Water Well Solutions Service Group Inc. v. Consolidated Insurance Company , 369 Wis. 2d 607 ( 2016 )

2016 WI 54
SUPREME COURT OF WISCONSIN
CASE NO.: 2014AP2484
COMPLETE TITLE: Water Well Solutions Service Group Inc.,
Plaintiff-Appellant-Petitioner,
v.
Consolidated Insurance Company,
Defendant-Respondent.
REVIEW OF A DECISION OF THE COURT OF APPEALS
(Reported at 365 Wis. 2d 223, 871 N.W.2d 276)
(Ct. App. 2015 – Published)
PDC No: 2015 WI App 78
OPINION FILED: June 30, 2016
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: March 16, 2016
SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Waukesha
JUDGE: James R. Kieffer
JUSTICES:
CONCURRED:
DISSENTED: BRADLEY, A. W., J. and ABRAHAMSON, J. dissent
(Opinion filed).
NOT PARTICIPATING:
ATTORNEYS:
For the plaintiff-appellant-petitioner, there were briefs
by Timothy M. Hansen, Charles J. Crueger, James B. Barton, and
Hansen Reynolds Dickinson Crueger LL, and oral argument by
Timothy M. Hansen.
For the defendant-respondent, there was a brief by William
J. Katt, Christina A. Katt, Corey J. Wright and Wilson Elser
Moskowitz Edelman & Dicker, LLP, and oral argument by William J.
Katt.
2016 WI 54
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2014AP2484
(L.C. 2014CV254)
STATE OF WISCONSIN : IN SUPREME COURT
Water Well Solutions Service Group Inc.,
Plaintiff-Appellant-Petitioner,
FILED
v. JUN 30, 2016
Consolidated Insurance Company, Diane M. Fremgen
Clerk of Supreme Court
Defendant-Respondent.
REVIEW of a decision of the Court of Appeals. Affirmed.
¶1 REBECCA G. BRADLEY, J. In this duty to defend case,
Water Well Solutions Service Group Inc. (Water Well) asks us to
reverse the court of appeals' decision1 affirming the Waukesha
County Circuit Court's2 summary judgment decision in favor of
Consolidated Insurance Company, Water Well's insurer. Applying
the longstanding four-corners rule used to determine whether a
complaint triggers the duty to defend, see Doyle v. Engelke, 219
Wis. 2d 277, 284, 580 N.W.2d 245 (1998), both the circuit court
1
Water Well Sols. Serv. Grp. Inc. v. Consol. Ins. Co., 2015
WI App 78, 365 Wis. 2d 223, 871 N.W.2d 276.
2
The Honorable James R. Kieffer presided.
No. 2014AP2484
and the court of appeals concluded that Consolidated did not
breach its duty to defend Water Well. In response, Water Well
argues this court should craft an exception to the four-corners
rule allowing courts to consider extrinsic evidence when an
insurer has unilaterally decided that no duty to defend exists
based on exclusions in the insurance policy.
¶2 Specifically, we are asked to decide whether this
court should allow admission of extrinsic evidence under a
limited exception to the four-corners rule in cases where (1)
the policy provides an initial grant of coverage based on facts
alleged in the complaint, (2) the insurer denies a duty to
defend its insured based on the application of specific policy
exclusions but without seeking a coverage determination from a
court, and (3) the insured asserts that the underlying complaint
is factually incomplete or ambiguous. We are further asked to
determine, absent an exception to the four-corners rule, whether
a court should compare the four corners of the complaint to the
entire insurance policy, including exclusions and exceptions, or
if the court's review is limited to comparing the complaint to
the terms of the policy governing the initial grant of coverage.
We confirmed in Marks v. Houston Cas. Co., 2016 WI 53, ¶¶61-76,
__ Wis. 2d __, __ N.W.2d __, that under the four-corners rule
the entire policy must be examined, including the coverage-
granting clauses, exclusions, and exceptions to any applicable
2
No. 2014AP2484
exclusions.3 Thus, we also decide whether any exclusions in
Consolidated's policy apply.
¶3 We affirm the court of appeals and hold that
Consolidated did not breach its duty to defend Water Well.
First, we reject Water Well's request to craft a limited
exception to the four-corners rule, which has long endured to
the benefit of Wisconsin insureds. We are not persuaded that an
exception to this rule is necessary. Second, as we explain in
Marks, __ Wis. 2d __, ¶¶61-76, released today in conjunction
with this decision, the four-corners rule requires a court to
compare the complaint to the terms of the entire insurance
policy in determining whether the duty to defend is triggered.
Thus, we reject Water Well's argument that the court's
comparison is limited to reviewing the insurance policy's
granting clause. The longstanding four-corners comparison rule
applies in all duty to defend cases, including cases such as
this one where the policy provides an initial grant of coverage,
the insurer made a unilateral decision to refuse to defend based
on specific policy exclusions, and the insured asserts the
underlying complaint is factually incomplete or ambiguous.
Finally, after comparing the four corners of the underlying
complaint to the terms of the insurance policy at issue, we
conclude that the "Your Product" exclusion applies to preclude
3
The court heard oral arguments in this case and in Marks
v. Houston Cas. Co., 2016 WI 53, __ Wis. 2d __, __ N.W.2d __ on
the same day, March 16, 2016.
3
No. 2014AP2484
coverage. As a result, Consolidated did not breach its duty to
defend Water Well and is entitled to summary judgment as a
matter of law; therefore, we affirm.
I. BACKGROUND
¶4 In 2009, Waukesha Water Utility (Waukesha) contracted
with Water Well to perform work on Well #10, an existing well
located in the City of Waukesha. Waukesha hired Water Well to
remove an existing pump, install a new pump, and complete
reinstallations of the pump. In February 2011, the well pump
unthreaded from a pipe column and fell to the bottom of the
well.
¶5 Argonaut Insurance Company,4 Waukesha's insurer, filed
suit against Water Well in federal district court. Argonaut's
complaint alleged that "Water Well, its agents, employees and
representatives" were negligent in the installation and
reinstallations of the well pump and that "Water Well, its
agents, employees and/or representatives" breached their
contractual obligations. Specifically, Argonaut's complaint
alleged that the well pump "unthreaded and separated from the
pipe column," which "caused the Well Pump, including the motor,
to fall to the bottom of the approximately 1910-foot-deep well."
Argonaut asserted that Water Well failed to install two
setscrews, "which allowed operating torques and vibrations to
4
It is undisputed that the well pump at issue is covered
under Waukesha's policy with Argonaut. In the underlying
federal suit, Argonaut acted as subrogee of Waukesha.
4
No. 2014AP2484
cause the Well Pump to rotate and unthread from the pipe column
and caused the Well Pump to fall to the bottom of the well."
Argonaut sought $300,465.48 in subrogated damages. We set forth
pertinent paragraphs of Argonaut's complaint in our analysis.
¶6 Water Well was insured under a Commercial General
Liability Primary Policy (CGL policy) with Consolidated at the
time the alleged damages occurred.5 Water Well tendered its
defense to its insurer, Consolidated, in the action initiated by
Argonaut. The parties do not dispute that the CGL policy
provides an initial grant of coverage.6 However, Consolidated
denied Water Well's defense tender stating it had no duty to
defend or indemnify Water Well under the CGL policy because the
"Your Work" and the "Your Product" exclusions applied and
removed coverage for the damages alleged in Argonaut's
complaint.
¶7 After Consolidated refused to defend Water Well in the
Argonaut action, Water Well obtained counsel, incurred
attorney's fees and costs, and eventually settled with Argonaut
for $87,500. Water Well then filed suit against Consolidated,
alleging that Consolidated breached its duty to defend Water
Well in the underlying action initiated by Argonaut. Water Well
5
The CGL policy at issue was in effect from November 1,
2010 until November 1, 2011.
6
The policy provides an initial grant of coverage for
"property damage" that arises from an "occurrence," which is
defined, in part, as "an accident."
5
No. 2014AP2484
also alleged that Consolidated acted in bad faith when it
refused to provide a defense.7
¶8 The Waukesha County Circuit Court granted
Consolidated's motion for summary judgment after considering
cross-motions for summary judgment. It determined that under
applicable Wisconsin case law, a court must compare the four
corners of the complaint to the terms of the entire insurance
policy when deciding whether an insurer breached its duty to
defend its insured. The circuit court concluded that this
comparison encompassed the policy's coverage provisions and
exclusions, but not extrinsic evidence Water Well offered in
support of its assertion that its subcontractor's work on
preexisting pipes triggered coverage under the policy.8 Based on
a comparison of the four corners of the complaint and the terms
of the entire policy, the circuit court determined that the
allegations in the Argonaut complaint fell under both the "Your
Product" and the "Your Work" exclusions. Therefore, it
7
Water Well's bad faith claim was bifurcated from its duty
to defend claim by stipulation. The circuit court stayed
discovery and proceedings on the bad faith claim pending the
resolution of the breach of the duty to defend claim.
8
Along with its summary judgment motion, Water Well
submitted an affidavit from its operations manager, Steve
Judkins. The Judkins affidavit contained extrinsic evidence
that Water Well argues supports its position that the "Your
Product" exclusion did not apply and the subcontractor exception
to the "Your Work" exclusion restored coverage.
6
No. 2014AP2484
concluded that "there is no covered claim and therefore there
was no duty to defend."9
¶9 The court of appeals affirmed in a published decision.
