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  • November 23, 2021

    Nine Recent Insurance Coverage Appeals Court Decisions

    Nine recent Wisconsin Court of Appeals cases discuss insurance coverage. Monte Weiss and Kristen Scheuerman provide a summary of the cases.

    Monte E. Weiss, Kristen S. Scheuerman

    One case short of a top 10 list, this is a summary of nine recent decisions from the Wisconsin Court of Appeals that discuss insurance coverage.

    Readers should note that several of the decisions discussed are unpublished, per curiam decisions, so an understanding of Rule 809.23(3)(a)-(b) is important.

    Despite a prohibition on publication, the per curiam decisions discussed in this article are important in that they help the reader understand how courts have analyzed various coverage issues, and ​that analysis may prove helpful to an understanding of various issues found in your own cases.

    Sunday v. McMillan-Warner Mut. Ins. Co., 2021 WI App 50, 963 N.W.2d 586, 2021 WL 2426263 (unpublished, per curiam)

    Issue: Criminal Acts Exclusion

    Facts: Nicholas Sempf Nyren was hunting after lawful hunting hours. Nicholas fired his weapon, striking Dianna Sunday who sustained significant injuries. Nicholas pled guilty to injury by negligent use of a weapon/explosive (a Class I felony).

    Monte E. Weiss Monte E. Weiss, Case Western Reserve 1991, is the founder of Weiss Law Office, S.C., in Mequon, where his practice is devoted almost entirely to the defense of tort claims on behalf of insurance companies and self-insured entities.

    Kristen S. Scheuerman Kristen Scheuerman, Marquette 2010, is a shareholder at Herrling Clark Law Firm, Ltd., in Appleton. She practices in plaintiffs’ personal injury litigation, and serves as prosecutor for a local municipality.

    Nicholas was insured under liability policies issued by both McMillian-Warner Mutual Insurance Company and Mt. Morris Insurance Company. Both carriers disclaimed any obligation to defend or indemnify Nicholas based upon the policies’ “criminal acts exclusion.” While the specific exclusions are not produced in the opinion, generally, a criminal acts exclusion provides that:

    This policy does not apply to 1. “bodily injury” or “property damage”: 2. that is the result of a criminal act of an “insured.”

    Holding: The trial court granted summary judgment to the carriers. The court of appeals affirmed holding that the criminal acts exclusion barred coverage for the incident. The injured party argued that the use of the term “criminal” in the policies gave a layperson the impression that only wicked or heinous acts would be excluded and that a “reasonable insured” would believe that some technically criminal acts would not in fact be excluded. This argument was “affirmatively” rejected by the court. In addition, the court of appeals agreed “in the main” that public policy “requires that insurance companies not be allowed to provide coverage for damages related to an insured’s criminal acts.”

    TJW Props., LLC v. Cincinnati Ins. Co., 2021 WL 3043494 (Appeal No 2020AP1173, Slip Copy, final publication decision pending)

    Issue: Bifurcation and Stay of Bad Faith Claims / Discovery

    Facts: TJW Properties and Flex Automation (collectively Flex) had several properties, including Building 4, insured by Cincinnati. After an extreme cold spell, a leak was discovered on the first floor of Building 4. An investigation revealed water damage from broken pipes in the boiler-heated baseboards on the second floor. Portions of the fire suppression system were also damaged, resulting in further water damage to both levels of Building 4. The boiler serving Building 4 failed, resulting in the pipes freezing and bursting, causing the resulting property damage.

    Cincinnati did not dispute that Flex’s claim based on the freezing pipes was a direct cause under the definition of covered causes of loss in the Policy. However, the parties’ disputed whether the freezing pipes meant that coverage was excluded or limited. Cincinnati’s Policy included the following language:

    We will not pay for “loss” caused by or resulting from any of the following: …

    Freezing of Plumbing Water, other liquids, powder or molten material that leaks or flows from plumbing, heating, air conditioning or other equipment (except fire protection systems) caused by or resulting from freezing, unless:
    1. You did your best to maintain heat in the building or structure; or
    2. You drained the equipment and shut off the supply if the heat was not maintained.

