Opinion ID: 2120473
Heading Depth: 2
Heading Rank: 3

Heading: Interpreting the Term Liability

Text: ¶ 65 London Market asserts that under the limits of liability provision in its policy, its duty to defend did not attach until the limits of the underlying Travelers policies were exhausted. The limits of liability provision states that liability shall attach to London Market only after Travelers has paid or has been held liable to pay its limits: It is expressly agreed that liability shall attach to the Underwriters only after the Underlying Umbrella Insurers have paid or have been held liable to pay the full amount of their respective net loss liability[.] ¶ 66 The limits of liability provision discusses when London Market's liability beginsafter Traveler's has paid or has been held liable to pay the full amount of its net loss liability. However, it does not expressly state when the duty to defend begins. In isolation, it is unclear whether the term liability encompasses the duty to defend. ¶ 67 Although the London Market policy provides that liability does not attach until the underlying policies have been exhausted, it does not define the term liability. An examination of the term liability as it is used in the context of the London Market policy indicates, however, that liability refers to indemnification for injuries or property for which Johnson Controls is held liable. It does not refer to the duty to defend. ¶ 68 For instance, London Market's coverage section provides that it promises to indemnify the Assured for all sums for which the Assured shall be obligated to pay by reason of the liability for damages on account of personal injuries, property damage, or advertising liability. In this context, liability is synonymous with indemnification. ¶ 69 The term liability appears to be used interchangeably with indemnification in other places throughout London Market's policy. The non cumulation of liability provision equates liability with payment for personal injury or property damage: [I]n the event that personal injury or property damage arising out of an occurrence covered hereunder is continuing at the time of the termination of this Policy [London Market] will continue to protect the Assured for liability in respect of such personal injury or property damage without payment of additional premium. Further, its notice of occurrence provision discusses injuries and damage for which the insured will be held liable: Whenever the Assured has information from which they may reasonably conclude that an occurrence covered hereunder involves injuries or damage which, in the event that the Assured shall be held liable, is likely to involve this Policy, notice shall be sent.... ¶ 70 It therefore appears that the exhaustion provision's discussion of when liability attaches means that London Market will not indemnify Johnson Controls for injury or property damage until the indemnification limits of the underlying policies have been exhausted. However, defense and indemnification are separate duties. Radke, 217 Wis.2d at 44, 577 N.W.2d 366. Even if London Market's duty to indemnify does not attach until exhaustion of the underlying policies, that does not mean that its duty to defend requires exhaustion to attach. [15] An insurer can have a duty to defend even under circumstances when there will ultimately be no indemnification under the policy. See id. ¶ 71 London Market makes one additional argument in support of its assertion that its duty to defend was not triggered until exhaustion of the Travelers policies. It shifts from examining the language of its own policy to focusing on the language of the Travelers policies. It points to the paragraph in the Travelers policies that imposes both the duty to indemnify and the duty to defend and explains that the first word in that paragraph is liability: Liability. The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages ..., and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such injury or damage[.] ¶ 72 Thus, London Market contends, the term liability encompasses both defense and indemnification obligations. At oral argument, counsel for London Market explained: [I]f the term `liability' is dependent upon what the Travelers policy says, it is clear that Travelers considers both the duty to defend and the duty to indemnify as part of liability.... Under that analysis, ... then the duty to defend and the duty to indemnify cannot attach until such time as there is exhaustion. ¶ 73 London Market's argument rests on an infirm foundation. In examining the language of the Travelers policies, it is far from clear that Travelers considers both the duty to defend and the duty to indemnify as part of liability. The term liability is not set forth in the definition section of the Travelers policies. Although not specifically defined, it appears in many places throughout the policies. In most places, the term liability is used to refer to the obligation to indemnify, and defense is treated as a separate obligation. [16] ¶ 74 Given a lack of definition and the disparate use of the term liability in the Travelers policies, it is not at all clear that the Travelers policies intend that liability be defined to include the duty to defend. Even if it were clear, however, such usage would conflict with the usage of the term liability in London Market's own policy. There, the term liability is consistently used to mean indemnification. As we previously explained, if there is a conflict between the London Market policy and the Travelers policies, the terms of the London Market policy control. See supra, ¶¶ 44-46 & n. 10. ¶ 75 We conclude that although London Market's duty to indemnify is conditioned upon exhaustion of the underlying Travelers policies, its duty to defend is not so conditioned. Rather, under the other insurance provision, London Market was required to respond under [its] policy as though such other insurance were not available because Travelers denie[d] primary liability under its policy. Thus, London Market was required to assume the defense.