             IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

CNH INDUSTRIAL AMERICA                          )
LLC,                                            )
                                                )
                      Plaintiff,                )
                                                )
              v.                                )   C.A. No. N12C-07-108 EMD CCLD
                                                )
AMERICAN CASUALTY                               )
COMPANY OF READING,                             )   TRIAL BY JURY OF TWELVE
PENNSYLVANIA, et al.,                           )   DEMANDED
                                                )
                      Defendants.               )

                                    Argued: March 15, 2016
                                    Decided: August 19, 2016

   Upon Plaintiff CNH Industrial America LLC’s Supplemental Motion for Partial Summary
                  Judgment Against Travelers Regarding the Duty to Defend
                                       GRANTED

Brian M. Rostocki, Esquire, and John C. Cordrey, Esquire, Reed Smith LLP, Wilmington,
Delaware and James M. Davis, Esquire, Thomas A. Marrinson, Esquire, Evan T. Knott, Esquire,
and Emily E. Garrison, Esquire, Reed Smith LLP, Chicago, Illinois. Attorneys for CNH
Industrial America LLC.

Neal J. Levitsky, Esquire, and Seth A. Niederman, Esquire, Fox Rothschild LLP, Wilmington,
Delaware and Richard L. McConnell, Esquire, and Dale E. Hausman, Esquire, Wiley Rein LLP,
Washington, DC. Attorneys for Travelers Indemnity Company.

DAVIS, J.

                    INTRODUCTION AND PROCEDURAL HISTORY

       This is a Complex Commercial Litigation Division case. Plaintiff CNH Industrial

America LLC (“CNH”) filed a declaratory relief and breach of contract case against several

insurance companies, including Travelers Indemnity Company (“Travelers”). CNH’s complaint

alleges Travelers breached its duty to defend and indemnify CNH in underlying asbestos-related
lawsuits. The parties in this action have engaged in aggressive litigation, including a motion

practice that can only be characterized as extreme.1

        The parties filed numerous summary judgment motions related to Travelers’ duties under

the Insurance Policies,2 including the Case Insurance Policy. On October 7, 2014, CNH filed

Plaintiff CNH Industrial America LLC’s Motion for Partial Summary Judgment Against

Travelers Regarding the Duty to Defend (the “Motion”). CNH requested the Court hold that

Travelers has a duty to defend and indemnify CNH in numerous underlying asbestos bodily

injury lawsuits.

        On May 18, 2015, the Court held oral argument. The Court made several bench rulings,

and reserved decision on the remaining issues. On June 8, 2015, the Court issued two orders

memorializing its bench rulings. First, the Court held that Wisconsin law applied to the

policies.3 Second, the Court held that CNH was the policies’ proper assignee under 1994

reorganization agreements.4

        On July 6, 2015, prior to the Court’s written decisions on the remaining issues (including

a decision on the Motion), Travelers filed a letter with the Court.5 In it, Travelers outlined its

pending $1.6 million payment to CNH for indemnity and defense costs.6 Travelers paid

$600,000 to indemnity CNH for prior settlements.7 Travelers calculated its indemnity payments


1
  The Court is aware and has reviewed the pending Defendant The Travelers Indemnity Company’s Motion to
Vacate or Revise Prior Orders, CNH’s response and Travelers’ reply, and the Opinion and Order of Special Master
decided July 20, 2016 (“Special Master’s Opinion”).
2
  Capitalized terms not defined herein shall have the meaning ascribed to the term in CNH Indus. America LLC v.
American Cas. Co. of Reading, Pennsylvania, C.A. No. N12C-07-108-EMD CCLD, 2015 WL 5016849 (Del. Super.
Aug. 21, 2015)(OPINION).
3
  CNH Indus. America LLC v. American Cas. Co. of Reading, Pennsylvania, C.A. No. N12C-07-108-EMD CCLD,
2015 WL 3863225, at *2 (Del. Super. Jun. 8, 2015) (ORDER).
4
  CNH Indus. America LLC v. American Cas. Co. of Reading, Pennsylvania, C.A. No. N12C-07-108-EMD CCLD,
2015 WL 4538120, at *2 (Del. Super. Jun. 8, 2015) (ORDER).
5
  Letter, dated July 6, 2015, from Neal J. Levitsky, Esq., to the Honorable Eric M. Davis (regarding developments
related to the Court’s recent rulings on choice of law and assignment and pending summary judgment motion).
6
  Id. at *3–4.
7
  Id.

