                                                                       2016 WI 11

                   SUPREME COURT             OF    WISCONSIN
CASE NO.:                2013AP907
COMPLETE TITLE:          Kenneth C. Burgraff, Sr. and Linda Burgraff,
                                   Plaintiffs-Respondents,
                              v.
                         Menard, Inc.,
                                   Defendant-Appellant-Cross Petitioner,
                         Millers First Insurance Company,
                                   Defendant-Respondent-Petitioner,
                         Walmart Stores, Inc. Associates Health and
                         Welfare Plan,
                                   Defendant.

                            REVIEW OF A DECISION OF THE COURT OF APPEALS
                           (Reported at 356 Wis. 2d 282, 853 N.W.2d 574)
                                     (Ct. App. 2014 – Published)
                                        PDC No. 2014 WI App 85

OPINION FILED:           February 24, 2016
SUBMITTED ON BRIEFS:
ORAL ARGUMENT:           September 17, 2015

SOURCE OF APPEAL:
   COURT:                Circuit
   COUNTY:               Eau Claire
   JUDGE:                Michael A. Schumacher

JUSTICES:
   CONCURRED:
   CONCUR & DISSENT:     ROGGENSACK, C.J., ZIEGLER, J., concur and
                         dissent. (Opinion Filed)
  NOT PARTICIPATING:     GABLEMAN, R.G.BRADLEY, J.J., did not
                         participate.

ATTORNEYS:
       For the defendant-respondent-petitioner, there were briefs
by John C. Possi and Mueller, Goss & Possi, S.C., Milwaukee, and
oral argument by John C. Possi.




       For        the   defendant-appellant-cross-petitioner,       there    were
briefs       by    Jeffrey   S.   Fertl,   and    Hinshaw   &   Culbertson   LLP,
Milwaukee, and oral argument by Jeffrey S. Fertl.
2
                                                                          2016 WI 11
                                                                   NOTICE
                                                    This opinion is subject to further
                                                    editing and modification.   The final
                                                    version will appear in the bound
                                                    volume of the official reports.
No.     2013AP907
(L.C. No.   2011CV270)

STATE OF WISCONSIN                              :               IN SUPREME COURT

Kenneth C. Burgraff, Sr. and Linda Burgraff,

            Plaintiffs-Respondents,

      v.

Menard, Inc.,                                                          FILED
            Defendant-Appellant-Cross Petitioner,
                                                                   FEB 24, 2016
Millers First Insurance Company,
                                                                     Diane M. Fremgen
                                                                  Clerk of Supreme Court
            Defendant-Respondent-Petitioner,

Walmart Stores, Inc., Associates Health and
Welfare Plan,

            Defendant.




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

cause   remanded    to     the   circuit   court    for     a    determination        of

damages.



      ¶1    ANN    WALSH     BRADLEY,      J.   Petitioner,        Millers       First

Insurance Company ("Millers First"), seeks review of a published

decision    of    the    court   of   appeals   that     reversed      the    circuit
                                                                    No. 2013AP907



court's     order    for   summary      judgment.1       The   circuit     court

determined that Millers First no longer had a continuing duty to

defend      Menard     after      the       plaintiff,    Kenneth      Burgraff

("Burgraff"), reached a settlement with Millers First for its

proportionate share of the plaintiff's claim.              In reversing, the

court of appeals concluded that Millers First had a continuing

duty to defend and that it breached the duty when it withdrew

its defense of Menard following the Burgraff settlement.

    ¶2      Millers First argues that its "limits of liability for

this coverage" were exhausted when it settled with Burgraff for

$40,000 because that amount represented its maximum proportional

liability     for    Burgraff's      claim.       Once   it    satisfied     its

proportionate share of Burgraff's claim, Millers First contends

it had no further duty to defend Menard even though it had not

paid its full $100,000 limit of liability.

    ¶3      We conclude, under the terms of the policy, Millers

First was required to provide a defense for Menard until it paid

its $100,000 limit of liability.             Like the court of appeals, we
determine that Millers First breached its duty to defend when it

withdrew its defense of Menard following the settlement with

Burgraff.

    ¶4      Cross-petitioner, Menard, Inc., seeks review of that

part of the court of appeals opinion that affirmed a judgment of


    1
       Burgraff v. Menard, Inc., 2014 WI App 85, 356 Wis. 2d 282,
853 N.W.2d 574 (affirming and reversing orders of summary
judgment entered by the circuit court for Eau Claire County,
Michael A. Schumacher, J., presiding).


                                        2
                                                                             No. 2013AP907



the    circuit      court    determining        that       Menard's     $500,000     self-

insured     retention       qualified      as    "other       applicable       liability

insurance" under the Millers First policy's "other insurance"

clause.       The court of appeals concluded that Menard's self-

insured retention was "other insurance" pursuant to this court's

decision in Hillegass v. Landwehr, 176 Wis. 2d 76, 499 N.W.2d

652 (1993).

       ¶5     Menard argues that its self-insured retention does not

constitute "other insurance" under the Millers First policy's

"other applicable liability insurance" clause.                        It contends that

because it is a permissive user of Burgraff's vehicle, this case

involves a dispute between a self-insured party and its own

insurer and is governed by Brown County v. OHIC Ins. Co., 2007

WI App 46, 300 Wis. 2d 547, 730 N.W.2d 446.¶5                           We   agree    with

the   court    of    appeals     that   Hillegass,          and   not    Brown     County,

controls the outcome of this case.                 Like the court of appeals,

we    determine     that    Menard's    self-insured           retention      is     "other

applicable liability insurance" under the Millers First policy's
"other insurance clause."

       ¶6     Accordingly, we affirm the Court of Appeals and remand

to the circuit court for a determination of damages.

                                           I.

       ¶7     The relevant facts of this case are not in dispute.

Kenneth     Burgraff       was   injured   when        a    Menard    employee     loaded

materials onto Burgraff's trailer using a forklift.                              Burgraff

sued Menard for damages.


                                           3
                                                                             No. 2013AP907



    ¶8     Burgraff's vehicle and trailer were insured under an

automobile     insurance    policy   issued            by       Millers    First.       The

declaration    page   provides     for       a    $100,000         per    person    bodily

injury liability limit.        Its insuring agreement states:

    We will pay damages for "bodily injury" or "property
    damage" for which any "insured" becomes legally
    responsible because of an auto accident.     Damages
    include prejudgment interest awarded against the
    "insured."  We will settle or defend, as we consider
    appropriate, any claim or suit asking for these
    damages.

    ¶9     The   insuring      agreement          also       addresses      Millers

First's duty to defend:

    In addition to our limit of liability, we will pay all
    defense costs we incur. Our duty to settle or defend
    ends when our limit of liability for this coverage has
    been exhausted.    We are not obligated to provide
    defense after we have paid our limits of liability in
    settlement of claims or suits.    We have no duty to
    defend any suit or settle any claim for "bodily
    injury" or "property damage" not covered under this
    policy.

    ¶10    Further,      the    Millers          First          policy     contains     the

following "other insurance" clause:

    If there is other applicable liability insurance, we
    will pay only our share of the loss. Our share is the
    proportion that our limit of liability bears to the
    total of all applicable limits.           However, any
    insurance we provide for a vehicle you do not own
    shall be excess over any other collectible insurance.
    ¶11    Menard     contended    that          it    was      entitled    to   coverage

under    the   Millers     First   policy             as    a    permissive      user   of

Burgraff's vehicle and tendered defense of Burgraff's claim to
Millers First.      See Blasing v. Zurich Am. Ins. Co., 2014 WI 73,

                                         4
                                                             No. 2013AP907



356 Wis. 2d 63, 850 N.W.2d 138.           Millers First agreed to defend

Menard subject to a reservation of rights, but later conceded

that it had a duty to defend, agreeing that Menard was entitled

to coverage under Burgraff's automobile policy.

    ¶12    Menard was also insured for excess coverage under a

commercial general liability policy issued by CNA.           The excess

policy    had    a    liability   limit   of   $500,000.   CNA's   policy

contained an "other insurance" clause that provides:

           4. Other Insurance

           If other valid and collectible insurance is
           available to the insured for a loss we cover
           under Coverages A or B of this Coverage Part, our
           obligations are limited as follows:

           . . .

           b. Excess Insurance

           (1)       This insurance is excess over:

                     (a)   Any of the other insurance, whether
                           primary, excess, contingent or on any
                           other basis:

           . . .

                           (iv) If the loss arises out of the
                           maintenance or use of aircraft, "autos"
                           or watercraft . . .

           (3)       When this insurance is excess over other
                     insurance, we will pay only our share of the
                     amount of the loss, if any, that exceeds the
                     sum of:

                     (a)   The   total   amount  that   such other
                           insurance would pay for the loss in the
                           absence of this insurance; and


                                      5
                                                                No. 2013AP907


                  (b)    The total of all deductible and self-
                         insured amounts under all that other
                         insurance.

