Steadfast Insurance Company v. Greenwich Insurance Company

2019 WI 6

SUPREME COURT OF WISCONSIN
CASE NO.: 2016AP1631
COMPLETE TITLE: Steadfast Insurance Company,
Plaintiff-Respondent,
v.
Greenwich Insurance Company,
Defendant-Appellant-Petitioner.

REVIEW OF DECISION OF THE COURT OF APPEALS
Reported at 380 Wis. 2d 184, 908 N.W.2d 502
PDC No: 2018 WI App 11 - Published

OPINION FILED: January 25, 2019
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: October 29, 2018

SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Milwaukee
JUDGE: Glenn H. Yamahiro

JUSTICES:
CONCURRED: A.W. BRADLEY, J. concurs and dissents, joined by
DALLET, J. (opinion filed).
R.G. BRADLEY, J. concurs and dissents (opinion
filed).
DISSENTED:
NOT PARTICIPATING:

ATTORNEYS:

For the defendant-appellant-petitioner, there were briefs
filed by Pamela J. Tillman, Esq., Michael J. Cohen, Esq., and
Meissner Tierney Fisher & Nichols S.C., Milwaukee; with whom on
the briefs were Thomas G. Drennan, Esq., and Dinsmore & Shohl
LLP, Chicago, Illinois. There was an oral argument by Michael
J. Cohen.

For the plaintiff-respondent, there was a brief filed by
Monte E. Weiss, Charles W. Kramer, and Weiss Law Office, S.C.,
Mequon. There was an oral argument by Monte Weiss.
 2019 WI 6
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2016AP1631
(L.C. No. 2013CV1685)

STATE OF WISCONSIN : IN SUPREME COURT

Steadfast Insurance Company,

Plaintiff-Respondent,
FILED
v.
JAN 25, 2019
Greenwich Insurance Company,
Sheila T. Reiff
Defendant-Appellant-Petitioner. Clerk of Supreme Court

REVIEW of a decision of the Court of Appeals. Affirmed in

part, reversed in part.

¶1 PATIENCE DRAKE ROGGENSACK, C.J. We review a decision of the court of

appeals1 affirming the circuit court's2 grant of summary judgment to Steadfast Insurance

Company (Steadfast). Summary judgment granted Steadfast the right to recover from

Greenwich Insurance Company (Greenwich) based on Steadfast's and Greenwich's relationships

1
Steadfast Ins. Co. v. Greenwich Ins. Co., 2018 WI App 11,
380 Wis. 2d 184, 908 N.W.2d 502.
2
The Honorable Glenn H. Yamahiro of Milwaukee County
presided.
 No. 2016AP1631

with Milwaukee Metropolitan Sewerage District (MMSD), who was sued for alleged negligent

inspection, maintenance, repair, and operation of Milwaukee's sewerage system.

¶2 MMSD tendered its defense to both Steadfast and Greenwich. Steadfast accepted

the tender; Greenwich did not, claiming that its policy was excess to Steadfast's based on its

"other insurance" clause. Steadfast disagreed and sued Greenwich to recover the defense costs it

paid to MMSD and the attorney fees incurred in suing Greenwich to reimburse it for those

defense costs.

¶3 First, we conclude that Greenwich, who insured the risk that United Water

Services Milwaukee, LLC (United Water) would negligently perform services for MMSD,

thereby causing damage, and Steadfast, who for a different period of time insured the risk that

Veolia Water Milwaukee, LLC (Veolia) would negligently perform services for MMSD, thereby

causing damage, were both primary and successive insurers in regard to MMSD, their common

additional insured.3

¶4 Second, we conclude that Greenwich breached its contractual duty to defend

MMSD. Third, we conclude that Steadfast's contractual subrogation claim against Greenwich

was timely filed as it comes within the six-year statute of limitations for contract actions.

¶5 Fourth, we conclude Steadfast had a contractual duty to defend MMSD that was

not abrogated by Greenwich's breach of its contractual duty to defend MMSD. Therefore, we

apply a pro-rata allocation of defense costs Steadfast paid to MMSD based on Steadfast's and

Greenwich's respective policy limits of $30 million and $20 million. Fifth, and finally, we

3
Veolia Water North American Central, LLC, d/b/a Veolia
Water Milwaukee, LLC, is a wholly owned subsidiary of WASCO LLC,
who is the actual named insured on the Steadfast policy. Veolia
and United Water were sued for sewage backups as well as MMSD.

2
 No. 2016AP1631

conclude that Steadfast is entitled to recover attorney fees from Greenwich due to Steadfast's

stepping into the shoes of MMSD through contractual subrogation to force Greenwich to pay

defense costs.

¶6 Accordingly, we affirm the decision of the court of appeals in part and reverse it

in part.

I. BACKGROUND

¶7 This dispute arises out of historic rains that occurred in Milwaukee in June 2008.

Those heavy rains overwhelmed MMSD's sewerage system, which resulted in raw sewage

backing up into more than 8,000 homes. Lawsuits were filed against United Water, Veolia and

MMSD because of sewage backups, alleging negligence in the repair, maintenance, and

operation of the sewerage system both before and during the heavy rains.4

¶8 Beginning in 1998, MMSD entered into Operating Agreements with private

companies to operate and maintain its sewerage system. United Water provided operational

services for many years. MMSD's Operating Agreement with United Water required United

Water to maintain comprehensive liability insurance, naming MMSD as an additional insured.

United Water contracted with Greenwich for liability insurance with the last contract of

insurance beginning July 24, 2007 and ending July 24 2008; it named MMSD as an additional

insured. The Greenwich policy limits were $20 million. United Water maintains that it last

provided services under an Operating Agreement with MMSD on February 29, 2008.

4
Banicki, et al. v. Veolia, et al., Milwaukee Cty. Case
No. 09-CV-1860; Westmoreland v. Veolia, et al., Milwaukee Cty.
Case No. 09-CV-6121; FM Global v. Veolia, et al., Milwaukee Cty.
Case No. 09-CV-7594; Reep, et al. v. City of Milwaukee, et al.,
Milwaukee Cty. Case No. 09-CV-3483. FM Global and Westmoreland
were eventually consolidated into Banicki.

3
 No. 2016AP1631

¶9 Beginning on March 1, 2008, and continuing through the June 2008 heavy rains,

MMSD contracted with Veolia to operate and maintain its sewerage system. Their Operating

Agreement similarly required Veolia to maintain comprehensive liability insurance, naming

MMSD as an additional insured. Steadfast provided the required insurance to Veolia, with

policy limits of $30 million.

¶10 The Greenwich policy obligated it to defend any claim

against its insureds, United Water and MMSD, as well as to

provide indemnification:

With respect to the insurance afforded by this Policy,
the Company shall defend any CLAIM against the INSURED
seeking DAMAGES to which this insurance applies, even
if any of the allegations are groundless, false or
fraudulent. Defense counsel may be designated by the
Company or designated by the INSURED . . . .
¶11 In a similar fashion, the Steadfast policy gave

Steadfast "the right and duty to assume the adjustment, defense

and settlement of any 'claim' to which this insurance applies."

Steadfast's policy, which insured Veolia and MMSD, also

contained a subrogation clause, which stated in relevant part:

In the event of any payment under this policy, we
shall be subrogated to all an "insured's" rights of
recovery against any person or organization. An
"insured" shall execute and deliver instruments and
papers and do whatever else is necessary to secure
such rights. An "insured" shall do nothing to
prejudice such rights.
¶12 After MMSD tendered its defense to both Steadfast and

Greenwich, it opted to hire its own counsel. The lawsuits were

settled without MMSD paying plaintiffs' claimed damages.
Steadfast participated in MMSD's defense by reimbursing MMSD for

4
 No. 2016AP1631

$1.55 million in defense costs. However, when MMSD tendered its

defense to Greenwich and Steadfast, there was no way of knowing

that settlement would be achieved without paying something

toward claimed damages.

¶13 Greenwich, who had refused MMSD's tender, had sent

MMSD a letter explaining that "we fail to see how [United Water]

could be liable for causing a sewage backup in June 2008 when

its services for MMSD terminated in February 2008." Greenwich

further argued that "there is ample evidence that when [United

Water] turned over operational responsibilities to Veolia and

MMSD in February 2008, all systems, equipment, and machinery at

the subject sewage overflow diversion chamber were functioning

according to operational protocols."

¶14 One year later, MMSD renewed its tender to Greenwich.

