Supreme Court of Wisconsin Holds That “Four-Corners Rule” Does Not Permit Consideration of Extrinsic Evidence

The Supreme Court of Wisconsin has ruled that there is no exception to the “four-corners” rule that permits courts to consider extrinsic evidence after an insurer had decided that it had no duty to defend the insured.

The Case

Water Well Solutions Service Group Inc. was hired by the City of Waukesha to replace a water pump. The water pump later became unthreaded from the pipe column and fell to the bottom of the well. Argonaut Insurance Company reimbursed the City, but then subrogated against Water Well.  Water Well tendered its defense to its commercial general liability insurer, Consolidated Insurance Company.

Consolidated denied Water Well’s defense tender, stating, among other things, that it had no duty to defend or indemnify Water Well because of the “Your Product” exclusion.

Water Wells sued Consolidated, alleging that it had breached its duty to defend Water Well in the Argonaut action.

The trial court granted Consolidated’s motion for summary judgment, determining that under applicable Wisconsin law, a court had to compare the four corners of the complaint to the terms of the entire insurance policy when deciding whether an insurer had breached its duty to defend its insured. The trial court concluded that this comparison encompassed the policy’s coverage provisions and exclusions, but not extrinsic evidence that Water Well had offered in support of its assertion that a subcontractor’s work had triggered coverage under the policy.

The court of appeals affirmed, and Water Well appealed to the Wisconsin Supreme Court. Water Well asked the court to create an exception to the four-corners rule in duty to defend cases when:

(1) The policy provided an initial grant of coverage based on facts alleged in the complaint;

(2) The insurer declined to defend its insured based on the application of specific policy exclusions but without seeking a coverage determination from the trial court; and

(3) The insured asserted that the underlying complaint was factually incomplete or ambiguous.

The Wisconsin Supreme Court’s Decision

The court affirmed.

In its decision, the court explained that an insurer’s duty to defend its insured depended on the allegations contained in the “four corners” of the underlying complaint against the insured. It then rejected Water Well’s request to create an exception to the four-corners rule, “unequivocally” holding that “there is no exception to the four-corners rule in duty to defend cases in Wisconsin.”

This position, the court said, was “consistent with long-standing precedent” in its cases, in which it applied the four-corners rule “without exceptions” in duty to defend cases.

The court next compared the four corners of the complaint to the policy terms and decided that the “Your Product” exclusion applied. Coverage was barred. As Consolidated had not breached its duty to defend Water Well in the Argonaut action, it was entitled to summary judgment as a matter of law.

The case is Water Well Solutions Service Group Inc. v. Consolidated Ins. Co., No. 2014AP2484 (Wisc. June 30, 2016).