PUBLISHED
OPINION
Case No.: 95-1388
†Petition for
Review Filed
Complete Title
of Case:
SAUK COUNTY,
a Wisconsin municipal corporation,
Plaintiff-Appellant,
v.
EMPLOYERS INSURANCE OF WAUSAU and
WAUSAU UNDERWRITERS,
Defendants-Respondents.†
Submitted on Briefs: ----
Oral Argument: April
10, 1996
COURT COURT
OF APPEALS OF WISCONSIN
Opinion Released: May
7, 1996
Opinion Filed: May 7, 1996
Source of APPEAL Appeal
from a judgment
Full Name JUDGE COURT: Circuit
Lower Court. COUNTY: Milwaukee
(If "Special", JUDGE: WILLIAM D. GARDNER
so indicate)
JUDGES: WEDEMEYER,
P.J., FINE and SCHUDSON, JJ.
Concurred:
Dissented:
Appellant
ATTORNEYSFor the
plaintiff-appellant the cause was submitted on the briefs of Jeffrey L.
Leavell and David R. Tennyck of Jeffrey Leavell S.C. of Racine. There was oral argument by Jeffrey L.
Leavell.
Respondent
ATTORNEYSFor the
defendants-respondents the cause was submitted on the briefs of Richard M.
Hagstrom and Joseph P. Pozen of Zelle & Larson of Minneapolis,
Minnesota and Timothy J. Strattner of Brookfield. There was oral argument by Joseph P.
Pozen.
COURT OF APPEALS DECISION DATED AND RELEASED May 7, 1996 |
NOTICE |
A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See § 808.10 and
Rule 809.62, Stats. |
This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official Reports. |
No. 95-1388
STATE
OF WISCONSIN IN COURT OF
APPEALS
SAUK COUNTY,
a Wisconsin municipal
corporation,
Plaintiff-Appellant,
v.
EMPLOYERS INSURANCE OF
WAUSAU and
WAUSAU UNDERWRITERS,
Defendants-Respondents.
APPEAL from a judgment
of the circuit court for Milwaukee County:
WILLIAM D. GARDNER, Judge. Reversed
and cause remanded with directions.
Before Wedemeyer, P.J.,
Fine and Schudson, JJ.
WEDEMEYER, P.J. Sauk County appeals from a judgment
granting summary judgment to Employers Insurance of Wausau in an environmental
insurance coverage dispute. Sauk County
claims that Wausau is obligated to defend it with respect to certain
counterclaims filed against Sauk County.
Sauk County further claims that Wausau breached its duty to defend and
seeks a ruling that the breach estops Wausau from contesting coverage under the
policy. Because the counterclaims
triggered Wausau's duty to defend, we reverse the judgment of the trial court
and direct the trial court to enter judgment in favor of Sauk County; because
Wausau did not breach its duty to defend, we reject Sauk County's estoppel
argument; and because findings need to be made with respect to any outstanding
duty to indemnify Sauk County, we remand this case to the trial court to
conduct a damage hearing consistent with the directions of this opinion.
I. BACKGROUND
Sauk County owned and
operated a landfill from 1973 to 1983.
The landfill operated on a natural attenuation design where contaminants
were to be filtered out as they drained from the landfill. Some pollutants escaped, however, and
contaminated the groundwater.
In 1985, the United
States Environmental Protection Agency investigated the then closed landfill
site and reported that groundwater in the vicinity was contaminated. In May 1986, the Wisconsin Department of
Natural Resources nominated the site for the Superfund National Priority List
pursuant to the Comprehensive Environmental Response Compensation and Liability
Act, 42 U.S.C. § 9601, et seq. (CERCLA).
In October 1988, the DNR
demanded that Sauk County conduct further investigation and clean up the
site. The DNR presented Sauk County
with a proposed contractual agreement, which would require Sauk County to
conduct a remedial investigation/feasibility study and clean up the environmental
damage pursuant to CERCLA and § 144.442, Stats.
Sauk County notified its
comprehensive general liability insurer (Wausau) of the DNR's actions and
tendered defense of the DNR claim.
