                                                              2016 WI 54

                  SUPREME COURT            OF    WISCONSIN
CASE NO.:               2014AP2484
COMPLETE TITLE:         Water Well Solutions Service Group Inc.,
                                   Plaintiff-Appellant-Petitioner,
                             v.
                        Consolidated Insurance Company,
                                   Defendant-Respondent.

                          REVIEW OF A DECISION OF THE COURT OF APPEALS
                         (Reported at 365 Wis. 2d 223, 871 N.W.2d 276)
                                   (Ct. App. 2015 – Published)
                                      PDC No: 2015 WI App 78

OPINION FILED:          June 30, 2016
SUBMITTED ON BRIEFS:
ORAL ARGUMENT:          March 16, 2016

SOURCE OF APPEAL:
   COURT:               Circuit
   COUNTY:              Waukesha
   JUDGE:               James R. Kieffer

JUSTICES:
   CONCURRED:
   DISSENTED:           BRADLEY, A. W., J. and ABRAHAMSON, J. dissent
                        (Opinion filed).
  NOT PARTICIPATING:


ATTORNEYS:
       For the plaintiff-appellant-petitioner, there were briefs
by Timothy M. Hansen, Charles J. Crueger, James B. Barton, and
Hansen       Reynolds    Dickinson   Crueger    LL,   and   oral   argument   by
Timothy M. Hansen.




       For the defendant-respondent, there was a brief by William
J. Katt, Christina A. Katt, Corey J. Wright and Wilson Elser
Moskowitz Edelman & Dicker, LLP, and oral argument by William J.
Katt.
                                                                  2016 WI 54
                                                          NOTICE
                                            This opinion is subject to further
                                            editing and modification.   The final
                                            version will appear in the bound
                                            volume of the official reports.
No.   2014AP2484
(L.C.     2014CV254)

STATE OF WISCONSIN                      :            IN SUPREME COURT

Water Well Solutions Service Group Inc.,

            Plaintiff-Appellant-Petitioner,
                                                               FILED
     v.                                                   JUN 30, 2016

Consolidated Insurance Company,                              Diane M. Fremgen
                                                          Clerk of Supreme Court

            Defendant-Respondent.




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



     ¶1     REBECCA G. BRADLEY, J.    In this duty to defend case,

Water Well Solutions Service Group Inc. (Water Well) asks us to

reverse the court of appeals' decision1 affirming the Waukesha
County Circuit Court's2 summary judgment decision in favor of

Consolidated Insurance Company, Water Well's insurer.                Applying

the longstanding four-corners rule used to determine whether a

complaint triggers the duty to defend, see Doyle v. Engelke, 219

Wis. 2d 277, 284, 580 N.W.2d 245 (1998), both the circuit court

     1
       Water Well Sols. Serv. Grp. Inc. v. Consol. Ins. Co., 2015
WI App 78, 365 Wis. 2d 223, 871 N.W.2d 276.
     2
         The Honorable James R. Kieffer presided.
                                                                            No.       2014AP2484



and the court of appeals concluded that Consolidated did not

breach its duty to defend Water Well.                          In response, Water Well

argues this court should craft an exception to the four-corners

rule    allowing       courts    to     consider           extrinsic   evidence        when    an

insurer has unilaterally decided that no duty to defend exists

based on exclusions in the insurance policy.

       ¶2    Specifically,         we      are       asked    to   decide   whether        this

court    should    allow        admission        of    extrinsic       evidence        under   a

limited exception to the four-corners rule in cases where (1)

the policy provides an initial grant of coverage based on facts

alleged     in   the    complaint,         (2)       the    insurer    denies     a    duty    to

defend its insured based on the application of specific policy

exclusions but without seeking a coverage determination from a

court, and (3) the insured asserts that the underlying complaint

is factually incomplete or ambiguous.                          We are further asked to

determine, absent an exception to the four-corners rule, whether

a court should compare the four corners of the complaint to the

entire insurance policy, including exclusions and exceptions, or
if the court's review is limited to comparing the complaint to

the terms of the policy governing the initial grant of coverage.

We confirmed in Marks v. Houston Cas. Co., 2016 WI 53, ¶¶61-76,

__ Wis. 2d __, __ N.W.2d __, that under the four-corners rule

the    entire    policy    must       be    examined,         including     the       coverage-

granting clauses, exclusions, and exceptions to any applicable




                                                 2
                                                                                         No.       2014AP2484



exclusions.3              Thus, we also decide whether any exclusions in

Consolidated's policy apply.

      ¶3        We        affirm     the       court       of      appeals            and      hold     that

Consolidated          did     not    breach          its    duty       to    defend          Water     Well.

First,     we     reject       Water       Well's          request          to    craft        a    limited

exception to the four-corners rule, which has long endured to

the benefit of Wisconsin insureds.                           We are not persuaded that an

exception to this rule is necessary.                               Second, as we explain in

Marks,     __    Wis. 2d __,          ¶¶61-76,           released       today           in    conjunction

with this decision, the four-corners rule requires a court to

compare     the       complaint       to       the    terms       of    the        entire          insurance

policy in determining whether the duty to defend is triggered.

Thus,      we    reject        Water           Well's       argument             that        the    court's

comparison           is    limited        to     reviewing         the       insurance             policy's

granting clause.              The longstanding four-corners comparison rule

applies in all duty to defend cases, including cases such as

this one where the policy provides an initial grant of coverage,

the insurer made a unilateral decision to refuse to defend based
on   specific         policy        exclusions,            and    the       insured          asserts     the

underlying           complaint       is        factually         incomplete             or     ambiguous.

Finally,        after       comparing      the       four        corners         of     the    underlying

complaint to the terms of the insurance policy at issue, we

conclude that the "Your Product" exclusion applies to preclude


      3
       The court heard oral arguments in this case and in Marks
v. Houston Cas. Co., 2016 WI 53, __ Wis. 2d __, __ N.W.2d __ on
the same day, March 16, 2016.


                                                     3
                                                                            No.    2014AP2484



coverage.       As a result, Consolidated did not breach its duty to

defend    Water    Well    and    is   entitled        to    summary       judgment       as   a

matter of law; therefore, we affirm.

                                  I.     BACKGROUND

    ¶4         In 2009, Waukesha Water Utility (Waukesha) contracted

with Water Well to perform work on Well #10, an existing well

located in the City of Waukesha.                 Waukesha hired Water Well to

remove    an    existing    pump,      install     a        new    pump,    and    complete

reinstallations of the pump.                In February 2011, the well pump

unthreaded from a pipe column and fell to the bottom of the

well.

    ¶5         Argonaut Insurance Company,4 Waukesha's insurer, filed

suit against Water Well in federal district court.                                Argonaut's

complaint alleged that "Water Well, its agents, employees and

representatives"          were    negligent        in        the     installation          and

reinstallations      of    the    well    pump    and        that    "Water       Well,    its

agents,     employees       and/or       representatives"              breached        their

contractual       obligations.         Specifically,              Argonaut's       complaint
alleged that the well pump "unthreaded and separated from the

pipe column," which "caused the Well Pump, including the motor,

to fall to the bottom of the approximately 1910-foot-deep well."

Argonaut       asserted    that     Water       Well        failed    to     install       two

setscrews, "which allowed operating torques and vibrations to


    4
       It is undisputed that the well pump at issue is covered
under Waukesha's policy with Argonaut.        In the underlying
federal suit, Argonaut acted as subrogee of Waukesha.


                                            4
                                                                    No.     2014AP2484



cause the Well Pump to rotate and unthread from the pipe column

and caused the Well Pump to fall to the bottom of the well."

Argonaut sought $300,465.48 in subrogated damages.                      We set forth

pertinent paragraphs of Argonaut's complaint in our analysis.

    ¶6      Water     Well    was    insured     under    a   Commercial        General

Liability Primary Policy (CGL policy) with Consolidated at the

time the alleged damages occurred.5                   Water Well tendered its

defense to its insurer, Consolidated, in the action initiated by

Argonaut.       The    parties      do    not   dispute    that   the     CGL   policy

provides an initial grant of coverage.6                    However, Consolidated

denied Water Well's defense tender stating it had no duty to

defend or indemnify Water Well under the CGL policy because the

"Your   Work"    and    the    "Your       Product"   exclusions        applied     and

removed     coverage     for      the      damages    alleged      in     Argonaut's

complaint.

    ¶7      After Consolidated refused to defend Water Well in the

Argonaut     action,      Water          Well   obtained      counsel,      incurred

attorney's fees and costs, and eventually settled with Argonaut
for $87,500.        Water Well then filed suit against Consolidated,

alleging that Consolidated breached its duty to defend Water

Well in the underlying action initiated by Argonaut.                      Water Well



    5
       The CGL policy at issue was in effect from November 1,
2010 until November 1, 2011.
    6
       The policy provides an initial grant of coverage for
"property damage" that arises from an "occurrence," which is
defined, in part, as "an accident."


                                            5
                                                                           No.     2014AP2484



also       alleged    that    Consolidated          acted     in   bad    faith    when   it

refused to provide a defense.7

       ¶8      The         Waukesha         County         Circuit       Court      granted

Consolidated's         motion    for        summary    judgment      after     considering

cross-motions for summary judgment.                         It determined that under

applicable Wisconsin case law, a court must compare the four

corners of the complaint to the terms of the entire insurance

policy when deciding whether an insurer breached its duty to

defend      its    insured.       The       circuit    court       concluded      that   this

comparison         encompassed        the    policy's       coverage     provisions       and

exclusions, but not extrinsic evidence Water Well offered in

support       of     its    assertion       that     its    subcontractor's        work    on

preexisting pipes triggered coverage under the policy.8                            Based on

a comparison of the four corners of the complaint and the terms

of the entire policy,             the circuit court                determined that        the

allegations in the Argonaut complaint fell under both the "Your

Product"       and     the    "Your         Work"    exclusions.          Therefore,       it




       7
       Water Well's bad faith claim was bifurcated from its duty
to defend claim by stipulation.       The circuit court stayed
discovery and proceedings on the bad faith claim pending the
resolution of the breach of the duty to defend claim.
       8
       Along with its summary judgment motion, Water Well
submitted an affidavit from its operations manager, Steve
Judkins.    The Judkins affidavit contained extrinsic evidence
that Water Well argues supports its position that the "Your
Product" exclusion did not apply and the subcontractor exception
to the "Your Work" exclusion restored coverage.