Water Well Sols. Serv. Grp. Inc. v. Consol. Ins. Co., 2015 WI
App 78, ¶1, 365 Wis. 2d 223, 871 N.W.2d 276. The majority's
reasoning mirrored the circuit court's: it reviewed the four
corners of Argonaut's complaint, compared the complaint to the
terms of the entire insurance policy, and concluded that both
the "Your Work" and the "Your Product" exclusions eliminated
coverage. Id., ¶¶6-7, 10, 13, 16-18.
¶10 We granted Water Well's petition for review.
II. STANDARD OF REVIEW
¶11 We independently review a grant of summary judgment
using the same methodology of the circuit court and the court of
appeals. Blasing v. Zurich Am. Ins. Co., 2014 WI 73, ¶21, 356
Wis. 2d 63, 850 N.W.2d 138. Summary judgment is appropriate
when there is no genuine dispute of material fact and the moving
party is entitled to judgment as a matter of law. Wis. Stat.
§ 802.08(2) (2013-14);10 Blasing, 356 Wis. 2d 63, ¶21.
9
The circuit court also determined that since Consolidated
did not breach its duty to defend, Water Well could not
"establish a 'fundamental prerequisite' to its bad faith claim."
Therefore, the circuit court dismissed the bad faith claim with
prejudice. Water Well does not assert a bad faith claim in this
court.
10
All subsequent references to the Wisconsin Statutes are
to the 2013-14 version unless otherwise indicated.
7
No. 2014AP2484
¶12 This case requires the court to interpret an insurance
policy to determine whether an insurer breached its duty to
defend its insured. Interpretation of an insurance contract
presents a question of law that we review de novo. Estate of
Sustache v. Am. Family Mut. Ins. Co., 2008 WI 87, ¶18, 311
Wis. 2d 548, 751 N.W.2d 845.
III. ANALYSIS
A. Typical Process used in Duty to Defend Determinations
¶13 Before reaching the dispositive issue in this case, we
first set forth general principles governing interpretation of
insurance policies as well as the process typically used by
courts in duty to defend cases.
1. General principles: Insurance contracts
¶14 Insurance policies are contracts that generally
establish an insurer's "duty to indemnify the insured against
damages or losses, and the duty to defend against claims for
damages." Olson v. Farrar, 2012 WI 3, ¶27, 338 Wis. 2d 215, 809
N.W.2d 1. We interpret insurance policies in the same manner as
other contracts——to give effect to the intent of the contracting
parties. Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 2004 WI 2,
¶23, 268 Wis. 2d 16, 673 N.W.2d 65. We construe policy language
as a reasonable person in the position of the insured would
understand such language. Estate of Sustache, 311 Wis. 2d 548,
¶19.
¶15 Longstanding case law requires a court considering an
insurer's duty to defend its insured to compare the four corners
of the underlying complaint to the terms of the entire insurance
8
No. 2014AP2484
policy. See, e.g., id., ¶20; Doyle, 219 Wis. 2d at 284 & n.3;
Grieb v. Citizens Cas. Co. of New York, 33 Wis. 2d 552, 558, 148
N.W.2d 103 (1967). The four-corners rule prohibits a court from
considering extrinsic evidence when determining whether an
insurer breached its duty to defend. Estate of Sustache, 311
Wis. 2d 548, ¶27; Fireman's Fund Ins. Co. of Wis. v. Bradley
Corp., 2003 WI 33, ¶19, 261 Wis. 2d 4, 660 N.W.2d 666. We have,
however, consistently explained that a court must liberally
construe the allegations contained in the underlying complaint,
assume all reasonable inferences from the allegations made in
the complaint, and resolve any ambiguity in the policy terms in
favor of the insured. Estate of Sustache, 311 Wis. 2d 548, ¶21.
¶16 We use a three-step process when comparing the
underlying complaint to the terms of the policy in duty to
defend cases.11 Id., ¶¶22-23. First, a reviewing court
11
To an extent, the three steps used in analyzing an
insurance contract are the same whether a court is determining
an insurer's duty to defend or its duty to indemnify. Compare
Estate of Sustache v. Am. Fam. Mut. Ins. Co., 2008 WI 87, ¶¶22-
23, 311 Wis. 2d 548, 751 N.W.2d 845 (detailing the three steps
in the duty to defend context) with Am. Fam. Mut. Ins. Co. v.
Am. Girl, Inc., 2004 WI 2, ¶24, 268 Wis. 2d 16, 673 N.W.2d 65
(explaining the three steps in the indemnity context). This is
because a determination of whether an insurer breached its duty
to defend depends on whether it could be found to have a duty to
indemnify, if the plaintiff proves the allegations in the
complaint. Olson v. Farrar, 2012 WI 3, ¶29, 338 Wis. 2d 215,
809 N.W.2d 1.
(continued)
9
No. 2014AP2484
determines whether the policy language grants initial coverage
for the allegations set forth in the complaint. Id., ¶22. If
the allegations set forth in the complaint do not fall within an
initial grant of coverage, the inquiry ends. Id. However, if
the allegations fall within an initial grant of coverage, the
court next considers whether any coverage exclusions in the
policy apply. Id., ¶23. If any exclusion applies, the court
next considers whether an exception to the exclusion applies to
restore coverage. Id. If coverage is not restored by an
exception to an exclusion, then there is no duty to defend. See
Am. Girl, Inc., 268 Wis. 2d 16, ¶24. If the policy, considered
in its entirety, provides coverage for at least one of the
claims in the underlying suit, the insurer has a duty to defend
its insured on all the claims alleged in the entire suit.
Fireman's Fund Ins. Co., 261 Wis. 2d 4, ¶21.
This, however, does not mean that a court's duty to defend
analysis is the same as its consideration of indemnification.
For example, unlike duty to defend determinations, extrinsic
evidence is admissible in coverage disputes to prove (or
disprove) the allegations set forth in the complaint. Id.,
¶¶33-34. In addition, in indemnification disputes the insured
has the initial burden to show the policy provides an initial
grant of coverage "and if that burden is met the burden shifts
to the insurer to show that an exclusion nevertheless precludes
coverage." Day v. Allstate Indem. Co., 2011 WI 24, ¶26, 332
Wis. 2d 571, 798 N.W.2d 199. Logically, this same burden
shifting is not implicated in duty to defend determinations
because a court is comparing documents it has before it——the
underlying complaint and the insurance policy——without resort to
extrinsic evidence.
10
No. 2014AP2484
¶17 It is also well-established that an insurer's duty to
defend its insured is broader than its duty to indemnify.
Olson, 338 Wis. 2d 215, ¶29. This is because the four-corners
rule dictates that the duty to defend is determined by "the
nature of the claim alleged against the insured . . . even
though the suit may be groundless, false or fraudulent." Grieb,
33 Wis. 2d at 558. "'[T]he insurer is under an obligation to
defend only if it could be held bound to indemnify the insured,
assuming that the injured person proved the allegations of the
complaint, regardless of the actual outcome of the case.'" Id.
(quoting 29A Am. Jur., Insurance § 1452, at 565 (1960)(emphasis
added).
2. The four-corners rule
¶18 Water Well urges this court to establish a limited
exception to the four-corners rule that would allow it to submit
extrinsic evidence to dispute Consolidated's unilateral decision
to refuse to defend Water Well in the Argonaut suit based on
Consolidated's position that exclusions in the policy precluded
coverage. Ultimately, Water Well asks this court to create an
exception to the four-corners rule in duty to defend cases when
(1) the policy provides an initial grant of coverage based on
facts alleged in the complaint, (2) the insurer declines to
defend its insured based on the application of specific policy
exclusions but without seeking a coverage determination from the
circuit court, and (3) the insured asserts that the underlying
complaint is factually incomplete or ambiguous. We reject Water
Well's request to create an exception to the four-corners rule.
11
No. 2014AP2484
¶19 In 1967, in Grieb, this court set forth the general
rule that courts use to determine whether an insurer breached
its duty to defend its insured. Grieb, 33 Wis. 2d at 558-59.
Essentially, we rejected Grieb's argument that when an implied
duty to defend arises from a policy's indemnity clause, the
four-corners rule does not apply. Id. We held that an
insurer's duty to defend, regardless of its origin, depends on a
comparison of the four corners of the underlying complaint to
the terms of the policy, reasoning:
Whether a third-party suit comes within the
coverage of this clause [the defense-coverage clause]
or an implied duty to defend under an indemnity clause
depends upon its allegations which are referred to as
a general rule as the measure in the first instance.
These allegations must state or claim a cause of
action for the liability insured against or for which
indemnity is paid in order for the suit to come within
any defense coverage of the policy unless the express
defense coverage is broader.
Id. at 557-58. After setting forth the four-corners rule, we
stated "[t]here are at least four exceptions to the general rule
determining the extent of the insurer's duty to defend and
generally the insurer who declines to defend does so at his
peril. These and allied problems are extensively covered in
Anno., Liability Insurer——Duty to Defend, 50 A.L.R. 2d 458."
Grieb, 33 Wis. 2d at 558. These two sentences are the only
discussion in Grieb regarding exceptions to the four-corners
rule; we did not actually adopt or apply any of the exceptions
12
No. 2014AP2484
to the four-corners rule by this reference.12 Instead, we held
that Grieb's insurer had no duty to defend Grieb because the
allegations in the complaint "could not be considered as stating
a cause of action for liability for negligence, omissions,
mistakes or errors." Id. at 559. In other words, we limited
our determination of whether Grieb's insurer breached its duty
to defend Grieb to the allegations in the four corners of the
complaint: "It is not sufficient under [the insurance] policy
that the facts alleged might under other circumstances be
characterized as acts of unintentional negligence, error,
mistake or omission." Id.