                                                       2
by taking six underlying cases CNH tendered in 2008–09, and spreading the remaining policy

limits amongst them.8 Further, Travelers paid $1.0 million for all substantiated, post-tender

defense costs CNH allegedly incurred through May 18, 2009, the latest date Travelers used in

calculating its indemnity payment.9 Travelers contends that the payment fully exhausted the

policies’ remaining limits, extinguishing its duty to defend.10

        On July 9, 2015, CNH replied.11 CNH disagreed with Travelers’ position, arguing the

payments did not impact or influence the pending motions.12

        On August 21, 2015, the Court granted in part and deferred in part the Motion (the “Duty

to Defend Decision”). In the Duty to Defend Decision, the Court ruled as follows:

        Accordingly, unless there is another reason why Travelers has been relieved of its
        duty to defend, the Court holds that Travelers has a duty to provide CNH with a
        defense as to the Underlying Lawsuits so long as the asbestos-related complaints
        either refer to a J.I. Case Company product or do not refer to a brand name, and
        does not only refer to International Harvester, New Holland or another non-J.I.
        Case Company brand.13

The Court then discussed whether Travelers may be excused from its duty to defend because

CNH may have failed to provide proper notice or to cooperate in the defense on some of the

claims made under the Insurance Policies.

        The Court also addressed whether, under applicable Wisconsin law, Travelers may have

waived its right to argue timeliness of notice and failure to cooperate through its interaction with

CNH. The Court concluded this part of its decision by stating:

        The Court is not entirely convinced that questions of fact remain on the waiver
        issue. From what has been presented to the Court, Travelers seems to have taken,
        throughout its interaction with CNH, a uniform position that it would not provide
8
  Id.
9
  Id. at *4.
10
   Id.
11
   Letter, dated July 6, 2015, from John C. Cordrey, Esq., to the Honorable Eric M. Davis (CNH’s response to
Travelers July 6, 2015 correspondence).
12
   Id. at *2–3.
13
   CNH Indus. America LLC, 2015 WL 5016849, at *3.

                                                        3
        CNH with a defense or indemnification under the Case Insurance Policy. If the
        Court determines that Travelers consistently maintained that no coverage or a
        duty to defend existed then Travelers will be hard pressed to demonstrate that
        CNH’s untimely notice, if any, prejudiced Travelers.14

        Noting that Travelers had “expended most of its briefing and argument on the issues of

choice of law and effective assignment,” the Court believed that supplemental briefing on the

issue of waiver would be helpful.15 Further, the Court asked for a “full presentation as to why

Travelers believes its . . . paying some defense costs and indemnification has an impact on the

duty to defend.”16 In a related ruling, the Court held that the only remaining policies at issue

were the 1972-73 J.I. Case Policy, the 1/1/78–9/1/78 Tenneco Policy, and the 9/1/85–9/1/86

Tenneco policies.17

        The Court went on to list additional areas where supplemental briefing may be needed.

Finally, the Court provided that it would contact the parties to set up a status conference on

briefing and additional oral arguments. The Court did this in an attempt to preserve resources of

both the parties and the Court. The Court contacted the parties. The parties wrote the Court and

asked that it defer scheduling a status conference so that they could address some outstanding

issues in mediation. The Court did defer.