                                                6
                                                         No.    2014AP2484



concluded that "there is no covered claim and therefore there

was no duty to defend."9

     ¶9     The court of appeals affirmed in a published decision.

Water Well Sols. Serv. Grp. Inc. v. Consol. Ins. Co., 2015 WI

App 78, ¶1, 365 Wis. 2d 223, 871 N.W.2d 276.            The majority's

reasoning mirrored the circuit court's: it reviewed the four

corners of Argonaut's complaint, compared the complaint to the

terms of the entire insurance policy, and concluded that both

the "Your Work" and the "Your Product" exclusions eliminated

coverage.     Id., ¶¶6-7, 10, 13, 16-18.

     ¶10    We granted Water Well's petition for review.

                        II.   STANDARD OF REVIEW

     ¶11    We independently review a grant of summary judgment

using the same methodology of the circuit court and the court of

appeals.    Blasing v. Zurich Am. Ins. Co., 2014 WI 73, ¶21, 356

Wis. 2d 63,    850   N.W.2d 138.   Summary   judgment   is   appropriate

when there is no genuine dispute of material fact and the moving

party is entitled to judgment as a matter of law.              Wis. Stat.
§ 802.08(2) (2013-14);10 Blasing, 356 Wis. 2d 63, ¶21.



     9
       The circuit court also determined that since Consolidated
did not breach its duty to defend, Water Well could not
"establish a 'fundamental prerequisite' to its bad faith claim."
Therefore, the circuit court dismissed the bad faith claim with
prejudice. Water Well does not assert a bad faith claim in this
court.
     10
       All subsequent references to the Wisconsin Statutes are
to the 2013-14 version unless otherwise indicated.


                                    7
                                                        No.   2014AP2484



       ¶12   This case requires the court to interpret an insurance

policy to determine whether an insurer         breached its duty to

defend its insured.        Interpretation of an insurance contract

presents a question of law that we review de novo.            Estate of

Sustache v. Am. Family Mut. Ins. Co., 2008 WI 87, ¶18, 311

Wis. 2d 548, 751 N.W.2d 845.

                             III.   ANALYSIS

   A.     Typical Process used in Duty to Defend Determinations

       ¶13   Before reaching the dispositive issue in this case, we

first set forth general principles governing interpretation of

insurance policies as well as the process typically used by

courts in duty to defend cases.

              1.   General principles: Insurance contracts

       ¶14   Insurance   policies   are   contracts   that    generally

establish an insurer's "duty to indemnify the insured against

damages or losses, and the duty to defend against claims for

damages."     Olson v. Farrar, 2012 WI 3, ¶27, 338 Wis. 2d 215, 809

N.W.2d 1.     We interpret insurance policies in the same manner as
other contracts——to give effect to the intent of the contracting

parties.     Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 2004 WI 2,

¶23, 268 Wis. 2d 16, 673 N.W.2d 65.       We construe policy language

as a reasonable person in the position of the insured would

understand such language.       Estate of Sustache, 311 Wis. 2d 548,

¶19.

       ¶15   Longstanding case law requires a court considering an

insurer's duty to defend its insured to compare the four corners
of the underlying complaint to the terms of the entire insurance
                                    8
                                                                     No.    2014AP2484



policy.     See, e.g., id., ¶20; Doyle, 219 Wis. 2d at 284 & n.3;

Grieb v. Citizens Cas. Co. of New York, 33 Wis. 2d 552, 558, 148

N.W.2d 103 (1967).       The four-corners rule prohibits a court from

considering       extrinsic     evidence      when    determining      whether       an

insurer breached its duty to defend.                  Estate of Sustache, 311

Wis. 2d 548, ¶27; Fireman's Fund Ins. Co. of Wis. v. Bradley

Corp., 2003 WI 33, ¶19, 261 Wis. 2d 4, 660 N.W.2d 666.                      We have,

however,    consistently        explained     that    a   court     must    liberally

construe the allegations contained in the underlying complaint,

assume all reasonable inferences from the allegations made in

the complaint, and resolve any ambiguity in the policy terms in

favor of the insured.         Estate of Sustache, 311 Wis. 2d 548, ¶21.

    ¶16      We    use   a    three-step      process       when    comparing       the

underlying    complaint       to   the   terms   of   the    policy    in    duty    to

defend     cases.11      Id.,      ¶¶22-23.      First,      a     reviewing    court




    11
       To an extent, the three steps used in analyzing an
insurance contract are the same whether a court is determining
an insurer's duty to defend or its duty to indemnify.    Compare
Estate of Sustache v. Am. Fam. Mut. Ins. Co., 2008 WI 87, ¶¶22-
23, 311 Wis. 2d 548, 751 N.W.2d 845 (detailing the three steps
in the duty to defend context) with Am. Fam. Mut. Ins. Co. v.
Am. Girl, Inc., 2004 WI 2, ¶24, 268 Wis. 2d 16, 673 N.W.2d 65
(explaining the three steps in the indemnity context). This is
because a determination of whether an insurer breached its duty
to defend depends on whether it could be found to have a duty to
indemnify, if the plaintiff proves the allegations in the
complaint.   Olson v. Farrar, 2012 WI 3, ¶29, 338 Wis. 2d 215,
809 N.W.2d 1.

                                                                        (continued)
                                          9
                                                                          No.     2014AP2484



determines whether the policy language grants initial coverage

for the allegations set forth in the complaint.                           Id., ¶22.        If

the allegations set forth in the complaint do not fall within an

initial grant of coverage, the inquiry ends.                        Id.     However, if

the allegations fall within an initial grant of coverage, the

court       next   considers      whether   any   coverage        exclusions       in     the

policy apply.            Id., ¶23.     If any exclusion applies, the court

next considers whether an exception to the exclusion applies to

restore      coverage.          Id.   If    coverage    is    not    restored        by    an

exception to an exclusion, then there is no duty to defend.                               See

Am. Girl, Inc., 268 Wis. 2d 16, ¶24.                   If the policy, considered

in    its    entirety,     provides    coverage     for      at   least     one    of     the

claims in the underlying suit, the insurer has a duty to defend

its    insured      on    all   the   claims     alleged     in   the     entire     suit.

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




     This, however, does not mean that a court's duty to defend
analysis is the same as its consideration of indemnification.
For example, unlike duty to defend determinations, extrinsic
evidence is admissible in coverage disputes to prove (or
disprove) the allegations set forth in the complaint.       Id.,
¶¶33-34.   In addition, in indemnification disputes the insured
has the initial burden to show the policy provides an initial
grant of coverage "and if that burden is met the burden shifts
to the insurer to show that an exclusion nevertheless precludes
coverage."   Day v. Allstate Indem. Co., 2011 WI 24, ¶26, 332
Wis. 2d 571, 798 N.W.2d 199.      Logically, this same burden
shifting is not implicated in duty to defend determinations
because a court is comparing documents it has before it——the
underlying complaint and the insurance policy——without resort to
extrinsic evidence.


                                            10
                                                                    No.     2014AP2484



    ¶17        It is also well-established that an insurer's duty to

defend    its    insured      is    broader    than   its   duty    to    indemnify.

Olson, 338 Wis. 2d 215, ¶29.              This is because the four-corners

rule dictates that the duty to defend is determined by "the

nature    of    the   claim     alleged   against     the   insured       . . .   even

though the suit may be groundless, false or fraudulent."                      Grieb,

33 Wis. 2d at 558.            "'[T]he insurer is under an obligation to

defend only if it could be held bound to indemnify the insured,

assuming that the injured person proved the allegations of the

complaint, regardless of the actual outcome of the case.'"                          Id.

(quoting 29A Am. Jur., Insurance § 1452, at 565 (1960)(emphasis

added).

                           2.      The four-corners rule

    ¶18        Water Well urges this court to establish a limited

exception to the four-corners rule that would allow it to submit

extrinsic evidence to dispute Consolidated's unilateral decision

to refuse to defend Water Well in the Argonaut suit based on

Consolidated's position that exclusions in the policy precluded
coverage.       Ultimately, Water Well asks this court to create an

exception to the four-corners rule in duty to defend cases when

(1) the policy provides an initial grant of coverage based on

facts alleged in the complaint, (2) the insurer                          declines    to

defend its insured based on the application of specific policy

exclusions but without seeking a coverage determination from the

circuit court, and (3) the insured asserts that the underlying

complaint is factually incomplete or ambiguous.                    We reject Water
Well's request to create an exception to the four-corners rule.
                                          11
                                                                           No.     2014AP2484



    ¶19    In 1967, in Grieb, this court set forth the general

rule that courts use to determine whether an insurer breached

its duty to defend its insured.                     Grieb, 33 Wis. 2d at 558-59.

Essentially, we rejected Grieb's argument that when an implied

duty to defend arises from a policy's indemnity clause, the

four-corners       rule    does   not    apply.         Id.         We    held     that    an

insurer's duty to defend, regardless of its origin, depends on a

comparison of the four corners of the underlying complaint to

the terms of the policy, reasoning:

         Whether a third-party suit comes within the
    coverage of this clause [the defense-coverage clause]
    or an implied duty to defend under an indemnity clause
    depends upon its allegations which are referred to as
    a general rule as the measure in the first instance.
    These allegations must state or claim a cause of
    action for the liability insured against or for which
    indemnity is paid in order for the suit to come within
    any defense coverage of the policy unless the express
    defense coverage is broader.
Id. at 557-58.        After setting forth the four-corners rule, we

stated "[t]here are at least four exceptions to the general rule

determining    the    extent      of    the    insurer's       duty      to      defend   and

generally the insurer who declines to defend does so at his

peril.    These and allied problems are extensively covered in

Anno.,   Liability        Insurer——Duty        to    Defend,    50       A.L.R.2d     458."

Grieb, 33 Wis. 2d at 558.               These two sentences are the only

discussion    in    Grieb    regarding        exceptions       to    the      four-corners

rule; we did not actually adopt or apply any of the exceptions




                                          12
                                                                   No.    2014AP2484



to the four-corners rule by this reference.12                   Instead, we held

that Grieb's insurer had no duty to defend Grieb because the

allegations in the complaint "could not be considered as stating

a   cause     of   action    for     liability    for    negligence,     omissions,

mistakes or errors."           Id. at 559.        In other words, we limited

our determination of whether Grieb's insurer breached its duty

to defend Grieb to the allegations in the four corners of the

complaint: "It is not sufficient under [the insurance] policy

that    the    facts     alleged     might     under    other   circumstances    be

characterized       as      acts   of   unintentional       negligence,      error,

mistake or omission."          Id.