¶20 Since Grieb, Wisconsin courts, with one deviation in
Berg v. Fall, 138 Wis. 2d 115, 405 N.W.2d 701 (Ct. App. 1987),
have consistently stated that an insurer's duty to defend its
insured depends on the allegations contained in the four corners
12
The court of appeals later set forth the exceptions from
the A.L.R. that Grieb referenced:
[T]here are also a number of cases involving special
situations not covered directly by the general
rules. . . . These special situations exist
particularly where there is a conflict of allegations
and known facts, where the allegations are ambiguous
or incomplete, where the allegations state facts
partly within and partly outside the coverage of the
policy, and finally where the allegations contain
conclusions instead of statements of facts.
Sustache v. Am. Fam. Mut. Ins. Co., 2007 WI App 144, ¶11, 303
Wis. 2d 714, 735 N.W.2d 186, aff'd sub nom. Estate of Sustache
v. Am. Family Mut. Ins. Co., 2008 WI 87, 311 Wis. 2d 548, 751
N.W.2d 845.
13
No. 2014AP2484
of the complaint. E.g., Olson, 338 Wis. 2d 215, ¶30 ("Wisconsin
policy is clear. If the allegations in the complaint, construed
liberally, appear to give rise to coverage, insurers are
required to provide a defense until the final resolution of the
coverage question by a court."); Estate of Sustache, 311
Wis. 2d 548, ¶20 ("The duty to defend is triggered by the
allegations contained within the four corners of the
complaint."); Doyle, 219 Wis. 2d at 284 ("In determining an
insurer's duty to defend, we apply the factual allegations
present in the complaint to the terms of the disputed insurance
policy."); Newhouse v. Citizens Sec. Mut. Ins. Co., 176
Wis. 2d 824, 835, 501 N.W.2d 1 (1993) ("The duty to defend is
triggered by the allegations contained within the four corners
of the complaint."); Prof'l Office Bldgs., Inc. v. Royal Indem.
Co., 145 Wis. 2d 573, 580-81, 427 N.W.2d 427 (Ct. App. 1998)
("[W]e believe the rule of Grieb v. Citizens Casualty Co., 33
Wis. 2d 552, 148 N.W.2d 103 (1967), and similar cases, is
controlling and compels the determination that the duty to
defend is dependent solely on the allegations of the complaint
. . . .").
¶21 Despite this consistent application of the four-
corners rule, the court of appeals in Berg considered extrinsic
evidence to determine that an insurer had a duty to defend its
insured. Berg, 138 Wis. 2d at 123. In Berg, Robin Berg alleged
that James Fall punched him in the face. Id. at 117. Fall's
insurer, State Farm Insurance Company, was joined as a defendant
in the suit. Id. at 116. The central issue before the court of
14
No. 2014AP2484
appeals was whether the State Farm policy, which excluded
coverage for "bodily injury 'expected or intended by the
insured,'" applied where Fall claimed he acted in self-defense
when he punched Berg. Id. at 117. The court of appeals held
that (1) summary judgment was improper because a material fact——
whether Fall acted in self-defense——was disputed and (2) "that a
privileged act of self-defense is not excluded from coverage by
State Farm's policy language." Id. at 119-20. The court of
appeals concluded that State Farm had a duty to defend Fall even
though Berg's complaint did not allege that Fall acted in self-
defense. Id. at 122. While the court of appeals cited Grieb
and the general rule——that the duty to defend is determined by
reference to the four corners of the underlying complaint——it
held that "[b]ecause the record shows facts sufficient to
support an inference that Fall acted reasonably in self-defense,
summary judgment was inappropriate and State Farm owes him a
duty of defense." Id. at 123 (footnote omitted). By relying on
extrinsic evidence, the court of appeals in Berg departed from
the well-established four-corners rule.
¶22 We recognized this in Doyle when we soundly rejected
an assertion, based on Berg, suggesting a court should look
beyond the four corners of the complaint to determine whether an
insurer had breached its duty to defend. Doyle, 219 Wis. 2d at
284 n.3. A year later, citing our footnote in Doyle, we again
declined to recognize an exception to the four-corners duty to
defend rule. Smith v. Katz, 226 Wis. 2d 798, 815-16, 595
N.W.2d 345 (1999).
15
No. 2014AP2484
¶23 In Sustache v. Am. Family Mut. Ins. Co., the court of
appeals considered whether any exception to the four-corners
rule existed in Wisconsin given that (1) Grieb referenced "at
least four exceptions" to the four corners rule, id., 33
Wis. 2d at 558, (2) the court of appeals in Berg relied on
extrinsic evidence to determine an insurer's duty to defend its
insured, and (3) this court rejected an invitation to rely on
Berg in Doyle and Smith, but did not explicitly overrule Berg's
reliance on extrinsic evidence. Sustache v. Am. Family Mut.
Ins. Co., 2007 WI App 144, ¶¶11-13, 15-16, 303 Wis. 2d 714, 735
N.W.2d 186 aff'd sub nom. Estate of Sustache v. Am. Family Mut.
Ins. Co., 2008 WI 87, 311 Wis. 2d 548, 751 N.W.2d 845.13 The
court of appeals explained "the dilemma in this case goes beyond
the tension between Doyle/Smith and Berg. If we should hold
that the supreme court has tacitly overruled Berg, it remains
that Grieb, a supreme court opinion, is still on the books, and
no court of appeals or supreme court opinion has ever called
Grieb into question." Sustache, 303 Wis. 2d 714, ¶17. The
court of appeals concluded that it was required to follow this
court's most recent decisions regarding the application of the
four-corners rule in duty to defend cases. Id., ¶19. It
13
This court affirmed the court of appeals decision in
Sustache on different grounds and did not specifically address
whether Wisconsin law recognizes any exception to the four-
corners rule. Estate of Sustache, 311 Wis. 2d 548, ¶¶28-29
(determining that because the insurer provided an initial
defense and the case had moved to a determination of coverage,
the purpose of the four-corners rule had been served).
16
No. 2014AP2484
concluded that our opinions in Doyle and Smith "tacitly
overruled . . . [our] recognition of the exceptions to the four-
corners rule in Grieb. From that it logically follows that
Doyle and Smith have also tacitly overruled Berg." Sustache,
303 Wis. 2d 714, ¶19. It concluded: "In sum, the four-corners
rule is the law in Wisconsin when measuring an insurer's duty to
defend, and the rule knows no exceptions until the supreme court
unequivocally holds otherwise." Id.
¶24 We now unequivocally hold that there is no exception
to the four-corners rule in duty to defend cases in Wisconsin.
This position is consistent with long-standing precedent,
including Grieb. Our passing reference in Grieb to "at least
four exceptions to the general rule," 33 Wis. 2d at 558, should
not be read as an adoption of any exception to the four corners
rule. Rather, by citation to the American Law Reports, this
passage in Grieb merely recognized that exceptions exist in
other jurisdictions. That Grieb did not adopt any exceptions to
the four-corners rule is further supported by the fact that
Grieb never specifically enumerated or described any exception
to the four-corners rule. Furthermore, our analysis in Grieb
plainly reveals that we did not consider extrinsic evidence;
rather, we applied the four-corners rule to conclude that the
allegations against Grieb in the taxpayer's suit did not fall
within the coverage provided by the insurance policy at issue.
Id. at 559. We overrule any language in Berg suggesting that
evidence may be considered beyond the four corners of the
17
No. 2014AP2484
complaint in determining an insurer's duty to defend its
insured.14
¶25 We have applied the four-corners rule, without
exceptions, in duty to defend cases for so long because it
14
Appeals to fairness in factual scenarios similar to Berg,
where the plaintiff's complaint alleges intentional conduct but
the defendant argues self-defense, entreat courts to create an
exception to the four-corners rule. Considerations of fairness
cannot override the contractual terms of the insurance policy on
which the duty to defend is based:
In these cases, if negligence is not alleged, the
plaintiff is only seeking damages because of an
intentional act. If self-defense is proved, there is
no recovery for intentional acts. Often a plaintiff
will file a complaint that alleges both negligence and
intentional conduct. With this allegation of
negligence, the insurance company will have a duty to
defend. . . . If the plaintiff stands fast on an
intentional-act-or-nothing position, there is no
coverage, nor is there a duty to defend or indemnify.
. . . There is no compelling need to carve out an
exception to the complaint test for defendant-insureds
who end up in fistfights with plaintiffs who do not
allege the insured was negligent.
Sheila M. Sullivan et al., Anderson on Wisconsin Insurance
Law § 7.27 at 29-30 (7th ed. 2015). In this case, the CGL
Policy relieves Consolidated of its duty to defend Water Well
when the suit seeks damages for property damage to which the
policy does not apply. Because the "Your Product" exclusion
negates coverage, the policy does not apply to the claims made
in Argonaut's complaint.
18
No. 2014AP2484
generally favors Wisconsin insureds.15 The rule ensures that
courts are able to efficiently determine an insurer's duty to
defend, which results in less distraction from the merits of the
underlying suit. Also, the four-corners rule supports the
policy that an insurer's duty to defend is broader than its duty
to indemnify. Estate of Sustache, 311 Wis. 2d 548, ¶20. That
is because "[i]t is the nature of the claim alleged against the
insured which is controlling even though the suit may be
groundless, false or fraudulent." Grieb, 33 Wis. 2d at 558.
Adherence to "[t]he four-corners rule 'ensure[s] that insurers
do not frustrate the expectations of their insureds by
[prematurely] resolving the coverage issue in their own
favor[.]'" Olson, 338 Wis. 2d 215, ¶32 (quoting Baumann v.
