Opinion ID: 2120473
Heading Depth: 2
Heading Rank: 4

Heading: Supportive Case Law

Text: ¶ 76 Contrary to the assertion of London Market, this conclusion does not fly in the face of an overarching rule of law requiring exhaustion of all primary policies before the duty to defend can be triggered. Quite the contrary. Wisconsin case law recognizes that an excess insurer's duty to defend may under certain circumstances be triggered prior to the exhaustion of the primary policy. ¶ 77 In Teigen v. Jelco Wis., Inc., 124 Wis.2d 1, 367 N.W.2d 806 (1985), for example, this court approved a settlement agreement between a primary insurer and the plaintiff who brought suit against the insured. The settlement agreement was for less than the limits of the primary policy. It released all claims against the primary and the insured, but it left the excess carrier potentially liable. [17] Although the excess insurer argued that the primary wrongfully attempted to avoid its responsibility to defend the suit until it fully paid its policy limits, the court rejected that argument. Id. at 9-10, 367 N.W.2d 806. Thus, it concluded that the excess carrier was required to defend the suit, regardless of the fact that the underlying primary policy had not been fully exhausted. ¶ 78 Teigen is not alone. In American Motorists Insurance Co. v. Trane Co., 544 F.Supp. 669, 692 (W.D.Wis.1982), American Motorists' excess policy promised to defend against suits for losses covered by the American Motorists policy but not covered by the underlying policy. Id. at 692. The federal district court applied Wisconsin law to the policy and concluded that the excess insurer with a contractual duty to defend was required to do so in the event that the primary insurer refused to defend: [18] If the underlying insurer has refused to defend, asserting that there is no coverage under the substantive provisions of the underlying policy, the excess insurer will have a duty to defend, provided there is coverage under the excess policy and the claim falls within the policy limits of the excess insurer. Id. Additionally, the court concluded that a complaint which alleges damages in excess of the limits of the underlying policy triggers an excess insurer's duty to defend, even if the underlying insurer undertakes the defense as well. Id. ¶ 79 Eleven years later, the Wisconsin court of appeals revisited the holdings of American Motorists. In Azco Hennes Sanco, Ltd. v. Wisconsin Insurance Security Fund, 177 Wis.2d 563, 502 N.W.2d 887 (Ct.App.1993), a suit was filed against the insured, Azco, seeking damages in excess of the limits on Azco's primary insurance policy. Azco's primary insurer defended against the lawsuit. Additionally, Azco also hired a second attorney who was instrumental in ensuring that the case settled within the primary policy limits. Azco then sent the bills for the second attorney to its excess insurer, asserting that it was required to pay them under American Motorists. [19] The excess insurer refused, asserting that its duty to defend had not been triggered even though the complaint against Azco alleged damages in excess of the primary policy's limits. ¶ 80 The court of appeals noted that it was not bound to follow a federal district court's opinion on Wisconsin law. Id. at 568, 502 N.W.2d 887. It rejected the conclusion in American Motorists that alleged damages in excess of the primary policy's limits were sufficient to trigger an excess insurer's duty to defend. Id. ¶ 81 However, it did not disturb the other conclusion in American Motorists  that an excess insurer with a contractual duty to defend might be obligated to assume the defense if the primary insurer refused to do so. The Azco court stated that the American Motorists case is distinguishable on its facts. In American Motorists the primary insurer refused to defend, whereas in this case Azco's primary insurer undertook its defense in the action. Id. ¶ 82 American Motorists was also cited in a recent decision of the Wisconsin court of appeals, Southeast Wisconsin Professional Baseball Park District v. Mitsubishi Heavy Industries America, 2007 WI App 185, 304 Wis.2d 637, 738 N.W.2d 87. In that case, the primary insurer refused to defend despite the circuit court ordering it to defend on three separate occasions. Id., ¶ 13. As a result, an excess carrier provided a defense. Id., ¶ 8. ¶ 83 In a footnote, the court of appeals cited American Motorists and explained: If the underlying insurer has refused to defend, asserting that there is no coverage under the substantive provisions of the underlying policy, the excess insurer will have a duty to defend, provided there is coverage under the excess policy and the claim falls within the policy limits of the excess insurer. Id., ¶ 8, n. 4. Given that the primary had breached its primary duty to defend, however, the court required it to reimburse the excess insurer for the defense costs it incurred. Id., ¶¶ 61-64. ¶ 84 The United States Court of Appeals for the Tenth Circuit also relied on American Motorists when it addressed a situation strikingly similar to the facts of this case. See Hocker v. New Hampshire Ins. Co., 922 F.2d 1476 (10th Cir.1991). There, an umbrella insurer asserted that its duty to defend was never triggered because the primary policy limits had not been exhausted. Id. at 1481. The court rejected the argument, concluding that the language of the umbrella policy promised to defend suits not covered, as warranted and established that the umbrella insurer must drop down and defend upon the primary insurers' wrongful refusal to do so. Id. at 1482. ¶ 85 The court explained that as written, the umbrella policy explicitly addresses the possibility that the primary insurer will wrongfully deny coverage for occurrences that it had warranted would be covered by its primary policy. Id. In those circumstances, [t]he excess carrier must then drop down and provide a defense. Id. The court further clarified that had the umbrella insurer fulfilled this obligation, it would be able to maintain a subrogation claim against the primary insurer to recoup the legal expenses incurred. Id. at 1483, n. 6. ¶ 86 Some courts appear to have recognized a general rule that an insured that has purchased layers of coverageincluding layers of a contractual duty to defendshould not be left without a prompt and proper defense[.] New Hampshire Indem. Co., Inc. v. Budget Rent-A-Car Systems, Inc., 148 Wash.2d 929, 64 P.3d 1239 (Wash.2003). For example, the Washington Supreme Court stated: [I]f a primary insurer fails to assume the defense, for any reason, the secondary insurer which has a duty to defend should provide the defense[.] Id. at 1243; see also Anderson, supra, §§ 11.26, 11.33; Grossman v. Am. Family Mut. Ins. Co., 461 N.W.2d 489 (Minn.App., 1990). We need not and do not adopt a general rule to resolve this case, however, given that the language of the policies provides that London Market was required to assume the defense. [20]