Opinion ID: 4361951
Heading Depth: 3
Heading Rank: 1

Heading: Risk and Loss

Text: ¶22 Greenwich and Steadfast issued comprehensive liability insurance policies, which their Operating Agreements with MMSD required. As a general matter, liability policies insure risks that are dependent on various circumstances that cause insureds to obtain insurance coverage. Couch on Insurance § 101:3 (3rd ed. 1999). Stated otherwise, risk is the type of liability the insurer agreed to provide coverage for under the terms of the policy. Id. There is a causal connection between risk and loss.5 Id. That is, when the insured-for risk occurs, the insurer indemnifies for the resulting-loss (damages) in accord 5 The Illinois Supreme Court recently provided a useful distinction between risk and loss in the insurance context. Courts analyze risk by looking prospectively at what the parties set out to cover. Home Ins. Co. v. Cincinnati Ins. Co., 821 N.E.2d 269, 281 (Ill. 2004). Loss, in contrast, is analyzed retrospectively by looking at the injury or damages actually sustained in a particular case. Id. 8 No. 2016AP1631 with the policy provisions. Id. Insurance policy clauses may come into conflict when two or more policies cover the same risk for the same period of time. Id., § 219:2. ¶23 In the context presented herein, Greenwich's policy insured the risk that United Water's conduct in managing the Milwaukee sewerage system during the policy period would be negligent, thereby causing damage to a third party.6 As an additional insured under the Greenwich policy, MMSD's risk was that it would be responsible in money damages for a third party's damage caused by United Water's negligence. ¶24 Steadfast's policy insured the risk that Veolia would negligently manage the Milwaukee sewerage system during the policy period, causing damage to a third party.7 As an 6 The Greenwich policy provides in relevant part: Coverage B – CONTRACTOR'S POLLUTION LEGAL LIABILITY To pay on behalf of the INSURED all LOSS, in excess of the Retention amount . . . which the INSURED becomes legally obligated to pay as a result of an OCCURRENCE which arises out of CONTRACTING SERVICES and which first commenced during the POLICY PERIOD. . . . . G. INSURED means the NAMED INSURED and: . . . . 7. Solely as respects Coverage B – Contractor's Pollution Legal Liability, the client for whom the NAMED INSURED performs or performed covered CONTRACTING SERVICES . . . . 7 The Steadfast policy provides in relevant part: CONTRACTOR'S POLLUTION LIABILITY . . . . (continued) 9 No. 2016AP1631 additional insured of Steadfast, MMSD's risk was that it would be responsible in money damages for a third party's damage caused by Veolia's negligence. The plain language of both the Greenwich policy and the Steadfast policy obligated insurers to indemnify and defend their named insureds and MMSD against claims of damage caused by the negligence of their named insureds. To clarify further, while United Water was not providing services at the time of the flooding, it was alleged that its services during an earlier time when it was managing the MMSD system were a cause of the resulting damage. ¶25 Other insurance clauses may be raised in disputes between two insurance companies about whose policy is primary and therefore must pay first and whose policy is excess, also referred to as successive insurance, and pays subsequent to the primary payment. Plastics Eng'g Co. v. Liberty Mut. Ins. Co., We will pay on behalf of an insured any loss an insured is legally obligated to pay as a result of a claim caused by a pollution event resulting from covered operations or completed operations of the covered operations and provided that the covered operations must commence on or after the retroactive date and before the end of the policy period and the claim is first made against the insured during the policy period . . . . . . . . L. Insured means: 1. You or your; . . . 4. Any other person or organization endorsed onto this policy as an insured. (Milwaukee Metropolitan Sewerage District is an endorsee.) 10 No. 2016AP1631 2009 WI 13, ¶48, 315 Wis. 2d 556, 759 N.W.2d 613. To explain further, policies may be concurrent, i.e., cover the same time period and risk, or successive, i.e., cover different time periods and risks. However, other insurance clauses do not apply unless two policies are concurrent. Id. The accepted meaning of 'other insurance' provisions does not include application to successive insurance policies. Id. If the other insurance clauses cannot be used to establish a primary and an excess insurer, then neither insurer is given priority over the other and each contributes toward the loss pro rata. Oelhafen v. Tower Ins. Co., 171 Wis. 2d 532, 536-37, 492 N.W.2d 321 (Ct. App. 1992) (citing Schoenecker v. Haines, 88 Wis. 2d 665, 672, 277 N.W.2d 782 (1979)). ¶26 As we have explained, concurrent insurance is required before other insurance clauses are triggered. Two insurance policies cannot be concurrent unless they insured the same risk, and the same interest, for the benefit of the same person, during the same period. Plastics Eng'g, 315 Wis. 2d 556, ¶48 (quoting Douglas R. Richmond, Issues and Problems in Other Insurance, Multiple Insurance, and Self-Insurance, 22 Pepp. L. Rev. 1373, 1376-82 (1995)). ¶27 The Greenwich and Steadfast policies were primary with regard to each company's respective insurance of United Water and Veolia. The policies were primary and successive in regard to insuring MMSD's risk of damage because each policy relied on the negligence of a different insured, whose alleged negligence occurred during a different period of time, i.e., while that 11 No. 2016AP1631 primary insured was maintaining the sewerage system. Stated otherwise, Greenwich would owe MMSD only if the negligence of United Water caused damages for which MMSD was held responsible and Steadfast would owe MMSD only if the negligence of Veolia caused damages for which MMSD was held responsible. Accordingly, we do not interpret the terms of the other insurance clauses because under the undisputed facts as set out above, Greenwich's other insurance clause provided successive insurance to MMSD. ¶28 In addition, the duty to defend is broader than the duty to indemnify. Acuity v. Bagadia, 2008 WI 62, ¶52, 310 Wis. 2d 197, 750 N.W.2d 817 (explaining that the duty to defend arises from allegations in the complaint, while the duty to indemnify is dependent on fully developed facts). Furthermore, when an insurance policy provides potential coverage for one claim alleged in a lawsuit, the insurer must defend the entire suit, even when the claims are groundless. Fireman's Fund Ins. Co. of Wis. v. Bradley Corp., 2003 WI 33, ¶21, 261 Wis. 2d 4, 660 N.W.2d 666. Accordingly, two insurance policies that insure separate and distinct risks may nevertheless become implicated in the same lawsuit, causing the two insurers to defend the same loss in the form of their mutual insured's alleged liability for damages and defense costs.