Elliot, 2005 WI App 186, ¶10, 286 Wis. 2d 667, 704 N.W.2d 361)
(brackets in original). Without the four-corners rule, insurers
15
We acknowledge that the four-corners rule benefits the
insurer as well because it does "not require an insurer to
speculate beyond the written words of the complaint in order to
imagine a claim that a plaintiff might be making or to determine
all potential issues that could be sought when the insurer is
evaluating its duty to defend." State Farm Fire & Cas. Co. v.
Easy PC Sols., LLC, 2016 WI App 9, ¶8, 366 Wis. 2d 629, 874
N.W.2d 585. The duty to defend is grounded in the insurance
contract entered between the insurer and its insured.
Recognizing exceptions to the four-corners rule would require
the insurer to not only draw reasonable inferences from the
language of the complaint in evaluating its contractual duty to
defend, but to imagine claims the plaintiff might have made.
Imposing this judicially-created burden on insurers would, in
practical application, rewrite the contractual duty to defend to
be triggered whenever any claim is made rather than only those
claims covered under the actual policy terms.
19
No. 2014AP2484
would be incentivized to outright refuse to defend their
insureds and hope that the facts later revealed that no coverage
existed. Olson, 338 Wis. 2d 215, ¶32. The end result of strict
adherence to the four-corners rule is that "the insurer may have
no duty to defend a claim that ultimately proves meritorious
against the insured because there is no coverage for that claim.
Conversely, the insurer may have a clear duty to defend a claim
that is utterly specious because, if it were meritorious, it
would be covered." Smith, 226 Wis. 2d 798, ¶20.
¶26 The four-corners rule ultimately favors insureds in
another way. Even if a plaintiff's first complaint does not
contain allegations that trigger the duty of a defendant's
insurer to defend, a plaintiff has both the opportunity and the
incentive to file an amended complaint when discovery results in
additional facts that, if alleged in an amended complaint, would
trigger a duty to defend: "[I]f a complaint does not allege a
covered claim, the true facts will come out in discovery.
Sooner or later those facts will be alleged in an amended
complaint because the plaintiff will want coverage for the
defendant-insured. When that happens, the duty to defend is
triggered." Sheila M. Sullivan et al., Anderson on Wisconsin
Insurance Law § 7.27 at 29 (7th ed. 2015).
¶27 Water Well asserts that strictly applying the four-
corners rule encourages insurers to refuse to defend insureds in
close cases. We disagree. We continue to strongly encourage
insurers to follow one of the judicially-preferred approaches
rather than make a unilateral determination to refuse to defend
20
No. 2014AP2484
an insured. See Liebovich v. Minnesota Ins. Co., 2008 WI 75,
¶55, 310 Wis. 2d 751, 751 N.W.2d 764. For example:
(1) An insurer may request a bifurcated trial on the issue
of coverage and move to stay all proceedings on
liability until a coverage determination is made.
Id.; Elliot v. Donahue, 169 Wis. 2d 310, 318, 485
N.W.2d 403 (1992). Under this approach, "the
insurance company runs no risk of breaching its
duty to defend." Newhouse, 176 Wis. 2d at 836.
(2) An insurer may 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." Grube v. Daun, 173
Wis. 2d 30, 75, 496 N.W.2d 106 (Ct. App. 1992),
overruled on other grounds, Marks, __ Wis. 2d __,
¶75. An insurer may also proceed under a
reservation of rights under which the insured
provides and controls its own defense, but the
insurer remains liable for incurred legal costs.
Id.
(3) Finally, an insurer may choose to provide an initial
defense and seek a declaratory judgment on
coverage.16 Liebovich, 310 Wis. 2d 751, ¶55.
16
We note that:
An insurance company breaches its duty to defend if a
liability trial goes forward during the time a no
coverage determination is pending on appeal and the
(continued)
21
No. 2014AP2484
We reiterate:
While these procedures are not absolute
requirements, we strongly encourage insurers
wishing to contest liability coverage to avail
themselves of one of these procedures rather than
unilaterally refuse to defend. A unilateral
refusal to defend without first attempting to
seek judicial support for that refusal can result
in otherwise avoidable expenses and efforts to
litigants and courts, deprive insureds of their
contracted-for protections, and estop insurers
from being able to further challenge coverage.
Id.
¶28 An insurer also has the option to "[d]eny the tender
of defense and state the grounds for deciding that the complaint
does not trigger any obligation to defend under the policy."
Sheila M. Sullivan et al., Anderson on Wisconsin Insurance Law
§ 7.54 at 51 (7th ed. 2015). If, however, an insurer chooses
this option "it does so at its own peril." Elliot, 169
Wis. 2d at 321. By declining to defend an insured, an insurer
opens itself up to a myriad of adverse consequences if its
unilateral duty to defend determination turns out to be wrong.
For example, an insurer that breaches its duty to defend is
liable for all costs naturally flowing from the breach.
Newhouse, 176 Wis. 2d at 837; Maxwell v. Hartford Union High
insurance company does not defend its insured at the
liability trial. When an insurer relies on a lower
court ruling that it has no duty to defend, it takes
the risk that the ruling will be reversed on appeal.
Newhouse v. Citizens Sec. Mut. Ins. Co., 176 Wis. 2d 824, 836,
501 N.W.2d 1 (1993).
22
No. 2014AP2484
Sch. Dist., 2012 WI 58, ¶¶55-56, 341 Wis. 2d 238, 814 N.W.2d 484
(explaining that a breach of the duty to defend results in
damages naturally flowing from that breach, but does not expand
coverage). This liability is not limited to policy limits:
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.
Newhouse, 176 Wis. 2d at 838. Liability for costs and attorneys
fees may potentially be greater than what the insurer would have
paid had it defended its insured in the first instance because
an insurer that refuses to defend its insured cedes control of
the defense to its insured and is liable for all reasonable
expenses. Patrick v. Head of the Lakes Co-op Elec. Ass'n, 98
Wis. 2d 66, 72-23, 295 N.W.2d 205 (1980) ("As long as [the]
defense is reasonable and coverage is found, the insurer must
pay for the defense.").
¶29 In addition, an insurer that breaches its duty to
defend its insured places itself at risk that its insured will
pursue a successful first-party bad faith action against it.
See Anderson v. Cont'l Ins. Co., 85 Wis. 2d 675, 687, 271
N.W.2d 368 (1978) (recognizing the intentional tort of bad
faith); Brethorst v. Allstate Prop. & Cas. Ins. Co., 2011 WI 41,
¶5, 334 Wis. 2d 23, 798 N.W.2d 467 (holding that a breach of
contract is a prerequisite for a first-party bad faith claim
levied against an insurer). In a successful first-party bad
23
No. 2014AP2484
faith action against an insurer, an insured may recover punitive
damages. See Weiss v. United Fire & Cas. Co., 197 Wis. 2d 365,
393, 541 N.W.2d 753 (1995).
¶30 In sum, we follow our long-standing precedent that
duty-to-defend cases are governed by the four-corners rule, with
no exceptions.17
3. The policy terms
¶31 Consolidated's duty to defend Water Well originates
from the CGL Policy, under which Consolidated "will have the
right and duty to defend the insured against any 'suit' seeking
[bodily injury or property] damages. However, [Consolidated]
will have no duty to defend the insured against any 'suit'
seeking damages for 'bodily injury' or 'property damage' to
which this insurance does not apply." Wisconsin courts
determine whether an insurer breached its duty to defend its
insured by comparing the four corners of the underlying
complaint to the terms of the insurance policy. See Doyle, 219
Wis. 2d at 284. Water Well argues that if this court does not
recognize any exception to the four-corners rule, then it should
17
Although the four-corners rule supports the well-
established principle that an insurer's duty to defend its
insured is broader than its duty to indemnify, Olson, 338
Wis. 2d 215, ¶29, we recognize there may be isolated instances
in which an insurer has no duty to defend based on the
complaint's allegations, but nevertheless owes a duty to
indemnify based on extrinsic evidence considered later during a
coverage determination. Our decision in this case is not
influenced by hypothetical possibilities. Regardless, in such
situations the insured will obtain its bargained-for coverage.
24
No. 2014AP2484
limit consideration of the policy to only those terms governing
an initial grant of coverage. Consistent with Marks, we reject
this argument. In Marks, we held that in duty to defend cases a
court must compare the four corners of the complaint to the
terms of the entire policy, including exclusions. See Marks, __
Wis. 2d __, ¶76. We therefore analyze next whether Consolidated
breached its duty to defend Water Well by comparing the four
corners of the Argonaut complaint to the entire insurance
policy.
B. Duty to Defend Comparison: Complaint to the Policy Terms
1. The Argonaut complaint
¶32 Argonaut, Waukesha's insurer, filed suit against Water
Well alleging negligence and breach of contract. The complaint,
in pertinent part, provides:
10. Upon information and belief, from on or about
May to September of 2009, Water Well installed the
Well Pump, including but not limited to performing
inspections and repairs of the well, providing a new
Centrilift pump, seal, and motor, providing new heavy
wall column pipe, providing new pump cable, providing
flow sleeve if required, providing check valves as
needed, providing pipe couplings as needed,
rethreading pipe as needed, providing two new air
lines, reassembling pipe work, performing a video log,
and setting-up and testing the pumping equipment and
testing the pump ("Original Installation").
11. Upon information and belief, in or about
September to December of 2009, Water Well reinstalled
the Well Pump, including but not limited to, cutting
and rethreading twelve-inch heavy wall pipe, replacing
couplings, replacing the seal, and replacing the
motor.
