Before Dykman, Bridge and Gaylord,[1] JJ.
This case involves the latest summary judgment dispute over insurance coverage in an ongoing lawsuit which has already spawned two prior appeals. In the present appeal, Johnson Controls is seeking a legal defense from several underwriters of an excess umbrella liability policy (collectively, London Market). The appeal raises two primary questions. First, should a duty to defend be imported from an underlying umbrella insurance policy into an excess umbrella liability policy by language in the excess policy stating that it is subject to the same terms, definitions, exclusions and conditions as the underlying policy “except as otherwise provided”? The excess policy explicitly promises indemnification for certain liabilities but makes no mention of a duty to defend other than as noted above. Second, is the excess liability carrier’s duty to defend primary in nature, such that it may be triggered even if the excess policy expressly requires exhaustion of the underlying policy as a precondition to liability and the underlying policy has not been exhausted?
Both of these issues appear to be matters of first impression in this state, and both would seem to have broad implications for the business community as well as the insurance industry. The Metropolitan Milwaukee Association of Commerce has filed an amicus curiae brief explaining that local businesses collectively spend millions of dollars in premiums to purchase layered insurance policies similar to the one at issue here, and have an obvious need to clarify whether defense coverage from an excess carrier exists under commonly issued policies. The Complex Insurance Claims Litigation Association has filed an amicus curiae brief arguing that reading a duty to defend into an excess policy which did not explicitly so provide, and where no premium for defense was collected, would undermine stability and predictability in the underwriting market. The Wisconsin Association for Justice has filed an amicus curiae brief arguing that public policy should require an excess umbrella carrier to provide a defense when the underlying carriers refuse to do so, and that London Market should be estopped from attempting to deny defense coverage years into this litigation. It also points out that the principles established in this litigation will apply to small business owners and individuals, as well as to big businesses. Given the novelty of the issues presented and the significant public interests at stake, we certify this appeal to the Wisconsin Supreme Court for its review and determination pursuant to Wis. Stat. Rule 809.61 (2007-08).[2]
Johnson Controls has been involved in years of litigation with multiple insurers over coverage for the potential costs associated with cleaning up environmental pollution at numerous sites covered by various policies. Johnson Controls has now settled with one of the insurers involved in the litigation for less than the full policy amount, but continues to seek coverage and defense from other insurers. The present appeal deals only with whether London Market has a duty to defend Johnson Controls under the terms of its excess umbrella liability policy. The facts necessary to resolve the appeal are undisputed and center on the policy language.
Under the “Coverage” section of its policy, London Market agreed to indemnify Johnson Controls for liability for three general categories of damages otherwise covered by three underlying umbrella insurance polices issued by Travelers Indemnity Company. A “Limit of Liability” section of the London Market policy specified that liability would attach to London Market “only after the Underlying Umbrella Insurers have paid or have been held liable to pay the full amount of their respective net loss liability.” Another “Conditions” section of the London Market policy contained what is commonly referred to as a “follow form” provision, stating:
This Policy is subject to the same terms, definitions, exclusions and conditions (except as regards the premium, the amount and Limits of Liability and except as otherwise provided herein) as are contained in … the Underlying Umbrella Policies … prior to the happening of an occurrence for which claim is made hereunder.
It is a condition of this Policy that the Underlying Umbrella Policies shall be maintained in full effect during the currency hereof ….
(Emphasis added.) Each of the three underlying umbrella policies contained duty-to-defend provisions in their liability sections. The London Market policy did not specifically mention any duty to defend.
Johnson Controls contends that the follow-form provision
in the London Market policy plainly incorporates the duty-to-defend provisions
from the underlying umbrella policies because the London Market policy has not
“otherwise provided” by explicitly stating that there is no duty to
defend. It points out that London Market
explicitly excluded other risks from the underlying policies, such as premiums
and dollar limits, and could have excluded a duty to defend, as it did in other
policies. London Market responds that,
by promising only indemnity for excess liability arising from three types of
damages, it did provide “otherwise”
than the liability coverage in the underlying policies, which explicitly
promised both indemnity and a duty to defend. It further contends that a comparison to the
price of other policies shows it did not collect a premium for defense under
the instant policy. Both parties resort
to general principles of contract and insurance policy interpretation to
support their positions, but neither cites any
There are other arguments in the briefs which we believe also
present novel questions of law and public policy. Johnson Controls suggests that
London Market disputes the proposition that there is any
implicit duty to defend an insured unless a policy expressly disclaims that
duty. It instead claims that the duty to
defend arises only by contract. See Novak
v. American Family Mut. Ins. Co., 183
London Market next points out that the recognized majority
rule is that an “excess insurer is not obligated to defend until the primary policy
limits are exhausted.” Azco
Hennes Sanco, Ltd. v. Wisconsin Ins. Sec. Fund, 177
Johnson Controls counters that an insurer may have a
primary duty to defend even when its duty to indemnify is secondary. It relies on the general rule that a duty to
defend is broader than the duty to indemnify, such that an insurer is required
to tender a defense whenever liability coverage is fairly debatable. See Radke v. Fireman’s Fund Ins. Co.,
217
We see very little guidance in