It informed Greenwich that United Water had been named as a

defendant in lawsuits that resulted from the 2008 sewage

backups. Greenwich responded five months later, acknowledging

that "there may be a potential for coverage" and requesting
"additional information in order to determine Greenwich's

current coverage obligations." After receiving the requested

information, including confirmation that MMSD had satisfied its

$250,000 self-insured retention amount, Greenwich continued to

refuse the tender of MMSD's defense. Instead, it unilaterally

determined based on its "other insurance" clause that its policy

was excess to Steadfast's $30 million liability limit.

¶15 After the conclusion of the lawsuits that resulted
from the sewage backups, Steadfast sued Greenwich to recover the
5
 No. 2016AP1631

$1.55 million in defense costs that it had paid to MMSD. The

circuit court granted summary judgment in favor of Steadfast,

awarding it the entire amount Steadfast paid MMSD, as well as

$325,000 in attorney fees that Steadfast incurred bringing this

lawsuit.

¶16 The court of appeals affirmed. Steadfast Ins. Co. v.

Greenwich Ins. Co., 2018 WI App 11, ¶4, 380 Wis. 2d 184, 908

N.W.2d 502. The court of appeals based its decision on the

following conclusions:

(1) Greenwich's policy provided primary, not excess,
coverage for claims against MMSD; (2) MMSD has
established that it met the $250,000 risk retention
amount by incurring $594,302.23 in defense costs;
(3) Steadfast's equitable subrogation claim is timely
because the six-year statute of limitations in Wis.
Stat. § 893.43 applicable to contract claims applies
to Steadfast's claim, which is premised on Greenwich's
breach of the duty to defend MMSD; (4) under the facts
of this case, because Greenwich breached its duty to
defend MMSD, Greenwich is not equitably entitled to an
allocation of MMSD's defense costs; and (5) under the
facts of this case, Steadfast is equitably entitled to
recover attorney fees in this lawsuit.

Id. We granted Greenwich's petition for review, and now affirm

in part and reverse in part.

II. DISCUSSION

A. Standard of Review

¶17 We review summary judgment decisions independently,

applying the same methodology as the circuit court and the court

of appeals, while benefitting from their discussions. Dufour v.

6
 No. 2016AP1631

Progressive Classic Ins. Co., 2016 WI 59, ¶12, 370 Wis. 2d 313,

881 N.W.2d 678.

¶18 We also review insurance contract clauses

independently of decisions of the circuit court and court of

appeals, while again benefitting from their discussions.

Wadzinski v. Auto-Owners Ins. Co., 2012 WI 75, ¶10, 342 Wis. 2d

311, 818 N.W.2d 819. Therefore, whether a party is entitled to

attorney fees based on contractual subrogation is a question of

law for our independent review. Estate of Kriefall v. Sizzler

USA, 2012 WI 70, ¶16, 342 Wis. 2d 29, 816 N.W.2d 853.

¶19 Determining which statute of limitations applies to

contract issues involves a question of law that we also decide

independently. Zastrow v. Journal Commc'ns, Inc., 2006 WI 72,

¶12, 291 Wis. 2d 426, 718 N.W.2d 51. And finally, the proper

measure of damages for an insurer's breach of a contractual duty

to defend is likewise a question of law that we review

independently. Newhouse v. Citizens Sec. Mut. Ins. Co., 176

Wis. 2d 824, 837, 501 N.W.2d 1 (1993).
B. Contract Interpretation

¶20 The issues in this case all stem from Greenwich's

insurance contract with United Water and Steadfast's insurance

contract with Veolia. Each policy listed MMSD as an additional

insured. Therefore, the following general principles of

contract interpretation guide our initial discussion.

Wadzinski, 342 Wis. 2d 311, ¶11.

¶21 Our general task in contract interpretation is to
determine and carry out the parties' intentions. Preisler v.
7
 No. 2016AP1631

Gen. Cas. Ins. Co., 2014 WI 135, ¶18, 360 Wis. 2d 129, 857

N.W.2d 136. The parties' intentions are presumed to be

expressed in the language of the contract. Wadzinski, 342

Wis. 2d 311, ¶11. Where the language of a contract is

unambiguous and the parties' intentions can be ascertained from

the face of the contract, we give effect to the words they

employed. Estate of Kriefall, 342 Wis. 2d 29, ¶21. However, if

the policy terms are ambiguous, we construe the policy from the

perspective of a reasonable insured. Wadzinski, 342 Wis. 2d

311, ¶11.

1. Risk and Loss

¶22 Greenwich and Steadfast issued comprehensive liability

insurance policies, which their Operating Agreements with MMSD

required. As a general matter, liability policies insure risks

that are dependent on various circumstances that cause insureds

to obtain insurance coverage. Couch on Insurance § 101:3 (3rd

ed. 1999). Stated otherwise, risk is the "type of liability the

insurer agreed to provide coverage for under the terms of the
policy." Id. There is a causal connection between risk and

loss.5 Id. That is, when the insured-for risk occurs, the

insurer indemnifies for the resulting-loss (damages) in accord

5
The Illinois Supreme Court recently provided a useful
distinction between risk and loss in the insurance context.
Courts analyze risk by looking prospectively at what the parties
set out to cover. Home Ins. Co. v. Cincinnati Ins. Co., 821
N.E.2d 269, 281 (Ill. 2004). Loss, in contrast, is analyzed
retrospectively by looking at the injury or damages actually
sustained in a particular case. Id.

8
 No. 2016AP1631

with the policy provisions. Id. Insurance policy clauses "may

come into conflict" when two or more policies cover the same

risk for the same period of time. Id., § 219:2.

¶23 In the context presented herein, Greenwich's policy

insured the risk that United Water's conduct in managing the

Milwaukee sewerage system during the policy period would be

negligent, thereby causing damage to a third party.6 As an

"additional insured" under the Greenwich policy, MMSD's risk was

that it would be responsible in money damages for a third

party's damage caused by United Water's negligence.

¶24 Steadfast's policy insured the risk that Veolia would

negligently manage the Milwaukee sewerage system during the

policy period, causing damage to a third party.7 As an

6
The Greenwich policy provides in relevant part: Coverage
B – CONTRACTOR'S POLLUTION LEGAL LIABILITY

To pay on behalf of the INSURED all LOSS, in excess of the
Retention amount . . . which the INSURED becomes legally
obligated to pay as a result of an OCCURRENCE which arises out
of CONTRACTING SERVICES and which first commenced during the
POLICY PERIOD.

. . . .

G. INSURED means the NAMED INSURED and:

. . . .

7. Solely as respects Coverage B – Contractor's Pollution
Legal Liability, the client for whom the NAMED INSURED
performs or performed covered CONTRACTING
SERVICES . . . .
7
The Steadfast policy provides in relevant part:
CONTRACTOR'S POLLUTION LIABILITY . . . .

(continued)
9
 No. 2016AP1631

"additional insured" of Steadfast, MMSD's risk was that it would

be responsible in money damages for a third party's damage

caused by Veolia's negligence. The plain language of both the

Greenwich policy and the Steadfast policy obligated insurers to

indemnify and defend their named insureds and MMSD against

claims of damage caused by the negligence of their named

insureds. To clarify further, while United Water was not

providing services at the time of the flooding, it was alleged

that its services during an earlier time when it was managing

the MMSD system were a cause of the resulting damage.

¶25 "Other insurance" clauses may be raised in disputes

between two insurance companies about whose policy is primary

and therefore must pay first and whose policy is excess, also

referred to as successive insurance, and pays subsequent to the

primary payment. Plastics Eng'g Co. v. Liberty Mut. Ins. Co.,

We will pay on behalf of an "insured" any "loss" an "insured" is
legally obligated to pay as a result of a "claim" caused by a
"pollution event" resulting from "covered operations" or
"completed operations" of the "covered operations" and provided
that the "covered operations" must commence on or after the
"retroactive date" and before the end of the "policy period" and
the "claim" is first made against the "insured" during the
"policy period" . . . .

. . . .

L. "Insured" means:

1. You or your; . . .

4. Any other person or organization endorsed onto this
policy as an "insured." (Milwaukee Metropolitan
Sewerage District is an endorsee.)

10
 No. 2016AP1631

2009 WI 13, ¶48, 315 Wis. 2d 556, 759 N.W.2d 613. To explain

further, policies may be concurrent, i.e., cover the same time

period and risk, or successive, i.e., cover different time

periods and risks. However, "other insurance" clauses do not

apply unless two policies are concurrent. Id. "The accepted

meaning of 'other insurance' provisions does not include

application to successive insurance policies." Id. If the

"other insurance" clauses cannot be used to establish a primary

and an excess insurer, then "neither insurer is given priority

over the other and each contributes toward the loss pro rata."

Oelhafen v. Tower Ins. Co., 171 Wis. 2d 532, 536-37, 492 N.W.2d

321 (Ct. App. 1992) (citing Schoenecker v. Haines, 88 Wis. 2d

665, 672, 277 N.W.2d 782 (1979)).