        On December 23, 2015, without advanced notice to the Court, CNH filed Plaintiff’s

Supplemental Brief in Support of Its Motions for Summary Judgment. CNH did this even

though the Court specifically requested that the parties first meet with the Court at a status

conference to address additional briefing and oral arguments. The Court then made the parties




14
   Id. at*5 (relying upon Fireman’s Fund Ins. Co. of Wisc. v. Bradley Corp., 660 N.W.2d 666, 684 (Wisc. 2003)).
15
   Id.
16
   Id.
17
   CNH Indus. America LLC v. American Cas. Co. of Reading, Pennsylvania, C.A. No. N12C-07-108-EMD CCLD,
2015 WL 5016261, at *3 (Del. Super. Aug. 21, 2015).

                                                       4
attend a status conference on January 7, 2016. At that conference, the Court set deadlines for

parties to file responses and replies on outstanding matters. The Court also set a trial date.

         On February 26, 2016, Travelers filed Defendant The Travelers Indemnity Company’s

Supplemental Brief In Further Opposition To Plaintiff CNH Industrial America LLC's Motion

For Partial Summary Judgment Regarding The Duty To Defend. On March 4, 2016, CNH filed

its Plaintiff CNH Industrial America’s Supplemental Reply Brief in Support of its Motion for

Partial Summary Judgment Regarding the Duty to Defend. The Court heard oral argument on

March 15, 2016.

         Since December 22, 2015, the docket reflects 191 entries in less than eight months.18

                                            LEGAL STANDARD

         The standard of review on a motion for summary judgment is well-settled. The Court’s

principal function when considering a motion for summary judgment is to examine the record to

determine whether genuine issues of material fact exist, “but not to decide such issues.”19

Summary judgment will be granted if, after viewing the record in a light most favorable to a non-

moving party, no genuine issues of material fact exist and the moving party is entitled to

judgment as a matter of law.20 If, however, the record reveals that material facts are in dispute,

or if the factual record has not been developed thoroughly enough to allow the Court to apply the

law to the factual record, then summary judgment will not be granted.21 The moving party bears


18
   The Court understands that not all docket entries are related to specific motion practices; however, the Court
believes that it could have been helpful in focusing the parties on the issues important to the Court. As such, much
of what has been done since December 23, 2015 may have been avoided if CNH and Travelers had followed the
request of the Court regarding a status conference.
19
   Merrill v. Crothall-American Inc., 606 A.2d 96, 99-100 (Del. 1992) (internal citations omitted); Oliver B. Cannon
& Sons, Inc. v. Dorr-Oliver, Inc., 312 A.2d 322, 325 (Del. Super. 1973).
20
   Id.
21
   Ebersole v. Lowengrub, 180 A.2d 467, 470 (Del. 1962). See also Cook v. City of Harrington, 1990 WL 35244 at
*3 (Del. Super. Feb. 22, 1990) (citing Ebersole, 180 A.2d at 467) (“Summary judgment will not be granted under
any circumstances when the record indicates … that it is desirable to inquire more thoroughly into the facts in order
to clarify the application of law to the circumstances.”).

                                                          5
the initial burden of demonstrating that the undisputed facts support his claims or defenses.22 If

the motion is properly supported, then the burden shifts to the non-moving party to demonstrate

that there are material issues of fact for the resolution by the ultimate fact-finder.23

                                                 DISCUSSION24

DUTY TO DEFEND - WAIVER

         The breadth of the contractual duties to defend and to indemnify is well-settled under

Wisconsin law. In Wisconsin, the insurance company assumes the contractual duties of defense

and indemnification for claims described in the insurance policy.25 The insurers’ duty to defend

is broader than the insurer’s duty to indemnify.26 The duty to defend is predicated on the

allegations contained in a complaint which, if proved, would give rise to a recovery by the

insured under the terms of the policy.27 The insurer’s duty to defend depends on the nature of

the claim and not the merits of the claim.28 Any doubts about the duty to defend are to be

resolved in favor of the insured.29

         When coverage disputes arise, Wisconsin law favors a procedure by which the insurer

defends the policyholder subject to a reservation of rights or intervenes in the underlying lawsuit

and requests a bifurcated trial on the issue of coverage, moving to stay liability proceedings until

the coverage matter is resolved.30 If an insurer reserves rights, the insured has the right to




