Wisconsin Appeals Court Finds No Duty to Defend Under Excess Policies

By: Gregory Capps and Sara Mirsky

In an April 25 decision, the Wisconsin Court of Appeals concluded in Johnson Controls, Inc. v. Central National Insurance Company of Omaha, et al., that two excess insurers had no duty to defend policyholder Johnson Controls in connection with claims for alleged environmental contamination at numerous sites. A trial court previously determined that the insurers had breached that duty and awarded Johnson Controls nearly $68 million in defense and remediation costs. The Court of Appeals reversed and directed entry of judgment for the insurers “[b]ased on the duty to defend language of the insurance policies at issue, which Johnson Controls concede[d] provides a duty to defend only if an occurrence is covered under the excess insurance policies but not covered under the underlying insurances. . . .”

Specifically, the excess policies at issue contain nearly identical defense language which provides, for example, that:

As respects occurrences covered under this policy, but not covered under the underlying insurances as set out in the attached schedule or under any other collectible insurance, the Company shall: (a) defend in his name and behalf any suit against the insured alleging liability insured under the provisions of this policy and seeking damages on account thereof, even if such suit is groundless, false or fraudulent. . . . (emphasis added in opinion)

This “contingent and limited defense provision . . . applied only when occurrences covered by [the excess] policies were ‘not covered’ by underlying insurance,” the excess insurers said (emphasis added in opinion). Since it was undisputed that the scope of coverage for Johnson Controls’ environmental claims was the same under its primary and excess policies, they argued that they had no duty to defend.

The appeals court agreed. It noted that the duty to defend analysis is “driven by policy language – not generalizable concepts about the role of excess insurance and the duties of excess insurers” and that “[a]n excess insurer usually is not required to contribute to the defense of the insured so long as the primary insurer is required to defend.” Here,

[b]ecause the excess policies’ coverage for environmental claims was identical to the underlying policies’ coverage, the claims against Johnson Controls presented only two options: either the occurrences were covered by all policies, in which case there was no duty to defend under the excess policies – or there was no coverage under any of the policies, also resulting in no duty to defend for [the excess insurers].

The Court of Appeals also found that, “[i]n light of Johnson Controls’ concession regarding the pertinent duty to defend language, no reasonable insured would expect the [excess] policy language to establish a duty upon [the excess insurers] to drop down and provide a defense in the event the primary insurer refused to do so where it is undisputed the primary and excess policies provided identical coverage for the claimed loss.”

The Johnson Controls opinion was not recommended for publication. While it is therefore not precedential, it may be cited for persuasive value. Going forward, we would expect that to occur both in the “duty to defend” and reimbursement context though distinctions may be drawn in the latter cases.

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