            . . .

            c. Method of Sharing

            If   all   of    the   other   insurance  permits
            contribution by equal shares, we will follow this
            method also.    Under this approach each insurer
            contributes equal amounts until it has paid its
            applicable limit of insurance or none of the loss
            remains, whichever comes first.
            If any of the other insurance does not permit
            contribution by equal shares, we will contribute
            by limits.    Under this method, each insurer's
            share is based on the ratio of its applicable
            limit of insurance to the total applicable limits
            of insurance of all insurers.

      ¶13   CNA's policy also includes a self-insured retention

endorsement as follows:

            In consideration of the premium charged, it is
            agreed that the limits of insurance for [] the
            coverages provided by this policy . . . will
            apply   excess   of   a self-insured  retention
            (hereinafter   referred to  as   the  Retention
            Amount)[.]

      ¶14   The   "retention   amount"   is   $500,000   per    occurrence.

Under the self-insured retention endorsement, Menard is required

to pay the first $500,000 worth of damages and defense costs

arising from an occurrence.

      ¶15    Millers First moved for partial summary judgment on

the   grounds     that   Menard's   $500,000    self-insured      retention

qualified as "other applicable liability insurance" under the

Millers First policy's "other insurance" clause.               It asked the


                                    6
                                                                         No. 2013AP907


circuit     court    to    declare     that     under    the   "other    insurance"

clause, Millers First's share of any verdict or settlement would

be one-sixth of the total $600,000 liability limits of the two

policies combined.2           This amount represents the Millers First

policy's $100,000 limit of liability added to Menard's $500,000

self-insured        retention    amount.         The    circuit     court     granted

Millers First's motion.

      ¶16    During       mediation,    Millers      First     settled   Burgraff's

claim for $40,000.           The settlement agreement between Burgraff

and   Millers   First       agreed     to   "fully      discharge    Miller    First

Insurance Company and one-sixth of any liability that Menard,

Inc. may have to [] Burgraff."                   Menard did not settle with

Burgraff at mediation.

      ¶17    Subsequently, Millers First moved for summary judgment

on the grounds that it no longer had a duty to defend Menard

because it had fully satisfied its duty to pay one-sixth of any

verdict or settlement.          Again, the circuit court granted Millers

First's motion.

      ¶18    Menard moved to bifurcate and stay the trial on the

merits of Burgraff's claim pending resolution of the coverage


      2
       Apparently the parties agreed that Burgraff's damages
would not exceed $600,000.   The jury ultimately awarded the
plaintiffs damages in the amount of $345,396.07, which was
further reduced due to the jury's finding of contributory
negligence.


                                            7
                                                                               No. 2013AP907


issues on appeal.             Millers First took no position on Menard's

motion to bifurcate and stay.                The circuit court denied Menard's

motion and the case proceeded to trial.3

       ¶19       On    appeal,      Menard       argued:      (1)     its    self-insured

retention was not "other insurance," and (2) Millers First had a

continuing duty to defend Menard because Millers First settled

with       the    plaintiff      for      less       than    its    $100,000    limit    of

liability.            The court of appeals affirmed the circuit court's

determination that Menard's self-insured retention was "other

insurance" and reversed the circuit court's determination that

Menard no longer had a duty to defend.                             Burgraff v. Menard,

Inc., 2014 WI App 85, ¶¶2-3, 356 Wis. 2d 282, 853 N.W.2d 574.


                                             II.

       ¶20       In   this   case    we    are       asked   to     review   the   circuit

court's grant of summary judgment.                      We review grants of summary

judgment independently, applying the same methodology employed
by the circuit court.               Belding v. Demoulin, 2014 WI 8, ¶13, 352

Wis. 2d 359, 843 N.W.2d 373.                 Summary judgment is appropriate if

"there is no genuine issue as to any material fact and [] the




       3
        The circuit court's decision on Menard's motion to
bifurcate and stay was affirmed by the court of appeals. That
issue is not before us.



                                                 8
                                                                                 No. 2013AP907



moving party is entitled to judgment as a matter of law."                                  Wis.

Stat. § 802.08(2) (2013-2014).4

     ¶21    Here     there     is   no    genuine          issue     of    material       fact.

Therefore,    we    focus      on   the       terms       of   the   parties'      insurance

policies, which are contracts for insurance.                         Construction of an

insurance policy presents a question of law, which we review

independently       of   the    determinations             rendered       by    the   circuit

court and the court of appeals.                    Folkman v. Quamme, 2003 WI 116,

¶12, 264 Wis. 2d 617, 665 N.W.2d 857.

     ¶22    This     court      follows        the        well-established         rules     of

insurance     contract       interpretation.                   Insurance       policies     are

interpreted    as    they      would     be    by     a    reasonable      person     in    the

position of the insured.                 State Farm Mut. Auto. Ins. Co. v.

Gillette, 2002 WI 31, ¶28, 251 Wis. 2d 561, 641 N.W.2d 662.

"[B]ecause the insurer is in a position to write its insurance

contracts with the exact language it chooses——so long as the

language conforms to statutory and administrative law——ambiguity

in that language is construed in favor of an insured seeking
coverage."     Froedtert Mem'l Lutheran Hosp. v. Nat'l States Ins.,

2009 WI 33, ¶43, 317 Wis. 2d 54, 765 N.W.2d 251; see also First

Am. Title Ins. Co. v. Dahlmann, 2006 WI 65, ¶41, 291 Wis. 2d

156, 715 N.W.2d 609.

                                          III.




     4
       All subsequent references to the Wisconsin Statutes are to
the 2013-14 version unless otherwise indicated.


                                               9
                                                                                 No. 2013AP907



         ¶23   We   address      first    the       argument    raised       by        Menard's

cross-petition       because      it     is    foundational      to     our       subsequent

discussion.         Menard contends that the court of appeals erred

when      it    determined       that         Menard's     self-insured            retention

qualifies as "other applicable liability insurance" under the

Millers First policy's "other insurance" clause.

         ¶24   A self-insured retention obligates the insured to pay

the first level of loss before excess insurance coverage is

applied to the claim.             Menard's CNA insurance policy consisted

of   a    self-insured       retention        of    $500,000,    with       an    additional

$500,000 in excess coverage provided by CNA.

          ¶25 If    Menard's      self-insured         retention        is       not     "other

applicable liability insurance," then it would be treated as

excess     coverage——not       primary        coverage.        Thus,    Menard          asserts

that Millers First's $100,000 limit of liability would have to

be     exhausted     before      Menard       had    any   responsibility              to    pay

Burgraff's claim.

         ¶26   As is the case here, an insured may have more than one
insurance       policy    that    provides         coverage     for    the       same       risk.

Coverage       is   either     primary        or    excess.       Primary          insurance

coverage       provides   "first-dollar"            coverage    up     to    the       policy's

limit of liability.           See Arnold P. Anderson, Wisconsin Insurance

Law § 11.12 (7th Ed. 2015).               Excess insurance coverage attaches

only after a predetermined amount of primary insurance coverage

has been exhausted.           Id. at § 11.14.

          ¶27 "Whenever two policies apply to the same insured at
the same time, the issue of which policy must pay first——or
                                              10
                                                                        No. 2013AP907



which is primary and which is excess——is dealt with by 'other

insurance' clauses."            Id. at § 11.3.          Wis. Stat. § 631.43(1)

governs other insurance provisions:

     When 2 or more policies promise to indemnify an
     insured against the same loss . . . .     The policies
     may by their terms define the extent to which each is
     primary and each excess, but if the policies contain
     inconsistent terms on that point, the insurers shall
     be jointly and severally liable to the insured on any
     coverage where the terms are inconsistent, each to the
     full amount of coverage it provided.
Millers    First's      other   insurance      clause   states:    "If    there   is

other applicable liability insurance, we will pay only our share

of the loss.          Our share is the proportion that our limit of

liability bears to the total of all applicable limits."

     ¶28    The       circuit   court    determined      that     Menard's    self-

insured    retention      was   "other     applicable     liability      insurance"

under the terms of the Millers First "other insurance" clause.

In applying the terms of the Millers First "other insurance"

clause, the circuit court divided responsibility for paying any

settlement       or   verdict    between      Millers    First    and    Menard   in

proportion to their limits of liability.5                Its interpretation was

impelled    by    this    court's   determination       in   Hillegass     when   we




     5
       Like the court of appeals, we decline to apply the "other
insurance" clause from the CNA policy. See Burgraff v. Menard,
Inc., 2014 WI App 85, ¶¶15-17, 356 Wis. 2d 282, 853 N.W.2d 574.
We agree that the CNA policy's "other insurance" clause does not
apply to Menard's self-insured retention because it only applies
to CNA's obligations once the self-insured retention is
exhausted. See id.


                                         11
                                                                           No. 2013AP907



concluded    that    self-insurance          constitutes        "other    collectible

insurance."       176 Wis. 2d at 85.

    ¶29     The    plaintiff      in   Hillegass        was   injured    in    a   motor

vehicle collision involving a vehicle owned by Burlington Air

Express.    Id. at 78.          Burlington was self-insured at the time of

the collision for up to $1 million with an additional $2 million

umbrella policy.       Id.

