                                                              2020 WI 13

                  SUPREME COURT            OF    WISCONSIN
CASE NO.:              2018AP116


COMPLETE TITLE:        Roger Choinsky, Gary Finn, William Gay, David
                       Kliss, Carol

                       Rudebeck and Janice Weinhold,

                                   Plaintiffs,

                           v.

                       Employers Insurance Company of Wausau and Wausau
                       Business

                       Insurance Company,

                                   Intervenors-Respondents,

                       Germantown School District Board of Education
                       and

                       Germantown School District,

                                   Defendants-Appellants-Petitioners.

                         REVIEW OF DECISION OF THE COURT OF APPEALS
                       Reported at 2019 WI App 12, 386 Wis. 2d 285,926
                                   N.W.2d 196 - Published

OPINION FILED:         February 13, 2020
SUBMITTED ON BRIEFS:
ORAL ARGUMENT:         October 28, 2019

SOURCE OF APPEAL:
   COURT:              Circuit
   COUNTY:             Washington
   JUDGE:              Todd K. Martens

JUSTICES:
REBECCA GRASSL BRADLEY, J., delivered the majority opinion of
the Court, in which ROGGENSACK, C.J., ANN WALSH BRADLEY,
ZIEGLER, and DALLET, JJ., joined. KELLY, J., filed a dissenting
opinion.
NOT PARTICIPATING:
HAGEDORN, J., did not participate.
ATTORNEYS:



      For the defendants-appellants-petitioners, there were briefs
filed by Kirk D. Strang, Jenna E. Rousseau and Strang, Patteson,
Renning, Lewis & Lacy, S.C., Madison and Green Bay.   There was an
oral argument by Kirk D. Strang.


      For the intervenors-respondents, there was a brief filed by
Thomas R. Schrimpf and Hinshaw & Culbertson LLP, Milwaukee, and
Todd G. Smith and Godfrey & Kahn, S.C., Madison. There was an oral
argument by Thomas R. Schrimpf.


      For amicus Wisconsin Insurance Alliance, a brief was filed by
Robert I. Fassbender and Great Lakes Legal Foundation, Madison.




                                   2
                                                                  2020 WI 13
                                                          NOTICE
                                            This opinion is subject to further
                                            editing and modification.   The final
                                            version will appear in the bound
                                            volume of the official reports.
No.   2018AP116
(L.C. No.   2013CV527)

STATE OF WISCONSIN                      :              IN SUPREME COURT

Roger Choinsky, Gary Finn, William Gay, David
Kliss, Carol

Rudebeck and Janice Weinhold,

            Plaintiffs,

      v.

Employers Insurance Company of Wausau and
                                                                FILED
Wausau Business
                                                           FEB 13, 2020
Insurance Company,
                                                               Sheila T. Reiff
                                                           Clerk of Supreme Court
            Intervenors-Respondents,

Germantown School District Board of Education
and

Germantown School District,

            Defendants-Appellants-Petitioners.



REBECCA GRASSL BRADLEY, J., delivered the majority opinion of the
Court, in which ROGGENSACK, C.J., ANN WALSH BRADLEY, ZIEGLER, and
DALLET, JJ., joined. KELLY, J., filed a dissenting opinion.

HAGEDORN, J., did not participate.




      REVIEW of a decision of the Court of Appeals.          Affirmed.
                                                               No.   2013CV52718AP116



     ¶1     REBECCA       GRASSL   BRADLEY,      J.     The    Germantown    School

District    Board    of    Education      and    Germantown      School    District

(collectively, the "School District") seek review of a court of

appeals    decision1       affirming    the      circuit      court's   order    and

judgment,2 which denied the School District's motion for attorney

fees.     The School District argues that its insurers, Employers

Insurance Company of Wausau and Wausau Business Insurance Company

(collectively, the "Insurer"), breached the duty to defend the

School    District    in    a   lawsuit       brought   by    retired   employees;

therefore, the School District claims its Insurer should pay, as

a remedy for the breach, all the attorney fees incurred by the

School District.3

     ¶2     This case presents an insurance coverage duty-to-defend

issue of first impression:             does an insurer breach its duty to

defend its insured when it denies a tendered claim and then follows

the judicially preferred procedure of filing a motion to intervene


     1 Choinsky v. Germantown Sch. Dist. Bd. of Educ., 2019 WI App
12, 386 Wis. 2d 285, 926 N.W.2d 196.
     2 The Honorable James G. Pouros of the Washington County
Circuit Court presided until January 2015 when the case was
reassigned to the Honorable Todd K. Martens.

     Two of the dates in the circuit court's November 30, 2017
Order for Judgment and Judgment (Record item No. 590) are
incorrect. The year "2017" in the second and third lines should
be "2016."    Both the coverage trial and the special verdict
resulting therefrom occurred in April 2016, not April 2017.
     3 The final circuit court order and judgment from which the
School District appealed addressed only attorney fees with respect
to coverage, not disputed fees relating to the liability defense.

                                          2
                                                       No.    2013CV52718AP116



and stay the underlying lawsuit pending a coverage determination,

which is ultimately resolved in the insured's favor? Additionally,

we consider the insurer's obligations in order to avoid breaching

its duty to defend when the circuit court denies the motion to

stay.4

     ¶3        We conclude that when an insurer initially denies a

tendered claim but promptly proceeds with one of our judicially

preferred methods for determining coverage, it does not breach its

duty to defend.     If a circuit court denies any part of an insurer's

motion    to    bifurcate   the   coverage   issue   from    the   underlying

liability lawsuit and stay the latter, causing an insured to

simultaneously defend the liability suit and litigate coverage

against the insurer, an insurer must defend its insured in the

liability lawsuit, retroactive to the date of tender, under a

reservation of rights, until a court decides the coverage issue.

Because the School District's Insurer followed this procedure, the

Insurer did not breach its duty to defend and the Insurer is not

responsible for any of the attorney fees the School District paid

for the coverage dispute.         See Newhouse v. Citizens Sec. Mut. Ins.

Co., 176 Wis. 2d 824, 832-39, 501 N.W.2d 1 (1993) (when an insurer


     4 We use "coverage" to refer to the coverage issue and
"liability" to refer to the resolution of the underlying lawsuit
that triggered the insurance issue. This terminology is frequently
used in insurance cases, particularly when referring to
bifurcating the "coverage" determination from the "liability"
resolution.    We note, however, that "liability" may also be
referred to as the "merits" issue.         "Merits" refers to a
determination of the underlying lawsuit, i.e., resolving the
question of the insured's liability to the plaintiff.

                                       3
                                                      No.   2013CV52718AP116



follows a judicially preferred method, the insurer "runs no risk

of breaching its duty to defend"); see also Carney v. Village of

Darien, 60 F.3d 1273, 1277 (7th Cir. 1995) ("[A]n insurer who

properly   follows    the   procedure   recommended    by   the   Wisconsin

Supreme Court of first seeking a determination on coverage prior

to the liability issue, has not breached its duty to defend.");

Reid v. Benz, 2001 WI 106, ¶¶26-28, 32-35, 245 Wis. 2d 658, 629

N.W.2d 262 (explaining an award of coverage attorney fees is

limited to cases in which insurer breaches duty to defend and

equity demands a fee-shifting).