¶26 As we have explained, concurrent insurance is required

before "other insurance" clauses are triggered. Two insurance

policies cannot be concurrent unless they insured "the same

risk, and the same interest, for the benefit of the same person,

during the same period." Plastics Eng'g, 315 Wis. 2d 556, ¶48
(quoting Douglas R. Richmond, Issues and Problems in "Other

Insurance," Multiple Insurance, and Self-Insurance, 22 Pepp. L.

Rev. 1373, 1376-82 (1995)).

¶27 The Greenwich and Steadfast policies were primary with

regard to each company's respective insurance of United Water

and Veolia. The policies were primary and successive in regard

to insuring MMSD's risk of damage because each policy relied on

the negligence of a different insured, whose alleged negligence
occurred during a different period of time, i.e., while that
11
 No. 2016AP1631

primary insured was maintaining the sewerage system. Stated

otherwise, Greenwich would owe MMSD only if the negligence of

United Water caused damages for which MMSD was held responsible

and Steadfast would owe MMSD only if the negligence of Veolia

caused damages for which MMSD was held responsible.

Accordingly, we do not interpret the terms of the "other

insurance" clauses because under the undisputed facts as set out

above, Greenwich's "other insurance" clause provided successive

insurance to MMSD.

¶28 In addition, the duty to defend is broader than the

duty to indemnify. Acuity v. Bagadia, 2008 WI 62, ¶52, 310

Wis. 2d 197, 750 N.W.2d 817 (explaining that the duty to defend

arises from allegations in the complaint, while the duty to

indemnify is dependent on fully developed facts). Furthermore,

when an insurance policy provides potential coverage for one

claim alleged in a lawsuit, the insurer must defend the entire

suit, even when the claims are groundless. Fireman's Fund Ins.

Co. of Wis. v. Bradley Corp., 2003 WI 33, ¶21, 261 Wis. 2d 4,
660 N.W.2d 666. Accordingly, two insurance policies that insure

separate and distinct risks may nevertheless become implicated

in the same lawsuit, causing the two insurers to defend the same

loss in the form of their mutual insured's alleged liability for

damages and defense costs.

2. Greenwich Breached Its Duty To Defend

¶29 We have established a procedure for an insurance

company to follow when it disputes coverage. Wis. Pharmacal
Co., LLC v. Neb. Cultures of Cal., Inc., 2016 WI 14, ¶18, 367
12
 No. 2016AP1631

Wis. 2d 221, 876 N.W.2d 72 (explaining that an insurer may avoid

breaching its duty to defend by requesting a bifurcated trial on

the issues of coverage and liability, with liability determined

after coverage has been established); Newhouse, 176 Wis. 2d at

836 (stating that the insurer should request a bifurcated trial

on the issues of coverage and liability when coverage is

disputed). An insurer who fails to follow this procedure risks

breaching its duty to defend if its coverage determination was

wrong. Id. at 837.

¶30 Alternatively, an insurer may choose to reject the

insured's tender of defense based on its determination that the

claim is not covered under the policy. However, it does so at

its own risk. Marks v. Houston Cas. Co., 2016 WI 53, ¶41 n.21,

369 Wis. 2d 547, 881 N.W.2d 309. If the insurer is wrong about

its potential coverage obligation, it "is guilty of a breach of

contract which renders it liable to the insured for all damages

that naturally flow from the breach." Id. (citing Newhouse, 176

Wis. 2d at 837). Finally, as mentioned earlier, an insurer has
a duty to defend the entire lawsuit "when an insurance policy

provides [potential] coverage for even one claim made in a

lawsuit." Fireman's Fund Ins. Co., 261 Wis. 2d 4, ¶21.

¶31 In this case, Greenwich did not seek a judicial

determination of its coverage obligations, nor did it pay any

amount toward MMSD's defense costs. Instead, it chose to rely

on its own unilateral determination that its policy was excess

to Steadfast's. As we have explained, Greenwich's unilateral
determination was erroneous; Greenwich's policy provided
13
 No. 2016AP1631

potential coverage for a claim made in lawsuits based on sewage

backups. Therefore, Greenwich breached its duty to defend, and

it is responsible for all damages that naturally flow from the

breach. Marks, 369 Wis. 2d 547, ¶41 n.21.

3. Steadfast's Contractual Subrogation Claim

¶32 Steadfast asserts that it has a contractual

subrogation claim against Greenwich due to its payment of $1.55

million in defense costs and Greenwich's failure to provide a

defense. Greenwich asserts that if Steadfast has a claim, it

sounds in contribution, not subrogation. Greenwich further

asserts that the time has passed in which to bring a

contribution claim.

¶33 Subrogation is the "substitution of one party for

another whose debt the party pays, entitling the paying party to

rights, remedies, or securities that would otherwise belong to

the debtor." Dufour, 370 Wis. 2d 313, ¶15. "The doctrine of

subrogation enables an insurer that has paid an insured's

loss . . . to recoup that payment from the party responsible for
the loss." Id. (citations omitted). The insurer "steps into

the shoes" of its insured and pursues the legal rights or claims

to which the insured would have been entitled. Wilmot v. Racine

Cty., 136 Wis. 2d 57, 63, 400 N.W.2d 917 (1987).

¶34 Contribution claims sometimes occur between joint

tortfeasors, or in other circumstances, where one person has

paid more than that person's share of a joint obligation. Kafka

v. Pope, 194 Wis. 2d 234, 241, 533 N.W.2d 491 (1995) (concluding
that "[w]hether the common obligation be imposed by contract or
14
 No. 2016AP1631

grows out of a tort, the thing that gives rise to the right of

contribution is that one of the common obligors has discharged

more than his fair equitable share of the common liability.").

¶35 Subrogation may arise in three different forms:

contractual, statutory, and equitable subrogation. Estate of

Kriefall, 342 Wis. 2d 29, ¶37. In a subrogation claim, the

subrogee seeks payment based on rights the subrogee acquired

from another. Millers Nat'l Ins. Co. v. City of Milwaukee, 184

Wis. 2d 155, 168, 516 N.W.2d 376 (1994). The "purpose of

subrogation is to place the loss ultimately on the wrongdoers."

Cunningham v. Metro. Life Ins. Co., 121 Wis. 2d 437, 444, 360

N.W.2d 33 (1985). When express contractual subrogation is

claimed, we examine the policy's provisions. Id. at 449. We

have given effect to express subrogation clauses contained in

insurance contracts. Id. at 446.

¶36 Here, Steadfast's policy expressly provided for

subrogation:

In the event of any payment under this policy, we
shall be subrogated to all an "insured's" rights of
recovery against any person or organization.
MMSD's right of recovery against Greenwich to which Steadfast is

contractually subrogated arises from Greenwich's breach of its

contractual obligation to defend MMSD. Accordingly, we examine

Steadfast's alleged right of recovery against Greenwich as an

express contractual subrogation right that arose from MMSD's

right to a defense from Greenwich.

15
 No. 2016AP1631

¶37 Subrogation does not change the type of claim for

relief that was held by the subrogor. Wilmot, 136 Wis. 2d at 63

(explaining that "the identity of a cause of action is not

changed by the subrogation, and no new cause of action is

created thereby."). Because "[t]he original right of the

plaintiff measures the extent of the subrogated party's right,"

the statute of limitations for a subrogated claim is the same as

the statute of limitations that would apply to the claim if it

had not been subrogated. Gen. Accident Ins. Co. of Am. v.

Schoendorf & Sorgi, 202 Wis. 2d 98, 109, 549 N.W.2d 429 (1996).

Wisconsin has a six-year statute of limitations for breach of

contract claims. Wis. Stat. § 893.43(1) (2015-16).8 Steadfast

was subrogated to MMSD's contract claim that Greenwich breached

its duty to defend.

¶38 Steadfast paid MMSD's debt for defense costs, which

included what Greenwich was obligated to provide as well as

Steadfast's own portion of MMSD's defense costs, when it paid

MMSD $1.55 million. Because subrogation does not change the
identity of the cause of action, Steadfast's claim against

Greenwich is also for breach of contract. Claims for breach of

contract have a six-year statute of limitations. Wis. Stat.

§ 893.43(1). Steadfast's action was filed less than six years

after Greenwich's breach occurred, therefore, it was timely

filed.

8
All subsequent references to the Wisconsin Statutes are to
the 2015-16 version unless otherwise indicated.

16
 No. 2016AP1631

4. Allocation of Defense Costs

¶39 Steadfast and Greenwich each had a contractual duty to

defend MMSD. Because MMSD chose to pay for its own defense, it

incurred $1.55 million in stipulated defense costs. Steadfast

paid $1.55 million to MMSD; however, part of that payment was

attributable to the defense that Steadfast, itself, was

obligated to provide.