22
   Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1970) (citing Ebersole, 180 A.2d at 470).
23
   See Brzoska v. Olsen, 668 A.2d 1355, 1364 (Del. 1995).
24
   The Court will not present a full fact section in this decision. The Court has already provided factual discussions
in previous decisions. Instead, the Court will only discuss those facts relevant to waiver.
25
   Elliot v. Donahue, 485 N.W.2d 403, 408 (Wisc. 1992).
26
   Id.
27
   Sola Basic Indus., Inc. v. U.S. Fid. & Guar. Co., 280 N.W.2d 211, 213 (Wisc. 1979).
28
   Id. at 214.
29
   Elliot, 485 N.W.2d at 408.
30
   Bradley Corp. v. Zurich Ins. Co., 984 F.Supp. 1193, 1998 (E.D. Wis. 1997).

                                                           6
control the defense.31 If an insurer uses these procedures, the insurer “runs no risk of breaching

its duty to defend.”32 Although the insurer is not required to follow such procedures, it declines

to do so at its own peril.33

         While an insurer may reject the tender of defense when coverage issues are fairly

debatable without breaching its duty to defend if the coverage determination precedes the

underlying action, the insurer must provide a defense to the insured in the underlying action if

the underlying action comes before a coverage determination.34 Further, an insurance company

may not reject a tender of defense when coverage is fairly debatable without breaching its duty to

the insured.35 Breaching its duty to defend may result in the insurer’s waiving it right to assert

coverage defenses.36

         Travelers makes three arguments as to why it has no duty to defend. First, it claims a

1980 Claims Handling Agreement (“Agreement”)37 precludes coverage. Travelers and CNH’s

corporate predecessor, Case, entered into the Agreement. The Agreement allowed Case, at its

option, to manage lawsuits filed against it relating to certain specific insurance policies.38 The

Agreement states, in pertinent part:



31
   Lakeside Foods, Inc. v. Liberty Mut. Fire Ins. Co., 789 N.W.2d 754, 2010 WL 2836401, at *8 (Wis. Ct. App.
2010) (Table).
32
   Bradley Corp., 984 F.Supp. at 1198; see also Newhouse by Skow v. Citizens Sec. Mut. Ins. Co., 501 N.W.2d 1, 5–
6 (Wis. 1993).
33
   Elliott, 485 N.W.2d at 407.
34
   Id. at 406.
35
   U.S. Fire Ins. Co. v. Green Bay Packaging, Inc., 66 F.Supp.2d 987, 996 (E.D. Wisc. 1999).
36
   Id.
37
   Pl.’s Reply Br. in Supp. of Its Mot. for Partial Summary Judgment Against Travelers Regarding the Duty to
Defend (Mar. 7, 2016); Ex. B at 1. (“…TR-NSL-111T894-1-77 and TR-NSL-111T886-1-77, and any renewals or
replacements of such policies during the period beginning January 1, 1977” to December 30, 1980). The Court read
the Agreement and notes two interesting facts not relevant to its decision here but may be relevant to pending
motions. The Agreement clearly identifies Case as an insured under certain insurance policies issued by Travelers
and that Case is a corporation having its principal office in Racine, Wisconsin. Moreover, in the Agreement at least,
the parties negotiated a choice of law provision and designated that the “Agreement shall be construed in accordance
with the Laws of the State of Connecticut.”
38
   Id. at 1. (“…TR-NSL-111T894-1-77 and TR-NSL-111T886-1-77, and any renewals or replacements of such
policies during the period beginning January 1, 1977” to December 30, 1980).

                                                         7
           Whereas, under the aforesaid policies, . . ., Travelers has agreed to pay
           certain sums which Tenneco or Case may become legally obligated to pay,
           Travelers has the right and the duty to defend certain suits . . ..

           Whereas, Case desires to handle, investigate, settle, or defend any Claim
           or Claims, at its option, and therefore desires that Travelers relinquish its
           rights and duties to defend. . . .