Wausau did not accept the tender of defense, reserved its rights, and
asserted that coverage under its policies “was not intended for such
events.” Wausau made a request for
additional information and asked Sauk County to sign a Non-Waiver Agreement.
Sauk County hired its
own attorney to defend it against the DNR claim. Through its counsel, Sauk County settled with the DNR and began
to clean up the environmental contamination.
In December 1990, Sauk County filed suit in federal court against one of
the primary waste contributors to the site, Grede Foundries. Sauk County eventually amended its complaint
to join seven other waste contributors in the suit. The federal complaint alleged in various parts that: the
defendants “contaminated the groundwater under and near the site;” that
the defendants' actions contaminated “Sauk County's property and substantially
impaired Sauk County's use of its property and the Site and its surrounding
environs and property;” that the defendants' actions “caused contamination
of the groundwater surrounding and under the site;” and the defendants'
actions contaminated “the property in and near the site, and the
groundwater under and near the site.”
(Emphasis added). The purpose of
the suit was to recover costs of the clean-up from other potentially
responsible parties.
Between January 1991 and
March 1992, each of the defendants in the federal lawsuit filed counterclaims
against Sauk County, either alleging that Sauk County was solely responsible
for the contamination, or seeking contribution and/or indemnification from Sauk
County. Upon receipt of the
counterclaims, Sauk County tendered the defense of the counterclaims to
Wausau. Wausau agreed to defend the
counterclaims, pursuant to a full reservation of its rights under the insurance
contract. Sauk County's attorney began
to forward his legal bills to Wausau.
Wausau paid one bill in 1991, but requested that the attorney separate
his charges into “defense costs” and “prosecution costs.” This request was made presumably because
Wausau was not obligated to pay Sauk County's legal bills for prosecuting the
federal court action, only for defending the counterclaims. In 1993, Sauk County eventually settled with
all of the parties and Wausau paid 16.6% of the total legal bill.
Subsequently, Sauk
County commenced this action against Wausau, seeking a declaration from the
court as to Wausau's duty to defend and indemnify it for the claims brought by
the DNR and the federal counterclaimants.
Both Sauk County and Wausau filed motions for summary judgment. The trial court granted Wausau's motion,
concluding that no duty to defend existed based on the Wisconsin Supreme
Court's determination in City of Edgerton v. General Casualty Co.,
184 Wis.2d 750, 517 N.W.2d 463 (1994), cert. denied, 115 S. Ct. 1360
(1995). Sauk County now appeals.
II. DISCUSSION
Our standard of review
of summary judgments is de novo.
Park Bancorporation, Inc. v. Sletteland, 182 Wis.2d
131, 140, 513 N.W.2d 609, 613 (Ct. App. 1994).
Moreover, interpretation of an insurance policy is a question of law
that this court decides independently of the trial court. Smith v. Atlantic Mut. Ins. Co.,
155 Wis.2d 808, 810, 456 N.W.2d 597, 598 (1990).
The issues in this case
are: (1) whether Wausau had a duty to defend Sauk County against the DNR
claim; (2) whether Wausau had a duty to defend Sauk County against the
federal counterclaims; and (3) whether Wausau breached its duty to
defend. We address each seriatim.
A. Duty
to Defend against the DNR claim.
Although this issue was
argued at the trial court level and in the appellate briefs, Sauk County
implicitly conceded on oral argument that Wausau did not have a duty to defend
Sauk County in response to the DNR's request that Sauk County remediate the
property. Sauk County's concession is
appropriate in light of the Wisconsin Supreme Court's decision in Edgerton. In Edgerton, the supreme court
concluded that a comprehensive general liability insurer is not obligated to
defend or provide coverage in a situation where federal and state agencies are
demanding that the insured conduct an environmental cleanup, unless there is an
actual “suit seeking damages.” Edgerton,
184 Wis.2d at 786, 517 N.W.2d at 479.
It is undisputed in the instant case that the DNR claim did not involve
a “suit seeking damages,” as those terms are defined in Edgerton. Further, there is no argument that the
pertinent language of the insurance policies at issue in this case are
distinguishable in some manner from the language of the policies in Edgerton.