     ¶4    In   reaching    this   decision,   we     reject   the   School

District's claims that:     (1) its Insurer's initial outright denial

of coverage followed by a delayed decision to defend under a

reservation of rights constituted a breach of its duty to defend;

(2) its Insurer's delay in paying liability fees and its failure

to reimburse the School District for the entire amount it paid to

its liability lawyer constitutes a breach of its duty to defend;

and (3) the circuit court's assessment of           whether the Insurer

breached its duty to defend is subject to the four-corners rule.

     ¶5    We hold:    (1) the Insurer's initial denial of coverage

did not breach its duty to defend because the Insurer promptly

followed a judicially-approved method to resolve the coverage

dispute; further, it defended the School District upon denial of

the stay motion, agreeing to reimburse the School District for

liability attorney fees retroactive to the date of the tender; (2)
a delay in payment of liability attorney fees alone does not mean

                                    4
                                                       No.    2013CV52718AP116



an insurer breached its duty to defend and an insurer is obligated

to pay only reasonable attorney fees; and (3) the four-corners

rule applies in determining whether a duty to defend exists but

does not preclude a court's consideration of whether the insurer

unilaterally denied coverage or whether it chose a judicially

preferred method of resolving a coverage dispute, in assessing

whether an insurer breached its duty to defend.               We affirm the

decision of the court of appeals.

                               I.   BACKGROUND

     ¶6    In July 2013, six retired Germantown School District

employees, as representatives in a class action, filed suit against

the School District alleging four causes of action:           (1) breach of

contract, (2) breach of implied contract, (3) breach of the duty

of good faith and fair dealing, and (4) promissory estoppel.              The

lawsuit   arose   from   the    School    District's   2012    decision    to

discontinue group long-term care ("LTC") insurance for its current

employees.   This decision caused the retired employees to lose

their LTC insurance benefit.         The retirees' Complaint repeatedly

describes the School District's decision as a "unilateral action"

to terminate the insurance benefit, and alleges that "Defendants'

act of discontinuing LTC benefits for active employees caused

termination" of LTC insurance benefits for retirees. The Complaint

further asserts the School District "by their unilateral acts

terminated the group LTC policy for Plaintiffs in intentional and

willful disregard of Plaintiffs' rights."              In the Complaint's
general allegations of fact, the retirees alleged that the School

                                      5
                                                      No.   2013CV52718AP116



District "knew or should have known" that eliminating the LTC

insurance for current employees would cause the retirees to lose

LTC coverage.

      ¶7   After being served with the lawsuit, the School District

tendered the defense of the suit to its Insurer.            About a week

later, the Insurer sent a letter to the School District denying

the   tender,   explaining   that   the   policies   covered   the   School

District for negligent acts, not deliberate acts, and because the

Insurer determined the lawsuit did not allege negligence, there

was no coverage under the insurance policies.           The letter asked

the School District to advise whether it agreed with this coverage

determination and whether the School District would agree to

withdraw its tender.    If the School District disagreed, or if the

Insurer did not hear anything by August 20, 2013, the letter

explained that the Insurer would file a motion in circuit court to

obtain a coverage determination.

      ¶8   On August 29, 2013, after the School District notified

the Insurer that it would not withdraw the tender, the Insurer

filed a motion asking the circuit court to allow the Insurer to

intervene in the lawsuit, and requested that the circuit court

bifurcate the liability and coverage issues and stay the liability

lawsuit until coverage could be resolved.       About three weeks after

the motion was filed, the circuit court held a hearing on the

motion, but it did not render a decision until three months later.

On December 12, 2013, the circuit court granted the Insurer's



                                     6
                                                No.   2013CV52718AP116



motion to intervene and bifurcate, but it denied the motion to

stay the liability proceedings.5

     ¶9    One week after the decision, the Insurer filed its own

Complaint for declaratory judgment asking the circuit court for a

declaration that the Insurer had no duty to defend or indemnify

the School District.   On December 30, 2013, the Insurer filed a

motion for summary judgment asking the circuit court to rule it

had no duty to defend or indemnify.    In this motion, the Insurer

notified the circuit court that because the stay motion was denied,

the Insurer decided to provide a full defense for its insured until

coverage could be resolved.     Two weeks after that filing, the

Insurer sent a letter directly to the School District saying it

would provide a full defense under a reservation of rights.       The

Insurer agreed to pay the fees the Insured incurred in defending

the liability lawsuit, retroactive to the date of the tender.

     ¶10   The January 2014 letter advised that the School District

could continue to use the attorney it had hired as long as the

attorney and the Insurer could agree on "hourly rates."           The

Insurer started paying the School District's attorney directly in




     5 The circuit court denied the stay based on "the unique
factual background of this particular case (as compared to other
reported    insurance  coverage  cases)"   because   it   involved
elimination of the retired employees LTC benefits, which, if
needed, could have caused "personal financial devastation." As it
turned out, the coverage trial preceded the liability trial by
over a year even though the circuit court denied the requested
stay.    The coverage trial resulted in a finding in favor of
coverage and the liability trial resulted in no liability.

                                   7
                                                      No.      2013CV52718AP116



May 2014 and reached an agreement on previously paid attorney fees

by June 2014.

     ¶11    In July 2014, the circuit court denied the Insurer's

motion for summary judgment because the facts required further

development.       In October 2014, the Insurer filed a second motion

for summary judgment seeking a declaration that it did not owe a

duty to defend or indemnify.         In June 2015, the circuit court

denied the Insurer's second motion for summary judgment.                   The

circuit court explained it could not decide as a matter of law

whether the individuals who made the decision to terminate LTC

insurance for current employees acted negligently or intentionally

with respect to the impact that decision would have on retired

employees.   As a result, this issue was presented to a jury at the

coverage trial in April 2016.            The jury found that the School

District decisionmakers acted negligently; based on that finding,

the circuit court concluded the Insurer had a duty to defend based

on the Complaint's allegation that the School District "should

have known" the adverse effect its decision to eliminate LTC

insurance    for    current   employees    would   have   on    its   retired

employees.     The School District's motion after verdict asked for

an award of attorney fees, but the circuit court delayed deciding

the attorney fees issue to afford the parties the opportunity to

resolve it on their own.         The Insurer attempted to appeal the

coverage decision, but the appeal was dismissed by the court of

appeals because the circuit court had not yet decided whether the
Insurer owed the School District additional attorney fees.

                                     8
                                                No.   2013CV52718AP116



     ¶12   The case proceeded to trial on liability in June 2017

and the jury returned a verdict in favor of the School District.

The parties then resurrected the unresolved attorney fees issue

and the circuit court issued a written decision on November 3,

2017.   In that order, the circuit court explained that because the

Insurer followed a judicially preferred approach to the coverage

dispute, it did not breach its duty to defend; therefore, the

School District was not entitled to recover any attorney fees it

expended in establishing coverage.    The November 3rd order does

not address any unpaid attorney fees related to liability.        The

School District did not seek clarification of the circuit court's

order, nor did it object to the proposed Order for Judgment and

Judgment the Insurer's attorney submitted to the circuit court.

On November 30, 2017, the circuit court entered its Order for

Judgment and Judgment, attaching its November 3, 2017 written order

on attorney fees.   The School District appealed from the November

30th and November 3rd circuit court orders, and the court of

appeals affirmed the circuit court.      The School District then

petitioned this court for review and we granted the petition.