       ¶20    Since Grieb, Wisconsin courts, with one deviation in

Berg v. Fall, 138 Wis. 2d 115, 405 N.W.2d 701 (Ct. App. 1987),

have consistently stated that an insurer's duty to defend its

insured depends on the allegations contained in the four corners


       12
       The court of appeals later set forth the exceptions from
the A.L.R. that Grieb referenced:

       [T]here are also a number of cases involving special
       situations not covered directly by the general
       rules. . . . These     special     situations   exist
       particularly where there is a conflict of allegations
       and known facts, where the allegations are ambiguous
       or incomplete, where the allegations state facts
       partly within and partly outside the coverage of the
       policy, and finally where the allegations contain
       conclusions instead of statements of facts.

Sustache v. Am. Fam. Mut. Ins. Co., 2007 WI App 144, ¶11, 303
Wis. 2d 714, 735 N.W.2d 186, aff'd sub nom. Estate of Sustache
v. Am. Family Mut. Ins. Co., 2008 WI 87, 311 Wis. 2d 548, 751
N.W.2d 845.


                                          13
                                                                               No.    2014AP2484



of the complaint.         E.g., Olson, 338 Wis. 2d 215, ¶30 ("Wisconsin

policy is clear.        If the allegations in the complaint, construed

liberally,     appear      to     give       rise     to     coverage,         insurers         are

required to provide a defense until the final resolution of the

coverage     question      by     a    court.");           Estate       of    Sustache,         311

Wis. 2d 548,    ¶20       ("The       duty    to    defend        is    triggered          by   the

allegations     contained             within        the     four         corners       of       the

complaint.");    Doyle,         219    Wis. 2d at          284     ("In      determining         an

insurer's    duty    to    defend,       we    apply        the     factual         allegations

present in the complaint to the terms of the disputed insurance

policy.");     Newhouse         v.     Citizens       Sec.        Mut.       Ins.    Co.,       176

Wis. 2d 824, 835, 501 N.W.2d 1 (1993) ("The duty to defend is

triggered by the allegations contained within the four corners

of the complaint."); Prof'l Office Bldgs., Inc. v. Royal Indem.

Co., 145 Wis. 2d 573, 580-81, 427 N.W.2d 427 (Ct. App. 1998)

("[W]e believe the rule of Grieb v. Citizens Casualty Co., 33

Wis. 2d 552,     148      N.W.2d 103         (1967),        and        similar       cases,      is

controlling    and     compels        the     determination            that    the     duty      to
defend is dependent solely on the allegations of the complaint

. . . .").

    ¶21      Despite      this       consistent       application             of     the    four-

corners rule, the court of appeals in Berg considered extrinsic

evidence to determine that an insurer had a duty to defend its

insured.     Berg, 138 Wis. 2d at 123.                    In Berg, Robin Berg alleged

that James Fall punched him in the face.                            Id. at 117.            Fall's

insurer, State Farm Insurance Company, was joined as a defendant
in the suit.     Id. at 116.           The central issue before the court of
                                              14
                                                                      No.   2014AP2484



appeals      was    whether    the    State     Farm    policy,    which    excluded

coverage      for    "bodily    injury        'expected    or   intended     by   the

insured,'" applied where Fall claimed he acted in self-defense

when he punched Berg.           Id. at 117.          The court of appeals held

that (1) summary judgment was improper because a material fact——

whether Fall acted in self-defense——was disputed and (2) "that a

privileged act of self-defense is not excluded from coverage by

State Farm's policy language."                 Id. at 119-20.         The court of

appeals concluded that State Farm had a duty to defend Fall even

though Berg's complaint did not allege that Fall acted in self-

defense.      Id. at 122.       While the court of appeals cited Grieb

and the general rule——that the duty to defend is determined by

reference to the four corners of the underlying complaint——it

held   that    "[b]ecause       the    record     shows    facts   sufficient      to

support an inference that Fall acted reasonably in self-defense,

summary judgment was inappropriate and State Farm owes him a

duty of defense."        Id. at 123 (footnote omitted).               By relying on

extrinsic evidence, the court of appeals in Berg departed from
the well-established four-corners rule.

       ¶22    We recognized this in Doyle when we soundly rejected

an assertion, based on              Berg, suggesting a court should look

beyond the four corners of the complaint to determine whether an

insurer had breached its duty to defend.                   Doyle, 219 Wis. 2d at

284 n.3.      A year later, citing our footnote in Doyle, we again

declined to recognize an exception to the four-corners duty to

defend    rule.       Smith    v.     Katz,    226     Wis. 2d 798,    815-16,    595
N.W.2d 345 (1999).
                                          15
                                                                            No.     2014AP2484



    ¶23      In Sustache v. Am. Family Mut. Ins. Co., the court of

appeals   considered         whether     any       exception    to    the    four-corners

rule existed in Wisconsin given that (1) Grieb referenced "at

least    four    exceptions"        to    the       four   corners     rule,        id.,    33

Wis. 2d at      558,   (2)    the    court      of    appeals    in    Berg       relied    on

extrinsic evidence to determine an insurer's duty to defend its

insured, and (3) this court rejected an invitation to rely on

Berg in Doyle and Smith, but did not explicitly overrule Berg's

reliance on extrinsic evidence.                      Sustache v. Am. Family Mut.

Ins. Co., 2007 WI App 144, ¶¶11-13, 15-16, 303 Wis. 2d 714, 735

N.W.2d 186 aff'd sub nom. Estate of Sustache v. Am. Family Mut.

Ins. Co., 2008 WI 87, 311 Wis. 2d 548, 751 N.W.2d 845.13                                   The

court of appeals explained "the dilemma in this case goes beyond

the tension between Doyle/Smith and Berg.                           If we should hold

that the supreme court has tacitly overruled Berg, it remains

that Grieb, a supreme court opinion, is still on the books, and

no court of appeals or supreme court opinion has ever called

Grieb into question."               Sustache, 303 Wis. 2d 714,                    ¶17.     The
court of appeals concluded that it was required to follow this

court's most recent decisions regarding the application of the

four-corners      rule   in    duty      to    defend      cases.      Id.,       ¶19.      It

    13
       This court affirmed the court of appeals decision in
Sustache on different grounds and did not specifically address
whether Wisconsin law recognizes any exception to the four-
corners rule.    Estate of Sustache, 311 Wis. 2d 548, ¶¶28-29
(determining that because the insurer provided an initial
defense and the case had moved to a determination of coverage,
the purpose of the four-corners rule had been served).


                                              16
                                                                     No.     2014AP2484



concluded         that    our    opinions     in    Doyle    and   Smith     "tacitly

overruled . . . [our] recognition of the exceptions to the four-

corners rule in Grieb.                 From that it logically follows that

Doyle and Smith have also tacitly overruled Berg."                          Sustache,

303 Wis. 2d 714, ¶19.              It concluded: "In sum, the four-corners

rule is the law in Wisconsin when measuring an insurer's duty to

defend, and the rule knows no exceptions until the supreme court

unequivocally holds otherwise."               Id.

       ¶24    We now unequivocally hold that there is no exception

to the four-corners rule in duty to defend cases in Wisconsin.

This    position         is     consistent    with    long-standing        precedent,

including Grieb.              Our passing reference in Grieb to "at least

four exceptions to the general rule," 33 Wis. 2d at 558, should

not be read as an adoption of any exception to the four corners

rule.     Rather, by citation to the American Law Reports, this

passage      in    Grieb      merely   recognized    that    exceptions      exist    in

other jurisdictions.             That Grieb did not adopt any exceptions to

the four-corners rule is further supported by the fact that
Grieb never specifically enumerated or described any exception

to the four-corners rule.                Furthermore, our analysis in Grieb

plainly reveals that we did not consider extrinsic evidence;

rather, we applied the four-corners rule to conclude that the

allegations against Grieb in the taxpayer's suit did not fall

within the coverage provided by the insurance policy at issue.

Id. at 559.          We overrule any language in Berg suggesting that

evidence      may    be    considered     beyond     the    four   corners    of     the


                                             17
                                                                        No.     2014AP2484



complaint     in       determining       an    insurer's      duty    to    defend      its

insured.14

     ¶25     We    have        applied        the   four-corners      rule,      without

exceptions,       in    duty    to   defend     cases   for    so    long     because    it




     14
       Appeals to fairness in factual scenarios similar to Berg,
where the plaintiff's complaint alleges intentional conduct but
the defendant argues self-defense, entreat courts to create an
exception to the four-corners rule. Considerations of fairness
cannot override the contractual terms of the insurance policy on
which the duty to defend is based:

     In these cases, if negligence is not alleged, the
     plaintiff is only seeking damages because of an
     intentional act. If self-defense is proved, there is
     no recovery for intentional acts.     Often a plaintiff
     will file a complaint that alleges both negligence and
     intentional   conduct.     With   this   allegation  of
     negligence, the insurance company will have a duty to
     defend. . . .   If the plaintiff stands fast on an
     intentional-act-or-nothing   position,   there   is  no
     coverage, nor is there a duty to defend or indemnify.
      . . . There is no compelling need to carve out an
     exception to the complaint test for defendant-insureds
     who end up in fistfights with plaintiffs who do not
     allege the insured was negligent.

     Sheila M. Sullivan et al., Anderson on Wisconsin Insurance
Law § 7.27 at 29-30 (7th ed. 2015).     In this case, the CGL
Policy relieves Consolidated of its duty to defend Water Well
when the suit seeks damages for property damage to which the
policy does not apply.    Because the "Your Product" exclusion
negates coverage, the policy does not apply to the claims made
in Argonaut's complaint.


                                               18
                                                                 No.     2014AP2484



generally favors Wisconsin insureds.15              The rule ensures that

courts are able to efficiently determine an insurer's duty to

defend, which results in less distraction from the merits of the

underlying   suit.       Also,    the   four-corners      rule       supports    the

policy that an insurer's duty to defend is broader than its duty

to indemnify.      Estate of Sustache, 311 Wis. 2d 548, ¶20.                    That

is because "[i]t is the nature of the claim alleged against the

insured    which   is    controlling     even   though    the    suit     may    be

groundless, false or fraudulent."               Grieb, 33 Wis. 2d at 558.