    ¶30     The defendant driver had his own insurance policy with

Farmers Insurance Exchange that contained an "other insurance"

clause.     Id.    Farmer's policy provided that it was "excess over

any other collectible insurance."                 Id.     Burlington asserted on

summary judgment that because it was self-insured there was no

"other collectible insurance" within the meaning of the Farmers'

policy and therefore Farmers, not Burlington, was the primary

insurer.    Id. at 78-79.

    ¶31     The     Hillegass      court     concluded        that    "self-insurance

constitutes       'other     collectible        insurance',"         explaining    that

self-insurers retain their own risk in exchange for not paying
premiums:

    Whereas contractual insurance policies involve a
    third-party insurer underwriting the insured's risk in
    exchange for premium payments, self-insurers retain
    their own risk in exchange for not paying premiums.
    The parties implicated in the risk-shifting may change
    depending on the particular arrangement, but the
    essence   of   the  transaction   remains   the   same:
    exchanging future liability for premium payments.
Id. at 81-82.         It emphasized "the fact that the legislature
permits    companies       to    formulate      the   most     efficient      insurance


                                           12
                                                                            No. 2013AP907



coverage    should     not   be   misconstrued          as    a   device      to    avoid

liability by the self-retention of risk."                    Id. at 83.

    ¶32     We agree that Menard's responsibility under its self-

insured    retention    ought     to   be     analyzed       in   terms     of     how   it

shifted risk in exchange for premium payments.                         Menard, like

Burlington Air in Hillegass, chose to retain its own risk for

the first $500,000 of liability coverage.                      In doing so, Menard

avoided    paying    premiums     to     a    third-party         insurer     for    that

coverage.    Menard gained the benefit of lower premiums with the

risk of the self-insured retention.                   In addition, Menard's CNA

insurance policy explicitly states that its excess coverage with

CNA attaches only after Menard's self-insured retention has been

exhausted.    Thus, Menard understood that it had an obligation as

a primary insurer up to the limits of its $500,000 self-insured

retention.

    ¶33     Menard     argues     that        Brown     County,     not      Hillegass,

controls    the   outcome    because         the   dispute     between      Menard       and

Millers First is between an insured and its own insurer.                                  It
contends that because it is a permissive user of Burgraff's

vehicle under       Blasing, Menard has the same rights under the

Millers First policy as if it were the named insured.                                    See

Blasing, 356 Wis. 2d 63, ¶¶41, 52.                    Menard's argument is based

on this Court's statement in Blasing that "[o]ur case law makes

no distinction between injured parties who are named insured and

other insureds."       Id., ¶74.

    ¶34     We disagree with Menard that Brown County controls the
outcome of this case.        In Brown County, the County was sued when
                                         13
                                                                                        No. 2013AP907



a patient died at a county facility.                              300 Wis. 2d 547, ¶1.             The

County's liability was covered by two insurance policies.                                          Id.

Both policies provided primary coverage, but one policy required

the     County          to    pay     the    first        $100,000        as    a    "self-insured

retention."             Id.

       ¶35        The    court      of   appeals         determined        that     the   insurance

policy in Brown County was ambiguous as to whether the self-

insurance agreement with                     Wisconsin Municipal Mutual Insurance

Company was "other insurance."                       Id., ¶10.            It further concluded

that the self-insured retention at issue operated more like a

deductible than insurance coverage.                           Id., ¶16.             Significantly,

Brown       County       explained       that       the    public       policy      relied    on   in

Hillegass did not apply in a dispute between a self-insured

party and its own insurer.                    Id., ¶18.

       ¶36        Brown County created a narrow exception to Hillegass

when    an    "other          insurance"        clause       is     ambiguous,        operates     in

exactly the same way as a deductible, and involves a dispute

between       a    self-insured             party    and     its     own       insurer.       Menard
contends that because it is a permissive user of Burgraff's

vehicle, this case involves a dispute between a self-insured

party        and        its     own      insurer.             However,           this     case     is

distinguishable from Brown County.

       ¶37        Menard's       self-insured         retention           operates      differently

than    a    deductible.              Menard's       policy        with    CNA      states:      "The

S.I.R.      [self-insured             retention]          shall    be     eroded     by   allocated

claim costs including defense . . . ."                              Self-insured retentions
are distinct from deductibles when the insured is obligated to
                                                    14
                                                                                  No. 2013AP907



retain       its    own     defense      counsel.           See     Anderson,          Wisconsin

Insurance Law, § 11.12.              That is exactly the case here.

       ¶38    More importantly, this is not a dispute between an

insured       and    its     own     insurer.       In     Brown     County,          the    court

explained that "when both a self-insured party and its insurer

are liable for a loss, requiring the insurer to cover the loss

does   not     allow       the    self-insured       party     to    avoid       both       paying

premiums      and    making      payouts."          Id.,    ¶25.     The       fact    that    the

County purchased both policies led the Brown County Court to

conclude      that    this       "was   not    a    windfall       for    the    County;       the

County bargained for coverage in this situation."                              Id., ¶26.

       ¶39    In     Brown         County,      both       insurance        policies          were

purchased      by    the     County.          Although      Menard       may    benefit       from

coverage as a permissive user, that does not place Menard in the

same shoes as the insured in Brown County.                          Menard's argument is

unpersuasive because it ignores the fact that it did not bargain

or pay for the $100,000 in liability coverage available under

the Millers First policy.
       ¶40    Unlike in Brown County, this argument would result in

a   windfall        for    Menard       because     it     could     both       avoid       paying

premiums and making payments under its self-insured retention.

Here, as in Hillegass, it would be "fundamentally unfair and

contrary      to    legislative         intent"     to     permit    companies          such    as

Menard to self-insure and thereby escape the expense of premium

payments as well as the possibility of being held liable as a

primary insurer.           176 Wis. 2d at 83.


                                               15
                                                                              No. 2013AP907



       ¶41      Brown    County       did       not     analyze      the     self-insured

retention     in    terms    of    how    it        shifted   risk    in    exchange       for

payment of premiums.            The County argued that "'insurance' could

refer only to agreements where third parties agreed to insure

the    County      against    risk,      not    agreements        whereby     the    County

agreed to pay its losses itself."                       Brown County, 300 Wis. 2d

547,   ¶14.        Agreeing     with      the       County,   the    court    of    appeals

explained that "the only question that matters is who is liable:

the County or someone else."                Id., ¶15.

       ¶42    If the court of appeals in Brown County had analyzed

whether      the    County's      self-insured         retention      shifted       risk    in

exchange for premiums, the court would still have concluded that

the County's self-insured retention was not "other insurance" in

that case.         As Hillegass explained, Burlington "chose to retain

its own risk for the first $1 million rather than pay premiums

to a third-party insurer."               176 Wis. 2d at 82.           In contrast, the

County chose to avoid that risk by purchasing a second primary

insurance policy without a deductible.                    Thus, the Hillegass risk
analysis still allows for an exception to the general rule in

cases where a self-insured party chooses to purchase additional

liability       insurance       without         a     deductible      or     self-insured

retention.

       ¶43    In sum, we agree with both the circuit court and the

court of appeals that Hillegass, and not Brown County, controls

the    outcome      of   this     case.         Accordingly,         we    conclude    that

Menard's self-insured retention is "other applicable liability


                                               16
                                                                                    No. 2013AP907



insurance"      under        the   Millers        First       policy's       "other      insurance

clause."

                                                IV.

      ¶44      We address next the issue raised in Millers First's

petition for review.                 It contends that the court of appeals

erred when it concluded that Millers First breached its duty to

defend Menards.

      ¶45      Millers       First's       duty    to    defend       stems       from    Menard’s

status    as    a     permissive       user       of    the       plaintiff's      vehicle.       In

Blasing,     this      Court       concluded       that       a    Menard     employee      was   a

permissive user under a customer's automobile insurance policy.

356   Wis.      2d     63,     ¶41.         Blasing          also    determined          that   the

automobile          insurer    has     a     duty       to     defend       and    indemnify       a

permissive user.             Id., ¶42-44.          However, Blasing did not address

the issues we now face.

      ¶46      In    addressing       its       duty     to       defend,    Millers       First's

policy states that Millers First "will settle or defend, as we

consider appropriate, any claim or suit asking for [covered]
damages."       It further states:                     "Our duty to settle or defend

ends when our limit of liability for this coverage has been

exhausted.           We are not obligated to provide defense after we

have paid our limits of liability in settlement of claims or

suits."

      ¶47      The     declaration          page        of        Millers     First's       policy

provides a limit of liability of $100,000:                                    "DESCRIPTION OF

COVERED     VEHICLES,         LIMITS       OF   LIABILITY           AND     PREMIUMS      CHARGED.
COVERAGE IS PROVIDED WHERE A PREMIUM AND LIMIT OF LIABIITY IS
                                                  17
                                                                        No. 2013AP907



SHOWN."           The    "PER    PERSON     LIMIT    [FOR]    BODILY    INJURY"       is

"100,000."          It    also    sets    forth     the   premium   paid    for     this

coverage.