    Based on this language, Cincinnati denied the claim and Flex filed suit, alleging only a bad faith claim and one count of punitive damages. Flex did not allege a separate breach of contract claim.

    During discovery, Cincinnati produced nonprivileged portions of its claim file and otherwise responded to discovery before filing a motion to bifurcate and stay the bad faith claim discovery along with a motion to bar any discovery of its privileged materials. The trial court granted those motions.

    Holding: The court of appeals reversed the trial court’s decisions on the motions to bifurcate and stay discovery, taking issue with the manner in which the motions were granted. The court of appeals acknowledged the trial court’s discretion to bifurcate claims into separate trials and to stay discovery on bifurcated claims,1 but held that the controlling precedent in this particular case was Brethorst v. Allstate Prop. & Cas. Ins. Co.,2 because Flex pled only a bad faith claim without pleading a separate breach of contract claim. Since the trial court did not engage in the analysis required under Brethorst, its discretion was erroneously exercised and thus, reversed and remanded with instructions to the trial court to properly analyze the motions.

    Estate of Zhu v. Hodgson, 2021 WI App 10, 395, Wis. 2d 768, 954 N.W.2d 748, 2020 WL 7636641 (unpublished)

    Issue: Pleading and Proving Policy Limits

    General facts: Brian Hodgson (insured by IDS Property Casualty Insurance Company) struck bicyclist, Emily Zhu, with his vehicle and she died as a result of the injuries she sustained. After a trial, a jury returned a special verdict awarding $10,000,000 to Emily’s parents for loss of society and $5,000,000 to the Estate for Emily’s conscious pain and suffering. After various motions after verdict, judgment was entered against Hodgson for $5,481,471.24 and against IDS for $108,268.70. The Estate argued that the judgment imposed against Hodgson should have been imposed jointly and severally against both IDS and its insured because IDS did not “prove up” its policy limit. Hodgson and IDS appealed for other reasons, and the Estate cross-appealed on the policy limits issue.

    Policy limits facts: IDS alleged in its answer that “[t]he policy was subject to terms and conditions some of which limit the coverages provided. This includes a limitation of $100,000 per person and $300,000 per accident for bodily injury claims.” IDS produced its entire policy during discovery and at the final pretrial, without objection from the Estate, the court accepted into evidence the affidavit of an IDS underwriting supervisor who attested to the “true and exact copy” nature of the produced Policy with an additional statement specifying the policy limits of “$100,000 each person, $300,000 each accident.” When defense counsel stated at the pretrial that “[t]he policy limits are $100,000 per person. I don’t think there’s any dispute about that,” and the court asked the Estate’s counsel if they agreed, counsel stated “Correct.”

    IDS sought to enter judgment against IDS in the amount of $100,000. Counsel for the Estate argued that despite a stipulation and declarations page showing that limit, because IDS had not proffered to the court at the time of the stipulation the entire policy, “no insurance policy was ever admitted or stipulated to.” At a hearing on the issue, the trial court after trial received into evidence the entire IDS policy, noting there could be no prejudice to the Estate since the same was exchanged during discovery. The trial found that IDS’s applicable policy limit was $100,000.

    Holding: Affirmed. The court of appeals noted that the parties stipulated to the policy limits on the record and plaintiff never brought a motion to withdraw its stipulation. The stipulation was therefore binding, and the carrier had thus proven its policy limit. The court of appeals also noted that the carrier pled its policy limits in its answer and therefore, the trial court had discretion to later accept into evidence the policy. The Estate argued the policy was “inadmissible hearsay,” but because the Estate never objected on this ground prior to appeal an appeal on that issue was precluded.