Based on the foregoing,
we conclude that the DNR's claim did not trigger Wausau's duty to defend under
the insurance policies at issue.
B. Duty
to Defend Sauk County against the Federal Counterclaims.
This issue is presented
to us in a somewhat unusual procedural posture. Duty to defend issues generally arise when an insured is
sued. In this case, Sauk County, as
plaintiff, initiated a suit against other potentially responsible parties in an
attempt to distribute the costs it incurred in cleaning up the contamination. The duty to defend question only arises in
this instance because the party defendants that Sauk County sued filed
counterclaims against Sauk County.
Pursuant to the insurance contract at issue, Wausau does not a have duty
to prosecute Sauk County's third-party claims in the federal case.
The issue presented to
this court is whether Wausau had a duty to defend Sauk County against the
counterclaims. In accordance with Edgerton,
our analysis begins with determining whether the counterclaims constitute a
“suit seeking damages.” Edgerton
defines a “suit” as:
[A]ny
proceeding by one person or persons against another or others in a court of law
in which the plaintiff pursues, in such court, the remedy which the law affords
him for the redress of an injury or the enforcement of a right, whether at law
or equity.
Id. at
774, 517 N.W.2d at 474. The key factor
is whether the parties to the action are involved in “actual court
proceedings.” Id. at 775,
517 N.W.2d at 474. It is clear that the
counterclaims on file in federal court satisfy this definition.
The next question is
whether the counterclaims seek “damages” as that term is defined. Edgerton defined damages to
mean “legal damages” and specifically held that “[r]esponse costs assigned
either under CERCLA or [state statutes] are by definition, considered to be
equitable relief.” Id. at
784, 517 N.W.2d at 478. The court
concluded that “as an equitable form of relief, response costs were not
designed to compensate for past wrongs; rather, they were intended to deter any
future contamination by means of injunctive action, while providing for
remediation and cleanup of the affected site.”
Id. at 785, 517 N.W.2d at 478. Hence, the court held that this type of damage did not constitute
“legal damages,” and, therefore, was not covered under the policies. Id.
This “damages”
definition was further refined by subsequent case law in a situation
distinguishable from Edgerton, i.e., where the insured sought
coverage for contamination of property that the insured did not own or control,
and that involved contamination of privately-owned property for which the
insured may be liable under federal law.
General Casualty Co. v. Hills, ___ Wis.2d ___, 548
N.W.2d 100, 103-04 (Ct. App. 1996). In Hills,
we held that a general liability insurer had a duty to defend and indemnify an
insured where the contaminated property was not owned and operated by the
insured and where the suing party is seeking monetary compensation from the
insured, under the terms of the contract at issue, for costs it incurred or will
incur to clean up the contamination of the privately-owned site. Id. Hills rejected the argument that if a lawsuit seeks
only remediation/response costs, then coverage is precluded by Edgerton's
definition of damages. Id.
at ___, 548 N.W.2d at 104. Hills
held that this definition does not control when the remediation is for costs to
cleanup a third-party's property. Hills
concluded that a lawsuit which seeks monetary damages from the insured to clean
up contaminated property that is not owned or operated by the insured
constitutes a “suit seeking damages” as those terms are used in general
liability policies. Id.
at ___, 548 N.W.2d at 105.
Resolution of the
instant case, therefore, depends upon whether the counterclaimants sought
damages from Sauk County for costs related to contaminated property Sauk County
itself owned and operated or whether the counterclaimants sought damages
from Sauk County for costs related to contaminated property not owned or
operated by Sauk County. The former
situation would be governed by Edgerton, which provides that
remediation costs relating to an insured's own property do not constitute
damages. Edgerton, 184
Wis.2d at 784-85, 517 N.W.2d at 478.
The latter situation would be governed by Hills, where
costs to clean up contamination of property not owned by the insured do
constitute damages. Hills,
___ Wis.2d at ___, 548 N.W.2d at 104-05.
Sauk County argues that
the counterclaims, by virtue of the language in the federal complaint, involve
a Hills situation. Wausau
argues that the counterclaims are limited to contribution and indemnification,
which are both equitable claims that, according to Edgerton, do
not constitute damages.