¶40 The circuit court and the court of appeals ignored the

financial import of Steadfast's own duty to defend MMSD.

Instead, both courts focused on Greenwich's failure to defend

and adjudged the full amount of MMSD's defense costs as being

due from Greenwich to Steadfast.9 In so doing, they relieved

Steadfast of its contractual obligation for defense costs,

without recognition of the windfall that Steadfast received from

what amounted to a judicial forgiveness of Steadfast's duty to

defend MMSD. This placed Steadfast (as subrogee) in a better

position than MMSD (the subrogor) from whom Steadfast obtained

the contractual right of subrogation. To explain further, MMSD
litigated the defense through attorneys of its own choosing, but

it received no windfall when it was repaid $1.55 million in

litigation costs it actually incurred. Here, Steadfast obtained

9
The circuit court concluded that Greenwich waived the
right to raise coverage defenses by its breach of the duty to
defend. The court of appeals concluded that because Greenwich
breached its duty to defend MMSD, it was not equitably entitled
to an allocation of a portion of MMSD's defense costs to
Steadfast. Steadfast Ins. Co., 380 Wis. 2d 184, ¶4.

17
 No. 2016AP1631

litigation costs beyond what it incurred in satisfying its duty

to defend.

¶41 We conclude that both Steadfast and Greenwich had a

duty to provide a defense to MMSD. Accordingly, the financial

sanction of an insurer who fails in its duty to defend does not

include judicial forgiveness of another insurer's financial

obligation for defense costs. Therefore, we conclude that the

$1.55 million in defense costs that Steadfast paid should be

allocated between Steadfast and Greenwich.

¶42 We have not directly addressed the proper formula for

allocating defense costs when two insurers have a duty to defend

the same insured. See Burgraff v. Menard, Inc., 2016 WI 11,

¶111, 367 Wis. 2d 50, 875 N.W.2d 596 (Roggensack, C.J.,

dissenting). However, in a well-reasoned opinion, the Utah

Supreme Court addressed the question of allocation of defense

costs between insurers, each of whom had a duty to defend. Ohio

Cas. Ins. Co. v. Unigard Ins. Co., 268 P.3d 180, 185-86 (Utah

2012). In Ohio Cas., the court noted the obligation of each
insurer to participate in defense costs and under the facts of

Ohio Cas., which involved a long term exposure, the court chose

the time-on-risk method of defense cost apportionment.10

10
Time-on-risk method of apportionment weights the defense
costs by the time that each policy was at risk for actions of
its insured that could require coverage. Sharon Steel Corp. v.
Aetna Cas. & Sur. Co., 931 P.2d 127, 140 (Utah 1997) (explaining
that damages based on the relative period of time for which
coverage was provided under each policy is an equitable method
of apportionment of defense costs).

18
 No. 2016AP1631

Apportionment also may be done on an equal division among

insurers, and it has been ordered based on respective policy

limits. Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d

127, 140 (Utah 1997). In discussions of apportionment, there

has been a uniform recognition of the obligation for defense

costs that both insurers faced.

¶43 In equal apportionment, defense costs are distributed

equally among any insurers with a duty to defend, for example

with two insurers each would pay one-half, with three insurers

each would pay one-third. See, e.g., Cargill, Inc. v. Ace Am.

Ins. Co., 784 N.W.2d 341 (Minn. 2010). This method is easy to

apply; however, it could lead to unfairness and upset the

parties' reasonable expectations if one insurer insures for

lesser policy limits and charges a lower premium. See, e.g.,

Sharon Steel Corp., 931 P.2d at 140 (pointing out that "insurers

do not stand on an equal footing where there are significantly

different liability limits.").

¶44 The third option is to apportion defense costs pro
rata, based on the parties' policy limits. For example, if

insurer A's policy limit is $1 million, and insurer B's policy

limit is $2 million, insurer A will be responsible for one-third

of defense costs. We have suggested that this is the preferred

approach. See Schoenecker, 88 Wis. 2d at 671; Oelhafen, 171

Wis. 2d at 537 ("The proportion [each insurer contributes toward

the insured's loss] usually is based on their respective policy

limits."). This approach better reflects the insurance
companies' respective bargains. See, e.g., Armstrong World
19
 No. 2016AP1631

Indus., Inc. v. Aetna Cas. & Sur. Co., 52 Cal. Rptr. 2d 690, 707

(Cal. Ct. App. 1996) (explaining that apportioning damage

reflects that higher premiums generally are paid for higher per

person or per liability limits). Accordingly, we conclude that

pro rata allocation based on insurers' policy limits is the best

method for apportionment of defense costs in the matter before

us.

¶45 Here, Steadfast paid $1.55 million for MMSD's defense

costs. Greenwich and Steadfast have stipulated that this was

the "reasonable and necessary" cost of MMSD's defense.

Greenwich's policy limit was $20 million. Steadfast's policy

limit was $30 million. Therefore, Greenwich owed two-fifths of

$1.55 million in defense costs and Steadfast was responsible for

three-fifths of those costs. Accordingly, Steadfast is entitled

to recover from Greenwich $620,000, plus interest accruing on

that amount from the date of entry of the circuit court's

judgment. Wis. Stat. § 815.05(8).11

5. Attorney Fees
¶46 We conclude that Steadfast also is entitled to recover

attorney fees from Greenwich under principles of contractual

subrogation. We have held that when an insurer breaches its

duty to defend, it may be liable for attorney fees incurred by

its insured in successfully establishing coverage. Elliott v.

11
We do not address whether Wis. Stat. § 628.46 applies to
claims made within Steadfast's contractual subrogation clause
because neither party addressed § 628.46.

20
 No. 2016AP1631

Donahue, 169 Wis. 2d 310, 324-25, 485 N.W.2d 403 (1992). See

also Newhouse, 176 Wis. 2d at 837 ("[W]here an insurer

wrongfully refuses to defend on the grounds that the claim

against the insured is not within the coverage of the policy,

the insurer is guilty of a breach of contract which renders it

liable to the insured for all damages that naturally flow from

the breach.").

¶47 As we have explained above, Steadfast had rights of

contractual subrogation based on its payment to MMSD.

Therefore, Steadfast asserted rights that MMSD had against

Greenwich for failing to defend. Stated otherwise, if MMSD were

to sue Greenwich to recover defense costs, it would have been

entitled to the attorney fees and costs incurred in such

litigation. Id. at 838. Here, by virtue of its express

subrogation rights, Steadfast stands in MMSD's shoes and seeks

attorney fees incurred in obtaining a judgment against Greenwich

for payment of defense costs just as MMSD could have recovered

were it to have brought this lawsuit.
¶48 Although Wisconsin courts have not yet awarded

attorney fees for breach of a duty to defend to an insurer who

was subrogated to an insured's rights, neither the principles of

contractual subrogation, nor the rationale behind attorney fee

awards for breach of a duty to defend, foreclose this result.

However, other states have approached this question. The

decisions of the Supreme Court of California and of Florida have

provided helpful discussions.

21
 No. 2016AP1631

¶49 In Emp'rs Mut. Liab. Ins. Co. v. Tutor-Saliba Corp.,

951 P.2d 420 (Cal. 1998), a subcontractor's employee was injured

on the job. The subcontractor's insurer paid worker's

compensation, which made it "subrogated to all of the rights and

liabilities" of the subcontractor. Id. at 424. The underlying

contract between the subcontractor and general contractor stated

that in any dispute between the two, the prevailing party was

entitled to attorney fees. Id. at 422. The subrogated insurer

unsuccessfully sued the general contractor to recover its

worker's compensation payment. Id. The California Supreme

Court held that as the prevailing party, the general contractor

would be entitled to recover attorney fees from the subrogated

insurer: "the insurer should likewise be subrogated to——i.e.,

both benefited and bound by——any contract providing for attorney

fees to a prevailing party that the employer and the third party

have executed." Id. at 424. While this involved an award of

attorney fees against the subrogee, the court held that the

subrogee was "both benefited and bound by" the attorney fee
provision. Id.

¶50 Florida's supreme court appears to have followed suit.

