¶1 In this appeal, we address the procedure utilized when an insurer denies coverage. We summarize the procedure as follows: If an insurer alleges that it has no duty to defend its insured and does not provide its insured with a defense, then the four-corners rule applies and the only documents utilized by the court are the insurance policy and the complaint. No extrinsic evidence may be considered. In contrast, if an insurer alleges that its policy does not provide coverage but provides a defense to its insured and bifurcates the matter while coverage is contested, then the court considers the complaint, the policy, and any extrinsic evidence to determine whether coverage exists.
¶2 West Bend Mutual Insurance Company (West Bend) insured Aquire Contracting and Restoration, Inc. (Aquire). Aquire was hired to perform restoration work on a residence owned by The Stimac Family Trust (Stimac) and, for purposes of this appeal, failed to do the work in a good and workmanlike manner. Stimac sued Aquire for damages. West Bend alleged that its policy did not cover the claim but provided counsel for Acquire and bifurcated the coverage question. West Bend then moved for summary judgment on the ground that its policy did not provide coverage to Aquire due to policy exclusions. The circuit court concluded that it could not consider extrinsic evidence offered by Aquire because of the four-corners rule and granted summary judgment to West Bend. As the court should have considered the extrinsic evidence, we reverse.
¶3 Wisconsin Power and Light Company (WPL) was performing trenching/excavating work near the Stimac property when it severed an underground sewer line causing sewage and waste material to flood the Stimac residence. WPL hired Aquire to repair the Stimac residence. Soon after the repairs were made, Stimac observed mold growth in areas of the home and a pervasive odor of sewage. Stimac alerted WPL and Aquire, which both denied any further obligation or responsibility to repair the property.
¶4 Stimac sued and alleged in its complaint that Aquire was negligent in: (1) failing to remove and replace all sewage and waste contaminated materials and fixtures; (2) failing to properly clean, refurbish, or restore the sewage and waste contaminated areas and materials inside, on, and under the residence; and (3) failing to "address, in any meaningful fashion" the areas of the residence that had been infiltrated by sewage and other waste material. Stimac alleged the home was uninhabitable due to mold and odor issues.
¶5 West Bend denied any obligation to cover Aquire given three exclusions within its policy. West Bend filed a motion to bifurcate and stay proceedings pending a resolution of the coverage issue. West Bend asserted that it had "no duty to defend or indemnify Aquire," but explained that "[i]n an excess of caution, West Bend has provided a defense to Aquire under a reservation of rights." The circuit court granted West Bend's motion to bifurcate.
¶6 West Bend sought summary judgment on its theory that three policy exclusions preclude coverage: the fungi or bacteria exclusion, the pollutant exclusion, and the business risk exclusion. West Bend submitted no extrinsic evidence apart from an affidavit of counsel attaching copies of the pertinent policies. Aquire and Stimac opposed the motion, claiming that the policy exclusions did not apply, and if they did, the exclusions did not exclude all potential damages. Aquire submitted extrinsic evidence as to the scope of the damage to the Stimac residence as well as the scope of the work done on the project. After a hearing, the circuit court granted West Bend's motion, finding all the exclusions applicable and agreeing with West Bend that the coverage analysis must be confined to the four corners of the complaint and the policy. The circuit court entered an order dismissing West Bend from the case, and this appeal followed.
Applicability of the Four-Corners Rule
¶7 Whether an insurer has a duty to defend an insured is a question of law often determined by comparing the allegations contained in the complaint to the terms of the insurance policy without resorting to extrinsic evidence, a procedure known as the four-corners rule.
¶8 Our supreme court has outlined a specific procedural context where the four-corners rule is not applicable. In
¶9 Similarly, in
¶10 In this case, the circuit court applied the four-corners rule to determine West Bend's motion on summary judgment, concluding that "it is well settled law that the duty to defend is based on the four corners of the complaint" and that "[t]he Court cannot look to any other extrinsic evidence." We disagree. Like the insurers in
¶11 West Bend argues that "the use of extrinsic evidence beyond the complaint and policy is appropriate only when depositions are submitted and the insurer seeks a coverage ruling based on them."
¶12 Aquire presented the circuit court with affidavits and argued that full discovery was needed to determine the full extent of any damages and whether those damages were covered by the policy. With the exception of certain discovery requests that were already pending, the circuit court stayed discovery while it resolved the coverage dispute. The court ultimately, and erroneously, determined that it could only consider the complaint and the policy per the four-corners rule. It did not consider the affidavits or whether to order further discovery. Thus, the proper remedy is to reverse this case and remand for the court to consider any extrinsic evidence already submitted and whether further discovery is necessary.
¶13 As the circuit court erred in making its determination based on the four corners of the complaint, we reverse the court's grant of summary judgment to West Bend and remand for further proceedings consistent with this decision.
By the Court.—Judgment reversed and cause remanded.
Recommended for publication in the official reports.