Adherence to "[t]he four-corners rule 'ensure[s] that insurers

do   not   frustrate      the    expectations      of    their       insureds    by

[prematurely]      resolving     the    coverage    issue       in     their     own

favor[.]'"      Olson,    338    Wis. 2d 215,    ¶32    (quoting       Baumann    v.

Elliot, 2005 WI App 186, ¶10, 286 Wis. 2d 667, 704 N.W.2d 361)

(brackets in original).         Without the four-corners rule, insurers


     15
       We acknowledge that the four-corners rule benefits the
insurer as well because it does "not require an insurer to
speculate beyond the written words of the complaint in order to
imagine a claim that a plaintiff might be making or to determine
all potential issues that could be sought when the insurer is
evaluating its duty to defend."    State Farm Fire & Cas. Co. v.
Easy PC Sols., LLC, 2016 WI App 9, ¶8, 366 Wis. 2d 629, 874
N.W.2d 585.   The duty to defend is grounded in the insurance
contract   entered  between   the   insurer   and  its   insured.
Recognizing exceptions to the four-corners rule would require
the insurer to not only draw reasonable inferences from the
language of the complaint in evaluating its contractual duty to
defend, but to imagine claims the plaintiff might have made.
Imposing this judicially-created burden on insurers would, in
practical application, rewrite the contractual duty to defend to
be triggered whenever any claim is made rather than only those
claims covered under the actual policy terms.


                                        19
                                                                         No.        2014AP2484



would     be    incentivized       to    outright        refuse    to    defend        their

insureds and hope that the facts later revealed that no coverage

existed.       Olson, 338 Wis. 2d 215, ¶32.               The end result of strict

adherence to the four-corners rule is that "the insurer may have

no duty to defend a claim that ultimately proves meritorious

against the insured because there is no coverage for that claim.

Conversely, the insurer may have a clear duty to defend a claim

that is utterly specious because, if it were meritorious, it

would be covered."            Smith, 226 Wis. 2d 798, ¶20.

    ¶26        The four-corners rule ultimately favors insureds in

another way.        Even if a plaintiff's first complaint does not

contain    allegations         that     trigger    the    duty     of   a    defendant's

insurer to defend, a plaintiff has both the opportunity and the

incentive to file an amended complaint when discovery results in

additional facts that, if alleged in an amended complaint, would

trigger a duty to defend: "[I]f a complaint does not allege a

covered    claim,       the    true     facts    will    come     out   in     discovery.

Sooner    or    later    those     facts    will    be    alleged       in     an    amended
complaint      because    the     plaintiff       will    want     coverage         for   the

defendant-insured.             When that happens, the duty to defend is

triggered."       Sheila M. Sullivan et al., Anderson on Wisconsin

Insurance Law § 7.27 at 29 (7th ed. 2015).

    ¶27        Water Well asserts that strictly applying the four-

corners rule encourages insurers to refuse to defend insureds in

close cases.        We disagree.           We continue to strongly encourage

insurers to follow one of the judicially-preferred approaches
rather than make a unilateral determination to refuse to defend
                                            20
                                                                  No.     2014AP2484



an insured.    See Liebovich v. Minnesota Ins. Co., 2008 WI 75,

¶55, 310 Wis. 2d 751, 751 N.W.2d 764.           For example:

    (1)    An insurer may request a bifurcated trial on the issue

               of coverage and move to stay all proceedings on

               liability until a coverage determination is made.

               Id.; Elliot v. Donahue, 169 Wis. 2d 310,                   318, 485

               N.W.2d 403       (1992).        Under    this   approach,        "the

               insurance company runs no risk of breaching its

               duty to defend."        Newhouse, 176 Wis. 2d at 836.

    (2)    An insurer may enter into "a nonwaiver agreement in

               which the insurer would agree to defend, and the

               insured would acknowledge the right of the insurer

               to     contest     coverage."           Grube   v.       Daun,     173

               Wis. 2d 30, 75, 496 N.W.2d 106 (Ct. App. 1992),

               overruled on other grounds, Marks, __ Wis. 2d __,

               ¶75.       An     insurer   may     also    proceed        under    a

               reservation       of   rights     under    which     the    insured

               provides and controls its own               defense, but the
               insurer remains liable for incurred legal costs.

               Id.

    (3)    Finally, an insurer may choose to provide an initial

               defense     and     seek    a    declaratory         judgment       on

               coverage.16      Liebovich, 310 Wis. 2d 751, ¶55.

    16
         We note that:

    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
                                                   (continued)
                                      21
                                                                     No.    2014AP2484



       We reiterate:

              While   these   procedures    are   not   absolute
              requirements, we strongly encourage insurers
              wishing to contest liability coverage to avail
              themselves of one of these procedures rather than
              unilaterally refuse to defend. A unilateral
              refusal to defend without first attempting to
              seek judicial support for that refusal can result
              in otherwise avoidable expenses and efforts to
              litigants and courts, deprive insureds of their
              contracted-for protections, and estop insurers
              from being able to further challenge coverage.
Id.

       ¶28    An insurer also has the option to "[d]eny the tender

of defense and state the grounds for deciding that the complaint

does not trigger any obligation to defend under the policy."

Sheila M. Sullivan et al., Anderson on Wisconsin Insurance Law

§ 7.54 at 51 (7th ed. 2015).                 If, however, an insurer chooses

this    option     "it   does     so   at   its    own   peril."      Elliot,     169

Wis. 2d at 321.          By declining to defend an insured, an insurer

opens    itself    up    to   a   myriad    of    adverse    consequences    if   its

unilateral duty to defend determination turns out to be wrong.
For example, an insurer that breaches its duty to defend is

liable       for   all   costs     naturally       flowing    from    the    breach.

Newhouse, 176 Wis. 2d at 837; Maxwell v. Hartford Union High


       insurance company does not defend its insured at the
       liability trial. 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.

Newhouse v. Citizens Sec. Mut. Ins. Co., 176 Wis. 2d 824, 836,
501 N.W.2d 1 (1993).


                                            22
                                                                            No.     2014AP2484



Sch. Dist., 2012 WI 58, ¶¶55-56, 341 Wis. 2d 238, 814 N.W.2d 484

(explaining       that   a    breach      of   the        duty   to   defend      results   in

damages naturally flowing from that breach, but does not expand

coverage).        This liability is not limited to policy limits:

      Damages which naturally flow from an insurer's breach
      of its duty to defend include: (1) the amount of the
      judgment or settlement against the insured 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.
Newhouse, 176 Wis. 2d at 838.                  Liability for costs and attorneys

fees may potentially be greater than what the insurer would have

paid had it defended its insured in the first instance because

an insurer that refuses to defend its insured cedes control of

the defense to its insured and is liable for all reasonable

expenses.     Patrick v. Head of the Lakes Co-op Elec. Ass'n, 98

Wis. 2d 66,       72-23,     295   N.W.2d 205             (1980)   ("As   long     as   [the]

defense is reasonable and coverage is found, the insurer must

pay for the defense.").

      ¶29    In    addition,       an    insurer      that       breaches   its     duty    to

defend its insured places itself at risk that its insured will

pursue a successful first-party bad faith action against it.

See   Anderson      v.   Cont'l         Ins.   Co.,        85    Wis. 2d 675,      687,     271

N.W.2d 368    (1978)         (recognizing           the    intentional      tort     of     bad

faith); Brethorst v. Allstate Prop. & Cas. Ins. Co., 2011 WI 41,

¶5, 334 Wis. 2d 23, 798 N.W.2d 467 (holding that a breach of

contract is a prerequisite for a first-party bad faith claim
levied against an insurer).                    In a successful first-party bad


                                               23
                                                                             No.     2014AP2484



faith action against an insurer, an insured may recover punitive

damages.       See Weiss v. United Fire & Cas. Co., 197 Wis. 2d 365,

393, 541 N.W.2d 753 (1995).

       ¶30     In       sum,    we     follow    our     long-standing      precedent      that

duty-to-defend cases are governed by the four-corners rule, with

no exceptions.17

                                     3.    The policy terms

       ¶31     Consolidated's duty to defend Water Well originates

from the CGL Policy, under which Consolidated "will have the

right and duty to defend the insured against any 'suit' seeking

[bodily injury or property] damages.                          However, [Consolidated]

will    have       no    duty     to    defend     the    insured    against       any   'suit'

seeking      damages        for      'bodily      injury'    or    'property       damage'   to

which       this        insurance         does    not    apply."          Wisconsin      courts

determine whether an insurer breached its duty to defend its

insured       by        comparing         the    four    corners     of    the     underlying

complaint to the terms of the insurance policy.                             See Doyle, 219

Wis. 2d at 284.                Water Well argues that if this court does not
recognize any exception to the four-corners rule, then it should


       17
       Although the four-corners rule supports the well-
established principle that an insurer's duty to defend its
insured is broader than its duty to indemnify, Olson, 338
Wis. 2d 215, ¶29, we recognize there may be isolated instances
in which an insurer has no duty to defend based on the
complaint's allegations, but nevertheless owes a duty to
indemnify based on extrinsic evidence considered later during a
coverage determination.     Our decision in this case is not
influenced by hypothetical possibilities.    Regardless, in such
situations the insured will obtain its bargained-for coverage.


                                                  24
                                                              No.   2014AP2484



limit consideration of the policy to only those terms governing

an initial grant of coverage. Consistent with Marks, we reject

this argument.          In Marks, we held that in duty to defend cases a

court must compare the four corners of the complaint to the

terms of the entire policy, including exclusions.             See Marks, __

Wis. 2d __, ¶76.          We therefore analyze next whether Consolidated

breached its duty to defend Water Well by comparing the four

corners      of   the    Argonaut   complaint   to   the   entire   insurance

policy.

  B.    Duty to Defend Comparison: Complaint to the Policy Terms

                           1.   The Argonaut complaint

       ¶32    Argonaut, Waukesha's insurer, filed suit against Water

Well alleging negligence and breach of contract.             The complaint,

in pertinent part, provides:

            10. Upon information and belief, from on or about
       May to September of 2009, Water Well installed the
       Well Pump, including but not limited to performing
       inspections and repairs of the well, providing a new
       Centrilift pump, seal, and motor, providing new heavy
       wall column pipe, providing new pump cable, providing
       flow sleeve if required, providing check valves as
       needed,   providing    pipe   couplings    as  needed,
       rethreading pipe as needed, providing two new air
       lines, reassembling pipe work, performing a video log,
       and setting-up and testing the pumping equipment and
       testing the pump ("Original Installation").