       ¶48     Nevertheless, Millers First contends that its limits

of liability should be $40,000, rather than the $100,000 set

forth in its declaration page.                    Referring to the terms of its

policy, Millers First argues that it was required to provide a

defense only until its "limit of liability for this coverage has

been exhausted."6          Millers First contends that its liability "for

this       coverage"     was    exhausted    by    its    $40,000   payment    of    its

proportionate share of Burgraff's claim.                     Additionally, Millers

First advances that because Menard is a permissive user, it

would be a windfall for Menard if Millers First is obligated to

defend Menard after Millers First settled its obligation with

the plaintiff.

       ¶49     The general rule regarding an insurer's duty to defend

until its policy limits are exhausted is set forth in St. John's

Home of Milwaukee v. Continental Cas. Co., 147 Wis. 2d 764, 434
N.W.2d      112   (Ct.    App.    1988).      In    St.   John's,   Aetna     Casualty

Insurance Company ("Aetna") and American National Fire Insurance

Company       ("American"),       moved     for    partial   summary   judgment      to

limit the scope of St. John's covered damages.                      147 Wis. 2d at

769.        The circuit court determined that the maximum amount of

       6
        Millers First agreed to defend Menard subject to a
reservation of rights, but later conceded that it had a duty to
defend, agreeing that Menard was entitled to coverage under
Burgraff's automobile policy.


                                            18
                                                                            No. 2013AP907



claimed damages for which there was coverage under the Aetna and

American      insurance       policies         was    $11,400.      Id.     at    778-79.

American deposited $11,400 with the circuit court as tender to

St. John's to cover the insurers' maximum potential liability

for the claims.           Id. at 779.           According to the circuit court,

Aetna and American had no duty to defend after the $11,400 was

tendered      as      payment       of    the        insurers'    maximum        potential

liability.      Id. at 779.

       ¶50    Reversing       the   circuit         court's   ruling,    the     court   of

appeals      explained       that   the     circuit      court    was    "incorrect      in

holding that if the insurers paid the sum of $11,400, they owed

no duty to defend."             Id. at 787.           St. John's        explicitly held

that     "maximum      potential         liability"      cannot    be     equated     with

"maximum policy limits."                 Id.     The St. John's court explained

that "[i]f an insurer owes any money at all under its insurance

policy, it must defend, because Wisconsin is one of those states

which requires an insurer to exhaust its total policy limits

before it is freed from the duty to defend."                        Id.        Thus, even
though    Aetna     and      American     tendered      payment    of    their    maximum

potential liability of $11,400, they continued to have a duty to

defend because they had not paid their full policy limits.

       ¶51    Here,     as     in   St.     John's,      Millers    First's        $40,000

payment to the plaintiffs was less than its $100,000 policy

limits.      Although Millers First's $40,000 payment may represent

its maximum potential liability for Burgraff's claim, the policy

language does not limit the duty to defend based on maximum
potential liability.            Thus, under St. John's, Millers First has
                                               19
                                                                         No. 2013AP907



a duty to defend Menard until it pays its full $100,000 policy

limits.

      ¶52    Any alteration in an insured's duty to defend must be

explicitly stated in the policy.              "Because any limitation on the

insurer's duty to defend is in the nature of an exclusion, the

defense coverage clause must clearly express the limitation."

Gross v. Lloyds of London Ins. Co., 121 Wis. 2d 78, 88, 358

N.W.2d 266 (1984).       There is no clause in Millers First's policy

that alters its duty to defend if it shares responsibility for

providing primary liability coverage with another insurer.

      ¶53    Although the Millers First policy was in effect before

Blasing and thus did not contemplate Menard as a permissive

user, the relationship between two primary insurers is not new

or unique.      Millers First included an "other insurance" clause

in   its    policy   which    set   forth      the    responsibilities       of    two

primary insurers with respect liability coverage.                        The "other

insurance"     clause   was   applied     by    the    circuit     court    and    the

parties' responsibilities were pro-rated according to terms of
the policy.

      ¶54    Millers    First's     policy     specifically       provides     for    a

pro-rata share of liability payments, but does not contain a

similar pro-rata clause for defense costs.                     Certainly Millers

First   could    have   included     a   similar      clause   with      respect     to

concurrent     insurers'     duty   to   defend,      but   did    not    write    its

policy to include a pro-rated duty to defend.                  It is now asking

us to read such a clause into the policy.                   We decline to do so
here.      We will not re-write Millers Firsts' policy language.
                                         20
                                                                           No. 2013AP907



    ¶55      Instead, we will follow the well-established rules of

insurance     contract       interpretation.                Insurance    policies     are

interpreted      as   they    would   be    by     a   reasonable       person   in   the

position of the insured.              State Farm, 251 Wis. 2d 561, ¶28.

"[B]ecause the insurer is in a position to write its insurance

contracts with the exact language it chooses–so long as the

language conforms to statutory and administrative law——ambiguity

in that language is construed in favor of an insured seeking

coverage."       Froedtert, 317 Wis. 2d 54, ¶43.                 This court will not

now create an exclusion with respect to Millers First's duty to

defend that it did not write into its own policy.

    ¶56     We also reject Millers First argument that Teigen and

Loy stand for the proposition that Millers First can settle for

less than its limits of liability and be released from its duty

to defend.        In Teigen v. Jelco of Wis. Inc., an insurer was

relieved of its duty to defend after it used a Loy release to

settle with the plaintiffs.                 124 Wis. 2d 1, 367 N.W.2d 806

(1985).     A Loy release allows the plaintiff to settle for less
than the primary insurer's policy limits by giving the secondary

or excess insurance carrier credit for the full amount of the

policy limits.         Loy v. Bunderson, 107 Wis. 2d 400, 417, 320

N.W.2d 175 (1982).           The parties, however, did not enter into a

Loy Release here.             They instead settled for a proportionate

amount of the verdict without giving credit up to the policy

limits.

    ¶57     We    agree      with   the    court       of    appeals    that   the    only
reasonable interpretation of the term "limit of liability" is
                                           21
                                                                                No. 2013AP907



the $100,000 limit of liability listed on the insurance policy's

declarations       page.           Under    the       unambiguous      policy     language,

Millers First was required to provide a defense for Menard until

it paid its $100,000 limit of liability.                            Like the court of

appeals, we determine that Millers First breached its duty to

defend when it withdrew its defense of Menard following the

settlement.

                                                 V.

       ¶58     Having concluded that Menard's self-insured retention

is "other applicable liability insurance" and that Millers First

breached its duty to defend Menard, this case is remanded to the

circuit      court.         Upon   remand,       the    circuit    court    must    make   a

determination          of   damages.         We       discuss    next    the     nature    of

available damages to provide guidance to the circuit court.7

       ¶59     Menard relies on Newhouse by Skow v. Citizens Sec.

Mut. Ins. Co. for the proposition that Millers First must pay

damages including:            (1) the amount of the judgment or settlement

plus       interest;    (2)    costs       and    attorney      fees    incurred    by    the
insured in defending the suit; and (3) any additional costs that

the insured can show naturally resulted from the breach.                                  176

Wis. 2d 824, 838, 501 N.W.2d 1 (1993).                          It reads Newhouse too

       7
       After oral argument, we ordered the parties to file letter
briefs addressing the following issues:       (1) What type of
damages can be claimed if Millers First is found to have
breached its duty to defend?; and (2) Are the damages available
affected by the fact that Millers First defended until the
circuit court approved Millers First's settlement with the
plaintiff?


                                                 22
                                                                                No. 2013AP907



broadly.   Just as the damages awarded in Newhouse were based on

the facts of that case, the damages here depend on the unique

facts of this case.         The test, however, remains the same.

    ¶60    Newhouse     sets       forth    the       test     as     follows:           "The

insurance company must pay damages necessary to put the insured

in the same position he would have been in had the insurance

company fulfilled the insurance contract."                         Id. at 838.           "[A]

party aggrieved by an insurer's breach of its duty to defend is

entitled   to   recover      all    damages       naturally         flowing       from   the

breach."   Id. at 830.

    ¶61    In   Newhouse,       neither         the    insurer       nor    its     insured

participated in the trial.            Id. at 832.              During the course of

the trial, each of the other defendants settled separately with

the plaintiffs.       Id.     Judgment was entered against the insured

in the amount of $588,003.70, which was in excess of the $50,000

policy   limits.      Id.      The   Newhouse          court       concluded      that    "an

excess judgment is properly included in the damages for breach

of an insurer's duty to defend, if the excess judgment was a
natural or proximate result of the breach."                     Id. at 838.

    ¶62    As the Seventh Circuit explained in Hamlin Inc. v.

Hartford   Accident    and     Indem.      Co.,       86    F.3d    93,    95    (7th    Cir.

1996), Newhouse "is explicit that the insured must show that he

was made worse off by the breach than he would have been had the

breach not occurred."          The Hamlin court considered whether the

defendant had as good of a defense as he would have had if the

insurer provided counsel.           Id. at 95.             It observed that, "[t]his
insurer did not pay the entire bill for Hamlin's defense.                                But
                                           23
                                                                   No. 2013AP907



neither is Hamlin some hapless individual who could not afford a

good defense unless his insurer or insurers picked up the full

tab."     Id.    In this case, Menard is analogous to the defendant

in Hamlin, not the insured in Newhouse.