In Cont'l Cas. Co. v. Ryan Inc. E., 974 So. 2d 368 (Fla. 2008),

it held that a subrogee surety could not pursue attorney fees

against the principal's insurer, but only because the principal

still had the right to pursue attorney fees. Id. at 377. If

the principal had assigned all its rights to the surety via

contractual subrogation, the surety would have been able to
recover attorney fees. Id.
22
 No. 2016AP1631

¶51 Their reasoning is persuasive. We conclude that a

contractual subrogee's right to recovery may include an award of

attorney fees the subrogor would have been entitled to receive

had it brought the lawsuit. We have long recognized that

contractual subrogation "entitl[es] the paying party to rights,

remedies, or securities that would otherwise belong to the

debtor." Dufour, 370 Wis. 2d 313, ¶15; see also Wilmot, 136

Wis. 2d at 63. We decline to create an exception to this

longstanding rule by excluding attorney fees from the bundle of

contractual subrogation rights that arise from a specific

subrogation clause upon payment by the subrogee.

¶52 In this case, Greenwich breached its duty to defend,

so MMSD had the right to request attorney fees for successfully

establishing Greenwich's obligation to defend. Steadfast's

contract with Veolia and MMSD stated in relevant part: "In the

event of any payment under this policy, we shall be subrogated

to all an 'insured's' rights of recovery against any person or

organization." Because MMSD's "rights of recovery" against
Greenwich would include attorney fees incurred in successfully

establishing coverage, Steadfast is entitled to recover $325,000

in attorney fees from Greenwich as MMSD's subrogee, plus

interest accruing on that amount from the date of entry of the

circuit court's judgment. Wis. Stat. § 815.05(8). Furthermore,

nothing in this opinion prevents Steadfast from moving the

circuit court for an award of attorney fees incurred in

litigating the appeal and our review herein.

23
 No. 2016AP1631

III. CONCLUSION

¶53 First, we conclude that Greenwich, who insured the

risk that United Water would negligently perform services for

MMSD, thereby causing damage, and Steadfast, who for a different

period of time insured the risk that Veolia would negligently

perform services for MMSD, thereby causing damage, were both

primary and successive insurers in regard to MMSD, their common

additional insured.

¶54 Second, we conclude that Greenwich breached its

contractual duty to defend MMSD. Third, we conclude that

Steadfast's contractual subrogation claim against Greenwich was

timely filed as it comes within the six-year statute of

limitations for contract actions.

¶55 Fourth, we apply a pro-rata allocation of defense

costs Steadfast paid to MMSD based on Steadfast's and

Greenwich's respective policy limits of $30 million and $20

million. Fifth, and finally, we conclude that Steadfast is

entitled to recover attorney fees from Greenwich due to
Steadfast's stepping into the shoes of MMSD through contractual

subrogation to force Greenwich to pay defense costs.

¶56 Accordingly, we affirm the decision of the court of

appeals in part and reverse it in part.

By the Court.—The decision of the court of appeals is

affirmed in part and reversed in part.

24
 No. 2016AP1631.awb

¶57 ANN WALSH BRADLEY, J. (concurring in part,

dissenting in part). I agree with the majority that the "other

insurance" provisions are not triggered. Additionally, I agree

that Greenwich breached its duty to defend, and that Steadfast's

claim sounds in subrogation and not contribution.1

¶58 I write separately, however, because the majority errs

in two ways. First, it allocates defense costs between

Steadfast and Greenwich, allowing Greenwich to breach its duty

to defend with impunity. Second, it awards attorney fees to

Steadfast in derogation of the longstanding American Rule.

¶59 An insurer that breaches the duty to defend should not

be able to escape liability for the consequences of its

behavior. Our case law is clear that an insurer who refuses to

defend its insured proceeds at its own peril. Olson v. Farrar,

2012 WI 3, ¶30, 338 Wis. 2d 215, 809 N.W.2d 1.

¶60 Yet, the majority extinguishes the peril, allowing a

breaching insurer to refuse to uphold its duty to defend with

the security that it will suffer no financial consequence. In
doing so, it encourages a game of chicken between insurers that

may leave the insured as the only loser.

¶61 Further, our case law dictates that exceptions to the

American Rule be limited and narrow. Nevertheless, the majority

goes where no court has previously ventured.

¶62 In expanding the exception to the American Rule by

awarding attorney fees from one insurance company to another,

1
I join parts II.B.1, II.B.2, and II.B.3 of the majority
opinion.

1
 No. 2016AP1631.awb

one wonders what is next. The majority's determination crafts a

new exception to the American Rule that is unsupported by case

law and that chips away at the vitality of the Rule. I fear

that "once the camel's nose is in the tent, the rest will likely

follow."

¶63 Accordingly, I concur in part and dissent in part.2

I

¶64 The majority errs first in its determination that

Greenwich is not liable for the entirety of MMSD's defense

costs. Instead, it pro-rates costs, turning the purpose of this

court's coverage framework on its head and creating a perverse

incentive for insurers to fail to uphold their duty to defend.

¶65 As the majority recognizes, this court has established

a preferred framework for an insurance company to follow when it

disputes coverage. Majority op., ¶29 (citing Wis. Pharmacal

Co., LLC v. Neb. Cultures of Cal., Inc., 2016 WI 14, ¶18, 367

Wis. 2d 221, 876 N.W.2d 72). Pursuant to such a framework, "the

proper procedure for an insurance company to follow when
coverage is disputed is to request a bifurcated trial on the

issues of coverage and liability and move to stay any

proceedings on liability until the issue of coverage is

resolved." Newhouse by Skow v. Citizens Sec. Mut. Ins. Co., 176

Wis. 2d 824, 836, 501 N.W.2d 1 (1993) (citing Elliott v.

Donahue, 169 Wis. 2d 310, 318, 485 N.W.2d 403 (1992)). When an

2
I dissent from parts II.B.4 and II.B.5 of the majority
opinion.

2
 No. 2016AP1631.awb

insurer follows this procedure, the insurer runs no risk of

breaching its duty to defend. Id.

¶66 An insurer who unilaterally refuses to defend does so

at its own peril. Olson, 338 Wis. 2d 215, ¶30. Accordingly,

the "general rule is that where an insurer wrongfully refuses to

defend on the grounds that the claim against the insured is not

within the coverage of the policy, the insurer is guilty of a

breach of contract which renders it liable to the insured for

all damages that naturally flow from the breach." Newhouse, 176

Wis. 2d at 837.

¶67 Indeed, this court in Water Well Solutions Serv.

Group, Inc. v. Consolidated Ins. Co. recently warned that "an

insurer opens itself up to a myriad of adverse consequences if

its unilateral duty to defend determination turns out to be

wrong." 2016 WI 54, ¶28, 369 Wis. 2d 607, 881 N.W.2d 285. An

insurer's liability "may potentially be greater than what the

insurer would have paid had it defended its insured in the first

instance . . . ." Id.
¶68 Our established framework encourages insurers to

fulfill their duty to defend and thereby avoids negative

outcomes for both insurers and insureds. "A unilateral refusal

to defend without first attempting to seek judicial support for

that refusal can result in otherwise avoidable expenses and

efforts to litigants and courts, deprive insureds of their

contracted-for protections, and estop insurers from being able

to further challenge coverage." Liebovich v. Minnesota Ins.
Co., 2008 WI 75, ¶55, 310 Wis. 2d 751, 751 N.W.2d 764.

3
 No. 2016AP1631.awb

¶69 The majority effectively rewards Greenwich for

ignoring this court's established framework and allows Greenwich

to escape the consequences of its willful breach of the duty to

defend. By allowing Greenwich to pay pro-rated costs, the

majority lessens the impact of the insurer's breach of the duty

to defend. It further encourages future insurers to follow a

similar course rather than seeking a bifurcated coverage trial

as this court has recommended numerous times.

¶70 According to the majority, Greenwich should suffer no

consequence at all for breaching the duty to defend. It pays

merely what it would have paid anyway if it had lived up to its

duty to defend in the first instance.

¶71 The result of the majority opinion is the

proliferation of a game of chicken between insurers. See

Southeast Wis. Prof'l Baseball Park Dist. v. Mitsubishi Heavy

Indus. Am., Inc., 2007 WI App 185, ¶64, 304 Wis. 2d 637, 738

N.W.2d 87. When there are two or more insurers from whom

coverage is sought, what incentive is there to provide coverage
if an insurer can simply refuse to defend the case and end up

paying the exact same amount later in the event it is sued?

Each insurer would simply hold out and hope that someone else

takes on the defense.

¶72 Rather than encouraging insurers to live up to their

contractual obligations, the majority opinion allows insurers to

rest comfortably in their decisions to deny a defense with the

knowledge that if a breach is later found, no financial
consequence will be forthcoming. The only loser in this game is

4
 No. 2016AP1631.awb

the insured, who may be forced to expend resources for a defense

that should have been covered by insurance from the beginning.

¶73 Unlike the majority, I conclude that there must be

some element of penalty and deterrence to encourage insurance

companies to defend when they are obligated. See Water Well,

369 Wis. 2d 607, ¶28. I thus determine that Greenwich is liable

for the full cost of MMSD's defense.