           Now, therefore, in consideration of the premises, the mutual promise of
           the parties and other good and valuable consideration, the parties agree:

           1. Travelers will continue to have the rights and duties regarding defense,
              and the right regarding investigation and settlement, provided by the
              aforesaid policies. However, with respect to any specific Claim or
              Claims, Travelers will, at the request of Case, allow Case to have the
              right to investigate, settle and defend such Claim or Claims and
              Travelers shall have no duty, notwithstanding the provisions of the
              foregoing policies, renewals or replacements, to investigate, settle or
              defend such Claims.39

           The Court finds that Travelers’ argument as to the Agreement fails for at least two

reasons. First, the Agreement is policy (or policies) specific and does not even relate to one of

the policies at issue here – the Case Insurance Policy. Second, the Agreement is not a broad hold

harmless and indemnity agreement. The Agreement releases Travelers from its defense

obligation only if CNH requests to handle its own defense as to a specific “Claim” or “Claims.”

When pressed, Travelers has failed to identify a single situation where CNH (or Case) requested

to handle its own defense.40 Moreover, the Court has not found any factual support in the record

that CNH (or Case) made any requests with respect to a “Claim” covered under the Agreement.

           Travelers does argue that CNH impliedly made a request under the Agreement by

defending claims that are covered by the policies subject to the Agreement. However, the

Agreement does not speak to implied requests or consent. Instead, the Agreement requires Case

(here CNH) to make a request – “…at the request of Case…” – and does not speak to “implied


39
     Id. at 1-2. (emphasis added).
40
     Mtn. Hr’g Tr. 62:21–64:15, Mar. 15, 2016.

                                                     8
consent.” Given the other affirmative duties of the parties to the Agreement and the purpose of

the Agreement, Travelers’ implied request argument is not supportable.

        Travelers also contends that its efforts to investigate CNH’s successor-in-interest status

fulfilled its duty to defend. Travelers claims that Wisconsin law allows an insurer to investigate

coverage prior to accepting an insured’s tender.41 Travelers argues that the insurer fulfills its

duty to defend once it requests clarification from the insured of its position.42 If the insured is

uncooperative or unresponsive, the insurer need not pursue the matter further.43 Thus, Travelers

argues that its duty to defend was satisfied because: (i) Travelers’ reserved its rights and

investigated CNH’s alleged successor-in-interest status; and (ii) CNH has been uncooperative by

refusing to turn over corporate information. Because of this, Travelers contends that its duty to

defend was obviated.

        Travelers’ reliance on Towne Realty, Inc. v. Zurich Ins. Co. is misplaced. In Towne

Realty, the plaintiffs advised its insurance carrier of an underlying suit.44 The insurer denied

coverage seven months later.45 The insurer’s defense was that the insured’s request was not

explicit.46 The Towne Realty Court held that if a request for defense is ambiguous, the insurer

shall send a request for clarification of whether the insured wanted the insurer to provide a

defense.47 That did not occur here. CNH has made it abundantly clear it wanted Travelers to

provide a defense. Travelers’ letters requesting CNH’s corporate status is not tantamount to a

request for clarification about providing a defense.



41
   Lakeside Foods, Inc. v. Liberty Mut. Fire Ins. Co., 789 N.W.2d 754, 2010 WL 2836401 (Wis. Ct. App. 2010)
(Table).
42
   Towne Realty, Inc. v. Zurich Ins. Co., 548 N.W.2d 64, 67 n.2 (Wis. 1996).
43
   Id.
44
   Id. at 65.
45
   Id.
46
   Id. at 67.
47
   Id.

                                                       9
         Importantly, Travelers did not follow the clearly defined practice under Wisconsin law

for contesting the need to provide a defense or to indemnify. When there was a question as to

the duty to defend or to indemnify, Travelers should have defended CNH, the purported policy

holder, subject to a reservation of rights or intervened in the underlying lawsuit and requested a

bifurcated trial on the issue of coverage, moving to stay liability proceedings until the coverage

matter was resolved. Travelers cannot provide an instance where it followed this procedure.