    ¶63     The court in Hamlin was concerned about a windfall.

It explained that to award the entire $2.6 million verdict to

Hamlin would result in a windfall, which would be punitive in

nature to the insurer.          Id.     Punitive damages are not awarded

unless an insurance company acts in bad faith.                     Id. (citing

Weiss v. United Fire & Casualty Co., 197 Wis. 2d 365, 397, 541

N.W.2d 753 (1995)).        Here there is no allegation that Millers

First acted in bad faith when it withdrew its defense of Menard.

Likewise, it would be a windfall for Menard if Millers First

were ordered to pay the entire verdict in this case.

    ¶64     Just as in Hamlin, Menard cannot demonstrate that the

amount of the jury verdict was a result of the breach.                   Menard

chose its own counsel and there is no assertion that it would

have achieved a better result at trial had Millers First chosen
Menard's    counsel.      See   86     F.3d    at   95.   Unlike   the   excess

judgment against the defendant in Newhouse, the jury verdict

against    Menard   was   for   less    than    the   policy   limits.    Thus,

Menard is not entitled to damages in the amount of the jury

verdict because the verdict amount does not flow naturally from

the breach.

    ¶65     Menard relies on Radke v. Fireman's Fund Ins. Co., for

the proposition that Wisconsin courts have not adopted Hamlin's
analysis.       217 Wis. 2d 39, 48, 577 N.W.2d 366 (Ct. App. 1998).
                                        24
                                                                      No. 2013AP907



However, the Radtke court simply distinguished Hamlin on the

grounds that      Hamlin     involved multiple     insurers.          Id.    at 48.

According to Radtke, "[t]he key difference to the Hamlin court

was that Hamlin involved multiple insurers, one which accepted

the tender of defense and paid for a portion of Hamlin's legal

defense bill."       Id. at 48.       The fact that Hamlin had multiple

insurers, one of which accepted the tender of defense and paid

for a portion of the legal bill, relates to the issue of whether

the insured was worse off after the breach.                 It is from this

standpoint that we analyze the present case.

      ¶66    The facts in Radtke are also distinguishable from the

present case.      The insurer denied coverage and refused to defend

Radtke.     Id. at 42.     Radtke settled with the plaintiff and filed

suit against the insurer seeking reimbursement of attorney fees

and   his   settlement     payment.        Id.   The   issue     in   Radtke      was

whether the insurer could raise its coverage defenses after it

breached its duty to defend.           The court held that because the

insurer     had   breached    its   duty    to   defend,   "it    may       not   now
challenge or otherwise litigate the coverage issues."                        Id. at

49.   It concluded that the insurer "is liable to Radtke for the

costs of defending the suit, the amount recovered from Radtke by

settlement and any additional damages caused by Fireman's Fund's

breach of its contract."        Id.




                                       25
                                                                    No. 2013AP907



    ¶67       Unlike    in   Radtke,    Millers     First    accepted   Menard's

tender   of    defense.8      Millers    First    defended    Menard    until    it

settled its proportionate share of the claim.                 Due to its self-

insured retention, Menard had responsibility for five-sixths of

the verdict.       The plaintiffs in Radtke and Newhouse would not

have been responsible for the verdict except for the insurers'

refusal to indemnify and defend.             In contrast, Menard would have

had responsibility for the verdict regardless of whether Millers

First breached its duty to defend.               Here, Menard has concurrent

liability because of its $500,000 self-insured retention.

    ¶68       In order to satisfy its duty to defend, Millers First

had various options including:               (1) pay its $100,000 limit of

liability and be relieved of its duty to defend; (2) settle with

the plaintiffs for its proportionate share of the claim and use

a Loy release to give Menard credit for the full amount of the

$100,000 policy limits; or (3) settle with the plaintiff for its

proportionate share of the claim and continue to defend Menard.

Instead,      Millers   First   settled      with   the     plaintiff   for     its
proportionate share of the claim, but withdrew defense of Menard

following settlement.

    ¶69       To put Menard in the position it would have been in

prior to the breach, Millers First must pay damages to Menard in

the amount of costs and attorney fees.                Menard is not claiming


    8
       During oral argument, Millers First twice stated that it
was not challenging its initial duty to defend, explaining "we
have not appealed that issue" and "we at the circuit court level
did accept coverage."


                                        26
                                                                           No. 2013AP907



attorney fees and costs incurred prior to the breach of the duty

to defend.       Millers First suggests that defense costs should be

pro-rated between it and Menard.                  Had Millers First put a pro-

rated clause in its policy for defense costs as it did for its

liability       for   loss,    then    defense     costs   could     be    pro-rated.

However, for the reasons stated above, we decline now to rewrite

its policy.       See majority op., ¶¶55-56.

    ¶70     Although the dissent asserts that we ought to apply

equitable contribution under the facts in this case, we find

little    support      for    this     approach    under   Wisconsin        law.     In

Plastics    Eng'g      Co.    v.   Liberty     Mut.   Ins.    Co.,    we     expressly

determined that we would not pro rate liability among insurers

when the policy language did not provide for it.                          See 2009 WI

13, ¶¶51-60, 315 Wis. 2d 556, 759 N.W.2d 613.                          The majority

opinion    in    Plastics      Eng'g    Co.,   authored      by   Justice     Ziegler,

explained:       "In our analysis, we are again driven by the policy

language.        Liberty Mutual's policy contains no language that

limits its obligation to a pro rata share."                       Id., ¶55.     "Thus,
to insert the pro rata language, we would have to rewrite the

insurance policy."           Id., ¶59.

    ¶71     In asserting that equitable contribution of attorney

fees should be applied here, the dissent leaps over a necessary

threshold determination.             It fails to address whether an insurer

that breached its duty to defend should be entitled to equitable

contribution of attorney fees.

    ¶72     The Wisconsin court of appeals previously has refused
to apply equitable contribution when there has been a breach of
                                          27
                                                                     No. 2013AP907



the duty to defend.        See Se. 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.         Although the dispute in Mitsubishi

involved a primary and excess carrier, the policy that a primary

insurer should not be rewarded for a refusal to honor its duty

to defend applies here as well:

    We   perceive  no   good   policy  reason  to   reward
    Travelers . . . for its repeated refusal to defend——
    even after being repeatedly told it had a contractual
    duty to do so——by reducing the amount the trial court
    has determined it owed. Such a reduction would reward
    a primary carrier for a wrongful refusal to defend and
    create something akin to a litigation expense game of
    "chicken"——with offsets going to the obligated primary
    insurer who breached its duty.
Id., ¶64.    The Mitsubishi court further explained:                 "We decline

Travelers' invitation to thrust the trial court into this new,

and in this case unnecessary, sea of litigation."              Id.

    ¶73     In other jurisdictions as well, a breach of a duty to

defend   precludes    application    of   equitable      contribution.        For

example, the dissent relies on Cargill Inc. v. Ace Am. Ins. Co.,

784 N.W.2d 341, 354 (Minn. 2010), which states that a "breach of
a duty to defend precludes application of an equitable right to

contribution."       See   also   Nat'l   Indem.   Co.    v.   St.    Paul   Ins.

Companies, 724 P.2d 544, 545 (Ariz. 1986) ("When an insurer has

a duty to defend the insured, there should be no reward to the

insurer for breaching that duty . . . .            Under the principle of

equitable subrogation, the insurer which has performed the duty

to provide a defense to its insured should be able to compel



                                     28
                                                                 No. 2013AP907



contribution for a share of the cost of defense from another

insurer . . . .").

    ¶74    Likewise, in Cont'l W. Ins. Co. v. Colony Ins. Co., 69

F. Supp. 3d 1075, 1086 (D. Colo. 2014), which the dissent also

cites, the court found that "a participating insurer is entitled

to equitable contribution from a non-participating insurer, both

having a duty to defend, when the former provides a complete

defense to an insured against a common risk . . . ." (emphasis

added).   Here, Millers First did not provide a complete defense

because   it   withdrew    its    defense   after   settlement     with    the

plaintiffs in breach of its obligation to provide a defense

until its limits of liability were exhausted.

    ¶75    The dissent argues that Millers First's breach of its

duty to defend should not preclude equitable contribution.                  It

relies on an Arizona court of appeals decision, Nucor Corp. v.

Emp'rs Ins. Co. of Wausau, 296 P.3d 74 (Ariz. Ct. App. 2012),

that is readily distinguishable.

    ¶76    Nucor involved a class action lawsuit in which every
insurer   breached   its   duty    to   defend.     As   the   Nucor      court

explained, equitable contribution was allowed because all the

insurers breached their duty to defend:

    Nucor's argument also fails to acknowledge that all of
    its insurers refused to defend Nucor at some time.
    All refused to defend Nucor in the ADEQ proceeding,
    not just Wausau.    Hartford had to be sued twice by
    Nucor for bad faith before it acknowledged coverage.
    Travelers did not defend Nucor in the class action
    litigation until Nucor sued it for bad faith.



                                     29
                                                                                    No. 2013AP907



Id., ¶44.           That is not the case here.                         Only Millers First

breached its duty to defend.                    There is no allegation that Menard

failed in its duty to defend.                    It was Menard, not Millers First,

that   shouldered           the    cost    of     litigation          after    Millers         First

settled with Burgraff.

