Steadfast Insurance Co. v. Greenwich Insurance Co. (Duty to Defend)

In Steadfast Insurance Co. v. Greenwich Insurance Co. (2019 WI 6), the Wisconsin Supreme Court said a previous insurer had a duty to defend Milwaukee Metropolitan Sewerage District (MMSD) for losses related to a rain event that occurred when MMSD had coverage with a subsequent insurer.

MMSD contracted with private companies to operate and maintain its sewerage system. Greenwich Insurance Co. insured United Water, which operated the system until February 29, 2008. Steadfast Insurance Co. insured Veolia, which subsequently operated the system. The rain event at issue here occurred in June 2008, when Steadfast was insuring Veolia and MMSD. However, it was alleged that United Water’s previous management was a cause of the June 2008 damage to the system. No damages were awarded to plaintiffs, but MMSD sought coverage for its defense costs in lawsuits resulting from the rain event. Steadfast paid $1.55 million for MMSD’s defense costs. Greenwich denied coverage to MMSD.

The court held that both the Steadfast policy and the Greenwich policy were primary and successive insurers of MMSD. Since the policies were not concurrent and they primarily insured two different entities (United Water and Veolia), Greenwich’s policy could not be an “other insurer” or excess insurer to the Steadfast coverage. Accordingly, the court held that Greenwich breached its duty to defend by erroneously determining it did not provide coverage for lawsuits arising from the June 2008 damage. The court emphasized that, in coverage disputes, insurers should move to bifurcate the coverage issue and stay the underlying liability issue to avoid risking a breach of duty to defend.

After determining Greenwich had a duty to defend, the court determined that Steadfast correctly brought a subrogation, not a contribution claim. The court then apportioned defense costs between the two insurers by applying a pro rata allocation based on the comparative value of the policy limits. Furthermore, the court awarded Steadfast attorney fees, arguing that Steadfast took the place of MMSD, and Greenwich would have owed MMSD attorney fees. This opinion marks the first time Wisconsin courts have awarded attorney fees for breach of a duty to defend from one insurer to another insurer who was subrogated to an insured’s rights.

The justices were split on several parts of the case, with three justices concurring in part and dissenting in part. Justice Ann Walsh Bradley, joined by Justice Rebecca Dallet, disagreed with the allocation of defense costs. Justice Walsh Bradley argued Greenwich should be liable for the entirety of the defense costs as a penalty for declining to uphold its duty to defend. However, Justice Walsh Bradley’s dissent also argues requiring Greenwich pay attorney fees sets a dangerous precedent because it departs from the “American Rule” that parties are responsible for their own attorney fees unless provided by contract or statute.

In another partial dissent, Justice R. Bradley agreed that defense costs should be allocated pro rata, but disagreed that Greenwich had a duty to defend. Justice R. Bradley noted that she agreed with Justice Walsh Bradley’s dissent regarding attorney fees.