# Amicus Curiae Brief — Employers Insurance Company of Wausau v. Johnson Controls, Inc.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2004
- **Citation:** 541 U.S. 1027

## Text

CQ)

No. 03-1199

MOTION FILED

In The
Supreme Court of the Gnited States

¢

EMPLOYERS INSURANCE COMPANY OF WAUSAU,

Petitioner,
v.

JOHNSON CONTROLS, INC., et al.,

Respondents.

¢

On Petition For A Writ Of Certiorari
To The Supreme Court Of Wisconsin

¢

MOTION FOR LEAVE TO FILE AMICUS CURIAE
BRIEF AND AMICUS CURIAE BRIEF OF THE
COMPLEX INSURANCE CLAIMS LITIGATION
ASSOCIATION IN SUPPORT OF PETITIONER

¢

LAURA A. FOGGAN

(Counsel of Record)
ELIZABETH A. EASTWOOD
WILEY REIN & FIELDING LLP
1776 K Street, N.W.
Washington, D.C. 20006
(202) 719-7000

Attorneys for Amicus Curiae
Complex Insurance Claims
Litigation Association

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964
OR CALL COLLECT (402) 342-2831

MOTION FOR LEAVE TO FILE AMICUS CURIAE
BRIEF IN SUPPORT OF PETITIONER

The Complex Insurance Claims Litigation Association
(“CICLA”) submits this motion for leave to file an amicus
curiae brief in support of Petitioner Employers Insurance
Company of Wausau (“Wausau”) pursuant to Supreme
Court Rule 37.2(b). CICLA’s amicus curiae brief presents
relevant information beyond the scope of the submissions
by the parties to this case and focuses on the potential
significance of this case to numerous others beyond Wau-
sau and the respondents. Through its participation,
CICLA seeks to provide “unique information or perspective
that can help the court.” Ryan v. Commodity Futures
Trading Comm’n, 125 F.3d 1062, 1063 (7th Cir. 1997); see
also Miller-Wohl Co. v. Comm’r of Labor and Indus., 694
F.2d 203, 204 (9th Cir. 1982) (“the classic role of amicus
curiae [is to] assist[] in a case of general public interest,
supplement[] the efforts of counsel, and draw[] the court’s
attention to law that escaped consideration”).

As required by Supreme Court Rule 37.2(a), CICLA
sought the consent of the parties to file this amicus curiae
brief. Wausau consented to the filing of CICLA’s amicus
curiae brief, as did respondents The Travelers Indemnity
Company and Transamerica Premier Insurance Company.’
This motion is necessary, however, because Respondent
Johnson Controls, Inc. (“JCI”) withheld its consent to the
submission of an amicus curiae brief by CICLA.

* The letters from counsel consenting to the filing of this amicus
curiae brief have been filed in the office of the Clerk.

2

CICLA is a trade association of major property and
casualty insurance carriers. CICLA is vitally interested in
this case because its members have underwritten and
continue to underwrite a substantial portion of the liability
insurance contracts in the State of Wisconsin and nation-
wide, and because many of its members’ liability insurance
‘contracts contain a “suit” provision similar or identical to
the one at issue herein. CICLA — and its predecessor the
Insurance Environmental Litigation Association — have
filed over 600 briefs amicus curiae in federal and state
courts nationwide. In addition, CICLA participated in this
case aS an amicus curiae before the Wisconsin Supreme
Court. CICLA therefore is uniquely situated to assess and
explain the potential ramifications of the Wisconsin Su-
preme Court’s decision for insurers throughout the country.”