         Instead, Travelers engaged in a practice that shifted the burdens from the insurer to the

insured. Travelers consistently issued “full reservation of rights” letters and waited for CNH to

provide Travelers information regarding ownership, assignment and consent. Moreover,

Travelers told CNH in these letters that CNH should “please take the steps you deem necessary

to protect your interests in these matters.”48 This “process” meant that CNH, and not Travelers,

took on the duty to defend claims while the issue of coverage was addressed.

         The Court notes that, in hindsight, this whole practice of requesting information from

CNH seems extremely futile. Travelers took the “legal” position that, under Texas law, the anti-

assignment provisions of the relevant policies barred CNH from being an insured party under the

policies absent Travelers consent. The Court is unaware of any evidence in the record that

shows Travelers ever provided written consent to the assignment of the policies to CNH.

Travelers must have known that from the outset (or soon thereafter). So, the requests by

Travelers and the attempts, if any, by CNH to collect information were wasted efforts from day

one.49


48
   See, e.g., Letter, dated March 28, 2012, from Sonia Khemka-Choudhary to Jacqueline J. Swiss; Letter, dated
January 25, 2011, from Sonia Khemka-Choudhary to Diane L. Scialaba.
49
   The Court does not seem to be the only one that sees it this way. Citing to the deposition of a representative from
Marsh USA, Inc., The Special Master’s Opinion provides:
     [The Marsh deponent] also expressed his view that his May 2, 2008 notice letter to Travelers contained
     sufficient information for CNH to seek coverage under the legacy Tenneco and J.I. Case policies. He
     believed Travelers’ focus on corporate history was a ‘red herring’ because in his opinion Travelers

                                                          10
         Last, Travelers argues it has been prejudiced by CNH’s failure to comply with the notice

and cooperation provisions. Travelers contends it presented uncontested evidence that CNH did

not provide notice for more than thirty days after service of the underlying complaint. As such,

it was prejudiced because it could not participate in defense or settlement, or investigate claims.50

         Under Wisconsin law, “’[a]n insured is required to give timely notice to his or her

insurer.’”51 In this case, as the Court has already ruled, the insured (CNH) must give the insurer

(Travelers) notice of an occurrence “as soon as practicable;” and, if a claim is made or a suit is

brought against the insured (CNH), the insured (CNH) must “immediately” forward to the

insurer (Travelers) every demand, notice, summons or other process received by the insured

(CNH).52 Through statute in Wisconsin, notice furnished “as soon as reasonably possible and

within one year after the time it was required by the policy” is sufficient.53 An insured’s notice

is not deemed untimely if the notice is furnished as soon as reasonably possible within one year




     should have provided a defense while it was sorting out the corporate history issues. Ultimately, [the
     Marsh deponent] concluded from reading the 1994 Reorganization Agreement that J.I. Case had the
     asbestos liabilities at issue.
Special Master’s Opinion at 17 (citations to record omitted).
50
   Travelers’ position in its briefs seems to be contradicted by its own representatives. For instance, Erik Sandberg,
the Civil Rule 30(b)(6) representative of Travelers, testified that he could not identify instances of prejudice. The
Court does note that the questions were not always as to specific claims or lawsuits and came in the course of
lengthy depositions
51
   Ansul, Inc. v. Emp’rs Ins. Co. of Wausau, 826 N.W.2d 110, 117 (Wis. App. Ct. 2012)(quoting from Neff v.
Pierzina, 629 N.W.2d 177 (Wisc. 2001).
52
   See CNH Indus. America LLC, 2015 WL 5016849, at *4. The Court needs to clarify its earlier decision as to
when the insurer must provide notice under the Insurance Policies. The Case Insurance Policy contains the
Provision. The Provision is broken into three subparts – a, b & c. Subsections a & b are notice provisions and
subsection c is the cooperation provision. The earlier decision only addressed subsection a as a notice provision.
Subsection a is a notice provision when there is an occurrence. Subsection b is a notice provision when a claim is
made or a suit is instituted against the insured. If there were a triable issue on notice, the Court would need to
readdress this issue for purpose of presenting the matter to the fact finder; however, the Court is now finding that
Travelers waived its right to notice. Therefore, there is no need to factually determine whether the notice given was
“as soon as practicable” or “immediately forwarded.” In no event, though, does the Provision contain a 30-day
notice requirement as Travelers argues.
53
   WIS. STAT. § 631.81.

