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Wisconsin High Court rejects insurer's abuse of "other insurance" provision



Supreme Court in Wisconsin last week in Steadfast Ins. Co. v. Greenwich Ins. Co states that two insurers must contribute proportionally to the defense of an additional insured under their comprehensive liability policy.

In 2008, heavy rainfall Milwaukee area failed for two days. The pumped down overwhelmed the city's sewerage system, causing significant flooding in homes throughout the region. Of these floods, several lawsuits were filed against the Milwaukee Metropolitan Sewage District ("MMSD") for negligent inspection, maintenance, repair and operation of the Milwaukee sewage system.

The MMSD was further insured under the liability policy covering two other water suppliers responsible for the city's sewage system. The first policy was issued by Greenwich Insurance Company for United Water Services Milwaukee, LLC, and the second was issued by Steadfast Insurance Company for Veolia Water Milwaukee, LLC. After reading the trials, MMSD called on its defense of the wastewater to both insurance companies. Constantly accepted defense; but Greenwich refused to claim that the policy was redundant against Stadfasts based on a "different insurance" clause in Greenwich's policy.

Eventually the costumes hit. But then the MMSD had received $ 1

.55 million in defense costs. Continuously replaced MMSD for these costs and then sued Greenwich in subrogation to recover the defense costs paid to MMSD, as well as Steadfast's lawyer fees.

If Steadfast's proposal for summary assessment claimed that Greenwich's policy was not surplus to Stadfasts and that Greenwich had a duty to defend the purification suits. The Court of First Instance also claimed that Steadfast was entitled to full compensation for the costs of MMSD's defense, as well as Steadfast's fees. Wisconsin Court of Appeal confirmed on the same grounds and noted that Greenwich was not entitled to fair distribution of defense costs as it had broken its duty to defend the MMSD.

Upon appeal, the Wisconsin Supreme Court partially withdrew, but the Court confirmed the lower court's possession that Greenwich's policy was not superfluous for Stadfasts. The Court justified that "other insurance" clauses apply only when the policy is parallel to each other. Since the policy here concerned the negligence of two different entities – United Water for Greenwich's policy and Veolia for Standfasts – the court considered that they were not concurrent. Therefore, Greenwich was obliged to defend with Steadfast.

However, the court was asked about the decisions of the Dutch courts that Steadfast was entitled to compensation for the entire defense costs. Instead, the court considered that Steadfast, whose political limits were $ 30 million, was responsible for the defense costs of 3/5 ths while Greenwich, whose policy covered $ 20 million, was responsible for 2/5 ths . In fact, in order to establish that Steadfast was entitled to compensation for the entire defense, it had relinquished its "contractual obligation for defense costs without the recognition of the fall case" if its coverage were to be fully replaced.

Finally, the holdings of the lower courts confirmed that Steadfast was entitled to lawyer fees and justified "because of their explicit subrogation rights, Steadfast [stood] in the MMSD shoes" and thus entitled "to pay defense costs just as MMSD could This decision exemplifies that policyholders should be aware of their rights as extra insured and when several policy areas are questioned, pay close attention to the entities to which the coverage is owed by each policy. As in the case of the Steadfast decision, where several insurers are required to cover various insurance policies, "other insurance" does not become a problem and insurers should not be allowed to reduce or completely avoid providing coverage on such a basis. The decision also provides a precautionary warning to insurers who may attempt to unilaterally avoid their obligations to defend without a court ruling, as it may cause the insurers to be "liable for any damages that naturally flow" from their infringement.


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