            11. Upon information and belief, in or about
       September to December of 2009, Water Well reinstalled
       the Well Pump, including but not limited to, cutting
       and rethreading twelve-inch heavy wall pipe, replacing
       couplings, replacing the seal, and replacing the
       motor.

            12. On or about January of 2010, Water Well also
       reinstalled the Well Pump, including but not limited

                                        25
                                              No.   2014AP2484


to, cutting and rethreading at least 17 ends,
installing at least 7 new couplings, and installing at
least   1    new   fourteen-foot   section   of   pipe
(collectively, the "Reinstallations").

. . .

      14. Upon information and belief, while performing
the Reinstallations, Water Well failed to install two
setscrews, where locations for two setscrews were
located to secure the pipe joint at each end, which
allowed operating torques and vibrations to cause the
Well Pump to rotate and unthread from the pipe column
and caused the Well Pump to fall to the bottom of the
well.

     15. As a direct and proximate result of the
foregoing, on or about February 6, 2011, the Well Pump
unthreaded and separated from the pipe column and
caused the Well Pump, including the motor, to fall to
the bottom of the approximately 1910–foot–deep well.

. . .

     18. Upon information and belief, Water Well, its
agents, employees and representatives, had a duty to
reasonably and prudently install, configure, inspect,
test, and/or perform the Reinstallations in such a
manner as to prevent operating torques and vibrations
from causing the Well Pump to rotate and unthread from
the pipe column and cause the Well Pump to fall to the
bottom of the well.

     19. Upon information and belief, Water Well, its
agents, employees and representatives breached that
duty by failing to reasonably and prudently install,
configure,   inspect,   test,    and/or   perform   the
Reinstallations in such a manner as to prevent
operating torques and vibrations from causing the Well
Pump to rotate and unthread from the pipe column and
cause the Well Pump to fall to the bottom of the well.

     20. Specifically, Water Well breached that duty
by failing to install two setscrews, where locations
for two setscrews were located to secure the pipe
joint at each end, which allowed operating torques and
vibrations to cause the Well Pump to rotate and


                          26
                                                                         No.   2014AP2484


       unthread from the pipe column and caused the Well Pump
       to fall to the bottom of the well.

             21. Upon information and belief, Water Well, its
       agents, employees and representatives also breached
       that duty by failing to reasonably and prudently
       perform the Reinstallations so as to discover the
       hazardous condition that the Well Pump's operation was
       causing the pipe threads to become excessively worn,
       was indicating that the pipe threads were possibly out
       of round, was causing marks from a part dragging
       axially over the pipe thread tips, and/or that the
       pump was pulling out of collar; and, this hazardous
       condition of the Well Pump's operation allowed
       operating torques and vibrations to cause the Well
       Pump to rotate and unthread from the pipe column and
       caused the Well Pump to fall to the bottom of the
       well.
                                2.     The CGL policy

       ¶33    The     parties    agree    that       Consolidated's       policy      with

Water    Well    provides       an    initial    grant       of   coverage      for   the

allegations contained in Argonaut's complaint. We therefore move

to step two and compare pertinent paragraphs of the Argonaut

complaint,      described       above,    to    the    "Your      Product"     exclusion

found    in     the    policy    and     invoked       by    Consolidated      to     deny

coverage.       Because we conclude that the "Your Product" exclusion

applies, we do not consider whether another exclusion upon which

Consolidated        relies——the       "Your    Work"    exclusion——also         applies.

When    one      exclusion       applies        to     preclude       coverage,       the

inapplicability of another exclusion does not restore coverage.

See    Am.    Girl,    Inc.,    268    Wis. 2d 16,          ¶24   ("We   analyze      each

exclusion separately; the inapplicability of one exclusion will




                                           27
                                                                     No.    2014AP2484



not   reinstate     coverage      where   another      exclusion     has    precluded

it.").18

                         a.    "Your Product" exclusion

      ¶34    The CGL policy contains an exclusion for "Damage To

Your Product."          The "Your Product" exclusion precludes coverage

for: "'Property damage' to 'your product' arising out of it or

any part of it."         "Property damage" is defined by the CGL policy

to include "[p]hysical injury to tangible property" as well as

"[l]oss     of    use   of    tangible    property     that   is   not     physically

injured."        In addition, the policy defines "Your Product" to

include     "goods       or     products,      other    than       real     property,

manufactured, sold, handled, distributed or disposed of by" the

insured, Water Well.

      ¶35    Water Well argues that the "Your Product" exclusion

does not apply because the Argonaut complaint is ambiguous as to

what property was actually damaged when the well pump unthreaded

from the pipe column and fell to the bottom of the well, that it

is reasonable to infer existing pipes were also damaged, and
that any uncertainty must be resolved in Water Well's favor.

Contrary     to    Water      Well's     position,     we     conclude     that   the

complaint does not contain any ambiguity as to what property was

damaged.

      ¶36    The Argonaut complaint contains no allegation that any

damage occurred to anything other than Water Well's products.

      18
       We decide cases on the narrowest grounds possible.
Maryland Arms Ltd. P'ship v. Connell, 2010 WI 64, ¶48, 326
Wis. 2d 300, 786 N.W.2d 15.


                                          28
                                                                           No.   2014AP2484



The complaint alleges that Water Well's failure to install two

setscrews resulted in the well pump unthreading from the pipe

column, which caused the well pump to fall to the bottom of the

well.       The Argonaut complaint defines the well pump as "[A]

Baker     Hughes     Centrilift       Model       WME2700        5-stage     submersible

vertical turbine pump, and the pumping system, including but not

limited to, a column of pipes, screws, couplings, a pump, a

seal, a motor, and pump cable . . . ."                       Paragraph 10 of the

complaint details the products Water Well allegedly provided,

which included each of the components specifically detailed in

the definition of the well pump: the pump, seal, motor, heavy

wall column pipe, and pump cable.                 In sum, the complaint alleges

that the well pump fell to the bottom of the well, the well pump

is comprised of various components, and Water Well provided each

of the well pump components.                    We see no ambiguity in these

allegations.

      ¶37    Further,       there    is   absolutely        no    indication      in   the

complaint that any damage occurred to anything other than the
well pump.     Water Well argues that an inference can be made from

the     allegations     in    the    complaint       that        damage     occurred    to

preexisting pipes that would not fall within the "Your Product"

exclusion.      Water Well points to allegations in the complaint

that it performed rethreading of pipes and argues that these

allegations     establish      doubt      about    whether       the   "Your     Product"

exclusion applies.           We disagree and see nothing in the Argonaut

complaint suggesting that any preexisting products, including
preexisting        pipes,     were    damaged.         Instead,           the    Argonaut
                                           29
                                                                            No.      2014AP2484



complaint alleges damages to the well pump alone and nothing in

the definition of the well pump suggests that it was comprised

of any preexisting products.

       ¶38    The     inference      Water      Well      urges     us    to       draw    would

require       the     type   of   guess-work            and    supposition          repeatedly

rejected      in     Wisconsin's      duty-to-defend            jurisprudence.              See,

e.g.,     Sch.       Dist.   of     Shorewood       v.        Wausau     Ins.      Cos.,     170

Wis. 2d 347, 374, 488 N.W.2d 82, 92 (1992), abrogated on other

grounds by Johnson Controls, Inc. v. Emp'rs Ins., 2003 WI 108,

264 Wis. 2d 60, 665 N.W.2d 257; State Farm Fire & Cas. Co. v.

Easy PC Sols., LLC, 2016 WI App 9, ¶8, 366 Wis. 2d 629, 874

N.W.2d 585.           Again we reject the notion "that insurers must

speculate beyond the written words of the complaint and imagine

what kinds of claims for damages the plaintiffs are actually

making."            Midway   Motor      Lodge      v.    Hartford        Ins.      Grp.,     226

Wis. 2d 23, 36, 593 N.W.2d 852 (Ct. App. 1999).                             "Insurers are

not    mind    readers;      they    are     not    able       to   determine         all   the

potential issues that a plaintiff could have sought for every
complaint filed against them."                  Id.       A liberal construction of

the complaint does not mean the court should imagine facts not

even    loosely       pled   by   the    plaintiff.             Instead,       a   reasonable

inference is a conclusion reached on the basis of evidence and

reasoning, not imagination or speculation.                             See Inference The

American Heritage Dictionary of the English Language 899 (5th

ed. 2011) (defining           "inference" as "[t]he act or process of

deriving logical conclusions from premises known or assumed to
be true[]" and "[t]he act of reasoning from factual knowledge or
                                             30
                                                                    No.        2014AP2484



evidence.").        We cannot reasonably infer from the language of

the complaint any damage to property other then the well pump.

      ¶39    In comparing the four corners of the complaint to the

policy terms, we determine that the "Your Product" exclusion

applies.          There   are    no   exceptions    to    the    "Your         Product"

exclusion.        Therefore, coverage is barred, Consolidated did not

breach its duty to defend Water Well in the Argonaut action, and

Consolidated is entitled to summary judgment as a matter of law.

                                  IV.   CONCLUSION

      ¶40    We conclude that the longstanding four-corners rule in

duty to defend cases requires the court to compare the language

in the complaint to the terms of the entire insurance policy,

without     considering     extrinsic    evidence,       even   when      an    insurer

unilaterally declines to defend its insured.                    We also conclude

that the "Your Product" exclusion in the CGL policy applies and

no   exceptions      to   this   exclusion   restore      coverage;       therefore,

based on the allegations set forth in the four corners of the

complaint, no coverage exists under the policy.                        Accordingly,
Consolidated did not breach its duty to defend Water Well in the

Argonaut     action       and    Consolidated      is    entitled      to       summary

judgement as a matter of law.

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

affirmed.




                                        31
                                                         No.    2014AP2484.awb




    ¶41   ANN WALSH BRADLEY, J.          (dissenting).         I agree with

the majority that the four-corners rule includes consideration

of exclusions as well as exceptions to those exclusions in an

insurance policy.      I write separately because I disagree with

the majority's conclusion to foreclose a narrow exception to the

four-corners rule.     Majority op., ¶24.

    ¶42   The majority's decision today is at loggerheads with

the national trend.      It puts Wisconsin among the 14 and ever

dwindling number of jurisdictions that have clearly declined to

recognize any exceptions to the four-corners rule.

    ¶43   In contrast, a majority of states allow for exceptions

to the rule.      The proposed exception here is narrower in scope

and more modest in comparison to the exceptions adopted by many

other jurisdictions.