                      II. STANDARD OF REVIEW

     ¶13   This case requires the court to interpret an insurance

contract to determine whether the Insurer breached its duty to

defend; this presents a question of law reviewed de novo.      Water

Well Sols. Serv. Grp., Inc. v. Consolidated Ins. Co., 2016 WI 54,

¶12, 369 Wis. 2d 607, 881 N.W.2d 285 (citations omitted).    Whether
an Insurer should pay for its insured's attorney fees relating to

                                 9
                                                No.    2013CV52718AP116



establishing coverage is also reviewed independently.       Reid, 245

Wis. 2d 658, ¶12.

                            III. ANALYSIS

                         A.   Insurance Law

     ¶14   This court has provided much guidance on an insurer's

duty to defend and how an insurer can avoid breaching that duty.

See, e.g., Water Well, 369 Wis. 2d 607, ¶¶15-17; Olson v. Farrar,

2012 WI 3, ¶29, 338 Wis. 2d 215, 809 N.W.2d 1; Newhouse, 176

Wis. 2d at 832-39; Elliott v. Donahue, 169 Wis. 2d 310, 317-21,

485 N.W.2d 403 (1992).   It is the breach of the duty to defend and

not the existence of the duty itself that triggers equitable fee-

shifting in insurance cases.      See Reid, 245 Wis. 2d 658, ¶37

(explaining that coverage attorney fees were awarded in Elliott as

a "matter of equity"); see generally Elliott, 169 Wis. 2d 310.6

In Elliott, we held that an insured was entitled to recover from

its insurer any attorney fees the insured incurred to establish

coverage if the insurer breached its duty to defend.    Elliott, 169

Wis. 2d at 314, 318, 322.     Elliott recognized that the attorney

fees awarded must be "reasonable" and remanded the matter to the

circuit court "for a determination of the reasonable attorney fees

incurred."   Id. at 325; see also Newhouse, 176 Wis. 2d at 837-38



     6 In Elliott v. Donahue, we held the insurer's initial denial
was not a breach of its duty to defend. 169 Wis. 2d 310, 318, 485
N.W.2d 403 (1992). The insurer's breach of its duty to its insured
was the insurer's failure to move for bifurcation and a stay so
that coverage could be decided before the insured incurred attorney
fees at the liability trial. Id.

                                 10
                                                      No.   2013CV52718AP116



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

naturally flowing from that breach).

       ¶15    Since our decision in Elliott, this court established

several judicially preferred procedures for an insurer to follow

in order to avoid breaching its duty to defend, which will avert

exposure to an Elliott/Newhouse fees award against it.                These

judicially preferred methods are designed to strike a fair balance

between      the   respective   interests   of   insurers   and   insureds.

Insureds who pay for insurance policies should receive a defense

paid by its insurer whenever facing a lawsuit that "appear[s] to

give rise to coverage" under the policy.          Olson, 338 Wis. 2d 215,

¶30.     On the other hand, if a complaint does not allege a claim

covered under the policy, the insurer should not be obligated to

defend its insured.       Water Well, 369 Wis. 2d 607, ¶¶32-40.       If "a

claim is 'fairly debatable,' the insurer is entitled to debate

it[.]"    Anderson v. Continental Ins. Co., 85 Wis. 2d 675, 691, 271

N.W.2d 368 (1978).

       ¶16    The duty to defend arises when an insurer is served with

a complaint that "alleges facts that, if proven, would constitute

a covered claim" or when an insured who is served with a complaint

alleging a covered claim tenders the defense to its insurer.            See

Estate of Sustache v. Am. Family Mut. Ins. Co., 2008 WI 87, ¶27,




                                     11
                                                No.    2013CV52718AP116



311 Wis. 2d 548, 751 N.W.2d 845 (quoted sources omitted).7         The

"four corners" rule is used to determine whether the complaint

alleges a covered claim, by comparing the words in the complaint

to the language of the entire insurance policy.       See Water Well,

369 Wis. 2d 607, ¶15. The allegations of the complaint "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[.]"     Grieb v. Citizens Cas.

Co., 33 Wis. 2d 552, 557-58, 148 N.W.2d 103 (1967). If a complaint

alleges a covered claim, an insurer must provide a defense to its

insured or follow one of the judicially preferred methods to

resolve any dispute over coverage.   Water Well, 369 Wis. 2d 607,

¶27; Sustache, 311 Wis. 2d 548, ¶¶25-26.   An insurer is obligated

to defend "only if it could be held bound to indemnify the


     7 Wisconsin cases have been rather imprecise in pronouncing
the test that triggers coverage. Some express the test as whether
a complaint alleges an "arguably" covered claim, see, e.g.,
Fireman's Fund Ins. Co. v. Bradley Corp., 2003 WI 33, ¶20, 261
Wis. 2d 4, 660 N.W.2d 666 ("duty to defend is triggered by
arguable, as opposed to actual, coverage"), and others discuss
whether coverage under the allegations in the complaint is "fairly
debatable," see, e.g., Red Arrow Prod. Co., Inc. v. Employers Ins.
of Wausau, 2000 WI App 36, ¶¶16-19, 233 Wis. 2d 114, 607
N.W.2d 294. At least one Wisconsin insurance law treatise suggests
the "fairly debatable" language "should not apply when determining
whether a complaint triggers coverage."       Rather, the "fairly
debatable" test relates solely to assessing bad faith, "or, in the
right circumstances, a breach-of-contract claim."        Arnold P.
Anderson, Wisconsin Insurance Law § 7.30-7.33 (6th ed. 2013)
(noting this term first appeared in the "bad-faith case of Anderson
v. Continental Ins. Co., 85 Wis. 2d 675, 693, 271 N.W.2d 368
(1978), which concluded there was no bad faith in denying claim if
it was 'fairly debatable.'").

                                12
                                                       No.     2013CV52718AP116



insured[.]"    Nichols v. Am. Employers Ins. Co., 140 Wis. 2d 743,

747, 412 N.W.2d 547 (Ct. App. 1987) (quoting Grieb, 33 Wis. 2d at

558).   All doubts about the duty to defend must be resolved in

favor of the insured.       Fireman's Fund Ins. Co. v. Bradley Corp.,

2003 WI 33, ¶20, 261 Wis. 2d 4, 660 N.W.2d 666 (courts "resolve

any doubt regarding the duty to defend in favor of the insured");

Sustache, 311 Wis. 2d 548, ¶21; Liebovich v. Minnesota Ins. Co.,

2008 WI 75, ¶18, 310 Wis. 2d 751, 751 N.W.2d 764; Sola Basic

Indus., Inc. v. United States Fid. & Guar. Co., 90 Wis. 2d 641,

646-47, 280 N.W.2d 211 (1979).       In contrast, if the complaint does

not allege a covered claim, the insurer has no obligations under

the policy.    See generally Menasha Corp. v. Lumbermens Mut. Cas.

Co., 361 F. Supp. 2d 887, 891 (E.D. Wis. 2005).              Insurers should

not have to defend an insured if a complaint does not allege any

claims covered under the insurance policy.          See, e.g., Water Well,

369 Wis. 2d 607, ¶¶32-40 (holding insurer had no duty to defend

and did not breach its duty to defend by unilaterally refusing to

defend when the complaint contained no allegations covered by the

policy).

