Insurance – Duty to Defend

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WI Court of Appeals – District I

Case Name: Paula M. Grigg v. Hudson Specialty Insurance Company, et al.

Case No.: 2016AP1521

Officials: Stark, P.J., Hruz and Seidl, JJ.

Focus: Insurance – Duty to Defend

Paula Grigg, as special administrator of the Estate of Raymond Grigg (“Grigg”), appeals an order granting various dispositive motions in favor of Hudson Insurance Company (“Hudson Insurance”) and Hudson Specialty Insurance Company (“Hudson Specialty”). Grigg, a business executive and shareholder until his company was sold, brought this declaratory judgment action to establish his rights under a liability policy Hudson had issued to his former company. The policy included coverage for directors and officers (“D&O”) liability, which insured against loss caused by “wrongful acts” committed by a person acting in his or her capacity as a director or officer of the business. Grigg challenges the circuit court’s determination that Hudson had no duty to defend him in a lawsuit filed in New York.

Specifically, Grigg argues the circuit court improperly granted summary judgment to Hudson because the factual allegations forming the basis for the claims in the New York lawsuit, including his alleged failure to disclose certain information during the sale of his former company, plainly fault Grigg’s conduct as an executive of his former company. Hudson’s primary argument is that it had no duty to defend Grigg because the legal claims advanced in the New York lawsuit were expressly directed at Grigg’s alleged conduct as an individual shareholder and seller of his own stock, not as a company executive.

Based upon our comparison of the relevant policy language with the allegations contained within the New York complaint, we conclude Hudson has failed to demonstrate it had no duty to defend Grigg. The duty-to-defend analysis turns on the facts pled, not the plaintiff’s theory of liability. The factual allegations forming the basis for the claims in the New York lawsuit plainly fault Grigg’s conduct as an executive of his former company (even while also faulting his conduct as a shareholder), which appears to us sufficient to trigger Hudson’s duty to defend. We reach no further conclusion regarding the duty to defend because Grigg has explicitly abandoned his argument that he is entitled to a judgment as a matter of law on the duty to defend and breach issues.

As a corollary, we hold that a third-party complaint does not eliminate a defendant’s liability insurance coverage by purportedly limiting its legal claims to acts or omissions the defendant-insured made in a non-covered capacity, when those same alleged acts or omissions were also made in a covered capacity. In such “concurrent capacity” cases, the insured is entitled to a defense from the insurer if the alleged facts supplying the basis for the claims arguably involve acts or omissions falling within the scope of coverage.

We also reject several other arguments Hudson advances in support of the circuit court’s decision. First, we conclude that, given the state of the record, Hudson Insurance was not properly dismissed as a party. Second, we conclude that, even assuming Grigg failed to provide Hudson with a timely notice of claim, he has satisfied his burden of showing Hudson was not prejudiced by the delay. Third, we reject Hudson’s argument that issue preclusion bars Grigg from pursuing the present appeal against Hudson. Hudson provides no applicable legal authority for its assertion that Grigg cannot appeal the circuit court’s determination as to Hudson without also maintaining an appeal against other defendants concerning Grigg’s claims for indemnification and insurance coverage from those entities.

In all, we conclude Hudson has failed to demonstrate it was entitled to summary judgment as a matter of law. We therefore reverse the grant of summary judgment and remand this matter to the circuit court for a determination of whether Hudson had a duty to defend Grigg and other further proceedings. If, as it appears to us, Hudson did have such a duty and breached that duty, the circuit court must hold further proceedings to determine any damages that may have resulted from that breach.

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.