    ¶44   But it is more than merely being out of step with a

national trend that compels the conclusion that the majority

opinion is infirm.     It turns a blind eye to basic and heretofore
well-recognized    principles   of   insurance   law:          the   duty   to

investigate, privity, and the broad application of the duty to

defend.

    ¶45   Most     egregious,   however,    is   that    the     majority’s

approach is offensive to our system of justice.           In a different

context, when a court gives the jury its charge at the close of

the trial, the court states:     "let your verdict speak the truth,




                                     1
                                                                              No.    2014AP2484.awb


whatever the truth may be."1                     The majority opinion advises to the

contrary.

       ¶46     According to the majority, facts known to the insurer

that       could    support        a    duty     to     defend       cannot    be     considered.

Rather,      the    insurer         has       license    to    deny    its     duty    to    defend

unless those known facts appear within the four corners of the

complaint.         A system of justice cannot countenance a rule that

encourages         insurers        to     defy    reality       by    ignoring       known     facts

beneficial to its insured.                       Such a rule distorts rather than

promotes the concepts of fairness and justice.

       ¶47     Contrary        to       the    majority,       I     conclude       that    when   a

complaint is factually incomplete or ambiguous, Wisconsin should

adopt the narrow known fact exception to the four-corners rule

as presented by Water Well.

       ¶48     I also conclude that the "Your Product" exclusion does

not    bar     coverage.           In    reaching       an     opposite       conclusion,       the

majority       pays      lip        service       to,     but        does     not     follow    the

longstanding         rule      that        courts       must       liberally        construe     the
allegations         of    the           complaint       and        assume      all     reasonable

inferences in favor of the insured.

       ¶49     Finally,        I    conclude       that       the    "Your    Work"     exclusion

likewise does not preclude coverage because the subcontractor

exception to the "Your Work" exclusion applies.                                 Accordingly, I

respectfully dissent.




       1
           Wis JI——Civil 191 at 3 (2016).


                                                   2
                                                                     No.    2014AP2484.awb


                                            I

       ¶50    In reaching its "unequivocal" conclusion that there

are no exceptions to the four-corners rule, the majority fails

to account for the limited circumstances in which refusing to

consider known facts extrinsic to the complaint would unfairly

deny    an    insured    the    benefit      of    a     defense   to      which    it   is

entitled.      Majority op., ¶24.

       ¶51    Water   Well     seeks   a    limited       exception     to    the   four-

corners rule in cases where:               (1) the policy provides an initial

grant of coverage based on facts alleged in the complaint; (2)

the insurer denies a duty to defend its insured based on the

application of specific policy exclusions but without seeking a

coverage determination from a court; and (3) the insured asserts

that    the    underlying       complaint         is     factually      incomplete       or

ambiguous.      See majority op., ¶2.

       ¶52    The limited exception at issue here is consistent with

the national trend to allow for exceptions to the four-corners

rule.    See 14 Steven Plitt et al., Couch on Insurance § 200:17
at 200-30 (3d ed. 2015) ("A modern trend is for insurers to

conduct a reasonable investigation of the claims prior to making

a determination on the duty to defend a particular lawsuit.

Consequently,     some    jurisdictions           look    to   actual      knowledge     of

facts or extrinsic facts, in addition to the allegations of the

complaint, when determining an insurer's duty.").




                                            3
                                                  No.   2014AP2484.awb


     ¶53   A majority of states allow for exceptions to the four-

corners rule.2   Water Well seeks an exception that is narrower in




     2
       Currently, thirty-one states allow for exceptions to the
four-corners rule in determining whether a duty to defend
exists.   Chandler v. Alabama Mun. Ins. Co., 585 So. 2d 1365,
1367 (Ala. 1991); Williams v. GEICO Cas. Co., 301 P.3d 1220,
1225 (Alaska 2013); Regal Homes, Inc. v. CNA Ins., 217 P.3d 610,
¶19 (Ariz. Ct. App. 2007); Safeco Ins. Co. of America v.
Fireman’s Fund Ins. Co., 55 Cal. Rptr. 3d 844, 850 (Ct. App.
2007); Hartford Cas. Ins. Co. v. Litchfield Mut. Fire Ins. Co.,
876 A.2d 1139, 1145-1146 (Conn. 2005); Shafe v. Am. States Ins.
Co., 653 S.E.2d 870, 874 (Ga. 2007); Sentinel Ins. Co. v. First
Ins. Co. of Haw., 875 P.2d 894, 905 (Haw. 1994); Shriver Ins.
Agency v. Utica Mut. Ins. Co., 750 N.E.2d 1253, 1259 (Ill.
2001); Talen v. Emp’rs Mut. Cas. Co., 703 N.W.2d 395, 406 (Iowa
2005); Miller v. Westport Ins. Corp., 200 P.3d 419, 424 (Kan.
2009); Aetna Cas. & Sur. Co. v. Cochran, 651 A.2d 859, 864 (Md.
1995); Herbert A. Sullivan, Inc. v. Utica Mut. Ins. Co., 788
N.E.2d 522, 530 (Mass. 2003); Am. Bumper & Mfg. Co. v. Hartford
Fire Ins. Co., 550 N.W.2d 475, 452 (Mich. 1996); Pedro Cos. v.
Sentry Ins., 518 N.W.2d 49, 51 (Minn. Ct. App. 1994); Auto. Ins.
Co. of Hartford v. Lipscomb, 75 So.3d 557, 559 (Miss. 2011);
Allen v. Cont'l W. Ins. Co., 436 S.W.3d 548, 552-53 (Mo. 2014);
Revelation Industries, Inc. v. St. Paul Fire & Marine Ins. Co.,
206 P.3d 919, 926 (Mont. 2009); Peterson v. Ohio Cas. Group, 724
N.W.2d 765, 773-774 (Neb. 2006); Ross v. Home Ins. Co., 773 A.2d
654, 657 (N.H. 2001); Abouzaid v. Mansard Gardens Assocs., LLC,
23 A.3d 338, 347 (N.J. 2011); Sw. Steel Coil, Inc. v. Redwood
Fire & Casualty Ins. Co., 148 P.3d 806, 812 (N.M. 2006);
Cumberland Farms, Inc. v. Tower Grp., Inc., 28 N.Y.S.3d 119, 122
(N.Y. App. Div. 2016); Duke University v. St. Paul Fire & Marine
Ins. Co., 386 S.E.2d 762, 764 (N.C. 1990); Great Am. Ins. Co. v.
Hartford Ins. Co., 621 N.E.2d 796, 798 (Ohio 1993); First Bank
of Turley v. Fid. & Deposit Ins. Co., 928 P.2d 298, 303 (Okla.
1996); City of Hartsville v. S.C. Mun. Ins. & Risk Fin. Fund,
677 S.E.2d 574, 578-79 (S.C. 2009); State Farm Fire & Cas. Co.
v. Harbert, 741 N.W.2d 228, 234 (S.D. 2007); Fire Ins. Exchange
v. Estate of Therkelsen, 27 P.3d 555, ¶¶24-25 (Utah 2001); R.L.
Vallee, Inc. v. Am. Intern. Specialty Lines Ins. Co., 431 F.
Supp. 2d 428, 438 (D. Vt. 2006); Campbell v. Ticor Title Ins.
Co., 166 Wash. 2d 466, 471 (Wash. 2009); Farmer & Mechs. Mut.
Ins. Co. of W. Va. v. Cook, 557 S.E.2d 801, 806 (W. Va. 2001).

                                                        (continued)
                                 4
                                                                    No.   2014AP2484.awb


scope and more modest in comparison to the exceptions adopted in

many other jurisdictions.          For example, in Washington, there are

two exceptions to the four-corners rule.                Woo v. Fireman's Fund

Ins. Co., 164 P.3d 454, 459 (Wash. 2007).                 First, if it is not

clear from the complaint that the policy provides coverage, the

insurer must investigate and give the insured the benefit of the

doubt that there is a duty to defend.             Id.

      ¶54   Second, as is the case here, if the allegations in the

complaint conflict with facts known or readily ascertainable by

the   insurer,   or     if   the    allegations      in       the     complaint      are

ambiguous   or   inadequate,       facts   outside      the    complaint       may   be

considered.      Id.     Additionally, although extrinsic facts may

trigger the duty to defend, an insurer may not rely on extrinsic

facts to deny the duty to defend.           Id.

      ¶55   Kansas     provides     another   example.               In    Miller    v.

Westport Ins. Corp., 200 P.3d 419, 424 (Kan. 2009), the court

explained that an insurer "must look beyond the effect of the

     In four states, because of conflicting cases, it is unclear
whether they allow for exceptions to the four-corners rule.
Compare Cotter Corp. v. Am. Empire Surplus Lines Ins. Co., 90
P.3d 814, 829 (Colo. 2004), with United Fire & Cas. Co. v.
Boulder Plaza Residential, LLC, 633 F.3d 951, 960-61 (10th Cir.
2011); compare Transamerica Ins. Services v. Kopko, 570 N.E.2d
1283, 1285 (Ind. 1991), with Ind. Farmers Mut. Ins. Co. v. N.
Vernon Drop Forge, Inc., 917 N.E.2d 1258, 1268 (Ind. Ct. App.
2009) (citing Auto-Owners Ins. Co. v. Harvey, 842 N.E.2d 1279,
1291 (Ind. 2006); compare James Graham Brown Found., Inc. v. St.
Paul Fire & Marine Ins. Co., 814 S.W.2d 273, 279 (Ky. 1991),
with Lenning v. Commer. Union Ins. Co., 260 F.3d 574, 581 (6th
Cir. 2001); compare GuideOne Elite Ins. Co. v. Fielder Road
Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006), with Weingarten
Realty Mgmt Co. v. Liberty Mut. Fire Ins. Co., 343 S.W.3d 859
(Tex. Ct. App. 2011).


                                       5
                                                                         No.    2014AP2484.awb


pleadings and must consider any facts brought to its attention

or any facts which it could reasonably discover in determining

whether it has a duty to defend."                          Under this approach, "the

universe        of     information       from        which     th[e]     potential          [for

coverage] must be ascertained is much greater than the universe

used    in   an       approach    limited       to     the . . . pleading             and   the

applicable        insurance       policy."           Id.     (internal     citations         and

quotation omitted).

                                               II

       ¶56   Not only is the majority opinion out of step with the

national trend and at odds with the majority of states, it also

contravenes basic principles of insurance law.

