Supreme Court of Wisconsin Holds That “Four-Corners Rule” Includes Consideration of Exclusions

July 19, 2016 | Insurance Coverage

The Supreme Court of Wisconsin has ruled that the “four-corners rule” includes consideration of exclusions in an insurance policy.

The Case

From 2007 to 2009, a number of lawsuits involving Titan Global Holdings, Inc., and the trustee of two trusts that owned a controlling interest in Titan were filed throughout the country.

The trustee provided notice of each lawsuit to Houston Casualty Company, which had issued a professional liability errors and omissions insurance policy to him. The insurer denied coverage, asserting, among other things, that coverage was excluded by the policy’s business enterprise exclusion.

The trustee sued Houston Casualty, alleging that it breached its duty to defend him in the lawsuits and denied his claims in bad faith.

Houston Casualty and the trustee both moved for summary judgment. The trustee argued that, in determining whether an insurer had breached its duty to defend, a court could not consider exclusions or limiting language in the insurance policy if the insurer had earlier rejected the insured’s tender of defense without having coverage determined by a court. The trustee argued the court’s review is limited to comparing the complaint to the policy’s coverage grant.

The trial court disagreed and granted the insurer’s motion for summary judgment. It found that the business enterprise exclusion was enforceable and precluded coverage for the claims against the trustee.

The court of appeals affirmed, concluding that the business enterprise exclusion in the Houston Casualty policy precluded coverage. The court of appeals found it unnecessary to consider Houston Casualty’s argument that its policy did not even provide an initial grant of coverage.

The trustee appealed to the Wisconsin Supreme Court.

The Wisconsin Supreme Court’s Decision

The court affirmed.

In its decision, the court explained that the “four-corners rule” in Wisconsin was derived from the fact that “[t]he duty to defend is triggered by the allegations contained within the four corners of the complaint” against the insured. Thus, it continued, only two documents were germane in any four-corners analysis: the insurance policy and the complaint against the insured. “No examination of extrinsic facts or evidence takes place,” the court said.

The court then rejected the trustee’s argument that the business enterprise exclusion could not be considered under the four-corners analysis. The court stated that a rule precluding an insurer, who declined to provide a defense, from relying on policy exclusions to protect itself against allegations of breach of the duty to defend, made “no sense.”

Accordingly, the court held that the exclusion had been “properly considered in this case” and that it established that Houston Casualty had not breached its duty to defend the trustee.

The case is Marks v. Houston Cas. Co., No. 2013AP2756 (Wisc. June 30, 2016).

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  • Robert Tugander

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