¶74 My conclusion is further buttressed by the fact that

Greenwich's insurance policy does not contain a pro-ration

clause. Where a policy contains no pro-ration language, this

court is not to rewrite the policy to include it. Plastics

Eng'g Co. v. Liberty Mut. Ins. Co., 2009 WI 13, ¶59, 315

Wis. 2d 556, 759 N.W.2d 613. Yet by pro-rating defense costs,

the majority gives Greenwich the benefit of a bargain it did not

make.

¶75 Accordingly, I dissent from part II.B.4 of the

majority opinion, which effectively eliminates any incentives

for insurance companies to promptly defend lawsuits and fails to
encourage insurers to follow this court's preferred framework

for determining insurance coverage.

II

¶76 The majority errs further in its determination that

Steadfast is entitled to attorney fees incurred in litigating

this case. It fails to heed this court's warning that

exceptions to the American Rule are to be limited and narrow.

Instead, it opens up a new exception that is contrary to clear
precedent that arrives at a directly opposite outcome.

5
 No. 2016AP1631.awb

¶77 Generally, we adhere to the American Rule, which

provides that parties to litigation are responsible for their

own attorney fees unless recovery is expressly allowed by either

contract or statute, or when recovery results from third-party

litigation. DeChant v. Monarch Life Ins. Co., 200 Wis. 2d 559,

571, 547 N.W.2d 592 (1996). Absent statutory authority or a

contractual provision to the contrary, Wisconsin courts strictly

follow this rule. Id.

¶78 In the insurance coverage context, analysis of

entitlement to attorney fees begins with Elliott v. Donahue, 169

Wis. 2d 310. The Elliott court determined that Wis. Stat.

§ 806.04(8), "which recognizes the principles of equity, permits

the recovery of reasonable attorney fees incurred by the insured

in successfully establishing coverage." Id. at 314. It

concluded that attorney fees were appropriate under the specific

facts that were present:

The insurer that denies coverage and forces the
insured to retain counsel and expend additional money
to establish coverage for a claim that falls within
the ambit of the insurance policy deprives the insured
the benefit that was bargained for and paid for with
the periodic premium payments. Therefore, the
principles of equity call for the insurer to be liable
to the insured for expenses, including reasonable
attorney fees, incurred by the insured in successfully
establishing coverage.
Id. at 322.

¶79 Subsequent case law has limited the application of

Elliott to its facts. Specifically, in Riccobono v. Seven Star,

Inc., the court of appeals denied a claim for attorney fees by
one insurer against a second insurer. 2000 WI App 74, 234

6
 No. 2016AP1631.awb

Wis. 2d 374, 610 N.W.2d 501. The Riccobono court reasoned: "In

defining the dispute in Elliott, the supreme court stated: 'The

sole issue on review concerns whether an insured may recover

attorney fees incurred in successfully defending coverage under

an insurance policy.'" Id., ¶22. It then distinguished the

facts present in Riccobono from those in Elliott, writing that

"Society is not an insured and, thus, does not appear to fall

within the holding of the supreme court." Id., ¶22.

¶80 The Riccobono court found it dispositive that the

identity of the party seeking attorney fees was an insurer and

not an insured. On this issue, Riccobono is on all fours with

this case. Curiously, the majority fails to even mention

Riccobono.

¶81 Despite the majority's silence, Riccobono instructs

that attorney fees are not available to Steadfast because it is

an insurer, and not an insured. Even with such an instruction

in hand, an additional step is required in the analysis due to

7
 No. 2016AP1631.awb

the fact that Steadfast's claim is one for subrogation, i.e., it

steps into the shoes of its insured.3

¶82 Finding the nature of Steadfast's subrogation claim

dispositive, the majority turns to the case law of other

jurisdictions in support of its result. Majority op., ¶¶48-51.

Because MMSD would have been entitled to attorney fees, the

majority reasons, so is Steadfast. Id., ¶47. I do not find

this approach persuasive.

¶83 The court of appeals in Riccobono was clear that

Elliott "does not encompass the payment of attorney fees and

costs from one insurer to another . . . ." 234 Wis. 2d 374, ¶2.

The driving factor behind the Elliott decision was that the

insured retained independent counsel who established that

coverage existed. See Gorton v. Hostak, Henzl & Bichler, S.C.,

217 Wis. 2d 493, ¶¶32-33, 577 N.W.2d 617 (1998).

3
Although the insurer requesting attorney fees in Riccobono
sought such fees pursuant to a theory of subrogation, the court
of appeals did not address this argument because it determined
that the insurer was not entitled to subrogation under the
language of the policy. Riccobono v. Seven Star, Inc., 2000 WI
App 74, ¶28, 234 Wis. 2d 374, 610 N.W.2d 501. As the court
stated, "the conditions under which Society might have been
subrogated to Seven Star's right to attorney fees and costs
never came into fruition." Id., ¶28. Nevertheless, the
Riccobono court's declaration that attorney fees are not
available under Elliott when one insurer seeks attorney fees
from another insurer is consistent with this court's previous
reluctance to extend Elliott beyond its particular facts and
circumstances regardless of whether the insurer is a subrogated
party. See DeChant v. Monarch Life Ins. Co., 200 Wis. 2d 559,
569, 547 N.W.2d 592 (1996); Elliott v. Donahue, 169 Wis. 2d 310,
485 N.W.2d 403 (1992).

8
 No. 2016AP1631.awb

¶84 This court has expressly declined to extend Elliott

beyond its particular facts and circumstances. Id., ¶33 (citing

DeChant, 200 Wis. 2d at 569); see also Reid v. Benz, 2001 WI

106, ¶13, 245 Wis. 2d 658, 629 N.W.2d 262 ("The facts and

circumstances that gave rise to our decision in Elliott are

particularly significant, because our reasoning therein is

inextricably connected to those facts and circumstances.").

Instead, we have adhered to the maxim that exceptions to the

American Rule should be "limited and narrow." Gorton, 217

Wis. 2d 493, ¶33; Nationstar Mortg. LLC v. Stafsholt, 2018 WI

21, ¶27, 380 Wis. 2d 284, 908 N.W.2d 784. "Awarding attorney

fees, as we did in Elliott, should not be the usual result."

Reid, 245 Wis. 2d 658, ¶27.

¶85 Although generally Steadfast steps into MMSD's shoes

when pursuing a subrogation claim, to do so here flies in the

face of clear precedent. To allow such subrogated status to one

insurer seeking to recover attorney fees from another insurer

extends far beyond the "particular facts and circumstances" of
Elliott. See DeChant, 200 Wis. 2d at 569. Unlike the majority,

I would follow our case law indicating that such exceptions to

the American Rule must be narrowly circumscribed.

¶86 Accordingly, I dissent from part II.B.5 of the

majority opinion because it allows an insurer to recover

attorney fees from another insurer, contravening the long-

established American Rule.

¶87 In sum, for the reasons set forth above, I
respectfully concur in part and dissent in part.

9
 No. 2016AP1631.awb

¶88 I am authorized to state that Justice REBECCA FRANK

DALLET joins this concurrence/dissent.

10
 No. 2016AP1631.rgb

¶89 REBECCA GRASSL BRADLEY, J. (concurring in part,

dissenting in part). I agree with the majority that an

insured's defense costs should be allocated between insurers who

share a contractual, overlapping duty to defend the insured. I

also agree that the allocation between insurers should be pro

rata, based upon each insurer's policy limits. Accordingly, I

join part II.B.4 of the majority opinion to the extent it adopts

these legal principles. However, I disagree with the majority's

conclusion that Greenwich is responsible for any portion of

defense costs paid on behalf of MMSD. Vis-à-vis Steadfast's

policy of insurance covering MMSD, Greenwich's policy was excess

over Steadfast's, relieving Greenwich of any obligation to

contribute to MMSD's defense, which Steadfast was already

providing. The majority erroneously concludes otherwise,

deeming both Steadfast and Greenwich to be primary insurers,

each with a duty to defend MMSD in the consolidated lawsuits

stemming from the 2008 rain event. In reaching this result, the

majority declines to apply clear and unambiguous policy language
dictating a different priority of insurance, instead applying an

offhanded statement in a case involving an unrelated issue with

no application here. The majority errs. I would reverse the

judgment against Greenwich in its entirety.1

1
Because I conclude that Greenwich had no duty to defend, I
do not address the remaining issues resolved by the majority
because they are moot unless Greenwich had a duty to defend. I
do agree with Justice Ann Walsh Bradley's dissent to the extent
it would deny recovery of attorney fees by one insurer against
another.