    Mathison v. Kulhanek, 2021 WI App 20, 396, Wis. 2d 703, 958 N.W.2d 164, 2021 WL 329930 (unpublished, per curiam)

    Issue: Initial grant of coverage

    Facts: Wayne Kulhanek owned a building in Rhinelander and operated his business, NOW Equipment, LLC, out of a portion of the building. Kulhanek also rented out a portion of the building to Kevin Mathison although they had no written lease agreement. Mathison would sometimes work on Kulhanek’s vehicles to “pay” his rent for the month. Mathison was in prison during a portion of the time he leased space from Kulhanek and during that time, another gentleman, Richard Whiting, kept some of his personal property in the space rented by Mathison. During Mathison’s period of incarceration, Kulhanek on a few occasions had reason to believe someone else may be accessing the rented space (noticing lights on in the garage, seeing footprints in the snow). Kulhanek believed only he and Mathison had access to the property so he changed the locks to be safe. Whiting informed Kulhanek he wanted to remove his property but Kulhanek declined as Kulhanek had no way to verify what belonged to Whiting as opposed to other clients.

    As Mathison’s incarceration lingered, Kulhanek looked into finding a new tenant, and he contacted a junk dealer to clean up the rented space, instructing the dealer to “just take the junk.” Kulhanek did not oversee the process. When Mathison was finally released, and got himself current on back rent, Mathison complained that some of his property was missing. Whiting had similar complaints. Mathison and Whiting sued Kulhanek, and his insurer, Auto Owners, alleging negligent bailment and conversion. After Mathison was released from prison, he returned to his rental property and noticed that some of his property was missing. He then sued Kulhanek alleging negligent bailment and conversation.

    Auto Owners argued on summary judgment that Kulhanek did not qualify as insured under the CGL policy and the court agreed.

    Holding: The Auto Owners policy included this language:

    1. If you are designated in the Declarations as: …
    c. A limited liability company, you are an insured. Your members are also insureds, but only with respect to the conduct of your business. Your managers are insureds, but only with respect to their duties as your managers.

    Kulhanek’s business, NOW Equipment, LLC, was clearly an insured but Kulhanek personally was not. Kulhanek was an insured as a member of NOW Equipment LLC, but only to the extent he was engaged in the conduct of the LLC. Since Kulhanek was sued outside of his capacity as a member of the LLC, he was not an “insured.” Correspondingly, the loss did not fall within the initial grant of coverage.

    V&J Emp't Servs. v. Liberty Mut. Ins. Co., 2021 WI App 27, 397, Wis. 2d 243, 959 N.W.2d 87, 2021 WL 870601 (unpublished)

    Issue: Initial grant of coverage

    Facts: V&J owned restaurant franchises throughout the U.S. and they obtained various commercial insurance policies with Liberty, which included Employee Benefits Liability (EBL) coverage. V&J was sued in a number of class-action suits, alleging improper withholding of tips from delivery drivers, failing to compensate for overtime and under reimbursing for the use of personal vehicles. Liberty disclaimed coverage on the grounds that the EBL coverage provided coverage for an “act, error or omission that is negligently committed in the administration of an employee benefits program.” The word “administration” was specifically defined in the policy and unpaid or underpaid wages were not included in the policy’s definitions for the EBL coverage.

    The trial court found the insurance policy to be unambiguous and that coverage did not include the type of wage claims that were being asserted against the V&J.

    Holding: The court of appeals affirmed, finding that the claims against V&J involved wage claims and not employee benefits claims and were thus not covered. In addition, the court agreed with the trial court's conclusion that the complaints against the insured alleged intentional conduct as opposed to negligent conduct.

    Cincinnati Ins. Co. v. Ropicky, 2021 WI App 25, 397, Wis. 2d 196, 959 N.W.2d 356

    Issue: Liability of third-party experts

    Facts: An insurance company retained an expert to conduct a post loss claim investigation of alleged property damage so that the carrier could make coverage decisions. The third-party expert, Infratek, apparently advised the carrier that a significant portion of the claim presented by its insureds was not the subject of coverage under the policy. The carrier then filed a declaratory judgment action seeking that it had no further coverage obligations.

    The dispute on appeal did not involve the coverage for claims presented by the homeowner against the carrier. Rather, it involved the claim of the homeowner against the third-party expert, Infratek. Infratek claimed that it was an agent of the carrier and was thus statutorily exempt from liability under Wis. Stat. section 895.475, which provides as follows:

    895.475 Exemption from civil liability for furnishing safety inspection or advisory services.
    The furnishing of, or failure to furnish, safety inspection or advisory services intended to reduce the likelihood of injury, death or loss shall not subject a state officer, employee or agent, or an insurer, the insurer’s agent or employee undertaking to perform such services as an incident to insurance, to liability for damages from injury, death or loss occurring as a result of any act or omission in the course of the safety inspection or advisory services. This section shall not apply if the active negligence of the state officer, employee or agent, or of the insurer, the insurer’s agent or employee created the condition that was the proximate cause of injury, death or loss. This section shall not apply to an insurer, the insurer’s agent or employee performing the safety inspection or advisory services when required to do so under the provisions of a written service contract.