      ¶17   Of course, insurers and insureds do not always agree as

to   whether   a    complaint   alleges   covered    claims.       For   those

situations,    we    have   articulated   several   judicially      preferred

procedures to follow and have repeatedly held that when an insurer

follows one of those approaches, it is not at risk of breaching

its duty to defend.     See, e.g., Newhouse, 176 Wis. 2d at 836 (when
an insurer follows a judicially preferred method, the insurer "runs

                                     13
                                                               No.     2013CV52718AP116



no risk of breaching its duty to defend"); see also Carney, 60

F.3d at 1277 ("[A]n insurer who properly follows the procedure

recommended by the Wisconsin Supreme Court of first seeking a

determination on coverage prior to the liability issue, has not

breached its duty to defend."). Our cases identify four judicially

preferred procedures:

            Defend under a reservation of rights;

            Defend     under    a    reservation      of    rights     but    seek   a

             declaratory judgment on coverage;

            Enter into a nonwaiver agreement under which the insurer

             defends the insured but the insured acknowledges that

             the insurer has the right to contest coverage;

            File   a   motion       with   the    circuit    court     requesting    a

             bifurcated trial on coverage and liability and a stay of

             the    proceedings        on     liability      until      coverage      is

             determined.

Water Well, 369 Wis. 2d 607, ¶27.

       ¶18   Under the first three options, the insurer elects to

defend the insured under a reservation of rights and provide a

defense while the issue of coverage is resolved.                        Provided the

circuit court stays the liability proceedings, the fourth option

does   not   require     the    insurer      to    defend    the     insured   pending

resolution of the coverage issue.                 Rather, a successful motion to

stay halts the liability case so that the insured does not incur

attorney fees litigating liability until a coverage determination
is made by the circuit court.               With all four judicially preferred

                                            14
                                                           No.     2013CV52718AP116



methods,    the    goal    is   to   protect    the   insured    from    having   to

simultaneously pay to defend itself in a liability trial while

litigating coverage against its insurer.

     ¶19    This case presents a problem with the fourth option when

the circuit court denies the bifurcation or stay motion, resulting

in the insured defending itself for a period of time on both

liability and coverage.           We remedy that problem by clarifying the

bifurcation/stay procedure:           if a circuit court denies bifurcation

or a stay of the liability case, in order to protect itself from

being found in breach of its duty to defend, the insurer must

defend its insured under a reservation of rights so that the

insured does not have to pay to defend itself on liability and

coverage    at    the    same   time.8    Additionally,     the    insurer      must

reimburse its insured for reasonable attorney fees expended on a

liability defense, retroactive to the date of tender.

     ¶20    Although we recognize this court has not previously been

presented    with       this    particular     factual   scenario,       the   well-

established judicially preferred procedures nevertheless apply

because the controlling legal principle is not new.                     In Mowry v.

Badger State Mut. Cas. Co., we said:

     An insurer may need to provide a defense to its insured
     when the separate trial on coverage does not precede the
     trial on liability and damages . . . . Thus, we have
     noted that an insurer may be required to furnish a free


     8 See Elliott, 169 Wis. 2d at 317-21; Mowry v. Badger State
Mut. Cas. Co., 129 Wis. 2d 496, 528-29, 385 N.W.2d 171 (1986);
Barber v. Nylund, 158 Wis. 2d 192, 197-98, 461 N.W.2d 809 (Ct.
App. 1990).

                                         15
                                                            No.   2013CV52718AP116



       defense to its insured prior to the determination of
       coverage.
129 Wis. 2d 496, 528-29, 385 N.W.2d 171 (1986) (citation omitted).

Although the facts and procedural history in Mowry differ from

this case, Mowry alerted insurers to this additional precondition

to avoiding a breach of the duty to defend, which arises when the

circuit court denies a motion to bifurcate or stay.                    Of course,

just   as    the   insurer    can   unilaterally     deny    coverage     without

following any of the judicially preferred approaches, the insurer

can decline to provide this retroactive defense if the circuit

court denies the bifurcation or stay motion.            However, an insurer

that does not follow a judicially preferred procedure, or maintains

its position when a stay motion is denied, runs the risk of

breaching its duty to defend if coverage is later established.

                               B.    Application

       ¶21   We now turn to the specific circumstances of this case.

The School District makes three arguments.             First, it argues its

Insurer      breached   its   duty    to    defend   because      it    initially

"unambiguously and complete[ly]" refused to provide a defense and

should not be allowed to avoid the consequences of its choice by

agreeing to defend six months later. Second, it argues its Insurer

breached its duty to defend because the Insurer did not start

paying for the defense for almost one year after the Insurer's

initial denial, and the Insurer did not fully reimburse the School

District for the attorney fees the School District incurred in

defending the liability suit before the Insurer stepped in. Third,
the School District says the four-corners rule prohibits the

                                       16
                                                       No.   2013CV52718AP116



circuit court from considering the Insurer's actions in attempting

to secure a coverage determination.        The School District asks this

court to reverse the court of appeals decision, hold that the

Insurer is responsible for both unreimbursed liability attorney

fees and all attorney fees incurred to establish coverage, and

remand the case to the circuit court for a determination of the

amount of those fees.

     1. Insurer's Initial Coverage Refusal and Delayed Defense

     ¶22    The   School   District    argues    the    Insurer's   initial

coverage denial constituted a breach of its duty to defend and the

Insurer's    later    decision   to   defend    and    pay   attorney   fees

retroactive to the date of tender cannot remedy the breach.               We

conclude that the Insurer's actions did not constitute a breach of

its duty to defend because, even though the Insurer initially

denied coverage, it followed one of this court's preferred methods

to obtain a judicial determination on coverage before the liability

suit proceeded.      See Newhouse, 176 Wis. 2d at 836 (when an insurer

follows a judicially preferred method, the insurer "runs no risk

of breaching its duty to defend"); see also Carney, 60 F.3d at

1277 ("[A]n insurer who properly follows the procedure recommended

by the Wisconsin Supreme Court of first seeking a determination on

coverage prior to the liability issue, has not breached its duty

to defend.").

     ¶23    The   School   District    misconstrues     Water   Well,    369

Wis. 2d 607, to mean that an Insurer who initially denies coverage
is in breach even if it proceeds to follow one of the judicially

                                      17
                                                           No.     2013CV52718AP116



preferred methods.          Water Well does not say that.         In Water Well,

the insurer unilaterally denied coverage during the pendency of

the underlying lawsuit.           The insurer in Water Well did not follow

any of the judicially preferred methods because it determined the

complaint did not allege any covered claims.               In that case, this

court    contrasted        the   unilateral    denial   with     the    judicially

preferred methods only because the insurer never changed its

unilateral denial posture.           The School District's case involves a

unilateral denial, shortly after which the Insurer followed one of

the judicially preferred methods.             In order to avoid breaching the

insurance contract, an insurer who initially denies must timely

seek a judicial determination on coverage.              See United States Fire

Ins.    Co.    v.   Good    Humor   Corp.,    173   Wis. 2d 804,       830-31,   496

N.W.2d 730 (Ct. App. 1993) (holding an Insurer's motion seeking

declaratory judgment on coverage was untimely because it was not

filed until after liability case had resolved).                  Water Well does

not support the School District's argument.