We have examined the
federal complaint. As referenced above,
the complaint alleges that: the counterclaimants “contaminated the groundwater
under and near the site;” that the counterclaimants' actions
contaminated “Sauk County's property and substantially impaired Sauk County's
use of its property and the Site and its surrounding environs and property;”
that the counterclaimants actions “caused contamination of the groundwater surrounding
and under the site;” and the counterclaimants' actions contaminated “the
property in and near the site, and the groundwater under and near the
site.” (Emphasis added).
Based on the complaint
references to contamination to property other than that owned by Sauk County,
i.e., the property surrounding the insured's site, we conclude that this case
is governed by Hills. We
conclude that the counterclaims do constitute a “suit seeking damages” as those
terms are used within the policies at issue in this case. The language of the complaint alleging that
surrounding property was damaged sufficiently triggers the inclusion of such an
allegation in the counterclaims, even if the counterclaims do not specifically
reference such language.
We are not persuaded by
Wausau's argument that because the counterclaims are premised upon contribution
and indemnification theories, that the counterclaims seek merely equitable
relief, which does not constitute damages pursuant to Edgerton. First, Edgerton does not say
that contribution and indemnification claims do not constitute legal
damages. Second, Hills
specifically rejected the argument that suits premised solely upon recovering
for costs incurred to clean up and remediate environmental contamination will
never constitute “suits seeking damages.”
Hills held that a suit does seek legal damages if the
suing party seeks monetary compensation for costs to clean up contamination
caused to a third-party's property. Id.
at ___, 548 N.W.2d at 104. Hills
held that the purpose of CGLs is to indemnify insureds for damage they cause to
others' property. Id.
Although the
counterclaimants' theories of contribution and certain forms of indemnification
spring from equitable principles,[1]
the counterclaims, at least in part, seek monetary compensation for costs to
clean up contamination caused to others' property, i.e., the property surrounding
the Sauk County landfill. Further, our
focus is on the incident that gave rise to the claim, not the counterclaimants'
theory of liability. See Berg
v. Schultz, 190 Wis.2d 170, 178, 526 N.W.2d 781, 784 (Ct. App. 1994).
We conclude, therefore,
that Wausau's duty to defend was triggered when the counterclaims were filed
against its insured because those counterclaims involved claims for monetary
damages associated with cleaning up contaminated property not owned or operated
by the insured.
C. Was
the Duty to Defend Breached?
Sauk County argues that
Wausau breached its duty to defend and, as a result, waived its right to
contest coverage with respect to both the DNR actions and the
counterclaims. See Grube v.
Daun, 173 Wis.2d 30, 74-75, 496 N.W.2d 106, 123 (Ct. App. 1992). Wausau argues that it did not breach its
duty to defend. We agree with Wausau.
Sauk County tendered the
defense of the counterclaims to Wausau.
By a letter dated January 31, 1991, Wausau agreed to defend Sauk County
on the counterclaims under a full reservation of rights. Although not clearly indicated in the
record, we presume there was some agreement between Sauk County and Wausau,
either expressed or implied, that the attorney Sauk County had hired to handle
the DNR matters and to file the federal complaint would also handle the defense
of the counterclaims.
This presumption is
bolstered by the documentation in the record that Sauk County's attorney
corresponded with Wausau with respect to the defense and submitted his legal
fees for payment to Wausau. Wausau made
one payment to Sauk County's attorney in June 1991. Shortly thereafter, a dispute arose between Sauk County and
Wausau with respect to the legal bills.
Wausau requested that the legal bills relating solely to the defense of
the counterclaims be separated from the remainder because Wausau only felt
obligated to pay that portion of the bills.
In response, Sauk County told Wausau that the bill was sufficiently
detailed; that it should be able to extract from the total bill those fees
associated with the defense of the counterclaims. As a result, no further payment was made until February 1993,
when Wausau began paying 16.6% of the total legal bill. Wausau indicated that this was the
percentage of the bills that it believed to be attributable to the
counterclaims.