                                                          11
of the time notice is required by the policy’s terms.54 The insurer bears the burden to prove

prejudice if notice is timely.55

        Prejudice is presumed under Wisconsin law if notice of a suit is given more than one year

after the time required in the insurance policy.56 The burden of proof then shifts to the insured to

prove the insurer was not prejudiced by the untimely notice.57 However, if an insurer

consistently maintains no coverage existed, and the timing of a notice would not have changed

the insurer’s decision to deny its duty to defend, then the insurer is not prejudiced.58

        Travelers has consistently denied coverage. Travelers’ corporate designee testified,

“Until we’ve been able to make a determination whether or not CNH is an insured, we cannot

treat them as such.”59 The designee further confirmed that Travelers could not defend CNH’s

cases until determining their insured status.60 The designee testified, “Travelers was unable to

agree with CNH that it, CNH, was an insured under these policies. We don’t tend to defend

entities that are not insureds.”61 Even if notice had been timely, the designee testified that

Travelers “[stood] by the coverage defenses that it has raised,” including anti-assignment.62 So,

even if CNH had complied with notice provisions, Travelers would have denied coverage.

Travelers cannot stand behind this denial and now claim prejudice.

        In Fireman’s Fund Insurance Co. of Wisconsin v. Bradley Corp., the Wisconsin Supreme

Court found an insurer did not suffer prejudice from a fifteen month delay in notice because the



54
   Gerrard Realty Corp. v. American States Ins. Co., 277 N.W.2d 863, 872 (Wis. 1979) (interpreting WIS. STAT. §
631.81).
55
   Id.
56
   Fireman’s Fund Ins. Co. of Wis. v. Bradley Corp., 660 N.W.2d 666, 683 (Wis. 2003).
57
   Id.
58
   Id. at 684.
59
   Erik Sandberg Dep. Tr. 270:25–271:10, May 12, 2015.
60
   Id. 271:11–14.
61
   Id. 291:12–21.
62
   Erik Sandberg Dep. Tr. 837:10–840:10, Jun. 10, 2015.

                                                       12
insurer would have denied coverage, even if notice were timely.63 The insurer’s litigation

manager testified that he would have denied a duty to defend even if notice was timely.64 The

Bradley Corp. Court found that, as a matter of law, plaintiff met its burden of proof of proving

no prejudice.65

          The facts demonstrate that Travelers never defended CNH in these underlying asbestos

cases. This is true even where notice was timely. Travelers’ actions left CNH to resolve

underlying lawsuits on its own – fully reserving its rights while telling CNH to “please take the

steps you deem necessary to protect your interests in these matters.” As such, Travelers cannot

now claim it was prejudiced by CNH’s resolving the lawsuits without Travelers’ assistance.

Wisconsin law is clear on an insurer’s obligations when given notice of an underlying claim.

Travelers should have intervened in the underlying lawsuits while maintaining its reservation of

rights. Or, it should have moved to stay the underlying lawsuits so coverage could be

determined. Travelers did neither. It cannot benefit from its continued delays.

DUTY TO DEFEND - REIMBURSEMENT

          Travelers contends its July 6, 2015 payments retroactively discharged its obligations as of

May 2009. Travelers argues May 2009 is the exhaustion date because that is the latest date for

which Travelers reimbursed CNH for its underlying settlements. Travelers claims its

reimbursement complies with its policies’ terms.