       ¶24    Moreover, an insurer has the "right and obligation to

make timely investigation" as "a condition precedent to [its]

contractual duties of defense and coverage."             Gerrard Realty Corp.

v. American States Ins. Co., 89 Wis. 2d 130, 140, 277 N.W.2d 863

(1979).       The law necessarily permits an insurer to investigate a

claim before accepting the defense:            "Certainly, an insurer cannot

make a reasoned judgment as to its duty to defend or provide

coverage until [it has] had the opportunity to examine and review
the factual situation and the pleadings as they relate to the terms

                                        18
                                                          No.    2013CV52718AP116



of the[] policy of insurance."           Id. at 142.       An insurer cannot

breach its duty to defend based on its insured having incurred

defense    costs   during   the   investigation      period     if   an   insurer

reimburses the insured for defense costs retroactive to the date

of the claim.      Lakeside Foods, Inc. v. Liberty Mut. Fire Ins. Co.,

No. 2009AP1428, unpublished slip op., ¶¶41-43 (Wis. Ct. App. July

21, 2010) (holding insurer did not breach its duty to defend

because the three-month delay was attributed to the insurer's

investigation of the matter); see generally Danner v. Auto-Owners

Ins., 2001 WI 90, ¶58, 245 Wis. 2d 49, 629 N.W.2d 159 (noting an

insurer "should not be found to have acted in bad faith for

thoroughly      investigating     a   claim"    because    sometimes      it   is

difficult for the insurer to distinguish between legitimate and

fraudulent claims).

     ¶25    It is undisputed that the Insurer, when presented with

the School District's tender, responded by letter within a week,

explaining why the Insurer concluded that the Complaint did not

allege    any   covered   claims.      The     Insurer   explained    that     the

allegations in the Complaint assert "deliberate" acts not covered

by the insurance policies, which cover only negligent acts.                    In

the letter, the Insurer asked the School District to notify the

Insurer if it agreed with the Insurer's coverage analysis and

advised that if the School District did not agree, the Insurer

would seek a coverage determination in the circuit court.

     ¶26    Within a week of receiving the School District's written
notification that it would dispute the denial of coverage, the

                                       19
                                                        No.    2013CV52718AP116



Insurer filed a motion asking to intervene in the liability

lawsuit, to bifurcate the liability and coverage issues, and to

stay the liability case so that coverage could be decided promptly.

These actions precisely followed one of the judicially preferred

approaches this court has said will protect an insurer from

breaching its duty to defend.       Specifically, the Insurer moved "to

bifurcate   and   stay"   the     liability    suit   pending    a   coverage

determination.    The Insurer cannot be faulted for doing exactly

what this court for years has instructed insurers to do.

      ¶27   The time gap between the filing of the Insurer's motion

and the circuit court's decision necessarily caused the School

District to incur attorney fees it would not have had to pay had

the   circuit   court   granted    the    Insurer's   motion    to   stay   the

liability proceedings. The circuit court did not decide the motion

for three-and-a-half months, leaving the School District with

defense costs as litigation over liability continued.            During that

time, the School District's attorney filed and argued a motion to

dismiss, which was denied.        The School District paid an attorney

to defend it on the liability claim while also paying its attorney

to litigate the coverage issue.           When the circuit court finally

decided the Insurer's motions on December 12, 2013, it allowed the

Insurer to intervene and granted the motion to bifurcate, but it

denied the motion to stay liability, resulting in the insured




                                     20
                                                          No.   2013CV52718AP116



incurring additional attorney fees.9          The circuit court's decision

caused the School District to pay attorney fees for litigating

both       coverage   and   liability,   which    the   judicially   preferred

procedures in coverage disputes are designed to prevent.

       ¶28     Within two weeks of the circuit court's decision denying

the stay of liability proceedings, the Insurer notified the circuit

court that it would pay for the defense of the School District.

Within one month of the circuit court's decision denying the motion

to stay, the Insurer notified the School District that it would

defend the School District under a reservation of rights.10                 The

letter suggests prior communication between the School District

and the Insurer, as the Insurer acknowledges "its understanding"

that the School District wanted to retain the attorney the School

District had hired. The Insurer indicated doing so was "acceptable

to The Insurers provided an agreement can be reached on the hourly

rates to be charged by the firm."                The Insurer also asked the


       Between December 12, 2013 and January 14, 2014, the record
       9

contains 29 items, including filings related to the School
District's request for a stay so that it could seek an
interlocutory appeal challenging the circuit court's denial of its
motion to dismiss. Some of the record items relate solely to the
coverage issue, including the Insurer's Complaint for Declaratory
Judgment and its motion seeking summary judgment on coverage.

       The School District argues the Reservation of Rights letter
       10

was infirm because the letter reserved the Insurer's right "to
seek reimbursement of defense costs paid in this action in whole
or in part to the extent permitted by applicable law." We decline
to address this argument because it involves actions that did not
occur. "Courts will not render merely advisory opinions." Tammi
v. Porsche Cars N. Am., Inc., 2009 WI 83, ¶3, 320 Wis. 2d 45, 768
N.W.2d 783 (quoted source omitted).

                                         21
                                                        No.     2013CV52718AP116



School District to have the firm send its fee schedule to the

Insurer for approval.

     ¶29   The Insurer acted consistently with well-established

cases   outlining    an   insurer's    obligations     in     order   to   avoid

breaching its duty to defend.         It followed a judicially preferred

approach and when the circuit court's rulings forced its Insured

to simultaneously defend itself on both liability and coverage,

the Insurer stepped in to defend the School District on liability

and agreed to pay for all reasonable liability attorney fees the

School District incurred retroactive to the date of tender.                 The

circuit    court    acknowledged   that    it,   not    the     Insurer,    was

responsible for the Insured having to simultaneously pay both

liability and coverage attorney fees. The Insurer cannot be deemed

in breach of its duty to its Insured given that it acted to prevent

its Insured from paying for both liability and coverage, but the




                                      22
                                                       No.   2013CV52718AP116



circuit    court's   actions    thwarted    its   attempt.    The   Insurer

satisfied its obligations under the insurance contract.11

     ¶30    The judicially preferred methods in coverage disputes

are designed to prevent this double pay scenario for insureds.

Promptly employing the "recommended bifurcation procedure of first

conducting a trial on the coverage issue" protects insureds against

concurrently paying for both a liability defense as well as

coverage attorney fees.        Barber v. Nylund, 159 Wis. 2d 192, 197,

461 N.W.2d 809 (Ct. App. 1990).           Indeed, staying liability after

granting bifurcation is generally the best practice.             See Reid,

245 Wis. 2d 658, ¶27 (noting that after bifurcation, resolution of

the coverage issue is "a relatively simple matter" and encouraging

courts "to expedite resolution of the coverage issue").             Since at

least 1986, this court has been encouraging circuit courts to



     11 Any damage to the insured as a result of the delay is
remedied by an insurer paying for reasonable liability attorney
fees retroactive to the date of tender, and any additional damages
arising from an insurer's unreasonable actions or reckless
disregard for its duties under the insurance contract can be
pursued in a bad faith suit.     See Am. Design & Build, Inc. v.
Houston Cas. Co., No. 11-C-293, 2012 WL 719061, at *11 (E.D. Wis.
Mar. 5, 2012) (citing Lakeside Foods, Inc. v. Liberty Mut. Fire
Ins. Co., No. 2009AP1428, unpublished slip op., ¶¶31-32, 40-49
(Wis. Ct. App. July 21, 2010); Anderson v. Continental Ins. Co.,
85 Wis. 2d 675, 691, 271 N.W.2d 368 (1978) ("To show a claim for
bad faith, a plaintiff must show the absence of a reasonable basis
for denying benefits of the policy and the defendant's knowledge
or reckless disregard of the lack of a reasonable basis for denying
the claim."). The School District did not assert any bad faith
claims against the Insurer. Nor could it. The record confirms
the Insurer acted reasonably, in conformance with this court's
guidelines, and consistent with its contractual obligations.