12. On or about January of 2010, Water Well also
reinstalled the Well Pump, including but not limited
25
No. 2014AP2484
to, cutting and rethreading at least 17 ends,
installing at least 7 new couplings, and installing at
least 1 new fourteen-foot section of pipe
(collectively, the "Reinstallations").
. . .
14. Upon information and belief, while performing
the Reinstallations, Water Well failed to install two
setscrews, where locations for two setscrews were
located to secure the pipe joint at each end, which
allowed operating torques and vibrations to cause the
Well Pump to rotate and unthread from the pipe column
and caused the Well Pump to fall to the bottom of the
well.
15. As a direct and proximate result of the
foregoing, on or about February 6, 2011, the Well Pump
unthreaded and separated from the pipe column and
caused the Well Pump, including the motor, to fall to
the bottom of the approximately 1910–foot–deep well.
. . .
18. Upon information and belief, Water Well, its
agents, employees and representatives, had a duty to
reasonably and prudently install, configure, inspect,
test, and/or perform the Reinstallations in such a
manner as to prevent operating torques and vibrations
from causing the Well Pump to rotate and unthread from
the pipe column and cause the Well Pump to fall to the
bottom of the well.
19. Upon information and belief, Water Well, its
agents, employees and representatives breached that
duty by failing to reasonably and prudently install,
configure, inspect, test, and/or perform the
Reinstallations in such a manner as to prevent
operating torques and vibrations from causing the Well
Pump to rotate and unthread from the pipe column and
cause the Well Pump to fall to the bottom of the well.
20. Specifically, Water Well breached that duty
by failing to install two setscrews, where locations
for two setscrews were located to secure the pipe
joint at each end, which allowed operating torques and
vibrations to cause the Well Pump to rotate and
26
No. 2014AP2484
unthread from the pipe column and caused the Well Pump
to fall to the bottom of the well.
21. Upon information and belief, Water Well, its
agents, employees and representatives also breached
that duty by failing to reasonably and prudently
perform the Reinstallations so as to discover the
hazardous condition that the Well Pump's operation was
causing the pipe threads to become excessively worn,
was indicating that the pipe threads were possibly out
of round, was causing marks from a part dragging
axially over the pipe thread tips, and/or that the
pump was pulling out of collar; and, this hazardous
condition of the Well Pump's operation allowed
operating torques and vibrations to cause the Well
Pump to rotate and unthread from the pipe column and
caused the Well Pump to fall to the bottom of the
well.
2. The CGL policy
¶33 The parties agree that Consolidated's policy with
Water Well provides an initial grant of coverage for the
allegations contained in Argonaut's complaint. We therefore move
to step two and compare pertinent paragraphs of the Argonaut
complaint, described above, to the "Your Product" exclusion
found in the policy and invoked by Consolidated to deny
coverage. Because we conclude that the "Your Product" exclusion
applies, we do not consider whether another exclusion upon which
Consolidated relies——the "Your Work" exclusion——also applies.
When one exclusion applies to preclude coverage, the
inapplicability of another exclusion does not restore coverage.
See Am. Girl, Inc., 268 Wis. 2d 16, ¶24 ("We analyze each
exclusion separately; the inapplicability of one exclusion will
27
No. 2014AP2484
not reinstate coverage where another exclusion has precluded
it.").18
a. "Your Product" exclusion
¶34 The CGL policy contains an exclusion for "Damage To
Your Product." The "Your Product" exclusion precludes coverage
for: "'Property damage' to 'your product' arising out of it or
any part of it." "Property damage" is defined by the CGL policy
to include "[p]hysical injury to tangible property" as well as
"[l]oss of use of tangible property that is not physically
injured." In addition, the policy defines "Your Product" to
include "goods or products, other than real property,
manufactured, sold, handled, distributed or disposed of by" the
insured, Water Well.
¶35 Water Well argues that the "Your Product" exclusion
does not apply because the Argonaut complaint is ambiguous as to
what property was actually damaged when the well pump unthreaded
from the pipe column and fell to the bottom of the well, that it
is reasonable to infer existing pipes were also damaged, and
that any uncertainty must be resolved in Water Well's favor.
Contrary to Water Well's position, we conclude that the
complaint does not contain any ambiguity as to what property was
damaged.
¶36 The Argonaut complaint contains no allegation that any
damage occurred to anything other than Water Well's products.
18
We decide cases on the narrowest grounds possible.
Maryland Arms Ltd. P'ship v. Connell, 2010 WI 64, ¶48, 326
Wis. 2d 300, 786 N.W.2d 15.
28
No. 2014AP2484
The complaint alleges that Water Well's failure to install two
setscrews resulted in the well pump unthreading from the pipe
column, which caused the well pump to fall to the bottom of the
well. The Argonaut complaint defines the well pump as "[A]
Baker Hughes Centrilift Model WME2700 5-stage submersible
vertical turbine pump, and the pumping system, including but not
limited to, a column of pipes, screws, couplings, a pump, a
seal, a motor, and pump cable . . . ." Paragraph 10 of the
complaint details the products Water Well allegedly provided,
which included each of the components specifically detailed in
the definition of the well pump: the pump, seal, motor, heavy
wall column pipe, and pump cable. In sum, the complaint alleges
that the well pump fell to the bottom of the well, the well pump
is comprised of various components, and Water Well provided each
of the well pump components. We see no ambiguity in these
allegations.
¶37 Further, there is absolutely no indication in the
complaint that any damage occurred to anything other than the
well pump. Water Well argues that an inference can be made from
the allegations in the complaint that damage occurred to
preexisting pipes that would not fall within the "Your Product"
exclusion. Water Well points to allegations in the complaint
that it performed rethreading of pipes and argues that these
allegations establish doubt about whether the "Your Product"
exclusion applies. We disagree and see nothing in the Argonaut
complaint suggesting that any preexisting products, including
preexisting pipes, were damaged. Instead, the Argonaut
29
No. 2014AP2484
complaint alleges damages to the well pump alone and nothing in
the definition of the well pump suggests that it was comprised
of any preexisting products.
¶38 The inference Water Well urges us to draw would
require the type of guess-work and supposition repeatedly
rejected in Wisconsin's duty-to-defend jurisprudence. See,
e.g., Sch. Dist. of Shorewood v. Wausau Ins. Cos., 170
Wis. 2d 347, 374, 488 N.W.2d 82, 92 (1992), abrogated on other
grounds by Johnson Controls, Inc. v. Emp'rs Ins., 2003 WI 108,
264 Wis. 2d 60, 665 N.W.2d 257; State Farm Fire & Cas. Co. v.
Easy PC Sols., LLC, 2016 WI App 9, ¶8, 366 Wis. 2d 629, 874
N.W.2d 585. Again we reject the notion "that insurers must
speculate beyond the written words of the complaint and imagine
what kinds of claims for damages the plaintiffs are actually
making." Midway Motor Lodge v. Hartford Ins. Grp., 226
Wis. 2d 23, 36, 593 N.W.2d 852 (Ct. App. 1999). "Insurers are
not mind readers; they are not able to determine all the
potential issues that a plaintiff could have sought for every
complaint filed against them." Id. A liberal construction of
the complaint does not mean the court should imagine facts not
even loosely pled by the plaintiff. Instead, a reasonable
inference is a conclusion reached on the basis of evidence and
reasoning, not imagination or speculation. See Inference The
American Heritage Dictionary of the English Language 899 (5th
ed. 2011) (defining "inference" as "[t]he act or process of
deriving logical conclusions from premises known or assumed to
be true[]" and "[t]he act of reasoning from factual knowledge or
30
No. 2014AP2484
evidence."). We cannot reasonably infer from the language of
the complaint any damage to property other then the well pump.
¶39 In comparing the four corners of the complaint to the
policy terms, we determine that the "Your Product" exclusion
applies. There are no exceptions to the "Your Product"
exclusion. Therefore, coverage is barred, Consolidated did not
breach its duty to defend Water Well in the Argonaut action, and
Consolidated is entitled to summary judgment as a matter of law.
IV. CONCLUSION
¶40 We conclude that the longstanding four-corners rule in
duty to defend cases requires the court to compare the language
in the complaint to the terms of the entire insurance policy,
without considering extrinsic evidence, even when an insurer
unilaterally declines to defend its insured. We also conclude
that the "Your Product" exclusion in the CGL policy applies and
no exceptions to this exclusion restore coverage; therefore,
based on the allegations set forth in the four corners of the
complaint, no coverage exists under the policy. Accordingly,
Consolidated did not breach its duty to defend Water Well in the
Argonaut action and Consolidated is entitled to summary
judgement as a matter of law.
By the Court.—The decision of the court of appeals is
affirmed.
31
No. 2014AP2484.awb
¶41 ANN WALSH BRADLEY, J. (dissenting). I agree with
the majority that the four-corners rule includes consideration
of exclusions as well as exceptions to those exclusions in an
insurance policy. I write separately because I disagree with
the majority's conclusion to foreclose a narrow exception to the
four-corners rule. Majority op., ¶24.
¶42 The majority's decision today is at loggerheads with
the national trend. It puts Wisconsin among the 14 and ever
dwindling number of jurisdictions that have clearly declined to
recognize any exceptions to the four-corners rule.
¶43 In contrast, a majority of states allow for exceptions
to the rule. The proposed exception here is narrower in scope
and more modest in comparison to the exceptions adopted by many
other jurisdictions.