       ¶77    Millers First could have followed the procedure set

forth under well-established Wisconsin law.                              When coverage is

disputed, an insurer should 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, 176 Wis. 2d at 836; see also Elliot v.

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

done   so,        Millers    First       would    not    have       breached      its        duty   to

defend.       Instead, Millers First relied on the circuit court's

summary judgment order and withdrew its defense of Menard.

       ¶78    "An insurance company breaches its duty to defend if a

liability         trial     goes    forward       during      the     time    a    no    coverage

determination is pending on appeal and the insurance company
does not defend its insured at the liability trial."                                    Newhouse,

176 Wis. 2d at 836.                 "When an insurer relies on a lower court

ruling that it has no duty to defend, it takes the risk that the

ruling will be reversed on appeal."                      Id.

       ¶79    In sum, we are in accord with the court of appeals'

determination         that     Menard's         self-insured          retention         is    "other

applicable liability insurance" under the Millers First policy's

"other    insurance         clause."         We    also       agree    with       the    court       of
appeals      conclusion           that    Millers       First    breached         its    duty       to
                                                 30
                                                     No. 2013AP907



defend when it withdrew its defense of Menard following the

settlement.

    ¶80   Accordingly, we affirm the court of appeals and remand

to the circuit court for a determination of the amount of costs

and attorney fees Menard incurred after Millers First breached

its duty to defend.

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

affirmed and the cause is remanded to the circuit court for a

determination of damages.

    ¶81   MICHAEL J. GABLEMAN and REBECCA G. BRADLEY, J.J., did

not participate.




                               31
                                                                           No.    2013AP907.pdr


       ¶82       PATIENCE DRAKE ROGGENSACK, C.J. (concurring in part,

dissenting         in     part).        I     concur    in     the    majority         opinion's

conclusion that Millers First breached its duty to defend by

withdrawing its defense prior to exhausting its $100,000 limit

of     liability.1           I       also     concur    in     the    majority         opinion's

conclusion         that      Menard's         self-insured       retention        constitutes

"other      applicable        liability         insurance"       under     Millers      First's

"other insurance clause."2

       ¶83       However, I write in dissent because, contrary to the

majority         opinion,        I     conclude        that     Wisconsin        has    applied

equitable contribution to other shared obligations and should

apply it to defense costs between two primary insurers, Millers

First and Menard.                Millers First and Menard insured the same

entity, Menard; they had the same primary obligation to defend

Menard      against       Burgraff's         claims;     and    Millers     First       contends

that       it    paid   more         than    its   fair       share   of   defense       costs.

Therefore, I conclude that the matter should be remanded to the

circuit         court   to    apply         equitable     contribution      principles       to
determine how best to allocate the total defense costs incurred

by Millers First and Menard.                    Accordingly, I respectfully concur

in part and dissent in part from the majority opinion.

                                        I.     BACKGROUND

       ¶84       For the most part, the majority opinion sets forth

facts that underlie the dispute before us.                             Therefore, I will


       1
           Majority op., ¶3.
       2
           Id., ¶5.


                                                   1
                                                                       No.     2013AP907.pdr


not repeat them in full.             However, I do relate a few additional,

relevant facts.

      ¶85     Millers First provides automobile liability insurance

to Kenneth Burgraff, who was injured when a Menard employee

attempted to load items purchased from Menard into Burgraff's

vehicle.          Burgraff    brought   suit       against       Menard    for    personal

injuries.          Millers First accepted Menard's tender of defense,

subject to a reservation of rights, because in Blasing v. Zurich

Am. Ins. Co., 2014 WI 73, ¶41, 356 Wis. 2d 63, 850 N.W.2d 138,

we concluded that one who loads property into a vehicle is a

"permissive user" of the vehicle and, accordingly, is entitled

to a defense under the automobile liability policy for injuries

alleged to have been caused by the loading.

      ¶86     Millers      First    hired        attorney     Edmund      Manydeeds      to

defend      both    itself    and    Menard       on   the   merits       of   Burgraff's

claims.       Millers First paid the entire cost of that defense

until Millers First settled Burgraff's liability claim against

it and was granted summary judgment dismissing it from the suit.3
      ¶87     Prior to withdrawing its defense, Millers First moved

for   pro    rata      apportionment    of       defense     costs,    asserting       that

Menard      had    a   duty   to    defend       itself    under    its      self-insured

retention.          The   circuit    court       denied    the    motion.        The   case

proceeded to trial where Burgraff was awarded damages in excess



      3
       Prior to Millers First's acceptance of Menard's tender of
defense, Menard's in-house counsel appeared for Menard on the
merits, as well as with respect to coverage issues.


                                             2
                                                             No.   2013AP907.pdr


of   the    amount    that   Millers   First    paid   for   its     share   of

liability.    Menard provided its own defense at trial.

     ¶88    Menard appealed the circuit court's summary judgment

decision.     The court of appeals affirmed the circuit court's

conclusion     that    Menard's   self-insurance       constitutes      "other

applicable     liability     insurance,"   it    reversed     the     decision

regarding Millers First's duty to defend, and we granted review.

     ¶89    Subsequent to oral argument, we ordered the parties to

brief the following issues:        "(1) What types of damages can be

claimed if Millers First is found to have breached its duty to

defend?[;] (2) Are the damages available affected by the fact

that Millers First defended until the circuit court approved

Millers First's settlement with the plaintiff?"

     ¶90    Millers First responded as follows:

          If this court were inclined to adopt the
     position, advanced by Menard, that it was entitled to
     a continued defense, notwithstanding that Millers
     First completely satisfied its complete covered claims
     duties, then the damages to be awarded should clearly
     reflect and take account of the concurrent coverage
     obligations of the respective parties.   By virtue of
     the circuit court ruling, affirmed by the Court of
     Appeals, Millers First [owed] only one-sixth of the
     total damages.      While the trial court did not
     specifically address the issue of proration of defense
     costs, the logical corollary to that finding is that
     Millers First would have owed only one-sixth of the
     total defense costs involving fees and costs as well.
     The most Menard could hope to recover, therefore,
     would be reimbursement of one-sixth of the total
     defense costs generated in this matter. Since Millers
     First paid for 100% of the total defense costs until
     it was allowed to withdraw, Millers First should be
     given credit for those costs which it bore up to that
     point.
(Millers First Supp. Br. 7 (emphasis omitted).)

                                       3
                                                                         No.   2013AP907.pdr


       ¶91 Not         surprisingly,        Menard      holds      the   opposite      view,

contending that pro rata apportionment of defense costs is not

appropriate and that it is "entitled to all of its defense costs

incurred in the defense of the underlying liability claim from

the date Millers First withdrew its defense."                        (Menard Supp. Br.

3.)    Menard cites Plastics Eng'g Co. v. Liberty Mut. Ins. Co.,

2009 WI 13, ¶60, 315 Wis. 2d 556, 759 Wis. 2d 613, for the

proposition        that   Wisconsin        law      does   not   allow    for    pro    rata

allocation of defense costs.                (Menard Supp. Br. 3-4.)

                                     II.    DISCUSSION

                                A.    Majority Opinion

       ¶92 The majority opinion apparently agrees with Menard,

stating that, "[h]ad Millers First put a pro-rated clause in its

policy for defense costs as it did for its liability for loss,

then       defense     costs   could       be    pro-rated.         However,     . . .    we

decline now to rewrite its policy."4                   Without express contractual

language,        the   majority      opinion        refuses   to    allow      the   circuit

court, on remand, to consider apportioning defense costs between
Millers First and Menard.5               Instead, the majority opinion remands

the    matter     to    the    circuit     court      to   determine     the     amount   of

defense costs that Menard has incurred since Millers First's

withdrawal and, apparently, intends Millers First to bear 100%

of this burden, just as it did prior to the circuit court's




       4
           Id., ¶69.
       5
           Id.

                                                4
                                                                       No.    2013AP907.pdr


grant       of    summary    judgment      that    dismissed    Millers       First      from

Burgraff's lawsuit.6

        ¶93 As I explain below, this conclusion is inconsistent

with the majority opinion's holding that Menard's self-insured

retention         constitutes     "other     applicable    liability         insurance,"

thereby rendering it a concurrent primary insurer with Millers

First, with the same duty to defend Menard that Millers First

had.7       The majority opinion explicitly recognizes Menard's duty

to   provide        a   defense   against         Burgraff's    claims       and   states,

"Menard is required to pay the first $500,000 worth of damages

and defense costs arising from an occurrence."8                        Notwithstanding

this        acknowledgement,         the    majority      opinion       simultaneously

overlooks         Menard's    duty    to    contribute     to    the    costs       of   the

defense that it was obligated to provide as a primary insurer.