                                     23
                                                  No.   2013CV52718AP116



resolve the coverage issue expeditiously for the benefit of the

insured:

     It would seem that, once an order to bifurcate has been
     made, a trial on a coverage issue should be a relatively
     simple matter. We, therefore, encourage a court which
     has ordered bifurcation to expedite the coverage issue
     by placing the trial on its calendar at an early date to
     assist in avoiding a needlessly protracted claim against
     the insured.
See Mowry, 129 Wis. 2d at 529 n.4 (emphasis added).       We continue

to encourage circuit courts to decide bifurcation and stay motions

expeditiously and to grant the requested stay unless case-specific

factors weigh against it.

                    2. Attorney Fees Payment Issues

                   a. Delay in Paying for Defense

     ¶31    The School District also faults the Insurer for the delay

in reaching an agreement on attorney fees.      The School District

argues this establishes a breach of the Insurer's duty to defend.

We disagree.

     ¶32    The record is woefully inadequate for a complete review
of this issue; consequently, the School District forfeited review.

Nickel v. United States (In re Rehab. of Segregated Account of

Ambac Assurance Corp.), 2012 WI 22, ¶10, 339 Wis. 2d 48, 810 N.W.2d

450 ("Our case law is clear and consistent: failure to [adequately]

preserve issues at the circuit court means that they are waived.").

It is unclear if the School District or its attorney engaged in

fee negotiations with the Insurer, or what those negotiations

entailed.    Without any information regarding what negotiations
took place or when, it is impossible to determine whether or to
                                  24
                                                    No.   2013CV52718AP116



what extent any delay is attributable to the Insurer, the School

District, its attorney, or other factors.

     ¶33   We do know that in January 2014, the Insurer asked the

School District to share its fee schedule so that negotiations

could occur.    We also know the School District amended its cross-

claim in April 2014 to allege that its attorney "advised" the

Insurer of its fee schedule in January 2014, March 2014, and twice

in April 2014.     The cross-claim alleged that the Insurer "failed

and refused to respond" to each advisement. However, the Insurer's

reply to the cross-claim denies this.

     ¶34   There is also an indication that the Insurer never

received one of the attorney's invoices.         An affidavit from the

School District's attorney attests that the attorney sent invoices

to the Insurer as it requested, describing:      (1) the amount of the

invoices; (2) the amount the Insurer paid; and (3) the difference

between those two amounts that remained unreimbursed.             However,

the affidavit does not identify the dates the attorney sent the

invoices to the Insurer or the date the Insurer paid each invoice.

Additionally, the affidavit is vague as to whether the Insurer

made payment to the attorney or the School District.

     ¶35   Moreover,   the   Invoices    attached   to    the    liability

attorney's     affidavit   are   substantially   redacted,      with   some

descriptions of services completely blacked out and others listed

only as "Review" or "Continue Review" or something similar.             The

limited content of the invoices certainly could have impeded the
Insurer's determination of what fees were reimbursable and whether

                                    25
                                                No.   2013CV52718AP116



each itemized service represented the attorney's work on liability

or something else.

     ¶36   Further, the record does not reflect the exact date fee

negotiations concluded.   There is a reference to non-payment for

three months, as well as indications that a fee agreement was

reached in April 2014, in May 2014, or no later than June 1, 2014.

The record does show that as of June 22, 2016, the Insurer paid

liability attorney fees in the amount of $260,021.32.

     ¶37   It is not surprising that negotiations on attorney fees

would take some time given that the School District retained its

own attorney prior to the commencement of the lawsuit, and the

Insurer subsequently stepped in to defend, agreeing to allow its

insured's chosen attorney to continue the representation.12       The

Insurer is obligated to compensate the liability attorney only at

a reasonable rate, reflecting the market standard associated with

the type of case and for that geographic location, among other

relevant factors.    See Fireman's Fund Ins. Co., 261 Wis. 2d 4,

¶¶68-69; 14 Couch on Ins. § 202:34 ("An insurer's obligation to

reimburse independent counsel is limited to reasonable attorney's

fees and disbursements.").   Even when an insurer breaches its duty

to defend, the attorney fees awarded as damages must be reasonable.

See Elliott, 169 Wis. 2d at 325 (remanding for a determination of

reasonable attorney fees).




     12The School District was aware of the impending lawsuit
because the retired employees had filed a Notice of Claim.

                                26
                                                                 No.    2013CV52718AP116



       ¶38     Accordingly, we reject the School District's argument

that the delay in payment of fees means the Insurer breached its

duty to defend.          Because the law requires attorney fees to be

reasonable, an Insurer is entitled to review fees and negotiate a

reasonable rate. The record in this case contains no determination

from the circuit court on any of these issues, without which we

cannot assess whether a delay in payment constituted a breach of

the Insurer's duty.           The inadequacy of the record means the School

District forfeited review of this issue.                     Nickel, 339 Wis. 2d 48,

¶10    ("Our     case    law    is   clear        and   consistent:          failure   to

[adequately] preserve issues at the circuit court means that they

are waived.").

                    b. Unreimbursed Liability Attorney Fees

       ¶39     The School District also argues the Insurer breached its

duty to defend by failing to reimburse it for the full amount it

expended       in    liability       fees.         It    contends      the    Insurer's

reimbursement fell short by approximately $50,000.                     We reject this

contention for the same reasons we rejected the School District's

argument regarding delayed reimbursement:                    (1) attorney fees must

be    reasonable,       and    (2)   the   record       on   unreimbursed      liability

attorney fees is sorely incomplete.                 While the record contains the

specific amounts of liability fees in dispute as well as the amount

the Insurer paid, we agree with the court of appeals that it is

"impossible to properly consider [the School District's] unpaid

fees argument" because "[t]he District leaves us to guess as to



                                             27
                                                              No.     2013CV52718AP116



the scope and details of the agreements" between the parties.13

Additionally,       the    School       District    appealed        from    an     order

addressing only coverage fees, not unreimbursed liability fees.

Furthermore, it is undisputed that neither the School District nor

its    liability       attorney    utilized       the   Insurer's      process      for

appealing the Insurer's decision to pay less than the amount of

the attorney fees invoice.

                                3. Four-Corners Rule

       ¶40    The   School     District    also    asserts    the    circuit       court

should examine only the four corners of the complaint to assess

whether the Insurer breached its duty to defend and cannot consider

any actions by the Insurer.              The four-corners rule is the well-

established standard used to assess whether a duty to defend

exists.       Water Well, 369 Wis. 2d 607, ¶¶19-20.                    No extrinsic

evidence can be used to ascertain whether the Complaint alleges a

covered claim.         Id., ¶24.

