In a case where Troutman Sanders represents the insurer, the Wisconsin Circuit Court for Dane County has held that the insurer of a dissolved and insolvent company is only responsible for covered liabilities in excess of the retention applicable under its policy. The insurer cannot be forced to "drop down" and provide dollar-one coverage. The court further held that this result is consistent with the requirements of Wisconsin Statute § 632.22, which provides that the bankruptcy or insolvency of an insured shall not diminish any liability of the insurer to third parties.
In 2015, a construction company brought a lawsuit against the insured, a structural engineering firm, which it had hired in connection with the construction of a parking ramp. The insured formally dissolved and had become insolvent. The lawsuit also named the insured's professional liability insurer as a defendant pursuant to Wisconsin's direct action statute. The insured's insolvency notwithstanding, the insurer took the position that it was only liable for covered liabilities in excess of the policy's $100,000 retention, which the policy termed an "Each Claim Deductible." The plaintiff construction company argued that the insurer was required to provide dollar-one coverage for the claim and then seek reimbursement from its insolvent insured for amounts within the unpaid retention.
Ruling on the claimant's motion for declaratory judgment, the court sided with the insurer and enforced the policy's terms providing that the insurer was liable only for amounts in excess of the retention, payment of which was stated to be a condition precedent to coverage: "Whether the $100,000 amount that the insured must pay is called a deductible or self-insured retention does not affect [the insurer]'s liability under the policy. The policy language plainly obligates [the insurer] to pay only damages in excess of $100,000." The court also rejected the claimant's argument that this interpretation of the policy conflicted with Wisconsin Statute § 632.22, deeming any supposed conflict "illusory." Although the insurer could not deny coverage for the claim in its entirety based on the insolvent insured's failure to pay the retention (a position not asserted by the insurer) nothing in the statute required the insurer to provide coverage beyond that which would have been available to a solvent insured—coverage for specified liabilities in excess of $100,000.
A copy of the ruling is available here.
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