As an association of insurers, CICLA brings special
expertise in, and knowledge of, disputes concerning the
meaning of the term “suit” in liability insurance contracts
and how judicial interpretations of the term affect insur-
ers. Further, as a result of its extensive experience as an
advocate for insurers in courts nationwide, CICLA is
uniquely qualified to offer a broader perspective than the
parties on the ramifications of the Wisconsin Supreme

? CICLA seeks to file this brief on behalf of CICLA member
companies Farmers Insurance Group, Royal & SunAlliance, St. Paul
Fire & Marine Insurance Company, and Selective Insurance Company
of America. CICLA does not appear on behalf of the following members
who are or were parties to this case or whose affiliates are or were
parties in this case: ACE Group of Insurance and Reinsurance Compa-
nies, American International Group Insurance Companies, Chubb &
Son — a Division of Federal Insyrance Company, Hartford Insurance
Group, Liberty Mutual Insurance Company, The Travelers Indemnity
Company, and Zurich American Insurance Company.

3

Court decision in this case, a decision in which the court
(1) reached an issue that was not presented by the policy-
holder’s appeal; (2) abandoned its own nearly ten-year-old
precedent on the meaning of the term “suit”; (3) failed to
afford Wausau notice that the court would decide the
“suit” issue; and (4) failed to give Wausau any opportunity
to be heard on the “suit” issue. As CICLA demonstrates,
this Court should grant certiorari because the Wisconsin
Supreme Court violated Wausau’s right to due process by
refusing to afford Wausau notice and an opportunity to be
heard on the “suit” issue. Moreover, the Wisconsin Su-
preme Court’s conspicuous refusal to hear Wausau’s
arguments on the “suit” issue resulted in a decision which
is extremely prejudicial to Wausau and to all others that
insure risks in Wisconsin. CICLA respectfully requests
leave of the Court to file the attached amicus curiae brief
in support of Wausau.

Respectfully submitted,

LAURA A. FOGGAN

(counsel of record)
ELIZABETH A. EASTWOOD
WiLEY REIN & FIELDING LLP
1776 K Street, N.W.
Washington, D.C. 20006
(202) 719-7000

Attorneys for Amicus Curiae
Complex Insurance Claims
Litigation Association

TABLE OF CONTENTS

Page
INTEREST OF AMICUS CURIAE............ccccssesesnecceeeees 1
SUMMARY OF ARGUMENT. ...........cccccceeseeeeteeeeeeeeeeeens 3
PSTN Essien asissebnviekscndsexsasesavstonsscaswatescxassenetenvsxeenes 6

I. WAUSAU WAS DEPRIVED OF NOTICE AND
AN OPPORTUNITY TO BE HEARD ON THE
“SUIT”? ISSUE AND THUS WAS DENIED
DUE PROCESS .............c.ccsesccosssscccessessssssssscesens 6

A. The Wisconsin Supreme Court’s Ruling In
JCI’s Favor On An Issue JCI Did Not
Raise Undermines Confidence In A Fair
And Impartial Judiciary ............::ccceeeeeeeees 6

B. There Can Be No Justification For The
Wisconsin Supreme Court’s Failure To Af-
ford Wausau Notice And An Opportunity
To Be Heard On The “Suit” Issue............... 7

C. The Wisconsin Supreme Court Failed To
Articulate Any Basis For Departing From
Stare Decisis As To The “Suit” Issue.......... 10

II. THE SUPREME COURT OF WISCONSIN’S
SURPRISE SUA SPONTE 180-DEGREE TURN
ON THE “SUIT” ISSUE IS PROFOUNDLY
PREJUDICIAL TO INSURERS ............::eseeeee 12

A. The Wisconsin Supreme Court Errone-
ously Concluded That Overruling Edger-
ton Would Not Harm Any Significant
Interest Of Insuxrers............ccccccscccccseseossneeee 12

ii

TABLE OF CONTENTS - Continued
Page

B. The Wisconsin Supreme Court Made Un-
supported Determinations Concerning
Purported “Practical Difficulties” Posed By
Edgerton’s “Suit” Rule And Ignored Real
Practical Difficulties That Overruling
Edgerton Will Cause For Insurers.............. 15