          The policies all contain identical language regarding its duty to defend. The language

states:

          [Travelers] will pay on behalf of the insured all sums which the insured shall
          become legally obligated to pay as damages because of bodily injury or property
          damage to which this policy applies caused by an occurrence or personal injury,

63
   Bradley Corp., 660 N.W.2d at 684.
64
   Id. at 683–84.
65
   Id. at 684.

                                                  13
         and the company shall have the right and duty to defend any suit against the
         insured seeking damages on account of such injury or damage, even if any of the
         allegations of the suit are groundless, false or fraudulent, and may make such
         investigation or and settlement of any claim or suit as it deems expedient, but
         [Travelers] shall not be obligated to pay any claim or judgment or to defend any
         suit after the applicable limit of the company’s liability has been exhausted by
         payment of judgments or settlements.66

Travelers contends that CNH’s payments exhausted liability in 2009.

         Travelers cites the Court to cases that provide that the party which makes payment under

the insurance policy is irrelevant for exhaustion purposes. That is, CNH’s payments terminated

Travelers’ duty to defend.

         In Teigen v. Jelco of Wisconsin, Inc.,67 plaintiffs agreed to take less than the full policy

value to settle their case against their primary insurer.68 This agreement is called a Loy release.69

Per the Loy release’s terms, plaintiffs had to give their excess carriers credit for the full primary

policy exhaustion, not the settlement amount.70 The factual record here does not provide that

CNH entered into a Loy agreement with any party.

         Travelers’ other cited cases involve the question of when excess coverage is triggered. 71

None involved a question of a primary policy’s exhaustion. Travelers is CNH’s primary insurer.

Travelers’ rights and duties differ from CNH’s excess carriers.

         Under Wisconsin law, an insurer’s obligations are fully discharged after it pays the

maximum amount under the policy.72 Any alteration in an insured’s duty to defend must be



66
   Exhibit 95 to Affidavit of Diane Scialabba in Supp. of Op. Br. in Support of Pl.’s Mot. for Partial Summary
Judgment on Exhaustion (Tr. ID 56154569).
67
   367 N.W.2d 806 (Wis. 1985).
68
   Id. at 808.
69
   See Loy v. Bunderson, 320 N.W.2d 175 (Wis. 1982).
70
   Teigen, 367 N.W.2d at 808.
71
   Ali v. Fed. Ins. Co., 719 F.3d 83, 92 (2nd Cir. 2013); Trinity Homes LLC v. Ohio Cas. Ins. Co., 629 F.3d 653, 658
   th
(7 Cir. 2010); Mills Ltd. P’ship v. Liberty Mut. Ins. Co., 2010 WL 8250837 (Del. Super. Nov. 5, 2010); Plantation
Pipe Line Co. v. Highlands Ins. Co., 444 S.W.3d 307, 313 (Tex. App. 2014).
72
   St. John’s Home of Milwaukee v. Continental Cas. Co., 434 N.W.2d 112, 120–121 (Wis. Ct. App. 1988).

                                                         14
explicitly stated in the policy.73 There is no alteration in Travelers’ policies. Travelers agreed to

pay all sums on CNH’s behalf which CNH becomes obligated to pay. CNH settled claims

because Travelers refused to defend it.

           Travelers’ duty to defend terminates only after Travelers (not CNH) exhausts its

applicable limits of liability. Travelers cannot unilaterally declare its duty to defend terminated

retroactively due to a settlement paid for by CNH. Instead, Travelers’ duty to defend would only

terminate on the date Travelers made its payment to CNH – i.e., reimbursed CNH for the

payments CNH made to satisfy a claim.

                                                 CONCLUSION

           For the foregoing reasons, Travelers waived its right to enforce notice and cooperation

provisions. Further, Travelers’ indemnity payments extinguished its duty to defend no earlier

than July 6, 2015, the date it reimbursed CNH for past settlements.

           IT IS SO ORDERED.

                                                                  /s/ Eric M. Davis
                                                                  Eric M. Davis, Judge




73
     Burgraff v. Menard, Inc., 875 N.W.2d 596, 607 (Wis. 2016).

                                                         15