                        B.    General Equitable Principles

        ¶94       We have not directly addressed pro rata apportionment

of defense costs between concurrent primary insurers.                              However,

other jurisdictions have done so and have apportioned those fees
based on equitable contribution principles.                       "Generally, where

two or more insurers' policies potentially provide coverage and

one of them bears the defense burden alone, the insurer bearing

that burden is entitled to equitable contribution from the non-

defending carriers."            Lee R. Russ & Thomas F. Segalla, 14 Couch

        6
            Id.
        7
            See id., ¶¶32, 43, 79.
        8
            Id., ¶14 (emphasis added).


                                              5
                                                                No.    2013AP907.pdr


on Insurance § 200:35 (3d ed. 2007).9               "[T]he aim of equitable

contribution is to apportion a loss between two or more insurers

who cover the same risk, so that each pays its fair share and

one does not profit at the expense of the others."                    Lee R. Russ

& Thomas F. Segalla, 16 Couch on Insurance § 222:98 (3d ed.

2000).10

      ¶95    Although Millers First's contract does not direct that

defense costs are to be shared with other primary insurers,

apportioning       defense    costs   through     equitable     contribution     is

appropriate.         Id.     (explaining    that    "equitable        contribution

applies     only   between     insurers,    and    only   in    the    absence   of

contract, and therefore it has no place between insurer and

insured, which have contracted the one with the other").                       This

is because "all contractual duties or obligations flow only to

the   insured."       Douglas    R.   Richmond,     Issues     and    Problems   in

"Other Insurance," Multiple Insurance, and Self-Insurance, 22

Pepp. L. Rev. 1373, 1426 (1995).             These duties and obligations

do not flow "between or among the insurers."              Id.
      ¶96    In the instant case, Millers First is a fortuitous

insurer with respect to Menard.                 However, Menard also wears


      9
       I recognize that a minority of jurisdictions have rejected
the equitable contribution theory as a basis for apportioning
defense costs.   Scott M. Seaman & Jason R. Schulze, Allocation
of Losses in Complex Insurance Coverage Claims § 16:6 (database
updated Dec. 2015); Lee R. Russ & Thomas F. Segalla, 14 Couch on
Insurance § 200:35 (3d ed. 2007).
      10
       As indicated in this writing's citations, hard copies of
the Third Edition of Couch on Insurance that are available to
the court exhibit varying dates of publication.


                                        6
                                                                    No.   2013AP907.pdr


another hat.        Menard is also an insurer with a duty to defend

itself.11    Millers First's obligations arising out of its policy

language run to Menard as an insured rather than to Menard as an

insurer.     Millers First does not seek to allocate defense costs

between itself and Menard as an insured but, rather, between

itself and Menard as another insurer.                     Therefore, it is of no

consequence       that    Millers    First's       policy    language       does      not

provide     for   pro    rata    apportionment       of   defense       costs    between

itself     and    another   primary       insurer.        Stated    otherwise,       the

Millers First policy is a contract between Millers First and

those who are insureds, not a contract between Millers First and

other primary insurers.

     ¶97     Apportioning          costs       between      concurrent           primary

insurers, who insure the same person for the same risk, is the

context in which courts apply equitable contribution principles

out of fairness rather than out of contract.                      See, e.g., Cont'l

W. Ins. Co. v. Colony Ins. Co., 69 F. Supp. 3d 1075, 1087 (D.

Colo.     2014)   (applying      equitable     contribution        to    require     both
primary insurers to bear defense costs); Cargill, Inc. v. Ace

Am. Ins. Co., 784 N.W.2d 341, 353-54 (Minn. 2010) (concluding

that primary insurer has a right to seek equitable contribution

from other primary insurer for defense costs); Am. Simmental

Ass'n v. Coregis Ins. Co., 282 F.3d 582, 589 (8th Cir. 2002)

(apportioning       total       defense    costs     in    same    ratio        as   each

insurer's policy provided for total liability); Md. Cas. Co. v.


     11
          Majority op., ¶¶14, 32, 43, 79.


                                           7
                                                                      No.    2013AP907.pdr


Nationwide Mut. Ins. Co., 81 Cal. App. 4th 1082, 1089 (Cal. Ct.

App. 2000) (explaining that equitable contribution of defense

costs equalizes a common burden shared by primary insurers).

    ¶98     As mentioned above, it does not appear that Wisconsin

courts    have    considered       whether        equitable    contribution         may   be

applied to apportion defense costs between concurrent primary

insurers.        The    court     of    appeals      refused    to   apply        equitable

contribution, at the request of a primary insurer, to apportion

defense costs incurred by the excess insurer, who defended the

amended complaint that the primary insurer repeatedly refused to

defend.     Se. Wis. Prof'l Baseball Park Dist. v. Mitsubishi Heavy

Indus. Am., Inc., 2007 WI App 185, ¶¶62-64, 304 Wis. 2d 637, 738

N.W.2d     87.         The   court       of   appeals        noted   that      equitable

contribution was inapplicable because the excess insurer sought

reimbursement for defense costs it incurred while shouldering a

defense    that    rightly        should      have    been     met   by     the    primary

insurer.    Id.

    ¶99     The        majority        opinion       cites     Southeast          Wisconsin
Professional      Baseball,       asserting        that   it    precludes         equitable

contribution because Millers First did not provide a defense

until its limit of liability was exhausted.12                        However, Menard

also did not provide a complete defense, which the majority

opinion recognizes that it was obligated to do.13                           The majority

opinion gives no reason for treating two primary insurers so

differently.
    12
          Id., ¶72.
    13
          Id., ¶14.

                                              8
                                                                      No.   2013AP907.pdr


       ¶100 We previously have explained that "what gives rise to

the right of contribution is that one co-obligor has discharged

more than his [or her] fair equitable share of a common debt."

Kafka   v.     Pope,    194      Wis. 2d   234,     243,   533    N.W.2d     491   (1995)

(explaining that the right to seek equitable contribution "is

premised on two conditions:                (1) the parties must be liable for

the same obligation; and (2) the party seeking contribution must

have paid more than a fair share of the obligation").

       ¶101 The court of appeals has applied the foregoing two-

part    test    for    equitable      apportionment        of    losses     between   two

insurance companies.             In McGee v. Bates, 2005 WI App 19, ¶1, 278

Wis. 2d      588,     691    N.W.2d    920,       one   insurance    company       sought

contribution from another insurance company for a portion of the

losses that it incurred by settling with plaintiffs.                          The court

of appeals concluded that the two insurance companies shared

liability for the same obligation because they both provided

coverage to the same person for the same loss.                         Id., ¶9.       The

court of appeals then remanded the matter to determine whether
the insurer seeking contribution bore more than its fair share

of the losses.         Id., ¶11.

                            C.    Equitable Contribution

       ¶102 Given      the       foregoing    equitable         principles,    I   would

remand the issue of equitable contribution to the circuit court

to apportion defense costs between the two primary insurers,

Millers First and Menard, who insured the same entity, Menard,

and who had primary obligations to defend against Burgraff's



                                              9
                                                                             No.    2013AP907.pdr


claims.          See Nucor Corp. v. Emp'rs Ins. Co. of Wausau, 296 P.3d

74, 84 (Ariz. Ct. App. 2012).

                                 1.     Standard of review

       ¶103 Whether            equitable      contribution       may    be     applied       in    a

given factual context is a question of law for our independent

review.          McGee, 278 Wis. 2d 588, ¶4; Am. Simmental, 282 F.3d at

586.

                                   2.    Kafka/McGee test

       ¶104 To be entitled to equitable contribution of defense

costs       in    the    case    before       us,    Millers    First        must    prove     two

conditions:             (1) both Menard and Millers First are liable as

primary insurers for Menard's defense of Burgraff's claims; and

(2) Millers First has paid more than its fair share of defending

against Burgraff's claims.

                          a.    liability for same obligation

       ¶105 In order to establish a shared liability for defense

of Burgraff's claims, Millers First must establish that Menard,

which was self-insured up to $500,000, had a duty to defend
itself       when       Burgraff      was   injured     through        the    negligence          of

Menard's         employee.         In       this     regard,    Menard's           self-insured

retention provides that it "shall be eroded by allocated claim

costs including defense . . . costs."                           This demonstrates that

Menard,      as     an    insurer,      has    a    duty   to   defend        itself,     as      an

insured.          The majority opinion recognizes that Menard's self-

insured retention gives Menard a duty "to pay                                 . . .     defense

costs arising from an occurrence."14
       14
            Id., ¶14.

                                                10
                                                              No.   2013AP907.pdr


     ¶106 This reasoning is supported by Hillegass v. Landwehr,

176 Wis. 2d 76, 85, 499 N.W.2d 652 (1993), where we concluded

that self-insurance is other collectible insurance and should be

treated the same as if it were contracted with a third-party

insurer.      The   majority   opinion   also     concludes    that    Menard's

self-insured retention constitutes "other applicable liability

insurance,"    thereby     rendering     Menard    a   concurrent       primary

insurer, as is Millers First.15          Millers First and Menard each

provides    coverage     for   third-party      liability     as    concurrent

primary insurers, with Millers First being responsible for one-

sixth of third-party liability and Menard being responsible for

five-sixths of such obligation.16        As the majority opinion notes,

but for the fortuitousness of Millers First's policy providing

one-sixth coverage, Menard would have been obligated "to pay the

first $500,000 worth of damages and defense costs arising from

an occurrence."17      I agree.