In the trial court, Sauk
County argued that this payment of this 16.6% in February 1993, constituted a
breach of the duty to defend. The trial
court determined that Sauk County never alleged “that this percentage did not
represent the actual costs of defending the federal counterclaims.” This holds true for the appeal as well. Instead, Sauk County argues that Wisconsin
law provides that partial payment of defense costs does not satisfy an
insurer's duty to defend, and that an insurance company must defend the entire
action when some of the allegations in the complaint fall within the policy
coverage. Although we agree that this
is a correct statement of the law, see Grube, 173 Wis.2d
at 73, 496 N.W.2d at 123, the unique procedural posture of the instant case
demands a closer look at this broad statement.
In applying this general rule to the instant case, we cannot conclude
that the “partial payment” constituted a breach.
The legal bills
submitted by Sauk County included costs relating to the DNR matter and costs
relating to the prosecution of the federal suit. The “partial payment” rule is intended to
ensure that if any of the allegations in the complaint allege coverage, that
the insured is provided a defense to the entire complaint. The instant case is distinguishable from
this factual scenario because the “partial payment” to Sauk County was full
payment for all of the defense costs.
We conclude, that under the unique circumstances of this case, the 16.6%
payment was indeed full payment for defending Sauk County on the counterclaims.
Accordingly, we hold
that this payment did not constitute breach of the duty to defend. Because we have held there was no breach, it
is not necessary for us to address Sauk County's estoppel argument. See Gross v. Hoffman,
227 Wis. 296, 300, 277 N.W. 663, 665 (1938) (only dispositive issue need be
addressed).
We address one final
point: the duty to indemnify. We conclude that in addition to its duty to
defend Sauk County on the counterclaims, Wausau also has a duty to indemnify
Sauk County on the counterclaims. Based
on the case law, however, this duty is limited to paying Sauk County for any
amounts it had to pay the counterclaimants with respect to the damage to the
property other than the property it owned.
Hills, ___ Wis.2d at ___, 548 N.W.2d at 103-05. In other words, Wausau's duty to indemnify
under the policies is limited to payment that its insured incurred under the
counterclaims only with respect to the contaminated property surrounding
the landfill. The duty to indemnify
does not extend to damages Sauk County had to pay to remediate its own
land. Edgerton, 184
Wis.2d at 783-84, 517 N.W.2d at 478.
Because the record does not contain any documentation with respect to
these figures, and because this determination may involve fact-finding, we
remand this case to the trial court to conduct proceedings consistent with this
opinion.
III. CONCLUSION
In sum, we conclude that: (1) Wausau did
not have a duty to defend Sauk County with respect to the DNR matters;
(2) by virtue of the allegations that property other than the property
owned and operated by Sauk County was involved in the counterclaims, that
Wausau did have a duty to defend the counterclaims; and (3) that Wausau accepted
that duty to defend and did not breach it as alleged by Sauk County.
We direct the trial
court on remand to conduct the damage hearing referenced above and to enter
judgment as follows: (1) summary
judgment should be granted to Wausau with respect to the DNR matters; and
(2) declaratory judgment should be granted in favor of Sauk County with
respect to Wausau's duty to defend the counterclaims.
By the Court.—Judgment
reversed and cause remanded with directions.
[1] Contribution is a
“payment made by each, or by any, of several parties having a common interest
of liability of a share in the loss suffered, or in the money necessarily paid
by one of the parties in behalf of the others.” 18 C.J.S. Contribution, § 2 (1990). The doctrine of contribution does not arise
from contract or tort, but is “principles of equity, principles of natural
justice, as well as on public policy.”
18 C.J.S. Contribution, § 3 (1990).
Indemnification arises
from an express or implied contract. 18
C.J.S. Contribution, § 2 (1990).
In indemnity actions, “the party held legally liable shifts the entire
loss to another because of some special relationship existing between
them.” 18 C.J.S. Contribution, §
2 (1990).
The fact that an action may be founded in principles of equity, however, does not mean that the suing party does not seek monetary compensation.