 
judgment did American Mutual assert that it would not cover 
No.  2009AP2176.npc 
 
10 
 
punitive damages.  Id.  Koehring sought a declaratory judgment 
that American Mutual must provide full coverage for the judgment 
against Koehring.  Id. at 311.   
 
¶83 The Koehring court concluded that American Mutual had 
waived or was estopped from asserting any coverage defenses 
after providing Koehring with a defense throughout litigation 
resulting in an adverse judgment against it, without maintaining 
a reservation of rights.  Id. at 312-13.  The district court 
relied on Pouwels, 255 Wis. 101, concluding: 
Under some circumstances an insurance company may 
change its mind and issue a disclaimer after it 
initially acknowledges coverage. But it may not do so 
after it has exercised dominion over the case at an 
important point. . . . 
 . . .   
Some cases talk in terms of estoppel instead of waiver 
or failure to disclaim, but all reach the same 
conclusion: an insurer cannot change its mind after 
having tried and lost a case which it tried under an 
assurance of coverage. There is considerable authority 
to the effect that a liability insurer, by assuming 
the defense of an action against an insured, is 
thereafter estopped to claim that the loss resulting 
to the insured from an adverse judgment is not within 
the coverage of the policy. See Appleman's Insurance 
Law and Practice, § 4692. This is based on the premise 
that 
assumption 
of 
the 
insured's 
defense 
or 
unreasonable delay in asserting a defense to coverage 
clearly prejudices the insured. 
Id. at 313 (emphasis added). 
¶84 Arnold P. Anderson relied on both of the above cases 
in his treatise discussing waiver or estoppel of coverage 
defenses as a result of an insurer’s failure to issue a 
reservation of rights letter.  Anderson explained the rule thus: 
No.  2009AP2176.npc 
 
11 
 
While an insurance company may have a valid basis for 
refusing to defend, if it employs an attorney to 
represent the insured with no denial of liability or 
no attempt to reserve its rights under the policy, the 
insurance company may be deemed by its conduct to have 
waived its right to raise the policy defense of 
noncoverage. 
Anderson, Wisconsin Insurance Law § 7.91, at 83. 
¶85 These 
authorities 
address 
the 
precise 
situation 
presented here and provide the remedy to which the District is 
entitled in this case: CIC cannot deny coverage under these 
circumstances.  The majority tries to minimize the significance 
of Pouwels and Koehring on the basis that, according to the 
majority, waiver and estoppel could never be used to create or 
expand coverage where none exists.  At the heart of the 
majority's 
erroneous 
interpretation 
of 
the 
law 
is 
a 
misunderstanding of how waiver and estoppel operate in insurance 
cases.   
¶86 The majority concludes that waiver and estoppel may 
never apply to coverage clauses, because doing so would 
impermissibly expand coverage.  To the contrary, our precedent 
provides that for certain conduct, applying waiver or estoppel 
does not expand coverage, but rather provides a just remedy for 
an insurer's prejudicial actions.  Pouwels, Koehring, and the 
treatises cited explain that an insurer's conduct—breaching its 
duty to defend or duty of good faith or prejudicing the insured 
in litigation as CIC did in this case—may make it liable for an 
insured's losses, no matter what coverage defenses the insurer 
may have.  The majority's conclusion that the "general rule" 
precludes applying waiver or estoppel to coverage clauses relies 
No.  2009AP2176.npc 
 
12 
 
on case law involving conduct that is distinct from the precise 
conduct at issue here. 
¶87 The 
majority 
distinguishes 
Pouwels 
and 
Koehring 
primarily because they do not conform to what the majority 
asserts is the "general rule" provided in McCoy v. Northwestern 
Mutual Relief Association, 92 Wis. 577, 66 N.W. 697 (1896), 
Ahnapee & Western Railway Company v. Challoner, 34 Wis. 2d 134, 
148 N.W.2d 646 (1967), and Shannon, 150 Wis. 2d 434, that waiver 
or estoppel apply only to forfeiture and not coverage clauses.  
However, none of these cases address the precise situation 
presented in this case. 
¶88 The doctrines of waiver and estoppel were addressed in 
McCoy regarding whether, despite a suicide exclusion, the 
insured, William McCoy (McCoy), was covered for his death by 
suicide 
based 
on 
the 
representations 
of 
the 
insurer, 
Northwestern Mutual Relief Association (Northwestern Mutual).  
92 Wis. at 578-80.  Specifically, McCoy's beneficiary asserted 
that Northwestern Mutual should be estopped from denying 
coverage because it represented to McCoy, prior to his death, 
that death by suicide was covered by the policy.  Id.  This 
court concluded that neither waiver nor estoppel was applicable 
to 
the 
suicide 
exclusion 
in 
this 
context. 
 