    Infratek moved for summary judgment claiming that it was serving as the insurer’s agent and was therefore exempt from liability. In particular, Infratek claimed that it was immune under the statute because it provided “advisory services to reduce the likelihood of loss” to the carrier in its claim evaluation process. The trial court granted the summary judgment motion in favor of Infratek.

    Holding: The court of appeals reversed as it determined that section 895.475 does not provide immunity for post loss claim investigation performed by or on behalf of an insurance company pursuant to the insurance contract. Rather, the statute is designed to immunize a party from providing advisory services intending to reduce the likelihood of loss in the future; the statute is forward looking as opposed to immunizing investigations or advisory services as to losses that already occurred.

    1st Auto & Cas. Ins. Co. v. R.P. et. al., 2021 WI App 66, 2021 WL 4808115 (awaiting publication in the N.W.2d reporter)

    Issue: Use of a vehicle

    Facts: Amy was sexually assaulted by Cody Triebs inside the cab of Cody’s truck (while it was parked). Cody then dragged Amy to the back of the truck and assaulted her again on the truck’s tailgate. Cody claimed the contact was initiated by Amy. However, he also admitted that he knew it was illegal because Amy was 13 or 14 and he was 21. Cody’s truck was insured by Progressive and Amy’s parents had auto insurance through 1st Auto. Both of those policies included UM coverage.

    The UM coverage insuring agreements in both policies stated that the respective insurers would pay damages that an insured was legally entitled to recover from the owner or operator of an uninsured motor vehicle because of bodily injury that:

    • was sustained by an insured;

    • was caused by an accident; and

    • arose out of the ownership, maintenance, or use of an uninsured motor vehicle.

    It was undisputed that Amy qualified as an insured under both policies at the time of the sexual assault. It is also undisputed that Cody’s truck qualified as an uninsured motor vehicle under both policies. Although the truck was insured under the Progressive policy, Progressive denied liability coverage for Amy’s injuries and both policies defined an uninsured motor vehicle to include a land motor vehicle “[t]o which a bodily injury liability bond or policy applies at the time of the accident, but the bonding or insuring company … [d]enies coverage.”

    1st Auto filed a declaratory judgment action seeking to disclaim coverage under the uninsured motorist portion of its policy because bodily injury sustained must be caused by an accident that arose out of the use of an uninsured motor vehicle. 1st Auto argued there was no “use” of a motor vehicle. The trial court concluded that Amy's injuries did not arise from the ownership, maintenance, or use of an uninsured motor vehicle, as there was no “reasonable argument that sexual assault is consistent with the inherent nature of the use of a vehicle.”

    Holding: Affirmed. The court of appeals agreed that use of a vehicle need not involve the direct, physical operation of the vehicle “in the sense of moving it forward, backing it up, putting it into gear, etc.”,3 and also affirmed that an insured does not even have to be in direct contact with the vehicle to be using it. However, the court held that the use must have “some foundation in the inherent nature of the vehicle.”4  Because sexual assault is not consistent with – and, in fact, is completely foreign to – the inherent nature of the vehicle there was no “use.”

    Practice point: This case may have had a different outcome had Amy argued that the loss arose out of the ownership of the uninsured vehicle. The court of appeals noted that Amy asserted an ownership argument only in a footnote in a reply brief and thus the court declined to address the “two-sentence argument regarding ownership because it is undeveloped, unsupported by citations to legal authority, and was raised for the first time in a reply brief.”