       ¶41    The School District misunderstands this court's holding

in    Water    Well.      We    never    prohibited     a    circuit       court    from

considering the actions an insurer took to obtain a judicial

determination on coverage. Nor did we say the circuit court cannot

take into account that the insurer followed a judicially preferred

method to determine coverage.              We held the circuit court cannot

consider extrinsic evidence the insured, insurer, or anyone else

might know about circumstances relating to the substance of the

Complaint that are not within the four corners of the Complaint.

       13   See Choinsky, 386 Wis. 2d 285, ¶¶13-14, 18, 34 n.10.

                                          28
                                                       No.   2013CV52718AP116



In Water Well, the insured asked the court to consider extrinsic

evidence about the product at issue, claiming the complaint's

allegations    about     the   product   were   "factually   incomplete    or

ambiguous."    Id., ¶2.    This court refused Water Well's request and

reaffirmed that in assessing whether the duty to defend exists, a

court cannot look beyond the four corners of the Complaint.              Id.,

¶¶23-24.     Once the duty to defend has been established, the four-

corners rule no longer applies.           See Sustache, 311 Wis. 2d 548,

¶¶27-29.

       ¶42   Water Well did not disturb Wisconsin coverage law:             a

court is bound by the four-corners rule when deciding whether the

Complaint alleges a covered claim triggering the insurer's duty to

defend.      Once a court concludes a duty to defend exists, the

insurer's actions——unilaterally denying coverage, opting for a

judicially preferred procedure to determine coverage, or something

else——will be examined to decide whether the insurer breached its

duty to defend.

                                 IV. CONCLUSION

       ¶43   The Insurer did not breach its duty to defend the School

District because even though it concluded the Complaint did not

allege a covered claim and issued a denial letter, it followed a

judicially preferred method for having coverage decided before

liability.     When the circuit court denied the Insurer's motion to

stay   the   liability    proceedings,    the   Insurer   provided   a   full

defense, retroactive to the date of tender.               By doing so, the
Insurer complied with its contractual responsibilities to its

                                     29
                                                       No.   2013CV52718AP116



Insured and therefore is not responsible for the School District's

coverage attorney fees.      This court has repeatedly said that when

an insurer follows a judicially preferred procedure to resolve a

coverage dispute, it will not risk breaching its duty to defend.

When an insurer seeks bifurcation and a stay, it must defend the

insured and pay its attorney fees retroactive to the date of tender

if the circuit court denies any part of the motion.              We strongly

encourage circuit courts to promptly decide these motions and to

grant a stay of the liability proceedings whenever possible and

appropriate.

     ¶44    We reject the School District's assertions that the

delayed    defense,   the   time    necessary   to   negotiate    reasonable

attorney fees, and the unreimbursed $50,000 in liability fees

establish a breach by the Insurer.         The law permits an insurer to

investigate a claim before defending and requires payment of only

reasonable attorney fees.          An insufficient record prevents full

review of the fees issues the School District raises.

     ¶45    Finally, we reject the School District's contention that

the four-corners rule confines the circuit court's consideration

of whether an insurer breached its duty to defend.                The four-

corners rule governs the determination of whether a duty to defend

exists, but courts necessarily consider the insurer's actions in

unilaterally denying coverage, or following a judicially preferred

approach to obtaining a judicial decision on coverage, in order to

assess whether the insurer breached its duty to defend.



                                      30
                                                      No.    2013CV52718AP116



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

affirmed.

    ¶46     BRIAN HAGEDORN, J., did not participate.




                                   31
                                                           No.   2018AP116.dk




     ¶47   DANIEL KELLY, J.   (dissenting).         I agree (mostly) with

the court's statement of the law governing an insurer's duty to

defend its insured when there is disagreement over coverage.               I

don't agree, however, that an insurer can buy its way out of its

breach of that duty by reimbursing its insured for defense costs.

Because the Insurer1 in this case refused to provide attorneys for

their insured during a period of time that our cases unmistakably

say they owed the insured a defense, I conclude it breached its

contractual   obligations.    For       these   reasons,   I   respectfully

dissent.

     ¶48   This case is, as the court stated, about the Insurer's

defense obligations when it chooses to protect its interests by

filing a motion "requesting a bifurcated trial on coverage and

liability and a stay of the proceedings on liability until coverage

is determined."   Majority op., ¶17.          The court said "[t]his case

presents a problem with [the bifurcate-and-stay] option when the

circuit court denies the bifurcation or stay motion, resulting in
the insured defending itself for a period of time on both liability

and coverage."    Id., ¶19.   To protect itself from a breach of

contract claim under such circumstances, the court says, "the

insurer must defend its insured under a reservation of rights so

that the insured does not have to pay to defend itself on liability

and coverage at the same time."         Id.



     1 I will collectively refer to Employers Insurance Company of
Wausau and Wausau Business Insurance Company as the "Insurer" to
be consistent with the court's opinion.

                                    1
                                                             No.   2018AP116.dk


       ¶49   I agree with this much of the court's statement of the

law.    But I think it requires greater clarification because the

application    of   that   principle   in    this   case   demonstrates    its

statement provides a lacuna in the Insurer's defense obligations

that leaves the insured paying for attorneys to litigate both the

merits and coverage aspects of the case.

       ¶50   The duty to defend, as the court correctly states, begins

upon service or tender of a coverage-implicating complaint:               "The

duty to defend arises when an insurer is served with a complaint

that 'alleges facts that, if proven, would constitute a covered

claim' or when an insured who is served with a complaint alleging

a covered claim tenders the defense to its insurer."                 Id., ¶16

(quoting Estate of Sustache v. Am. Family Mut. Ins. Co., 2008

WI 87, ¶27, 311 Wis. 2d 548, 751 N.W.2d 845).

       ¶51   The insurer fulfills its duty to defend, of course, by

"appoint[ing] defense counsel for its insured . . . ."              Estate of

Sustache, 311 Wis. 2d 548, ¶27 (internal marks omitted).              And the

insurer's duty to provide defense counsel continues until final
resolution of the coverage issue:          "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."

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

(emphasis added).

       ¶52   This duty is unaffected by an insurer's request to

bifurcate and stay the merits phase of the case.            Mowry v. Badger
State Mut. Cas. Co., 129 Wis. 2d 496, 523, 385 N.W.2d 171 (1986)

                                       2
                                                                    No.   2018AP116.dk


("[I]f an insurer is granted a bifurcated trial under [Wis. Stat.]

§ 803.04(2)(b) [(1985-1986)], . . . an              insurer's       duties    to   its

insured should not be suspended pending the outcome of the coverage

trial." (emphasis added)); Barber v. Nylund, 158 Wis. 2d 192, 198,

461 N.W.2d 809, (Ct. App. 1990) ("The law appears settled that

even    if   an    insurer    is   granted      a      bifurcated     trial    under

[§] 803.04(2)(b) [(1989-1990], . . . an insurer's duties to its

insured are not suspended pending the outcome of the coverage

trial." (emphasis added)). It necessarily follows that if granting

a bifurcated trial on the merits does not relieve the insurer of

its defense obligations, the obligations existed prior to the

motion.      Once triggered by service or tender of a qualifying

complaint, therefore, the duty to defend continues unabated until

final resolution of the coverage question, notwithstanding the

filing of a motion to bifurcate and stay the merits phase of the

case.