The 
court 
distinguished between forfeiture clauses that can be waived and 
coverage clauses that cannot be waived.  Id. at 584-85.   
¶89 In Ahnapee, the insured, Ahnapee & Western Railway 
Company (Ahnapee), sought reformation of the insurance contract 
based on mutual mistake regarding the policy limits.  34 
No.  2009AP2176.npc 
 
13 
 
Wis. 2d at 137.  Ahnapee also argued that, even if the contract 
were not reformed, the insurer, Employers Mutual Liability 
Insurance Company (Employers), should be estopped from denying 
coverage because an agent of Employers represented to Ahnapee 
that Employers covered the same risks as another insurance 
policy held by Ahnapee, which did provide coverage.  Id. at 136-
39.  This court held that waiver or estoppel could not be used 
to expand the coverage clause beyond that provided in the policy 
simply based on Employers' representations to Ahnapee.   Id. at 
140-44.   
¶90 Unlike this case, McCoy and Ahnapee addressed the 
applicability of waiver or estoppel based on an insurer's 
representations to its insured before the litigation, or even 
before the incident giving rise to the litigation.  Here, waiver 
or estoppel is invoked based on CIC's conduct during litigation 
to control the District's defense throughout litigation without 
issuing a reservation of rights, and resulting in an adverse 
judgment.  As discussed in Pouwels and Koehring, applying waiver 
or estoppel to any coverage defenses later asserted by the 
insurer is warranted based on such conduct. 
¶91 The 
Shannon Court addressed several issues, and 
relevant here is the argument by the insureds, the Shannons, 
that their insurer, United States Automobile Association (USAA), 
waived the family member exclusion by failing to refer to that 
exclusion (1) in its answer, and (2) in the nonspecific 
reservation of rights letter that it sent to the Shannons.  150 
Wis. 2d at 437, 450.  The underlying negligence action was 
No.  2009AP2176.npc 
 
14 
 
brought against the Shannons and their insurer, USAA, on behalf 
of the Shannons' daughter for injuries that she suffered when 
she nearly drowned in a lake.  Id. at 438-39.  USAA provided 
counsel for itself and the Shannons, issued a reservation of 
rights letter, and moved for a bifurcated trial, in order to 
resolve the coverage issues before any trial on liability.  Id. 
at 439, 450.  Under these facts, this court concluded that 
Ahnapee and McCoy controlled and prohibited the use of waiver to 
defeat the insurer's defense based on the family member 
exclusion.  The Shannon court's discussion of waiver and 
estoppel is not particularly helpful here because Shannon is 
distinct from this case in two key respects: (1) USAA did issue 
a reservation of rights letter to the Shannons, and (2) there 
had not been any liability determination or adverse judgment 
against 
the 
Shannons 
prior 
to 
the 
coverage 
dispute 
and 
determination.        
¶92 It is consistent with our case law and also consistent 
with sound public policy to apply waiver or estoppel where an 
insurer controlled the insured's defense throughout litigation 
without issuing a reservation of rights, and resulting in an 
adverse judgment.  As explained in Koehring: 
[I]t is a strong policy of [Wisconsin] that an insurer 
should not be able to purport to provide coverage and 
then escape liability when a claim is made for 
reimbursement. A fortiori, an insurer should not be 
allowed to escape liability where it attempts to tie 
the hands of its insured, claiming to have the 
exclusive right to control an insured's defense under 
the pretense that the policy provides coverage of all 
claims, and then when the cause is determined against 
it, insist that upon closer reading or upon some 
No.  2009AP2176.npc 
 
15 
 
public policy ground the insured ought to be liable 
for at least part of the damages awarded. 
564 F. Supp. at 312 (emphasis added). 
 
¶93 In this situation, prejudice to the insured may be 
presumed for a number of reasons.  "Prejudice is presumed 
because the insurer has taken away from the insured innumerable 
rights associated with the control of the defense, including the 
choice of trial by judge or jury; the ability to negotiate a 
settlement; and the ability to decide when and if certain 
defenses 
or 
claims 
will 
be 
asserted." 
 
Id. 
at 
313.  
Additionally, it is difficult to later quantify all of the ways 
in which an insurer's control of the insured's defense might 
have prejudiced the insured.  The District conducted its defense 
through the attorney provided by CIC with the understanding that 
CIC would not later dispute coverage.  It is difficult to say 
what avenues the District would have taken had it known that CIC 
planned to dispute coverage after the liability trial.  For this 
reason, as well as the myriad rights affected when an insurer 
controls an insured's defense, it should be presumed that the 
District was prejudiced by CIC's control of its defense, without 
a reservation of rights, throughout litigation that resulted in 
an adverse judgment.  
 
¶94 For the reasons set forth herein, I respectfully 
dissent.  
¶95 I am authorized to state that Chief Justice SHIRLEY S. 
ABRAHAMSON and Justice ANN WALSH BRADLEY join this dissent.    
 
No.  2009AP2176.npc 
 
 
 
1