    Dostal v. Strand, 2021 WL 4851834 (slip copy, petition for review pending)

    Issue: Criminal conviction of reckless conduct precludes occurrence

    Facts: Infant Haeven Strand died while in the care of her father, Curtis Strand. Stand was ultimately convicted of second degree reckless homicide.Haeven’s mother, Lindsey Dostal commenced suit against Strand, whose homeowner’s insurance company, State Farm Fire and Casualty Company, intervened and sought a declaratory judgment that there was no coverage under its policy of insurance, citing the lack of an occurrence, and two exclusions: the resident relative and intentional acts exclusions. The trial court agreed with State Farm on its occurrence argument and intentional acts exclusion argument.

    Holding: Affirmed. Of note, the court of appeals concluded that because Strand was convicted of second degree reckless homicide, his conduct could not be accidental and, therefore, could not be an occurrence. According to the court of appeals, to convict Strand of second degree reckless homicide, the jury had to conclude, beyond a reasonable doubt, that Strand recklessly caused Haeven’s death by creating an unreasonable and substantial risk of great bodily harm and death, and that he acted with awareness of that risk under Wis. Stat. section 940.06.The court noted it did not disagree with Dostal insofar as the court concluded that not all reckless conduct will reach the level of criminal recklessness. Such lesser “reckless” conduct, although more dangerous than merely negligent acts, still may require fact finding as to whether a resulting injury was accidental. However, when a jury has found an individual's conduct to be criminally reckless—which requires a finding that the individual was aware that his or her conduct created an unreasonable and substantial risk of death or great bodily harm—it is axiomatic that no accident occurred.

    Secura Supreme Ins. Co. v. Estate of Huck, 2021 WI App 69, 2021 WL 4449249 (petition for review pending)

    Issue: Reduction of UIM limits as to workers’ compensation benefits

    Facts: Daniel Huck was killed by a motorist while working for the Village of Mount Pleasant. The tortfeasor had an insurance policy with liability limits of $25,000, which were paid to Huck's Estate. As Huck was in the course and scope of his employment when he died, his estate received $35,798.04 from the Village's workers' compensation insurer. When Huck’s estate settled with the tortfeasor, it reimbursed the Village’s workers’ compensation carrier pursuant to Wis. Stat. section 102.29 ($9,718.73).

    Huck also had a personal automobile policy with underinsured motorist coverage (UIM) with limits of liability in the amount of $250,000 from Secura Supreme Insurance Company. The Secura policy contained a reducing clause “which effectively tracks the language of Wis. Stat. § 632.32(5)(i)2., permits reducing the UIM limits by ‘all sums … [p]aid or payable because of the bodily injury under ... [w]orker's compensation law.’"

    Secura sought to reduce its limit of liability for UIM benefits by the $9,718.73 that was refunded to the Village of Mount Pleasant’s workers’ compensation carrier. The trial court rejected that effort.

    Holding: Affirmed. The court of appeals concluded that its decision was to be guided by Teschendorf v. State Farm Ins. Cos.5 In Teschendorf, the UIM carrier sought to reduce its limit of liability based on the total workers’ compensation payments made, regardless of who actually received the payments.

    Guided by the result in Teschendorf, the court of appeals concluded that because Huck’s estate had to pay back the Village’s workers’ compensation carrier a portion of the settlement it received from the tortfeasor, the amount that was paid back under section 102.29 was not received by the Estate. Therefore, Secura was not permitted to reduce its limit of liability by the $9,718.73 that was refunded to the Village of Mount Pleasant’s workers’ compensation carrier.

    This article was originally published on the State Bar of Wisconsin’s Litigation Section Blog. Visit the State Bar sections or the Litigation Section web pages to learn more about the benefits of section membership.


    1 Dahmen v. American Fam. Mut. Ins. Co., 2001 WI App 198, 247, Wis. 2d 541, 635 N.W.2d 1.

    2 Brethorst v. Allstate Prop. & Cas. Ins. Co., 2011 WI 41, 334 Wis. 2d 23, 798 N.W.2d 467.

    3 Citing Jacobson, 337 Wis. 2d 533, ¶ 17, 804 N.W.2d 838.

    4 Jacobson.

    5Teschendorf v. State Farm Ins. Cos., 2006 WI 89, ¶ 9, 293 Wis. 2d 123, 717 N.W.2d 258.

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