                                               A

       ¶57   A basic principle of insurance law is that the insurer

is to investigate the facts when a claim is made.                                      Trinity

Evangelical          Lutheran    Church       and    Sch.-Freistadt       v.        Tower   Ins.

Co., 2003 WI 46, ¶54, 261 Wis. 2d 333, 661 N.W.2d 789.

       ¶58   This principle is supported by Marks v. Houston Cas.
Co., 2016 WI 53, ¶41, __ Wis. 2d __, __ N.W.2d __, which is

being released concurrently with this decision today.                                In Marks,

we explain that "'[t]he applicability of an exclusion, however,

is     rarely     obvious       from    the     allegations       in     the        complaint.

Insurers     often      have     to    rely    on    investigation,        discovery        and

other    information        not       stated    in    the     complaint        to    determine

whether an exclusion applies.'"                     Id. (citing Peter F. Mullaney,

Liability Insurers' Duty to Defend, Wis. Law., at 10-11 (July
1995)).

                                               6
                                                                         No.   2014AP2484.awb


       ¶59    The two opinions released concurrently today appear

facially inconsistent in regards to the duty to investigate.

Marks supports the duty to investigate, and the majority here

discards it.           In contravening this basic principle of insurance

law,   the    majority          incentivizes         an   insurer     to    disregard         its

factual investigation and to pretend that it cannot see a known

fact which would give rise to a duty to defend.

       ¶60    The       exceptions        to   the    four-corners         rule     in       other

jurisdictions recognize this basic principle.                              For example, in

Washington,        if    it    is   not    clear      from    the    complaint      that      the

policy    provides           coverage,     the   insurer      "must    investigate"            and

give the insured the benefit of the doubt that there is a duty

to defend.         Woo, 164 P.3d at 459.

       ¶61    Likewise, in Oklahoma an insurer has a duty to defend

"whenever it ascertains the presence of facts that give rise to

the potential of liability under the policy."                               First Bank of

Turley v. Fid. and Deposit Ins. Co. of Md., 928 P.2d 298, 303

(1996).      An insurer's duty to defend is determined on the basis
of information provided to the insurer from the pleadings, the

insured, and other sources available to the insurer.                              Id.

                                                 B

       ¶62    Also integral to insurance law, and contract law in

general,     is     the      concept      of   privity.        As    Judge     Riley     aptly

explains      in       his    dissent     below,      the     approach      taken       by    the

majority negates the concept of privity.                       Water Well Sols. Serv.

Grp.   Inc.       v.    Consol.     Ins.       Co.,    2015    WI    App    78,     ¶24,       365
Wis. 2d 223,           871    N.W.2d 276       (Reilly,       P.J.    dissenting).             He

                                                 7
                                                                    No.    2014AP2484.awb


admonishes that "[i]t is absurd to allow an entity that has no

privity of contract to dictate whether the contract provides

defense and coverage."           Id.    Emphasizing the problem with the

unilateral     control    of   a   third-party,            he    observes       that   the

majority’s approach "allows a litigant who is not a party to a

contract of insurance to unilaterally control whether . . . the

[] policy provides coverage when that litigant has no privity in

the contract."       Id., ¶21.

    ¶63       Yet again, other jurisdictions allow for an exception

to the four-corners rule when a third-party not in privity to an

insurance contract fails to allege facts relevant to the duty to

defend   in    its   complaint.        As       the    Supreme    Court     of    Montana

explained, an insurer cannot ignore knowledge of facts because a

complaint drafted by a third-party does not allege facts of

which the insurer has knowledge.                 Revelation Indus. Inc. v. St.

Paul Fire & Marine Ins. Co., 206 P.3d 919, 928 (Mont. 2009).

Under    these       circumstances,         an        insurer    may      not     "ignore

information in its possession that may give rise to coverage
simply because the complaint fails to recite it, and thereupon

refuse to defend."       Id.

                                            C

    ¶64       A third basic principle of insurance law is that the

duty to defend is broader than the duty to indemnify.                           Fireman's

Fund Ins. Co. of Wis. v. Bradley Corp., 2003 WI 33, ¶20, 261

Wis. 2d 4, 660 N.W.2d 666.             Nevertheless, the majority opinion

does just the opposite and circumscribes the duty to defend.



                                            8
                                                            No.   2014AP2484.awb


      ¶65    The Connecticut Supreme Court eschewed the absolutist

approach that the majority now embraces and determined that such

an approach would narrow the duty to defend.            It explained that

a "wooden application" of the four-corners rule would "render

the   duty   to   defend    narrower    than   the   duty   to    indemnify."

Hartford Cas. Ins. Co. v. Litchfield Mut. Fire Ins. Co., 876

A.2d 1139, 1146 (Conn. 2005); see also Fitzpatrick v. Am. Honda

Motor Co., 575 N.E.2d 90, 92 (N.Y. 1991) ("where the insurer is

attempting to shield itself from the responsibility to defend

despite its actual knowledge that the lawsuit involves a covered

event, wooden application of the 'four corners of the complaint'

rule would render the duty to defend narrower than the duty to

indemnify——clearly     an     unacceptable     result.").          Thus,    the

Hartford court reasoned that "the sounder approach is to require

the insurer to provide a defense when it has actual knowledge of

facts establishing a reasonable possibility of coverage."               Id.

                                       III

      ¶66    Prior Wisconsin decisions have likewise considered an
exception to the four-corners rule when the allegations of the

complaint conflict with the known facts of the case or where the

allegations are ambiguous or incomplete:

      [T]here are also a number of cases involving special
      situations not covered directly by the general
      rules . . . These     special    situations     exist
      particularly where there is a conflict of allegations
      and known facts [and] where the allegations are
      ambiguous or incomplete . . . .
Estate of Sustache, 2007 WI App 144, ¶11, 303 Wis. 2d 714, 735
N.W.2d 186, aff'd sub nom. Estate of Sustache v. Am. Family Mut.


                                        9
                                                            No.   2014AP2484.awb


Ins. Co., 2008 WI 87, 311 Wis. 2d 548, 751 N.W.2d 845 (citation

omitted); see also Grieb v. Citizens Cas. Co. of New York, 33

Wis. 2d 552, 148 N.W.2d 103 (1967).

    ¶67     As the court of appeals explained in Sustache, it is

reasonable to consider a situation where the facts of a case

merit a defense, but the third-party complaint fails to allege

those facts.      303 Wis. 2d 714, ¶20.       In that situation "it would

seem that the insured should be entitled to a defense for which

the insurer has been paid a premium.                The four-corners rule

shuts down that entitlement."         Id.

    ¶68     Furthermore, Wisconsin has already allowed known facts

extrinsic    to    the    complaint     to    be   considered     in   limited

exceptions   to    the   four-corners      rule.    In   Berg   v.   Fall,   138

Wis. 2d 115, 122 405 N.W.2d 701 (Ct. App. 1987), the court of

appeals considered extrinsic facts because there was a conflict

between the allegations in the complaint and the actual facts of

the case.    The Berg court emphasized that an insurer's duty to

defend may require consideration of extrinsic facts when "the
pleadings allege facts that are within an exception to a policy

but the true facts are within, or potentially within, policy

coverage and are known or are reasonably ascertainable by the

insurer."    Id. at 122-123 (citing 7C Appleman, Insurance Law and

Practice, sec. 4683 at 56 (1979)).

    ¶69     Admittedly,    this   court      has   previously     declined   to

follow Berg.      In a footnote in Doyle v. Engelke, we explained

that Berg is contrary to a "long line of cases in this state
which indicate that courts are to make conclusions on coverage

                                      10
                                                                 No.   2014AP2484.awb


issues based solely on the allegations within the complaint."

219 Wis. 2d 277, 284 n.3, 580 N.W.2d 245 (1998); see also Smith

v.   Katz,    226      Wis. 2d 798,      815-16,      595    N.W.2d 345      (1999).

However, none of these decisions foreclosed the possibility of

allowing for a know fact exception in cases such as this when

the allegations in the complaint are incomplete or ambiguous.3

                                         IV

     ¶70     Rather     than   acknowledge           that   there      are   limited

circumstances in which a duty to defend analysis may allow for

consideration of known facts extrinsic to the complaint, the

majority asserts that its rigid four-corners analysis benefits

an insured even after its insurer unilaterally denies coverage.

Majority op., ¶26.         According to the majority, under the four-

corners    rule   "a    plaintiff      has    both    the   opportunity      and   the

incentive to file an amended complaint" if discovery results in

additional    facts     that   would    trigger      a   duty   to   defend.       Id.

Thus, the majority reasons that because a plaintiff will want

coverage for the defendant-insured, it will amend its complaint
to trigger the duty to defend.                Id. (citing Sheila M. Sullivan




     3
       In Estate of Sustache, the court of appeals examined
whether the exceptions to the four-corners rule acknowledged in
Griebe had been foreclosed by Doyle and Smith, but ultimately
concluded only that "this issue warrants supreme court comment
at some point in the future."    Estate of Sustache, 2007 WI App
144, ¶20, 303 Wis. 2d 714, 735 N.W.2d 186.


                                         11
                                                                       No.    2014AP2484.awb


et al., Anderson on Wisconsin Insurance Law § 7.27 at 29 (7th

ed. 2015)).4

      ¶71    The       majority's       hypothetical       solution      to    an      unfair

denial of the duty to defend fails to take into account the

realities of litigation.                An assumption that a plaintiff will

seek insurance coverage does not apply in every case, such as

when a plaintiff wishes to apply pressure to a defendant who has

the capacity to satisfy a judgment without insurance.                           Even if a

plaintiff is inclined to amend the complaint, a defendant whose

insurer has unilaterally denied the duty to defend will have to

provide for the costs of its own defense until some unknown date

when the plaintiff may amend the complaint.                           Not every insured

can   bear       the     costs    of     its       own   defense      during     prolonged

litigation and may be forced to settle a meritless claim out of

necessity.

      ¶72    In this case, the majority's repeated refrain that the

four-corners        rule     benefits        the    insured    rings     hollow.          See

majority op., ¶3 ("we reject Water Well's request to craft a
limited     exception        to   the    four-corners         rule,    which     has     long

endured     to     the     benefit      of     Wisconsin      insureds");        see     also

majority     op.,      ¶25   ("We      have    applied     the     four-corners         rule,


      4
       The assumption that a plaintiff will amend a complaint to
trigger insurance coverage for a defendant after new facts arise
in discovery is undermined by Atlantic Mut. Ins. Co. v. Badger
Medical Supply Co., 191 Wis. 2d 229, 241, 528 N.W.2d 486 (1995),
in which the defendant arguing in favor of coverage alleged that
facts discovered in depositions triggered insurance coverage.
However, the Atlantic court determined that no allegations in
the amended complaint supported the insured's argument. Id.


