Green v. Heritage Mutual Insurance

WEDEMEYER, P.J.

¶ 21. (dissenting). I disagree with the majority's decision in this case and therefore respectfully dissent for the reasons that follow.

¶ 22. This was an unusual case in that the insurer did not proceed with the ordinary and common practice procedures utilized in insurance dispute cases. Moreover, the case was complicated by the early dismissal of the Congregation, but not individually named Board members, Green and Rasansky. As a result, this case became one viewed with hindsight, rather than focusing solely on the allegations in the complaint.

*860¶ 23. In order to determine whether or not Green and Rasansky were entitled to insurance coverage, we must limit our initial review to the allegations set forth in the complaint. The duty to defend is "predicated on allegations in a complaint which, if proved, would give rise to recovery under the terms and conditions of the insurance policy." Elliott v. Donahue, 169 Wis. 2d 310, 320-21, 485 N.W.2d 403 (1992). The nature, and not the merit, of the claims in the complaint determines the duty to defend. Id. at 321. Where the issue of coverage is "fairly debatable," the insurer must provide a defense until coverage is conclusively determined. Id. at 317.

¶ 24. The complaint here, in my opinion, clearly alleged covered causes of action — misrepresentation and breach of fiduciary duty. The claims against Green and Rasansky alleged misrepresentations and breaches, which caused some of the "Friends of Kenwood" to make contributions in reliance on the alleged misrepresentations.

¶ 25. The fact that, ultimately, the allegations were dismissed is not pertinent to our analysis. Looking solely at the allegations in the complaint, I conclude that Heritage had a duty to defend the action, even though, in the end, it turned out that no liability was incurred. The duty to defend is broader than the duty to indemnify. General Cas. Co. v. Hills, 209 Wis. 2d 167, 176 n.11, 561 N.W.2d 718 (1997). If the complaint alleges a claim that is potentially covered — "no matter how attenuated, frivolous, or illogical [the] allegations may be," Sheets v. Brethren Mut. Ins. Co., 679 A.2d 540, 544 (Md. 1996), the insurance company has a duty to defend. Heritage failed to do that here. If Heritage had accepted its duty to defend, based on the allegations in *861the complaint, Green and Rasansky would not have incurred costs associated with retention of separate counsel.

¶ 26. The majority dismisses Green's and Rasansky's contentions under an agency theory — i.e., Green and Rasansky are agents of the principal and, therefore, could not incur any personal liability. Although I don't disagree with that general statement, I conclude that that determination was premature. We do not know whether Green's and Rasansky's conduct brought them outside the protection of the agent-principal relationship. Moreover, in this case, the trial court dismissed the Congregation and the Board, and left Green and Rasansky as individual defendants, who had the potential of being personally liable if the "Friends" had been able to prove the misrepresentation allegations set forth in the complaint, and if it was determined that Green and Rasansky were not protected by the agency-principal indemnification arrangement.

¶ 27. Although it is true that the general rule of agency law is that an agent will not incur personal liability for conduct on behalf of the principal, the protection is not absolute. When the agency relationship is disclosed, a plaintiff is entitled to recover from the principal, but not the agent. Hooper v. O.M. Corwin Co., 199 Wis. 139, 146, 225 N.W. 822 (1929) (citation omitted). Agency law, however, does not insulate an agent from liability for its torts. Ford v. Wisconsin Real Estate Exam. Bd., 48 Wis. 2d 91, 102, 179 N.W.2d 786, 792 (1970) (citing Restatement (Second) of Agency § 343), which states:

An agent who does an act otherwise a tort is not relieved from liability by the fact that he acted at the *862command of the principal or on account of the principal, except where he is exercising a privilege of the principal, or a privilege held by him for the protection of the principal's interests, or where the principal owes no duty or less than the normal duty of care to the person harmed.

¶ 28. Comment d states in part that "[a]n agent who assists another agent or the principal to commit a tort is normally himself liable as a joint tortfeasor for the entire damage." Thus, under some circumstances, the agent may become personally liable. Here, it was too early to answer that question. The case did not proceed to discovery stages where those issues would have been explored. Thus, I cannot agree with the majority's conclusion that the principal-agency relationship insulates Green and Rasansky from any personal liability.

¶ 29. Finally, after reviewing WMBIC, I agree with Green and Rasansky that this case is distinguishable. Unlike WMBIC, the underlying complaint here did allege personal claims against Green and Rasansky. The trial court acknowledged this fact on the record when it dismissed the Congregation but, at the same time, allowed the case to continue against Green and Rasansky. Moreover, the record reflects that subsequent to the proceedings generated following the unsuccessful appeal of the dismissal of the Congregation, the "Friends" made a monetary demand on Green and Rasansky.

¶ 30. Finally, the insurance principle stating that if there is any doubt about the duty to defend, it must be resolved in favor of the insured provides additional support for my conclusion. Elliott, 169 Wis. 2d at 321. Any doubt about the duty to defend should have been resolved in favor of Green and Rasansky. Board mem*863bers, in general, are charged with certain decision-making authority for the organizations they represent. As was the case here, the Board found it had made a controversial decision that angered some of its members. The members filed a lawsuit because they disagreed with the Board's decision. In that lawsuit, the "Friends" named two members of the Board, individually — Green and Rasansky. The lawsuit alleged that Green and Rasansky breached their fiduciary duty, and misrepresented facts to members to secure donations. The lawsuit sought return-of those donations. When the defendants notified Heritage of the lawsuit, Heritage refused to provide a defense. Heritage also failed to intervene in the action to seek a determination on coverage.

¶ 31. As a result of Heritage's actions, Green and Rasansky had to retain counsel to defend against the misrepresentation and breach of fiduciary duty claims. They remained in the action following an initial motion to dismiss, which dismissed the Congregation and the Board. Individuals who volunteer to serve as members of a Board, such as the one involved here, should not have to expend personal finances for conduct taken on behalf of the organization. The risk of this exposure, including associated defense costs, is why a board obtains D & O coverage. See 2 Rowland H. Long, The Law of Liability Insurance § 12A.01[1] (1992) (D & O policies generally are issued to protect directors and officers from claims made against them in their official capacities.) In my opinion, the Board members here, like many religious organizations, purchased the D & O policy to provide protection — including a defense, for when they are sued as a result of a board decision. The Board members should not have to reach into their own pockets when a disgruntled member files a lawsuit, *864whether the suit has merit or not, if the complaint alleges a potentially covered claim. The insurer must also defend the entire action even if some of the allegations in the underlying complaint fall outside of the policy. Grube v. Daun, 173 Wis. 2d 30, 73, 496 N.W.2d 106 (Ct. App. 1992). The defense must be provided until coverage is conclusively determined. Elliott, 169 Wis. 2d at 321.

¶ 32. That did not happen here. As a result, Green and Rasansky incurred legal fees that should have been paid by Heritage. In my opinion, Heritage breached its duty to defend and should be responsible for reimbursing Green and Rasansky directly for the defense costs associated with the underlying "Friends" action and the instant matter.