Important Insurance Coverage Decision From the Wisconsin Supreme Court


Choinsky vs. Employers Insurance Company of Wisconsin, 390 Wis.2d 209, 936 N.W.2d 548 (Wis. 2020).

As we all know, Wisconsin is a direct action statute. That means that in negligence cases the liability insurer for a defendant may be joined as a party defendant. Wis. Stat. Sec. 803.04. In addition, the liability insurer may be named and sued without naming the defendant. Sometimes, depending on the claim, there may not be a grant of coverage or, if a grant of coverage is present, there may be an exclusion, condition or definition precluding coverage. For that reason, the Wisconsin courts have adopted certain procedures to resolve insurance coverage disputes. Choinsky is the Wisconsin Supreme Court’s most recent decision outlining the recommended practices for resolving insurance coverage issues.


The School District made a 2012 decision to discontinue group long-term care benefits to its employees. Following that decision some retired school district employees commenced a civil action against the school district alleging breach of contract, breach of implied contract, breach of duty of good faith and fair dealing and promissory estoppel against the District. In its Complaint, the School District employees alleged that the district took unilateral action and that its termination of the long-term care benefits was intentional and willful.

Upon receipt of that lawsuit, the District tendered the lawsuit to its insurer. A week after the tender, the insurer sent a letter to the school district explaining that its policies covered negligent acts, not deliberate acts. The insurer asked if the School District agreed with its coverage analysis and, if so, would the School District withdraw its tender of defense. The letter put a deadline on the insured School District to respond to the insurer. Otherwise, the insurer intended to seek a coverage determination in court.

The School District notified the insurer it would not withdraw its tender of defense. The insurer filed a motion in the Circuit Court to intervene in the school district employees’ lawsuit and requested that the trial court bifurcate the liability and coverage issues, staying the liability suit until the coverage issues were resolved. The trial court allowed the intervention and allowed bifurcation but refused to stay the liability case.

Because the motion to stay the liability case was denied, the insurer stated it would pay for the full defense of the insured School District until the coverage action was fully resolved. The insurer stated that the insured School District could hire its own counsel as long as that counsel and the insurer could agree on hourly rates.

Numerous motions on the coverage issues were brought and denied. The coverage case was eventually tried to a jury who found that the School District acted negligently and in accordance with the jury’s finding the School District sought to recoup all of its attorneys’ fees. The merits case was tried to a jury. The jury returned a verdict in favor of the School District. The trial court found that the insurer followed the judicially preferred approach to a coverage dispute and that the insurer did not breach its duty to defend and, therefore, the School District was not entitled to recovery of any attorneys’ fees it expended in establishing coverage. On review by the Wisconsin Supreme Court, the Supreme Court noted that the case presented a question of law which it would review de novo and the issue is whether the insurer should pay for its insured’s attorneys’ fees relating to establishing insurance coverage. In its analysis, the Wisconsin Supreme Court thoroughly described Wisconsin insurance law, an insurer’s duty to defend and how an insurer can avoid breaching that duty to defend. The Wisconsin Supreme Court stressed that it is the breach of the duty to defend that triggers equitable fee shifting, not the existence of a duty to defend. The Wisconsin Supreme Court noted as follows:

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 policy [citations omitted]…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 [citations omitted]….[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 [citations omitted]….Our cases identify four judicially preferred procedures:

    • Defend under reservation of rights;
    • Defend under reservation of rights but seek a declaratory judgment on coverage;
    • Enter into a non-waiver 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.

Choinsky, 390 Wis.2d at 225, 938 N.W.2d at 555.

Choinsky was an unusual case. The Circuit Court granted leave for the insurer to intervene, for bifurcation of the coverage and merits action but did not stay the merits action pending resolution of the coverage case. Hence, while litigating coverage, the insured would incur merits defense costs. But, in Choinsky, the insurer stepped up and agreed to pay the reasonable rates for defense counsel in the merits case while simultaneously litigating coverage. The Wisconsin Supreme Court remedied the issues in Choinsky stating as follows:

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. Additionally, the insurer must reimburse its insured for reasonable attorneys’ fees expended on the liability defense, retroactive to the date of tender.