¶44 But it is more than merely being out of step with a
national trend that compels the conclusion that the majority
opinion is infirm. It turns a blind eye to basic and heretofore
well-recognized principles of insurance law: the duty to
investigate, privity, and the broad application of the duty to
defend.
¶45 Most egregious, however, is that the majority’s
approach is offensive to our system of justice. In a different
context, when a court gives the jury its charge at the close of
the trial, the court states: "let your verdict speak the truth,
1
No. 2014AP2484.awb
whatever the truth may be."1 The majority opinion advises to the
contrary.
¶46 According to the majority, facts known to the insurer
that could support a duty to defend cannot be considered.
Rather, the insurer has license to deny its duty to defend
unless those known facts appear within the four corners of the
complaint. A system of justice cannot countenance a rule that
encourages insurers to defy reality by ignoring known facts
beneficial to its insured. Such a rule distorts rather than
promotes the concepts of fairness and justice.
¶47 Contrary to the majority, I conclude that when a
complaint is factually incomplete or ambiguous, Wisconsin should
adopt the narrow known fact exception to the four-corners rule
as presented by Water Well.
¶48 I also conclude that the "Your Product" exclusion does
not bar coverage. In reaching an opposite conclusion, the
majority pays lip service to, but does not follow the
longstanding rule that courts must liberally construe the
allegations of the complaint and assume all reasonable
inferences in favor of the insured.
¶49 Finally, I conclude that the "Your Work" exclusion
likewise does not preclude coverage because the subcontractor
exception to the "Your Work" exclusion applies. Accordingly, I
respectfully dissent.
1
Wis JI——Civil 191 at 3 (2016).
2
No. 2014AP2484.awb
I
¶50 In reaching its "unequivocal" conclusion that there
are no exceptions to the four-corners rule, the majority fails
to account for the limited circumstances in which refusing to
consider known facts extrinsic to the complaint would unfairly
deny an insured the benefit of a defense to which it is
entitled. Majority op., ¶24.
¶51 Water Well seeks a limited exception to the four-
corners rule in cases where: (1) the policy provides an initial
grant of coverage based on facts alleged in the complaint; (2)
the insurer denies a duty to defend its insured based on the
application of specific policy exclusions but without seeking a
coverage determination from a court; and (3) the insured asserts
that the underlying complaint is factually incomplete or
ambiguous. See majority op., ¶2.
¶52 The limited exception at issue here is consistent with
the national trend to allow for exceptions to the four-corners
rule. See 14 Steven Plitt et al., Couch on Insurance § 200:17
at 200-30 (3d ed. 2015) ("A modern trend is for insurers to
conduct a reasonable investigation of the claims prior to making
a determination on the duty to defend a particular lawsuit.
Consequently, some jurisdictions look to actual knowledge of
facts or extrinsic facts, in addition to the allegations of the
complaint, when determining an insurer's duty.").
3
No. 2014AP2484.awb
¶53 A majority of states allow for exceptions to the four-
corners rule.2 Water Well seeks an exception that is narrower in
2
Currently, thirty-one states allow for exceptions to the
four-corners rule in determining whether a duty to defend
exists. Chandler v. Alabama Mun. Ins. Co., 585 So. 2d 1365,
1367 (Ala. 1991); Williams v. GEICO Cas. Co., 301 P.3d 1220,
1225 (Alaska 2013); Regal Homes, Inc. v. CNA Ins., 217 P.3d 610,
¶19 (Ariz. Ct. App. 2007); Safeco Ins. Co. of America v.
Fireman’s Fund Ins. Co., 55 Cal. Rptr. 3d 844, 850 (Ct. App.
2007); Hartford Cas. Ins. Co. v. Litchfield Mut. Fire Ins. Co.,
876 A.2d 1139, 1145-1146 (Conn. 2005); Shafe v. Am. States Ins.
Co., 653 S.E.2d 870, 874 (Ga. 2007); Sentinel Ins. Co. v. First
Ins. Co. of Haw., 875 P.2d 894, 905 (Haw. 1994); Shriver Ins.
Agency v. Utica Mut. Ins. Co., 750 N.E.2d 1253, 1259 (Ill.
2001); Talen v. Emp’rs Mut. Cas. Co., 703 N.W.2d 395, 406 (Iowa
2005); Miller v. Westport Ins. Corp., 200 P.3d 419, 424 (Kan.
2009); Aetna Cas. & Sur. Co. v. Cochran, 651 A.2d 859, 864 (Md.
1995); Herbert A. Sullivan, Inc. v. Utica Mut. Ins. Co., 788
N.E.2d 522, 530 (Mass. 2003); Am. Bumper & Mfg. Co. v. Hartford
Fire Ins. Co., 550 N.W.2d 475, 452 (Mich. 1996); Pedro Cos. v.
Sentry Ins., 518 N.W.2d 49, 51 (Minn. Ct. App. 1994); Auto. Ins.
Co. of Hartford v. Lipscomb, 75 So. 3d 557, 559 (Miss. 2011);
Allen v. Cont'l W. Ins. Co., 436 S.W.3d 548, 552-53 (Mo. 2014);
Revelation Industries, Inc. v. St. Paul Fire & Marine Ins. Co.,
206 P.3d 919, 926 (Mont. 2009); Peterson v. Ohio Cas. Group, 724
N.W.2d 765, 773-774 (Neb. 2006); Ross v. Home Ins. Co., 773 A.2d
654, 657 (N.H. 2001); Abouzaid v. Mansard Gardens Assocs., LLC,
23 A.3d 338, 347 (N.J. 2011); Sw. Steel Coil, Inc. v. Redwood
Fire & Casualty Ins. Co., 148 P.3d 806, 812 (N.M. 2006);
Cumberland Farms, Inc. v. Tower Grp., Inc., 28 N.Y.S.3d 119, 122
(N.Y. App. Div. 2016); Duke University v. St. Paul Fire & Marine
Ins. Co., 386 S.E.2d 762, 764 (N.C. 1990); Great Am. Ins. Co. v.
Hartford Ins. Co., 621 N.E.2d 796, 798 (Ohio 1993); First Bank
of Turley v. Fid. & Deposit Ins. Co., 928 P.2d 298, 303 (Okla.
1996); City of Hartsville v. S.C. Mun. Ins. & Risk Fin. Fund,
677 S.E.2d 574, 578-79 (S.C. 2009); State Farm Fire & Cas. Co.
v. Harbert, 741 N.W.2d 228, 234 (S.D. 2007); Fire Ins. Exchange
v. Estate of Therkelsen, 27 P.3d 555, ¶¶24-25 (Utah 2001); R.L.
Vallee, Inc. v. Am. Intern. Specialty Lines Ins. Co., 431 F.
Supp. 2d 428, 438 (D. Vt. 2006); Campbell v. Ticor Title Ins.
Co., 166 Wash. 2d 466, 471 (Wash. 2009); Farmer & Mechs. Mut.
Ins. Co. of W. Va. v. Cook, 557 S.E.2d 801, 806 (W. Va. 2001).
(continued)
4
No. 2014AP2484.awb
scope and more modest in comparison to the exceptions adopted in
many other jurisdictions. For example, in Washington, there are
two exceptions to the four-corners rule. Woo v. Fireman's Fund
Ins. Co., 164 P.3d 454, 459 (Wash. 2007). First, if it is not
clear from the complaint that the policy provides coverage, the
insurer must investigate and give the insured the benefit of the
doubt that there is a duty to defend. Id.
¶54 Second, as is the case here, if the allegations in the
complaint conflict with facts known or readily ascertainable by
the insurer, or if the allegations in the complaint are
ambiguous or inadequate, facts outside the complaint may be
considered. Id. Additionally, although extrinsic facts may
trigger the duty to defend, an insurer may not rely on extrinsic
facts to deny the duty to defend. Id.
¶55 Kansas provides another example. In Miller v.
Westport Ins. Corp., 200 P.3d 419, 424 (Kan. 2009), the court
explained that an insurer "must look beyond the effect of the
In four states, because of conflicting cases, it is unclear
whether they allow for exceptions to the four-corners rule.
Compare Cotter Corp. v. Am. Empire Surplus Lines Ins. Co., 90
P.3d 814, 829 (Colo. 2004), with United Fire & Cas. Co. v.
Boulder Plaza Residential, LLC, 633 F.3d 951, 960-61 (10th Cir.
2011); compare Transamerica Ins. Services v. Kopko, 570 N.E.2d
1283, 1285 (Ind. 1991), with Ind. Farmers Mut. Ins. Co. v. N.
Vernon Drop Forge, Inc., 917 N.E.2d 1258, 1268 (Ind. Ct. App.
2009) (citing Auto-Owners Ins. Co. v. Harvey, 842 N.E.2d 1279,
1291 (Ind. 2006); compare James Graham Brown Found., Inc. v. St.
Paul Fire & Marine Ins. Co., 814 S.W.2d 273, 279 (Ky. 1991),
with Lenning v. Commer. Union Ins. Co., 260 F.3d 574, 581 (6th
Cir. 2001); compare GuideOne Elite Ins. Co. v. Fielder Road
Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006), with Weingarten
Realty Mgmt Co. v. Liberty Mut. Fire Ins. Co., 343 S.W.3d 859
(Tex. Ct. App. 2011).
5
No. 2014AP2484.awb
pleadings and must consider any facts brought to its attention
or any facts which it could reasonably discover in determining
whether it has a duty to defend." Under this approach, "the
universe of information from which th[e] potential [for
coverage] must be ascertained is much greater than the universe
used in an approach limited to the . . . pleading and the
applicable insurance policy." Id. (internal citations and
quotation omitted).