1
 No. 2016AP1631.rgb

I

¶90 Insurance policies are contracts. Wadzinski v. Auto-

Owners Ins. Co., 2012 WI 75, ¶11, 342 Wis. 2d 311, 818

N.W.2d 819. When interpreting contracts, we presume the

parties' intentions are expressed in the language they chose.

Id. Accordingly, when construing policy terms and conditions,

we begin with their plain language. See Johnson Controls, Inc.

v. London Mkt., 2010 WI 52, ¶59, 325 Wis. 2d 176, 784 N.W.2d 579

("Wisconsin case law instructs that the language of the policy

should be our initial focus."); see also BV/B1, LLC v.

InvestorsBank, 2010 WI App 152, ¶25, 330 Wis. 2d 462, 792

N.W.2d 622 ("When interpreting a contract clause, we begin with

the plain language of the clause."). "When the language of [an

insurance] contract is unambiguous, we apply its literal

meaning." Wisconsin Label Corp. v. Northbrook Prop. & Cas. Ins.

Co., 2000 WI 26, ¶23, 233 Wis. 2d 314, 607 N.W.2d 276.

Interpretation of policy language is a question of law we review

de novo. Wadzinski, 342 Wis. 2d 311, ¶10.
¶91 As a general rule, a primary insurer "has the primary

duty to defend a claim" while an excess insurer is not required

to contribute to the defense as long as "the primary insurer is

required to defend." Johnson Controls, Inc., 325 Wis. 2d 176,

¶57 (quoted source omitted). "Whenever two policies apply to

the same insured at the same time, the issue of which policy

must pay first——or which is primary and which is excess——is

dealt with by other insurance clauses." Burgraff v. Menard,
Inc., 2016 WI 11, ¶27, 367 Wis. 2d 50, 875 N.W.2d 596 (quotation

2
 No. 2016AP1631.rgb

marks and quoted source omitted). In such situations, the

insurers may, by the terms of their policies, "define the extent

to which each is primary and each excess[.]" Wis. Stat.

§ 631.43(1); see also Burgraff, 367 Wis. 2d 50, ¶27.2 Regardless

of its status as primary or excess, whether an insurer has a

duty to defend "depends on the language of the policies."

Johnson Controls, Inc., 325 Wis. 2d 176, ¶58 (emphasis added).

II

¶92 While Steadfast and Greenwich issued their respective

policies to two different primary insureds, neither party

disputes that both policies cover the same additional insured:

MMSD. It is MMSD's losses——namely, defense costs——that are at

issue in this case. Therefore, the focus should be on MMSD as

the insured, not United Water or Veolia. Instead, the majority

views coverage from the standpoint of the primary insureds——

United Water and Veolia——who are entirely removed from this

coverage litigation: "Greenwich's policy insured the risk that

United Water's conduct in managing the Milwaukee sewerage system
during the policy period would be negligent . . . Steadfast's

policy insured the risk that Veolia would negligently manage the

Milwaukee sewerage system during the policy period[.]" Majority

op., ¶¶23, 24. The negligence of United Water and Veolia are

irrelevant for purposes of determining the respective insurers'

2
This holds true unless "the policies contain inconsistent
terms on that point," in which case "the insurers shall be
jointly and severally liable to the insured on any coverage
where the terms are inconsistent[.]" Wis. Stat. § 631.43(1).

3
 No. 2016AP1631.rgb

duty to defend MMSD, a different insured altogether. By framing

the issue incorrectly, the majority's analysis collapses at the

outset.

¶93 The language of Greenwich's and Steadfast's insurance

contracts determines whether Greenwich and Steadfast provide

primary or excess coverage to MMSD. Under the "PROFESSIONAL

LIABILITY" section of its policy, Greenwich agreed "[t]o pay on

behalf of the INSURED all LOSS in excess of the Retention

amount . . . as a result of CLAIMS first made against the

INSURED . . . during the POLICY PERIOD . . . by reason of any

act, error or omission in PROFESSIONAL SERVICES

rendered . . . by the INSURED or by any person whose acts,

errors or omissions the INSURED is legally responsible."3 Under

the separate "CONTRACTOR'S POLLUTION LEGAL LIABILITY" section of

its policy, Greenwich agreed "[t]o pay on behalf of the INSURED

all LOSS, in excess of the Retention amount . . . as a result of

an OCCURRENCE which arises out of CONTRACTING SERVICES and which

first commenced during the POLICY PERIOD." Under the policy,
"LOSS"——what Greenwich is contractually obligated to pay to or

on behalf of MMSD——means not only "DAMAGES [i.e., a "monetary

judgment, award or settlement of compensatory damages"] which

the INSURED shall become legally obligated to pay as a result of

a CLAIM" but also "CLAIMS EXPENSE." Under the policy, "CLAIMS

EXPENSE" includes "all other fees, costs . . . and expenses

resulting from the . . . defense . . . of such CLAIM, if

3
Capitalization appears in Greenwich's policy to signify
defined terms.

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incurred . . . with the written consent of the Company, by the

INSURED." In simpler terms, Greenwich insured MMSD not only for

"DAMAGES" MMSD would become legally obligated to pay as a result

of a covered claim (here there were none) but also "CLAIMS

EXPENSE," which includes attorney fees incurred by MMSD in

defending against such a claim, regardless of whether MMSD

became legally obligated to pay damages to a third party.

Despite the fact that only "CLAIMS EXPENSE" and not "DAMAGES"

are at issue in this case, the majority ignores in its analysis

of Greenwich's duty to defend the fact that "CLAIMS EXPENSE"

constitutes MMSD's exclusive "LOSS."

¶94 Steadfast's policy similarly promises to "pay on

behalf of an 'insured' any 'loss' an 'insured' is legally

obligated to pay as a result of a 'claim[.]'" Steadfast's

policy defines "Loss" to mean both (1) "Compensatory damages or

legal obligations arising from 'Bodily injury'" or "Property

damage" and (2) "Related 'claim expense.'" Under Steadfast's

policy, "Claim expenses" include attorney fees and "[a]ll other
fees, costs and expenses resulting from the defense . . . of a

'claim' if incurred by" Steadfast or MMSD with Steadfast's

consent.

¶95 In the underlying rain event litigation, no damages

were awarded or paid to the plaintiffs for their claims against

MMSD. MMSD sustained no "loss" under the first prong of that

definition in either Greenwich's or Steadfast's policies.

Instead, MMSD's "loss" as defined in each policy was limited to
attorney fees incurred in defending against the rain event

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claims, included under the second prong of "loss" in each policy

and denominated as "CLAIMS EXPENSE" under Greenwich's policy and

as "Claim expenses" under Steadfast's policy. Although MMSD was

never found liable in the rain event litigation, nor did it

agree to pay damages in settlement of that litigation, MMSD did

incur an insurable loss under the policies, in the form of

attorney fees incurred in its defense.

¶96 At this step in the analysis, I conclude that both

Greenwich and Steadfast contractually agreed to pay MMSD's

attorney fees in defending the rain event litigation. The

analysis does not end there, however, because of course MMSD is

not entitled to recover double its attorney fees, nor was MMSD

entitled to duplicative defenses against the rain event claims.

If multiple policies cover the same insured during the same

period, then the policies' respective "other insurance"

provisions determine which insurer is primary and which is

excess.

¶97 Greenwich's "other insurance" clause in its policy
insuring MMSD provides in pertinent part: "this insurance shall

be in excess of the Retention amount . . . and any other valid

and collectible insurance available to the INSURED . . . unless

such other insurance is written only as a specific excess

insurance over the Limits of Liability provided in this policy."

(Emphasis added.) While Greenwich contractually declares its

insurance to be excess if other valid and collectible insurance

is available to MMSD, Steadfast's "other insurance" provision is

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markedly different. Steadfast designates its insurance as

primary unless other primary insurance is available to MMSD:

L. OTHER INSURANCE

1. The insurance provided under this policy is primary
insurance, except when:

a. Stated in the Declarations or by endorsement to
apply in excess of or contingent upon the absence of
other insurance; or

b. Any other primary insurance is available covering
liability for any "claim" or "loss" . . . .

When this insurance is primary and the "insured" has
other insurance which is stated to be applicable to
the "claim" or "loss" on an excess basis, the amount
of our liability under this policy shall not be
reduced by the existence of such excess insurance.
(Emphasis added.) Both Greenwich and Steadfast agreed to pay

MMSD's "loss" in the form of attorney fees incurred in defending

the rain event litigation. Because Steadfast's policy provided

valid and collectible insurance to MMSD for this particular

loss, Greenwich's insurance covering this loss——attorney fees——

is excess. Steadfast's own policy declares its coverage to be

primary unless (1) otherwise stated in the declarations or an

endorsement, or (2) any other primary insurance is available.

