One insurer's refusal to defend based upon its "other insurance" provision ultimately meant the insurer had to pay all of the insured's defense costs. Steadfast Ins. Co. v. Greenwich Ins. Co., 2018 Wis. App. LEXIS 51 (Wis. Ct. App. Jan. 17, 2018).
Milwaukee Metropolitan Sewerage District (MMSD) was a government agency that provided water reclamation and flood management services to the city. From March 1, 1998 to February 20, 2008, MMSD contracted with United Water Services Milwaukee LLC to operate the sewerage system. From March 1, 2008 on, MMSD contracted with Veolia Water North America-Central, LLC to operate the system.
Through agreements, both companies were obligated to indemnify MMSD for claims arising out of the operations and maintenance of the system and to obtain insurance to cover their indemnity obligations. Both companies complied.
In June 2008, heavy rain overwhelmed MMSD's sewer system and more than 8,000 homeowners reported basement sewage backups. Four rain event lawsuits were filed against MMSD. The suits alleged that MMSD and Veolia were negligent in the inspection, maintenance, repair and operations of the system. United Water was later named as a defendant in one of the lawsuits.
MMSD tendered its defense to Steadfast and Greenwich. Steadfast, the insurer for Veolia, which had named MMSD as an additional insured, accepted the tender and defended MMSD. Greenwich, United Water's insurer, did not accept the tender and did not pay any of the defense costs. The underlying suits eventually settled without MMSD or Steadfast making any contribution to the settlement. However, Steadfast reimbursed MMSD $1.55 million towards defense costs that MMSD incurred.
Steadfast then sued Greenwich to recoup the monies it paid to MMSD for defense costs. The parties filed cross-motions for summary judgment. The trial court denied Greenwich's motion, finding Greenwich had breached its duty to defend MMSD and thereby waived its rights to raise any coverage defense. After further motion practice, the court awarded Steadfast judgment against Greenwich in the amounts of $1.55 million as damages and $325,500 as attorney fees for the coverage action. Greenwich appealed.
The court first analyzed the other insurance provisions in the Greenwich and Steadfast policies. Other insurance provisions were effective in situations involving concurrent coverage. Here the policies were successive, not concurrent. They did not cover the same time period. The court concluded that the Greenwich policy provided primary coverage for the claims against MMSD for the earlier conduct of United Water in operating and maintaining the MMSD system, not excess coverage for that of the Steadfast policy.
Greenwich also argued that MMSD did not exhaust the $250,000 self-insured retention (SIR) in its policy. MMSD had submitted a declaration in the summary judgment proceedings stating that it had paid over $800,000 in defending the underlying cases. The appellate court agreed that the SIR had been met. As a consequence, Greenwich's policy provided primary coverage based on United Water's conduct in operating and maintaining MMSD's system. Further, MMSD was entitled to recover the defense costs, including attorney fees, from Greenwich based upon Greenwich's breach.
Steadfast, as the non-breaching insurer, had a claim for equitable subrogation against Greenwich, who breached its duty to defend. Upon payment to MMSD of defense costs, Steadfast stepped into MMSD's shoes and was entitled to recover from Greenwich the same damages that MMSD would have been entitled to recover from Greenwich.
Finally MMSD was entitled to recover the attorney fees incurred in the coverage action under the Greenwich policy. Under the doctrine of equitable subrogation, Steadfast stepped into MMSD's shoes and was equitably entitled to recover those fees in defending coverage.