       ¶53   Here, however, the court allowed the Insurer to escape

its defense obligations.           The circuit court declared that the
complaint described a cause of action that, if proved, would be

covered by the insurance policies at issue.                   Consequently, the

duty    to   defend   arose   when   the      School    District     tendered      the

complaint to the Insurer.            But the Insurer did not provide a

defense; it rejected the tender, and thereafter filed a complaint

requesting     a   declaration     that    it   owed    no   duty    to   defend    or

indemnify the School District.            It then moved the circuit court to

bifurcate and stay the merits phase of the underlying case.                        The
circuit court granted the bifurcation motion, but did not grant

                                          3
                                                      No.   2018AP116.dk


the requested stay.     The Insurer then said it would defend under

a reservation of rights, but it did not start doing so until

January 14, 2014 (the date on which it started paying for the

School District's attorneys).

     ¶54   For a period of over 5 months, therefore, the Insurer

did not, in fact, provide a defense.       And this failure occurred

during a period of time our cases say the Insurer owed an unabated

duty to defend the School District.     So the Insurer breached its

contractual obligations.    The court concludes otherwise, however,

stating that "the Insurer's actions did not constitute a breach of

its duty to defend because, even though the Insurer initially

denied coverage, it followed one of this court's preferred methods

to obtain a judicial determination on coverage before the liability

suit proceeded."      Majority op., ¶22.    But as discussed above,

filing a motion to bifurcate and stay the merits phase of the case

does not relieve the Insurer of its duty to defend.

     ¶55   I don't know how to describe the unexcused failure to

perform an unabated contractual obligation as anything but a breach
of contract.   Insurers know their refusal to provide a defense is

courting liability to its insured:

     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." If, however, an insurer chooses this
     option "it does so at its own peril." 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.



                                  4
                                                           No.    2018AP116.dk


Water Well Sols. Serv. Grp., Inc. v. Consol. Ins. Co., 2016 WI 54,

¶28, 369 Wis. 2d 607, 881 N.W.2d 285 (quoted source omitted).             The

Insurer gambled that its evaluation of the complaint against the

School District was correct.        It was not, and so it bears the

consequences of losing that gamble.       Id.

      ¶56   The court, however, allows the Insurer to buy its way

out of its failed gamble.      It says that, in such circumstances,

"[a]n insurer cannot breach its duty to defend based on its insured

having incurred defense costs during the investigation period if

an insurer reimburses the insured for defense costs retroactive to

the date of the claim."      Majority op., ¶24.      Here, then, is as

entirely new concept in the continued effort to achieve a détente

between the interests of insurers and their insureds.            Introducing

the concept of a "retroactive defense" allows an insurer to refuse

its duty to defend between:       (a) tender of a coverage-implicating

complaint; and (b) the court's resolution of coverages issues.             It

risks nothing doing so because, in the worst case, it simply pays

for the defense it refused to provide.
      ¶57   The "retroactive defense" concept may or may not be a

wise policy, but it is definitely new.       The primary case the court

cited in support of this proposition was an unpublished court of

appeals decision (which, by definition, can supply no new statement

of the law).     Lakeside Foods, Inc. v. Liberty Mut. Fire Ins. Co.,

No. 2009AP1428, 2010 WL 2836401, unpublished slip op., (Wis. Ct.

App. Jul. 21, 2010).    And Lakeside Foods, Inc. did not even purport

to analyze this issue, merely stating that "during the pendency of
its   coverage   investigation,    Liberty   knew   that    Lakeside      was

                                    5
                                                              No.   2018AP116.dk


represented by counsel, and presumably knew that it would be

obligated to pay Lakeside's fees dating back to the tender of

defense."    Id., ¶43.     That is not a statement of law, it's just a

description    of   what   the   insurer   in   that   case    believed     its

obligation to be.      The Lakeside Foods, Inc. court did not say the

insurer was correct in its observation, did not analyze the issue,

and made no normative statement on the subject.

     ¶58    The only other authority the court offered in support of

its "retroactive defense" proposition was Danner v. Auto-Owners

Ins., 2001 WI 90, ¶58, 245 Wis 2d 49, 629 N.W.2d 159.                The court

says Danner noted that "an insurer 'should not be found to have

acted in bad faith for thoroughly investigating a claim' because

sometimes it is difficult for the insurer to distinguish between

legitimate and fraudulent claims."         Majority op., ¶24. That may be

so, but it didn't have anything to say about the duty to defend,

or the concept of a "retroactive defense," mostly because Ms.

Danner was not the defendant.      Instead, Ms. Danner had made a claim

under her underinsured motorist policy.            To the extent Danner
addressed the thorough investigation of a claim, it did so in the

context of indemnification, not the duty to defend.

     ¶59    Additionally, citing Danner in the context of this case

carries the uncomfortable suggestion that an insurer's duty to

defend can be deferred pending a thorough investigation of the

claim.     It can't.   Investigation into the duty to defend goes no

further than comparing the complaint to the insurance policy.

Estate of Sustache, 311 Wis. 2d 548, ¶27 ("[W]hen a complaint
alleges facts that, if proven, would constitute a covered claim,

                                     6
                                                     No.   2018AP116.dk


the insurer must appoint defense counsel for its insured without

looking beyond the complaint's four corners." (internal marks

omitted)).2

     ¶60   Finally, because I conclude that the Insurers breached

their duty to defend, the School District is entitled to recover

certain damages resulting from that breach.    See Water Well Sols.

Serv. Grp., 369 Wis. 2d 607, ¶28 ("[A]n insurer that breaches its

duty to defend is liable for all costs naturally flowing from the

breach.").    Those damages include the attorney's fees necessary to

establish coverage.    Elliott v. Donahue, 169 Wis. 2d 310, 322, 485

N.W.2d 403 (1992).    There, we said:

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



     2 See also W. Bend Mut. Ins. Co. v. Ixthus Med. Supply, Inc.,
2019 WI 19, ¶10, 385 Wis. 2d 580, 923 N.W.2d 550 ("In assessing
whether a duty to defend exists, we compare the four corners of
the underlying complaint to the terms of the entire insurance
policy." (internal marks and quoted source omitted)); Water Well
Sols. Serv. Grp., Inc. v. Consol. Ins. Co., 2016 WI 54, ¶15, 369
Wis. 2d 607, 881 N.W.2d 285 ("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 policy."); Olson v. Farrar, 2012 WI 3,
¶29, 338 Wis. 2d 215, 809 N.W.2d 1 ("Accordingly, an insurer must
defend all suits where there would be coverage if the allegations
were proven, even if the allegations are 'utterly specious.'
(quoted source omitted)); Newhouse by Skow 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.").

                                  7
                                                          No.   2018AP116.dk

      incurred by the insured in successfully establishing
      coverage.
Id.   Thus, we ought to remand this matter to the circuit court for

a determination of fees the School District reasonably incurred in

establishing coverage.

                                   * * *

      So, I agree with the court that when an insurer follows one

of the judicially-prescribed methods for contesting coverage it

does not breach its contractual obligations. Until today, however,

no part of the judicially-prescribed options allowed an insurer to

refuse   its   defense   obligations   in   favor   of   reimbursing    its

insured's defense costs at some undefined future date.          Therefore,

I respectfully dissent.




                                   8
    No.   2018AP116.dk




1