Neither condition exists under these facts.

¶98 No one disputes Steadfast had a duty to defend MMSD

against the entire litigation, even though not all claims

implicated Veolia, Steadfast's primary insured. See Fireman's

Fund Ins. Co. of Wis. v. Bradley Corp., 2003 WI 33, ¶21, 261

Wis. 2d 4, 660 N.W.2d 666 ("[W]hen an insurance policy provides
coverage for even one claim made in a lawsuit, the insurer is

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obligated to defend the entire suit.") Steadfast's "other

insurance" provision states that its policy provides primary

coverage. Greenwich also promised coverage for MMSD's defense

costs, but its "other insurance" provision states that

Greenwich's coverage is excess to any other valid and

collectible insurance. Steadfast's contractual obligation to

pay MMSD's defense costs constitutes "other valid and

collectible insurance," rendering Greenwich an excess insurer as

to that loss.

¶99 Despite this straightforward and unambiguous policy

language, the majority declines to interpret the "other

insurance" clauses, inexplicably stating that "we do not

interpret the terms of the 'other insurance' clauses because

under the undisputed facts . . . Greenwich's 'other insurance'

clause provided successive insurance to MMSD." Majority op.,

¶27. The majority does not explain how an "other insurance"

clause grants any coverage to an insured. Although the majority

contradictorily appears to have engaged in some interpretation
of Greenwich's "other insurance" clause (but not Steadfast's),

it does not include its analysis of that provision in the

opinion. Instead, the majority examines only the "damages"

aspect of "loss" despite the absence of any "damages" incurred

by MMSD. Based solely on the "damages" for which MMSD could

have been held liable (but was not), the majority holds that

both insurers provided primary coverage "in regard to insuring

MMSD's risk of damage[,]" majority op., ¶27, and therefore both
had a duty to defend. Majority op., ¶39. The majority's

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disregard for the actual and only "loss" incurred by MMSD——

attorney fees——generates its analytical error.

¶100 The majority concludes that "concurrent insurance is

required before 'other insurance' clauses are triggered."

Majority op., ¶26. But the majority ignores the concurrent

coverage of the claim expense "loss" incurred by MMSD——attorney

fees——during overlapping policy periods. No one disputes that

both policies covered the 2008 rain event; therefore, the

majority's conclusion that the policies were successive is

logically impossible. The majority then quotes Plastics

Engineering4 for the proposition that "[t]wo insurance policies

cannot be concurrent unless they insured 'the same risk, and the

same interest, for the benefit of the same person, during the

same period.'" Majority op., ¶26. Relying upon the different

contractors insured by each policy rather than the common

insured (MMSD), the majority concludes that the policies were

successive, not concurrent. This contradicts the actual

language of the policies, which should have been the focus of
analysis in this case.

¶101 The majority's reliance on Plastics Engineering is

misplaced. The case did not, as the majority maintains, hold

that "[t]wo insurance policies cannot be concurrent unless they

insured 'the same risk, and the same interest, for the benefit

of the same person, during the same period.'" Majority op.,

¶26. Rather, the case addressed whether Wis. Stat. § 631.43(1)

4
Plastics Eng'g Co. v. Liberty Mut. Ins. Co., 2009 WI 13,
¶48, 315 Wis. 2d 556, 759 N.W.2d 613.

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applies to successive policies; it did not address "other

insurance" clauses at all. Plastics Eng'g Co. v. Liberty Mut.

Ins. Co., 2009 WI 13, ¶44, 315 Wis. 2d 556, 759 N.W.2d 613. The

language the majority quotes from Plastics Engineering was

lifted from an explanatory parenthetical in a citation to a law

review article. Id., ¶48 (quoting Douglas R. Richmond, Issues

and Problems in "Other Insurance," Multiple Insurance, and Self-

Insurance, 22 Pepp. L. Rev. 1373, 1376-82 (1995)).5 Nothing in

Plastics Engineering should be read as supplanting the actual

policy language, which forms the contract between insurer and

insured, with a mechanical analysis of whether the policies

cover "the same risk, and the same interest, for the benefit of

the same person, during the same period." Significantly,

Greenwich's "other insurance" clause does not limit its excess

position to only those policies insuring "the same risk, and the

same interest, for the benefit of the same person, during the

same period." Instead, Greenwich's insurance is excess if there

is other valid and collectible insurance for the insured's loss—
—here, MMSD's attorney fees.

¶102 The majority effectively discards the policy language

in favor of loose generalizations from our case law. Whether

Greenwich's policy was primary or excess (and whether Greenwich

violated its contractual obligations) should be resolved by the

5
In context, this statement appears to reflect a general
description of how "other insurance" clauses operate. But a
general description of how courts have dealt with "other
insurance" clauses cannot rewrite the policy language the court
is supposed to interpret and apply.

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actual language of the insurance contracts that govern our

analysis. See Johnson Controls, Inc., 325 Wis. 2d 176, ¶58

(whether a duty to defend exists depends on the language of the

policies). Instead, the majority centers its holding on a stray

citation to a law review article, resulting in a misguided

fixation on the claims made in the rain event litigation rather

than MMSD's actual "loss."

¶103 It is true that Greenwich had a duty to indemnify MMSD

for "damages" MMSD may have been liable to pay as a result of

the acts or omissions of United Water, while Steadfast had a

duty to indemnify MMSD for damages MMSD may have been liable to

pay as a result of the acts or omissions of Veolia. However,

indemnification for such damages is not the issue here. MMSD

did not incur any loss based on the acts or omissions of its

contractors. Instead, the issue is which insurer was primary as

to claim expenses, not damages. Both Greenwich and Steadfast

insured the same "loss," namely, MMSD's defense of the rain

event litigation, and both policies were in effect for
overlapping periods of time.6 Because Steadfast provided other

valid and collectible insurance for the attorney fees necessary

to defend against the rain event litigation, Greenwich's policy

6
Greenwich's pollution policy period was July 24, 2007 to
July 24, 2008, and Steadfast's claims-made policy period was
July 1, 2008 to July 1, 2009, with retroactive dates varying by
coverage type and ranging from March 1, 1998 to June 11, 2008.

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provided excess coverage. Notably, MMSD did collect its defense

costs from Steadfast.7

¶104 Nothing prohibits an insurer from denying its

insured's tender of defense and stating the grounds for this

denial. See Water Well Sols. Serv. Grp. Inc. v. Consolidated

Ins. Co., 2016 WI 54, ¶28, 369 Wis. 2d 607, 881 N.W.2d 285.

While the insurer takes the risk that its coverage position will

later be found incorrect, see id., there is nothing improper

about taking this course of action, as Greenwich did. Based on

its policy language and the existence of other valid and

collectible insurance, Greenwich correctly determined that any

coverage under its policy for MMSD's claim expenses necessary to

defend the rain event litigation was excess to Steadfast's. It

is irrelevant that Greenwich might ultimately have been liable

to indemnify MMSD for any damages awarded against MMSD as a

result of United Water's services; Steadfast was obligated to

pay all the claim expenses necessary to resolve the entire

litigation, and in fact Steadfast did so. An "insurer breaches
the duty to defend by requiring the insured to incur attorney

fees to defend . . . on the issue of liability and to litigate

coverage simultaneously." Reid v. Benz, 2001 WI 106, ¶3, 245

7
Steadfast maintains that Greenwich's "other insurance"
clause does not apply because Steadfast's policy was not
collectible, arguing that "MMSD will never be able to 'collect'
on the Steadfast policy for any liability due to the vicarious
liability of United Water." Steadfast commits the same error as
the majority by focusing exclusively on the claims for damages
instead of the common loss insured by both Greenwich and
Steadfast: defense costs.

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Wis. 2d 658, 629 N.W.2d 262. In this case, Steadfast paid

MMSD's attorney fees incurred to defend against the rain event

litigation; MMSD was not forced to bear the expense. And

Steadfast——not MMSD——litigated coverage for defense costs.

Accordingly, Greenwich did not breach any duty to defend MMSD;

as an excess insurer with respect to defense costs, Greenwich

had no obligation to provide a defense that MMSD was already

receiving from its primary insurer.

¶105 The majority disregards applicable policy language,

upsets the insurers' contractual allocation of risk, and binds

Greenwich to a risk for which it did not bargain. I would apply

the "other insurance" provisions of each contract and therefore

reverse the judgment against Greenwich in its entirety, holding

Greenwich had no duty to defend MMSD because its policy provided

only excess coverage for MMSD's defense costs. Other than the

principles of law regarding the pro rata allocation of defense

costs between insurers set forth in part II.B.4 of the majority

opinion, I respectfully dissent.

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