Providing Initial Defense for Insured’s in Cases Where Coverage is Questionable Can Provide Insurers with Procedural Leverage to Later Disclaim its Duty to Defend

Posted by John Healy | Sep 02, 2014 | 0 Comments


A recent unpublished decision by the Wisconsin Court of Appeals provides valuable insight into the requirements for an insurer in satisfying the “four corners” rule as well as the ability to use extrinsic evidence in arguing for a coverage exclusion in cases where there is a basis to deny coverage.  The Court's reasoning in Pumpkin, Inc. v. Ryan, No. 2013AP1320 (Wis. App. Ct. June 27, 2014) may help alleviate some of the lingering uncertainty regarding the requirements of Wisconsin's well established “four corners” rule.[1] 

The Court of Appeals held that American Family Mutual Insurance Company had no duty to defend its insured against claims of intentional conduct alleged in a civil complaint after American Family had already begun defending the lawsuit.   

In short, even in cases where there is a strong basis to exclude coverage, an insurer should provide an initial defense for its insured and conduct discovery.  Doing so avoids the often cursory application of the four corners rule and allows a factual record of extrinsic evidence, which can aid in drafting a dispositive motion to the court on the issue of coverage. 


In late 2010, Pumpkin, Inc. agreed to a contract to provide crane equipment and personnel to the Ryan's, owners of a family farm.  The relationship between the parties broke down and escalated in early 2011 when a member of the Ryan family allegedly assaulted a representative of Pumpkin, Inc.  Pumpkin filed a civil lawsuit alleging several intentional torts including conversion, theft, and battery. 

American Family insured the Ryan's in a series of farm/ranch policies, which excluded coverage for damages due to bodily injury or other intentional acts.  American Family retained local counsel to provide a defense for its insured and moved to intervene and stay the proceedings on liability until coverage was determined.[2]  The circuit court granted American Family's motion for summary judgment that they had no duty to defend the Ryan's against the intentional acts alleged in the complaint.

The Ryan's arguments appealing the decision largely centered on the fact that the court considered extrinsic evidence, including deposition testimony to determine whether the nature of the claim dealt with intentional acts.  The Ryan's argued that the four corners rule prevented consideration of such extrinsic evidence and that factual disputes about the alleged physical altercation precluded a dispositive motion and required a trial on the coverage issue.  Specifically, the Ryan's argued that a trial to determine coverage might show that the alleged incident was not an intentional act of battery, but an act of self-defense against an unwanted trespasser, which would be a covered “occurrence” under the insurance policy. 

The Court was not persuaded and steadfast that once American Family tendered an initial defense to its insured, the duty to defend under the four corners rule was satisfied and extrinsic evidence could be considered to classify the nature of the claim to resolve coverage.  On the other hand, any factual dispute about the merits of the claim compelled neither a continuing duty to defend nor a trial to resolve coverage. 

Future Implications

This case and the actions taken by American Family provide a blueprint for approaching cases with legitimate coverage issues.  By providing an initial defense, even in cases where the nature of the claims against the insured are likely excludable, an insurer can retain its rights to challenge coverage, develop a factual record, and place itself in a favorable position for a successful dispositive motion on coverage. 

As American Family demonstrated, the process would look something like this: First, insurer provides initial defense and retains outside counsel.  Second, insurer engages in discovery with a reservation of rights.  Third, insurer moves for a dispositive motion declaring that the policy excludes coverage.  By providing the initial defense, the insurer has satisfied the four corners rule and can use extrinsic evidence for its motion to exclude coverage including: the terms of the policy, the allegations in the pleadings as well as testimony submitted to the court (in the form of depositions and affidavits). 

All cases present different circumstances and sometimes resolution of coverage issues is extremely complicated but the approach taken by American Family in this case demonstrates a more efficient and streamlined resolution of cases and prevents insurance companies from potentially violating its duty to defend by denying coverage at the outset of litigation. 

Further, the benefit of establishing a factual record through initial discovery will likely outweigh any costs associated with providing an initial defense because extrinsic evidence will effectively expound on the plaintiff's allegations in the complaint.  It has become common practice for plaintiff attorneys to frame intentional acts (for which coverage would likely be excluded) as “occurrences” or “accidents” (which would likely be covered) in thinly veiled attempts to keep the insurer in the suit.  Developing facts through discovery can allow the court to supplement the allegations in the pleadings with fact testimony from depositions and affidavit to flesh out the nature of the claim without requiring the court to engage in a thorough factual examination on the merits of the claim. 

Therefore, even in cases that seem like a slam-dunk to exclude coverage at the outset of litigation, an insurer should be cognizant of the procedural advantages that can be achieved by providing an initial defense with a reservation of rights.  If you have further questions, please contact John Healy at [email protected] or 608-662-1159.

[1] The four corners rule establishes that “[W]hen a complaint alleges facts that, if proven, would constitute a covered claim, the insurer must appoint defense counsel for its insured without looking beyond the complaint's four corners.”  Olson v. Farrar, 2012 WI 3, ¶ 31, 338 Wis. 2d 215, 809 N.W.2d 1 (citing Estate of Sustache v. Am. Family Mut. Ins. Co., 2008 WI 87, ¶ 27, Wis. 2d 548, 751 N.W. 2d 845).      

[2] It is common practice in Wisconsin for an insurer to request a bifurcated trial in which trial and discovery on the merits of a claim are stayed pending resolution of a coverage question.  The Wisconsin Supreme Court endorsed this approach in Elliot v. Donahue, 169 Wis. 2d 310, 320-21, 485 N.W.2d 403 (1992).  

This news update is designed to provide general, educational information on pertinent legal topics, and the statements therein do not constitute legal advice. This news update is not intended to create an attorney-client relationship between you and Corneille Law Group, LLC. If you have specific questions as to the application of the law to your activities, you should seek the advice of your legal counsel. 

About the Author

John Healy

John is an attorney at Corneille Law Group where he practices primarily medical negligence, personal injury, property damage disputes, large construction losses and intellectual property disputes. His extensive experience working on highly complex legal disputes includes several directed and defense verdicts. John prides himself on taking a passionate yet objective approach to litigation and relies on strong communication skills in establishing strong bonds with his clients.


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