                                               12
                                                                              No.   2014AP2484.awb


without exceptions, in duty to defend cases for so long because

it   generally        favors       Wisconsin        insureds.");         majority      op.,    ¶26

("The four-corners rule ultimately favors insureds in another

way.").

       ¶73   One          has     to   wonder       if    the      majority's        absolutist

application          of    the     four-corners           rule    is     as     beneficial      to

insureds as the majority proclaims, then why is the insured

losing here?

       ¶74   Its proffered concerns regarding the consideration of

extrinsic       facts       are    equally       unpersuasive.              According     to   the

majority, recognizing exceptions to the four-corners rule would

require insurers to "imagine claims the plaintiff might have

made."       Majority           op.,   ¶25     n.   15.      The    majority         conjures    a

scenario        in    which        "this       judicially-created              burden"       would

"rewrite the contractual duty to defend to be triggered whenever

any claim is made rather than only those claims covered under

the actual policy terms."                 Id.

       ¶75   The majority's reasoning is misguided because allowing
consideration of extrinsic facts in this case would not require

Consolidated          to        imagine    any      claims       other      than     those     the

plaintiff has already alleged.                        As the majority acknowledges,

Consolidated does not dispute that there is an initial grant of

coverage based on the claims alleged in the complaint.                                  Majority

op.,     ¶35.         Instead,         Water     Well      seeks       to     introduce      facts

extrinsic to the complaint in order to support its argument that

the "Your Product" exclusion, invoked by Consolidated in its
unilateral denial of its duty to defend, does not apply.

                                                 13
                                                                        No.     2014AP2484.awb


       ¶76       A rule that would create a presumption in favor of an

insured's duty to defend is consistent with an insurer's broad

duty to defend.             See, e.g., Olson v. Farrar, 2012 WI 3, ¶2, 338

Wis. 2d 215,          809    N.W.2d 1.          As     this     court     has    repeatedly

declared, "[i]f there is any doubt about the duty to defend, it

must be resolved in favor of the insured."                          Elliot v. Donahue,

169 Wis. 2d 310, 321, 485 N.W.2d 403 (1992).

       ¶77       The majority recites the law regarding an insurer's

broad duty to defend, and acknowledges that its decision may

circumscribe that duty.              See majority op., ¶30 n.17.                 Given that

even       the    majority        recognizes        that   an    insurer's       unilateral

refusal to defend is disfavored, I fail to understand how a rule

that       encourages       insurers    to     refuse,     rather       than    provide,    a

defense          is   consistent       with     this       court's      well-established

precedent.5           Majority op., ¶27 (citing Liebovich v. Minn. Ins.

Co., 2008 WI 75, ¶55, 310 Wis. 2d 751, 751 N.W.2d 764).

       ¶78       At the heart of its analysis, the majority protests

the    efficacy        of   the    known     fact     exception     and    predicts      dire
consequences if it is adopted.                       Such protests and predictions

are out of step with the national trend and prove unpersuasive.

The majority of states that have adopted exceptions have not

reported the hypothetical quagmires forewarned by the majority.

Indeed, the sky above those states has not fallen.


       5
       Although the majority sets forth the judicially-preferred
approaches to determining coverage, its absolutist approach to
the four-corners rule may incentive insurers to unilaterally
deny coverage instead.


                                               14
                                                                 No.   2014AP2484.awb


                                         V

      ¶79   The majority pays lip service to its obligation to

liberally construe the allegations contained in the complaint,

assume all reasonable inferences from the allegations made in

the   complaint,     and    resolve     any    ambiguity    in     favor       of    the

insured.     Majority op.,        ¶15 (citing      Estate of Sustache, 311

Wis. 2d 548, ¶21).          However, it fails to follow this directive

in    its    analysis       of    the    "Your     Product"        exclusion         in

Consolidated's policy.

      ¶80   Consolidated's policy excludes coverage for "'Property

damage' to 'your product' arising out of it or any part of it."

It defines "Your product" as "[a]ny goods or products, other

than real property, manufactured, sold, handled, distributed or

disposed of by [] you."

      ¶81   Water    Well     argues    that     that    the     "Your     Product"

exclusion does not apply because the complaint is ambiguous as

to what property was damaged when the well pump fell to the

bottom of the well.         According to the majority, "[t]he Argonaut
complaint contains no allegation that any damage occurred to

anything other than Water Well's products."                Majority op., ¶36;

see also Majority op., ¶37 ("there is absolutely no indication

in the complaint that any damage occurred to anything other than

the well pump.").       Thus, the majority concludes that that "Your

Product" exclusion applies and that Consolidated had no duty to

defend Water Well.

      ¶82   Contrary to the majority, I would draw all reasonable
inferences    in    favor    of   the   insured.        Although       there    is   no

                                        15
                                                                             No.    2014AP2484.awb


allegation of damage to any pre-existing product, there is also

no allegation that when the pump fell to the bottom of the well

the damage was exclusively to Water Well's products.                                 It is just

as reasonable to infer that other products were damaged as it is

to infer that only Water Well's products were damaged.

       ¶83   In particular, the complaint alleges that the damaged

well    pump     included       a        "column         of      pipes."         Based     on    the

allegations in the complaint, it is reasonable to infer that the

column of pipes consisted of pipe that was not Water Well's

product.     For     example,       the        complaint         alleges    that     Water       Well

"install[ed] at least 1 new fourteen-foot section of pipe."                                        It

also alleges that Water Well "rethread[ed] pipe as needed."

       ¶84   Thus, it is also reasonable to infer that Water Well

installed only one new section of pipe and that it only repaired

some of the other existing pipe as needed.                                After resolving all

ambiguity in favor of the insured, I conclude that the "Your

Product" exclusion does not apply and Consolidated had a duty to

defend Water Well.
       ¶85   Alternatively,              if    the       known    facts     extrinsic      to     the

complaint      are    considered,              it    is    undeniable        that    the        "Your

Product" exclusion does not apply.                            In its motion for summary

judgment       before    the        circuit          court,        Water     Well    introduced

uncontested evidence that that the alleged damage to the city

well   included       damage        to    product          that     was    not     Water    Well's

product.         Water    Well's              operations          manager    averred       in      an

affidavit that although the pipe column in the well did contain
new pipe provided by Water Well, it also contained pre-existing

                                                    16
                                                               No.   2014AP2484.awb


pipe.    The affidavit further stated that Water Well reused most

of the pre-existing pipe sections and only cut and rethreaded

(through the work of a subcontractor) those sections of the pre-

existing pipe that needed repairing.

     ¶86       Considering Water Well's affidavit, it appears that

products other than Water Well's, such as the pre-exiting pipe,

were damaged when the pump fell to the bottom of the well.

These are known facts that are not explicitly included in the

allegations in the complaint.                 However, if we consider these

extrinsic facts, the "Your Product" exception does not apply and

Consolidated would have a duty to defend Water Well.

                                         VI

     ¶87       Because I conclude that the "Your Product" exclusion

does not apply, I must examine whether the "Your Work" exclusion

applies.6       Consolidated's policy excludes "'Property damage'" to

'your work' arising out of it or any part of it . . ."                   However,

there    is    an    exception    to   the    exclusion.    The      "Your    Work"

exclusion does not apply "if the damaged work or the work out of
which    the    damage   arises    was   performed    on   your      behalf   by   a

subcontractor."

     ¶88       Water Well argues that the "Your Work" exclusion does

not apply because the subcontractor exception restores coverage.

Although       the   complaint    does   not    specifically    allege    that     a


     6
       The majority does not address the "Your Work" exclusion
because it determines that the "Your Product" exclusion applies.
Majority op., ¶33 (citing Am. Family Mut. Ins. Co. v. Am. Girl,
Inc., 2004 WI 2, ¶24, 268 Wis. 2d 16, 673 N.W.2d 65).


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subcontractor performed the work out of which the damage arose,

the   allegations         in    the    complaint          repeatedly       refer       to    "Water

Well, its agents, employees and representatives."

      ¶89    The term "agent" is very broad and can be understood

to    include       a     subcontractor            when      assuming       all       reasonable

inferences in favor of the insured.                               See, e.g., Black's Law

Dictionary 75 (10th ed. 2014) (defining "agent" as "[s]omeone

who   is    authorized          to    act    for        or   in    place       of    another;     a

representative"); see also Restatement (Third) of Agency, § 1.01

(Am. Law Inst. 2006) ("Agency is the fiduciary relationship that

arises     when     one       person    (a    'principle')           manifests          asset    to

another person (an 'agent') that the agent shall act on the

principal's behalf and subject to the principal's control, and

the agent manifests assert or otherwise consents so to act.").

Thus, the subcontractor exception to the "Your Work" exclusion

ought to apply to reinstate coverage.

      ¶90    Alternatively,             if    we         consider        the        known     facts

extrinsic      to       the    complaint,          there      is    no     doubt       that     the
subcontractor exception applies to restore coverage under the

"Your      Product"       exclusion.         At        summary     judgment,         Water      Well

introduced evidence that a subcontractor performed work on the

well, including cutting and rethreading pipe and drilling and

tapping screw holes.                 Attached to Water Well's affidavit is an

invoice from a subcontractor detailing its work on the well

pump.

      ¶91    Considering             Water    Well's         affidavit,         the      attached
receipt substantiates that a subcontractor performed work on the

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well pump.        Thus, the known facts extrinsic to the complaint

demonstrate that the subcontractor exception to the "Your Work"

exclusion restores coverage.

                                              VII

    ¶92     In    sum,       I    conclude         that   when    the        complaint   is

factually incomplete or ambiguous, Wisconsin should adopt the

narrow    known       fact       exception     to     the    four-corners         rule   as

presented by Water Well.                 To do otherwise unfairly denies an

insured the benefit of a defense to which it is entitled.

    ¶93     I    also    conclude        that       neither      the    "Your     Product"

exclusion       nor    the       "Your    Work"        exclusion       bars      coverage.

Accordingly, I respectfully dissent.

    ¶94     I    am    authorized        to    state      that   Justice       SHIRLEY   S.

ABRAHAMSON joins this dissent.




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