II
¶56 Not only is the majority opinion out of step with the
national trend and at odds with the majority of states, it also
contravenes basic principles of insurance law.
A
¶57 A basic principle of insurance law is that the insurer
is to investigate the facts when a claim is made. Trinity
Evangelical Lutheran Church and Sch.-Freistadt v. Tower Ins.
Co., 2003 WI 46, ¶54, 261 Wis. 2d 333, 661 N.W.2d 789.
¶58 This principle is supported by Marks v. Houston Cas.
Co., 2016 WI 53, ¶41, __ Wis. 2d __, __ N.W.2d __, which is
being released concurrently with this decision today. In Marks,
we explain that "'[t]he applicability of an exclusion, however,
is rarely obvious from the allegations in the complaint.
Insurers often have to rely on investigation, discovery and
other information not stated in the complaint to determine
whether an exclusion applies.'" Id. (citing Peter F. Mullaney,
Liability Insurers' Duty to Defend, Wis. Law., at 10-11 (July
1995)).
6
No. 2014AP2484.awb
¶59 The two opinions released concurrently today appear
facially inconsistent in regards to the duty to investigate.
Marks supports the duty to investigate, and the majority here
discards it. In contravening this basic principle of insurance
law, the majority incentivizes an insurer to disregard its
factual investigation and to pretend that it cannot see a known
fact which would give rise to a duty to defend.
¶60 The exceptions to the four-corners rule in other
jurisdictions recognize this basic principle. For example, in
Washington, if it is not clear from the complaint that the
policy provides coverage, the insurer "must investigate" and
give the insured the benefit of the doubt that there is a duty
to defend. Woo, 164 P.3d at 459.
¶61 Likewise, in Oklahoma an insurer has a duty to defend
"whenever it ascertains the presence of facts that give rise to
the potential of liability under the policy." First Bank of
Turley v. Fid. and Deposit Ins. Co. of Md., 928 P.2d 298, 303
(1996). An insurer's duty to defend is determined on the basis
of information provided to the insurer from the pleadings, the
insured, and other sources available to the insurer. Id.
B
¶62 Also integral to insurance law, and contract law in
general, is the concept of privity. As Judge Riley aptly
explains in his dissent below, the approach taken by the
majority negates the concept of privity. Water Well Sols. Serv.
Grp. Inc. v. Consol. Ins. Co., 2015 WI App 78, ¶24, 365
Wis. 2d 223, 871 N.W.2d 276 (Reilly, P.J. dissenting). He
7
No. 2014AP2484.awb
admonishes that "[i]t is absurd to allow an entity that has no
privity of contract to dictate whether the contract provides
defense and coverage." Id. Emphasizing the problem with the
unilateral control of a third-party, he observes that the
majority’s approach "allows a litigant who is not a party to a
contract of insurance to unilaterally control whether . . . the
[] policy provides coverage when that litigant has no privity in
the contract." Id., ¶21.
¶63 Yet again, other jurisdictions allow for an exception
to the four-corners rule when a third-party not in privity to an
insurance contract fails to allege facts relevant to the duty to
defend in its complaint. As the Supreme Court of Montana
explained, an insurer cannot ignore knowledge of facts because a
complaint drafted by a third-party does not allege facts of
which the insurer has knowledge. Revelation Indus. Inc. v. St.
Paul Fire & Marine Ins. Co., 206 P.3d 919, 928 (Mont. 2009).
Under these circumstances, an insurer may not "ignore
information in its possession that may give rise to coverage
simply because the complaint fails to recite it, and thereupon
refuse to defend." Id.
C
¶64 A third basic principle of insurance law is that the
duty to defend is broader than the duty to indemnify. Fireman's
Fund Ins. Co. of Wis. v. Bradley Corp., 2003 WI 33, ¶20, 261
Wis. 2d 4, 660 N.W.2d 666. Nevertheless, the majority opinion
does just the opposite and circumscribes the duty to defend.
8
No. 2014AP2484.awb
¶65 The Connecticut Supreme Court eschewed the absolutist
approach that the majority now embraces and determined that such
an approach would narrow the duty to defend. It explained that
a "wooden application" of the four-corners rule would "render
the duty to defend narrower than the duty to indemnify."
Hartford Cas. Ins. Co. v. Litchfield Mut. Fire Ins. Co., 876
A.2d 1139, 1146 (Conn. 2005); see also Fitzpatrick v. Am. Honda
Motor Co., 575 N.E.2d 90, 92 (N.Y. 1991) ("where the insurer is
attempting to shield itself from the responsibility to defend
despite its actual knowledge that the lawsuit involves a covered
event, wooden application of the 'four corners of the complaint'
rule would render the duty to defend narrower than the duty to
indemnify——clearly an unacceptable result."). Thus, the
Hartford court reasoned that "the sounder approach is to require
the insurer to provide a defense when it has actual knowledge of
facts establishing a reasonable possibility of coverage." Id.
III
¶66 Prior Wisconsin decisions have likewise considered an
exception to the four-corners rule when the allegations of the
complaint conflict with the known facts of the case or where the
allegations are ambiguous or incomplete:
[T]here are also a number of cases involving special
situations not covered directly by the general
rules . . . These special situations exist
particularly where there is a conflict of allegations
and known facts [and] where the allegations are
ambiguous or incomplete . . . .
Estate of Sustache, 2007 WI App 144, ¶11, 303 Wis. 2d 714, 735
N.W.2d 186, aff'd sub nom. Estate of Sustache v. Am. Family Mut.
9
No. 2014AP2484.awb
Ins. Co., 2008 WI 87, 311 Wis. 2d 548, 751 N.W.2d 845 (citation
omitted); see also Grieb v. Citizens Cas. Co. of New York, 33
Wis. 2d 552, 148 N.W.2d 103 (1967).
¶67 As the court of appeals explained in Sustache, it is
reasonable to consider a situation where the facts of a case
merit a defense, but the third-party complaint fails to allege
those facts. 303 Wis. 2d 714, ¶20. In that situation "it would
seem that the insured should be entitled to a defense for which
the insurer has been paid a premium. The four-corners rule
shuts down that entitlement." Id.
¶68 Furthermore, Wisconsin has already allowed known facts
extrinsic to the complaint to be considered in limited
exceptions to the four-corners rule. In Berg v. Fall, 138
Wis. 2d 115, 122 405 N.W.2d 701 (Ct. App. 1987), the court of
appeals considered extrinsic facts because there was a conflict
between the allegations in the complaint and the actual facts of
the case. The Berg court emphasized that an insurer's duty to
defend may require consideration of extrinsic facts when "the
pleadings allege facts that are within an exception to a policy
but the true facts are within, or potentially within, policy
coverage and are known or are reasonably ascertainable by the
insurer." Id. at 122-123 (citing 7C Appleman, Insurance Law and
Practice, sec. 4683 at 56 (1979)).
¶69 Admittedly, this court has previously declined to
follow Berg. In a footnote in Doyle v. Engelke, we explained
that Berg is contrary to a "long line of cases in this state
which indicate that courts are to make conclusions on coverage
10
No. 2014AP2484.awb
issues based solely on the allegations within the complaint."
219 Wis. 2d 277, 284 n.3, 580 N.W.2d 245 (1998); see also Smith
v. Katz, 226 Wis. 2d 798, 815-16, 595 N.W.2d 345 (1999).
However, none of these decisions foreclosed the possibility of
allowing for a know fact exception in cases such as this when
the allegations in the complaint are incomplete or ambiguous.3
IV
¶70 Rather than acknowledge that there are limited
circumstances in which a duty to defend analysis may allow for
consideration of known facts extrinsic to the complaint, the
majority asserts that its rigid four-corners analysis benefits
an insured even after its insurer unilaterally denies coverage.
Majority op., ¶26. According to the majority, under the four-
corners rule "a plaintiff has both the opportunity and the
incentive to file an amended complaint" if discovery results in
additional facts that would trigger a duty to defend. Id.
Thus, the majority reasons that because a plaintiff will want
coverage for the defendant-insured, it will amend its complaint
to trigger the duty to defend. Id. (citing Sheila M. Sullivan
3
In Estate of Sustache, the court of appeals examined
whether the exceptions to the four-corners rule acknowledged in
Griebe had been foreclosed by Doyle and Smith, but ultimately
concluded only that "this issue warrants supreme court comment
at some point in the future." Estate of Sustache, 2007 WI App
144, ¶20, 303 Wis. 2d 714, 735 N.W.2d 186.
11
No. 2014AP2484.awb
et al., Anderson on Wisconsin Insurance Law § 7.27 at 29 (7th
ed. 2015)).4
¶71 The majority's hypothetical solution to an unfair
denial of the duty to defend fails to take into account the
realities of litigation. An assumption that a plaintiff will
seek insurance coverage does not apply in every case, such as
when a plaintiff wishes to apply pressure to a defendant who has
the capacity to satisfy a judgment without insurance. Even if a
plaintiff is inclined to amend the complaint, a defendant whose
insurer has unilaterally denied the duty to defend will have to
provide for the costs of its own defense until some unknown date
when the plaintiff may amend the complaint. Not every insured
can bear the costs of its own defense during prolonged
litigation and may be forced to settle a meritless claim out of
necessity.