390 Wis.2d at 226, 938 N.W.2d at 556

In its discussion of the law, the Wisconsin Supreme Court noted that the insurer responded to the tender of defense with its coverage position within one week of the date of tender, stated its position on coverage, asked if the insured school district agreed with its position and gave a deadline for the insured school district to state whether it would withdraw the tender. When the insured school district refused to withdraw its tender, the insurer promptly sought to intervene in the liability case, sought to bifurcate the coverage and liability merits from each other, sought to determine the coverage issues first and sought to stay the liability case. All of the relief requested by the insurer was granted except a stay of the merits/liability case. Because of the time delay between deciding whether to stay the liability case, the insurer agreed to defend the insured school district in the liability case pending the Court’s decision. The Wisconsin Supreme Court noted that such was the preferred method to resolve the issues and to avoid having the insured incur merits defense costs. The Wisconsin Supreme Court noted, “staying the liability after granting bifurcation is generally the best practice.” 390 Wis.2d at 233, 938 N.W.2d at 559. The Wisconsin Supreme Court stated that it encouraged the trial courts to decide bifurcation and stay motions expeditiously and to grant the requested stay of the underling liability/merits case unless case specific factors weigh against a stay. The insured school district argued that the insurer’s delay in reaching an agreement on attorneys’ fees owed establishes a breach of the insurer’s duty to defend. The insurer had requested fee schedules, invoices and other documentation which was not provided. On this issue of delay in paying for the defense, the Wisconsin Supreme Court stated that the insured school district failed to establish a record supporting this issue.

In Choinsky, the Wisconsin Supreme Court discussed the four corners rule. In essence, the rule requires that the language in the four corners of the complaint be considered with a grant of coverage in the insurance policy. The Wisconsin Supreme Court stated as follows:

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. 390 Wis.2d at 239, 938 N.W.2d at 562.

In Choinsky, the School District asked the Wisconsin Supreme Court to find that the School District’s insurer breached their duty to defend the school district in a lawsuit brought by the School District’s retired employees and, as a remedy for that alleged breach, that the School District be awarded all attorneys’ fees incurred by the School District in defending the School District from the retired employees’ suit. Choinsky, 390 Wis. 2d at 214, 938 N.W.2d at 550.

The Wisconsin Supreme Court reviewed the law concerning insurance coverage and the duty to defend issue. In rendering its decision in Choinsky, the Wisconsin Supreme Court concluded “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.” Choinsky, 390 Wis.2d at 215, 938 N.W.2d at 551.


The Wisconsin Supreme Court in Choinsky concluded its decision as follows:

  1. Though the insurer concluded that the tendered complaint did not allege a covered claim and issued a declination letter, the insurer followed a judicially preferred method for having the coverage issue decided before the merits liability case.
  2. When the trial court denies the motion to stay the merits-liability case, the insurer appropriately provided a full merits defense retroactive to the date of tender. By providing that merits defense under a reservation of rights, the insurer complied with its duty to defend.
  3. When an insurer follows a judicially preferred procedure to resolve an insurance coverage dispute, it will not risk breaching its duty to defend.
  4. When an insurer seeks bifurcation and a stay of the merits liability case, it must defend the insured and pay its attorneys’ fees retroactive to the date of tender if the Circuit Court denies any part of its motion to bifurcate and/or stay the merits liability case.
  5. The Wisconsin Supreme Court encourages the circuit courts to promptly decide motions to stay merits liability cases whenever possible and appropriate.
  6. An insurer defending under a reservation of rights is permitted to investigate the claimed reasonable attorneys’ fees and expenses and to appeal the declination of paying some attorneys’ fees or expenses must be established by a trial court record.
  7. The four corners rule governs the determination of whether a duty to defend exists. Once there has been a determination of a duty to defend, the insurer should seek a judicially preferred approach to obtain a final judicial decision on coverage.

Best Practices

Based on the Wisconsin Supreme Court’s decision in Choinsky, the well-established case law cited therein concerning insurance law, the following may be considered best practices for insurers:

  1. Confirm that a tender of defense is being made.
  2. Whether it is by lawsuit or other “claim,” promptly respond to the insured’s tender of defense.
  3. Promptly advise the insured of the insurer’s position on the tender.
  4. If there is to be a declination or reservation of the tendered claim, the insurer must state the basis for that declination or reservation of the tender.
  5. If there is an outright declination of the tender, it is wise to ask the insured if they agree with the insurer’s coverage position but, if not, ask the insured to so state its position by a reasonable deadline.
  6. When the insured disagrees with the coverage position taken by the insurer, promptly commence a suit for declaratory relief and/or intervene in the pending lawsuit to seek a declaration of coverage.
  7. Where appropriate, interpose a reservation of rights and promptly retain counsel to defend the insured.
  8. Alternatively, obtain a non-waiver agreement from the insured allowing the insurer to defend the insured while the insured acknowledges the insurer’s right to contest coverage.
  9. Simply defend under a reservation of rights, and concomitantly commence a declaratory judgment action or file a motion with the trial court requesting a bifurcated trial on coverage and merits-liability and a stay of the liability proceedings until coverage is determined.
  10. Where the trial court denies intervention, denies bifurcation and/or denies a stay of the merits-liability case, the insurer must defend the insured retroactive to the date of tender until the coverage issues are determined with finality.