     ¶107 Furthermore, "[i]n the context of liability insurance,

a primary insurer generally has the primary duty to defend the
insured . . . ."      14 Couch on Insurance § 200:35.           I see nothing

in Menard's self-insured retention that removes Menard's duty to

defend itself.        Furthermore, I fail to see the basis for the

majority opinion's implicit assumption that, by Millers First


     15
          Id., ¶¶32, 43, 79.
     16
       Millers   First   and   Menard   do   not   dispute                  this
apportionment of coverage for third-party liability.
     17
          Id., ¶14.


                                    11
                                                                     No.    2013AP907.pdr


accepting its defense obligations, Menard's defense obligations

are somehow eliminated.            Accordingly, I conclude that Menard and

Millers      First    share      the    obligation       to    defend      Menard   from

Burgraff's claims.

                            b.    inequitable payment

       ¶108 When two persons share the same obligation and one

obligor claims to have paid more than its fair share, a claim

for equitable contribution may be made.                       Kafka, 194 Wis. 2d at

243.    Many courts recognize equitable contribution to satisfy

such    a    claim;   however,         courts    employ       differing     methods   to

apportion      defense    costs        between   concurrent       primary     insurers.

See Scott M. Seaman & Jason R. Schulze, Allocation of Losses in

Complex Insurance Coverage Claims § 5:8 (database updated Dec.

2015)       ("[M]ethods    include        pro    rata     allocation       based    upon

contract limits, equal apportionment, and time on the risk.").

       ¶109 The majority of jurisdictions allocate defense costs

based on the policies' apportionment of liability limits.                             See

Lee R. Russ & Thomas F. Segalla, 15 Couch on Insurance § 217:9
(3d ed. 1999).         "The courts using this method find that each

insurer should bear the costs of defense in proportion to its

contract limits."         Seaman & Schulze, § 5:8.

       ¶110 As between Millers First and Menard, there is $600,000

of combined coverage for liability awards, with one-sixth of the

total liability exposure being Millers First's and five-sixths

of the liability exposure Menard's.                     Using the one-sixth/five-

sixths ratio, Millers First would be liable for one-sixth of the



                                            12
                                                                          No.    2013AP907.pdr


total defense costs paid by Millers First and Menard, and Menard

would be responsible for the balance.

      ¶111 Alternatively, based upon each insurer's separate duty

to   defend     the    insured,          some    courts      allocate      defense        costs

equally.       Id.     As noted, there are various other methods by

which      courts    apportion      defense          costs   between      insurers.         Id.

However,      choosing       how    to    allocate         the    total    defense        costs

between Millers First and Menard may require fact-finding that

is not appropriate in this review.                        Md. Cas., 81 Cal. App. 4th

at 1094 (explaining that circuit court has "broad discretion" in

determining how to properly allocate defense costs).                              Therefore,

were I writing for a majority of the court, I would remand to

the circuit court to make the findings necessary to determine

how, based on equitable contribution, the total defense costs

should be allocated between Millers First and Menard.

      ¶112 Contrary to the majority opinion, I would not preclude

Millers     First     from    seeking      equitable         contribution        because     it

breached      its     duty    to    defend           by   withdrawing      prior     to    the
exhaustion of its $100,000 limit of liability.18                            Of course, in

some instances, it may be inequitable to permit an insurer to

benefit from pro rata allocation of defense costs where that

insurer has refused to defend the insured at all.                               See Cargill,

784 N.W.2d at 354; Cont'l Cas. Co. v. Nat'l Union Fire Ins. Co.

of Pittsburgh, Pa., 940 F. Supp. 2d 898, 929-30 (D. Minn. 2013).

However,      that    did     not    occur       here,       as   Millers       First     fully


      18
           Id., ¶¶71-74.


                                                13
                                                                              No.   2013AP907.pdr


defended Menard until it was dismissed from the lawsuit by the

circuit court.

       ¶113 The     effect    of     the       majority         opinion        is   to    remove

Menard's duty as a primary insurer to defend itself.                                       In so

doing, the majority opinion treats two primary insurers very

differently and by its directions on remand, inequitably imposes

100% of defense costs on the fortuitous insurer, Millers First.

Even in instances where an insurer has breached its duty to

defend, courts apportion defense costs between insurers where it

is equitable to do so.            See, e.g., Cont'l Cas. Co., 940 F. Supp.

2d at 929-30 (explaining that barring an insurer from seeking

pro    rata   allocation,         where        that       insurer       has     significantly

contributed to defense, does not "comport with the equitable

nature of contribution").

       ¶114 In Nucor, 296 P.3d at 84-85, the court permitted an

insurer, which previously had breached its duty to defend, to

seek    equitable        contribution          from       other,     concurrent          primary

insurers that had likewise refused to defend the insured at
various   points     in     time.      In      rejecting          the   argument         that    an

insurer     was    not     entitled       to        pro    rata     apportionment          after

breaching     its    duty      to     defend,             the   court     reiterated            the

overarching       purpose    of     equitable         contribution,            which     is     "to

accomplish substantial justice by equalizing the common burden

shared by coinsurers, and to prevent one insurer from profiting

at the expense of others."             Id. at 85 (internal quotation marks

omitted) (quoting Fireman's Fund Ins. Co. v. Md. Cas. Co., 77
Cal. Rptr. 2d 296, 303-04 (Cal. Ct. App. 1998)).

                                               14
                                                                              No.   2013AP907.pdr


      ¶115 Similar to the court in Nucor, I would not preclude

Millers First from seeking equitable contribution simply because

Millers First did not continue to defend until its limit of

liability was reached.                 Menard had a concurrent obligation to

defend     that     should   not           be   overlooked.          Precluding          pro   rata

allocation     here    permits             Menard      to   foist    a    mutual    obligation

wholly onto Millers First, thereby profiting at the expense of

Millers     First.         See    Cont'l          Cas.,     940     F.    Supp.     2d    at    929

(explaining         that     such           a   holding       "would          not    accomplish

substantial justice").

      ¶116 Additionally,               I    recognize       that     "[a]     breach      of    the

obligation to        defend should not be encouraged, but the rule

which allows an insurer to avoid the costs of defense tends to

encourage      an    avoidance             of   the     insurer's         responsibilities."

Nat'l Indem. Co. v. St. Paul Ins. Cos., 724 P.2d 544, 545 (Ariz.

1986).      While erroneously asserting that "[o]nly Millers First

breached its duty to defend,"19 the majority opinion precludes

pro rata allocation of defense costs between concurrent primary
insurers     who     have        the       same     obligation           to   defend      against

Burgraff's claims.20             The majority opinion offers few insights

for   future      insurers        who       may     find     themselves        in   a     similar

situation.

      19
       Id., ¶76. Menard had the same duty to defend as                                    Millers
first. However, Menard provided no defense until after                                    Millers
First was dismissed from the lawsuit, and the majority                                    opinion
allows Menard to ignore the obligation to contribute to                                   its own
defense.
      20
           Id., ¶¶54, 69.


                                                  15
                                                                    No.    2013AP907.pdr


       ¶117 Finally, I note that Menard relies on our statements

in Plastics Engineering for the proposition that Wisconsin law

does   not   allow    pro       rata    allocation       of   defense     costs.      In

Plastics Engineering, the sole insurer sought to pay only those

costs that were incurred in defending claims that were covered

under the insurer's policy, while excluding defense costs for

uncovered claims.        Plastics Eng'g, 315 Wis. 2d 556, ¶51.                     "Under

Wisconsin law, if coverage exists, an insurer must defend the

entire suit even though some of the allegations fall outside the

scope of coverage."             Id. at ¶60.        However, our statements in

Plastics     Engineering         have     nothing        to   do    with        equitable

contribution of defense costs for Burgraff's litigation because

here there are two primary insurers, both with a duty to defend.

                                 III.     CONCLUSION

       ¶118 I   concur    in     the    majority     opinion's      conclusion       that

Millers First breached its duty to defend by withdrawing its

defense prior to exhausting its $100,000 limit of liability.                           I

also concur in the majority opinion's conclusion that Menard's
self-insured retention constitutes "other applicable liability

insurance" under Millers First's "other insurance clause."

       ¶119 However, I write in dissent because, contrary to the

majority     opinion,       I    conclude       that     Wisconsin        has     applied

equitable contribution to other shared obligations and should

apply it to defense costs between two primary insurers, Millers

First and Menard.           Millers First and Menard insured the same

entity, Menard; they had the same primary obligation to defend
Menard   against     Burgraff's         claims;    and    Millers    First       contends

                                           16
                                                                         No.   2013AP907.pdr


that   it    paid    more     than     its    fair    share       of     defense       costs.

Therefore, I conclude that the matter should be remanded to the

circuit     court    to    determine     how       best     to    allocate       the   total

defense      costs        incurred      by        Millers        First     and     Menard.

Accordingly, I respectfully concur in part and dissent in part

from the majority opinion.

       ¶120 I   am        authorized     to       state     that       Justice     ANNETTE

KINGSLAND ZIEGLER joins this opinion.




                                             17
    No.   2013AP907.pdr




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