¶72 In this case, the majority's repeated refrain that the
four-corners rule benefits the insured rings hollow. See
majority op., ¶3 ("we reject Water Well's request to craft a
limited exception to the four-corners rule, which has long
endured to the benefit of Wisconsin insureds"); see also
majority op., ¶25 ("We have applied the four-corners rule,
4
The assumption that a plaintiff will amend a complaint to
trigger insurance coverage for a defendant after new facts arise
in discovery is undermined by Atlantic Mut. Ins. Co. v. Badger
Medical Supply Co., 191 Wis. 2d 229, 241, 528 N.W.2d 486 (1995),
in which the defendant arguing in favor of coverage alleged that
facts discovered in depositions triggered insurance coverage.
However, the Atlantic court determined that no allegations in
the amended complaint supported the insured's argument. Id.
12
No. 2014AP2484.awb
without exceptions, in duty to defend cases for so long because
it generally favors Wisconsin insureds."); majority op., ¶26
("The four-corners rule ultimately favors insureds in another
way.").
¶73 One has to wonder if the majority's absolutist
application of the four-corners rule is as beneficial to
insureds as the majority proclaims, then why is the insured
losing here?
¶74 Its proffered concerns regarding the consideration of
extrinsic facts are equally unpersuasive. According to the
majority, recognizing exceptions to the four-corners rule would
require insurers to "imagine claims the plaintiff might have
made." Majority op., ¶25 n. 15. The majority conjures a
scenario in which "this judicially-created burden" would
"rewrite the contractual duty to defend to be triggered whenever
any claim is made rather than only those claims covered under
the actual policy terms." Id.
¶75 The majority's reasoning is misguided because allowing
consideration of extrinsic facts in this case would not require
Consolidated to imagine any claims other than those the
plaintiff has already alleged. As the majority acknowledges,
Consolidated does not dispute that there is an initial grant of
coverage based on the claims alleged in the complaint. Majority
op., ¶35. Instead, Water Well seeks to introduce facts
extrinsic to the complaint in order to support its argument that
the "Your Product" exclusion, invoked by Consolidated in its
unilateral denial of its duty to defend, does not apply.
13
No. 2014AP2484.awb
¶76 A rule that would create a presumption in favor of an
insured's duty to defend is consistent with an insurer's broad
duty to defend. See, e.g., Olson v. Farrar, 2012 WI 3, ¶2, 338
Wis. 2d 215, 809 N.W.2d 1. As this court has repeatedly
declared, "[i]f there is any doubt about the duty to defend, it
must be resolved in favor of the insured." Elliot v. Donahue,
169 Wis. 2d 310, 321, 485 N.W.2d 403 (1992).
¶77 The majority recites the law regarding an insurer's
broad duty to defend, and acknowledges that its decision may
circumscribe that duty. See majority op., ¶30 n.17. Given that
even the majority recognizes that an insurer's unilateral
refusal to defend is disfavored, I fail to understand how a rule
that encourages insurers to refuse, rather than provide, a
defense is consistent with this court's well-established
precedent.5 Majority op., ¶27 (citing Liebovich v. Minn. Ins.
Co., 2008 WI 75, ¶55, 310 Wis. 2d 751, 751 N.W.2d 764).
¶78 At the heart of its analysis, the majority protests
the efficacy of the known fact exception and predicts dire
consequences if it is adopted. Such protests and predictions
are out of step with the national trend and prove unpersuasive.
The majority of states that have adopted exceptions have not
reported the hypothetical quagmires forewarned by the majority.
Indeed, the sky above those states has not fallen.
5
Although the majority sets forth the judicially-preferred
approaches to determining coverage, its absolutist approach to
the four-corners rule may incentive insurers to unilaterally
deny coverage instead.
14
No. 2014AP2484.awb
V
¶79 The majority pays lip service to its obligation to
liberally construe the allegations contained in the complaint,
assume all reasonable inferences from the allegations made in
the complaint, and resolve any ambiguity in favor of the
insured. Majority op., ¶15 (citing Estate of Sustache, 311
Wis. 2d 548, ¶21). However, it fails to follow this directive
in its analysis of the "Your Product" exclusion in
Consolidated's policy.
¶80 Consolidated's policy excludes coverage for "'Property
damage' to 'your product' arising out of it or any part of it."
It defines "Your product" as "[a]ny goods or products, other
than real property, manufactured, sold, handled, distributed or
disposed of by [] you."
¶81 Water Well argues that that the "Your Product"
exclusion does not apply because the complaint is ambiguous as
to what property was damaged when the well pump fell to the
bottom of the well. According to the majority, "[t]he Argonaut
complaint contains no allegation that any damage occurred to
anything other than Water Well's products." Majority op., ¶36;
see also Majority op., ¶37 ("there is absolutely no indication
in the complaint that any damage occurred to anything other than
the well pump."). Thus, the majority concludes that that "Your
Product" exclusion applies and that Consolidated had no duty to
defend Water Well.
¶82 Contrary to the majority, I would draw all reasonable
inferences in favor of the insured. Although there is no
15
No. 2014AP2484.awb
allegation of damage to any pre-existing product, there is also
no allegation that when the pump fell to the bottom of the well
the damage was exclusively to Water Well's products. It is just
as reasonable to infer that other products were damaged as it is
to infer that only Water Well's products were damaged.
¶83 In particular, the complaint alleges that the damaged
well pump included a "column of pipes." Based on the
allegations in the complaint, it is reasonable to infer that the
column of pipes consisted of pipe that was not Water Well's
product. For example, the complaint alleges that Water Well
"install[ed] at least 1 new fourteen-foot section of pipe." It
also alleges that Water Well "rethread[ed] pipe as needed."
¶84 Thus, it is also reasonable to infer that Water Well
installed only one new section of pipe and that it only repaired
some of the other existing pipe as needed. After resolving all
ambiguity in favor of the insured, I conclude that the "Your
Product" exclusion does not apply and Consolidated had a duty to
defend Water Well.
¶85 Alternatively, if the known facts extrinsic to the
complaint are considered, it is undeniable that the "Your
Product" exclusion does not apply. In its motion for summary
judgment before the circuit court, Water Well introduced
uncontested evidence that that the alleged damage to the city
well included damage to product that was not Water Well's
product. Water Well's operations manager averred in an
affidavit that although the pipe column in the well did contain
new pipe provided by Water Well, it also contained pre-existing
16
No. 2014AP2484.awb
pipe. The affidavit further stated that Water Well reused most
of the pre-existing pipe sections and only cut and rethreaded
(through the work of a subcontractor) those sections of the pre-
existing pipe that needed repairing.
¶86 Considering Water Well's affidavit, it appears that
products other than Water Well's, such as the pre-exiting pipe,
were damaged when the pump fell to the bottom of the well.
These are known facts that are not explicitly included in the
allegations in the complaint. However, if we consider these
extrinsic facts, the "Your Product" exception does not apply and
Consolidated would have a duty to defend Water Well.
VI
¶87 Because I conclude that the "Your Product" exclusion
does not apply, I must examine whether the "Your Work" exclusion
applies.6 Consolidated's policy excludes "'Property damage'" to
'your work' arising out of it or any part of it . . ." However,
there is an exception to the exclusion. The "Your Work"
exclusion does not apply "if the damaged work or the work out of
which the damage arises was performed on your behalf by a
subcontractor."
¶88 Water Well argues that the "Your Work" exclusion does
not apply because the subcontractor exception restores coverage.
Although the complaint does not specifically allege that a
6
The majority does not address the "Your Work" exclusion
because it determines that the "Your Product" exclusion applies.
Majority op., ¶33 (citing Am. Family Mut. Ins. Co. v. Am. Girl,
Inc., 2004 WI 2, ¶24, 268 Wis. 2d 16, 673 N.W.2d 65).
17
No. 2014AP2484.awb
subcontractor performed the work out of which the damage arose,
the allegations in the complaint repeatedly refer to "Water
Well, its agents, employees and representatives."
¶89 The term "agent" is very broad and can be understood
to include a subcontractor when assuming all reasonable
inferences in favor of the insured. See, e.g., Black's Law
Dictionary 75 (10th ed. 2014) (defining "agent" as "[s]omeone
who is authorized to act for or in place of another; a
representative"); see also Restatement (Third) of Agency, § 1.01
(Am. Law Inst. 2006) ("Agency is the fiduciary relationship that
arises when one person (a 'principle') manifests asset to
another person (an 'agent') that the agent shall act on the
principal's behalf and subject to the principal's control, and
the agent manifests assert or otherwise consents so to act.").
Thus, the subcontractor exception to the "Your Work" exclusion
ought to apply to reinstate coverage.
¶90 Alternatively, if we consider the known facts
extrinsic to the complaint, there is no doubt that the
subcontractor exception applies to restore coverage under the
"Your Product" exclusion. At summary judgment, Water Well
introduced evidence that a subcontractor performed work on the
well, including cutting and rethreading pipe and drilling and
tapping screw holes. Attached to Water Well's affidavit is an
invoice from a subcontractor detailing its work on the well
pump.
¶91 Considering Water Well's affidavit, the attached
receipt substantiates that a subcontractor performed work on the
18
No. 2014AP2484.awb
well pump. Thus, the known facts extrinsic to the complaint
demonstrate that the subcontractor exception to the "Your Work"
exclusion restores coverage.
VII
¶92 In sum, I conclude that when the complaint is
factually incomplete or ambiguous, Wisconsin should adopt the
narrow known fact exception to the four-corners rule as
presented by Water Well. To do otherwise unfairly denies an
insured the benefit of a defense to which it is entitled.
¶93 I also conclude that neither the "Your Product"
exclusion nor the "Your Work" exclusion bars coverage.
Accordingly, I respectfully dissent.
¶94 I am authorized to state that Justice SHIRLEY S.
ABRAHAMSON joins this dissent.
19
No. 2014AP2484.awb
1