CONCLUSION ..........ssssssssscscsvccssssssessssssscscseassocssssnanees 20

ill

TABLE OF AUTHORITIES
Page
CASES
AIU Insurance Co. v. Superior Court, 799 P.2d 1253
Cee TI va cncssictindencnnusssivesecedsiasnnteinpnniasanninciapnennenannens 12
Bouie v. City of Columbia, 378 U.S. 347 (1964)........ see 9
Buss v. Superior Court, 939 P.2d 766 (Cal. 1997 | Fe eee 19
Brinkerhoff-Faris Trust & Savings Co. v. Hill, 281
Te 8 I ica snnktssiesdncinsnerniaiiemasananiannen 8,9
City of Edgerton v. General Casualty Co., 517
N.W.2d 463 (Wis. 1994) .............cccccrscccccrcrrssssssersees passim
Foster-Gardner, Inc. v. National Union Fire Insur-
ance Co., 959 P.2d 265 (Cal. 1998)..............cceeee 12, 18, 20
General Casualty Co. v. Hills, 561 N.W.2d 718 (Wis.
AIOE Y vsicssacincosdcdcunccentoerassbubitettuassviapiapsnsneeaseiatsetsivinignan 10, 11
Grieb v. Citizens Casualty Co., 148 N.W.2d 103
Ci, SI winvnkcniccansctstncsssrincirnarsinicinsisviereennnenmenareeeses 16
Johnson Controls, Inc. v. Employers Insurance of
Wausau, 665 N.W.2d 257 (Wis. 2003)............:.::004 passim
Lapham-Hickey Steel Corp. v. Protection Mutual
Insurance Co., 655 N.E.2d 842 (Ill. 1995).........:. eee 17
Mowry v. Badger State Mutual Casualty Co., 385
N.W.2d 171 (Wis. 1986) .......-.-ssseeeserereserrenesesterensesenencens 18
Newhouse v. Citizens Security Mutual Insurance
Co., 501 N.W.2d 1 (Wis. 1993) .........:::cccecseseseeeeeeesereeeees 18
Richards v. Jefferson County, 517 U.S. 793 (1996)............. 9

Ryan v. Royal Insurance Co., 916 F.2d 731 (1st Cir.
TO os ciniceckecesniansacosaprenceiaaendeainniesnsansnnmipacnecsasionerhter 19

iv
TABLE OF AUTHORITIES -— Continued

Towne Realty, Inc. v. Zurich Insurance Co., 548

N.W.2d 64 (Wis. 1996) .......:cccsseeceesesesreeeeeeeenteeeeeeenees

United States Fidelity & Guaranty Co. v. Wilkin

Insulation Co., 578 N.E.2d 926 (Ill. 1991) ............+.

MISCELLANEOUS

929A Am. Jur. Insurance § 1452, at 562 ...........eeeeeeeees

Cynthia E. Smith, Wisconsin Supreme Court Re-
leases Landmark Environmental Insurance Dect-
sion Reversing Its 1994 Holdings In Edgerton -
You May Now Have Insurance Coverage For En-

_ vironmental Claims, Michael Best & Friedrich LLP
Land & Resources Alert (July 2003), available at
http://www.mbf-law.com/pubs/client/LR_alert_7_03.

David J. Edquist, Edgerton and Johnson Controls:
New Life for Coverage of Old Environmental Li-
abilities, von Briesen & Rober, s.c. Environmental
Law Bulletin (July 2003), available at http://www.
vonbriesen.com/resourcelibrary/docs/environmental/

environmental_liability_coverage.pdf iicahahiiaeselbcnsiaiaiaes

George C. Christie, Objectivity in the Lau, 78 Yale

LJ. 1311 (1969) ...........0--escsceccerrereresscrcesssrerreenenensasers

Pete Millard, Cleanup Ruling Supreme For Busi-
ness, The Business Journal of Milwaukee (July 21,
2003), available at http://milwaukee.bizjournals.
com/milwaukee/stories/2003/07/21/newscolumn1.

BRIEF OF COMPLEX INSURANCE CLAIMS
LITIGATION ASSOCIATION AS AMICUS CURIAE
IN SUPPORT OF PETITIONER

This amicus curiae brief is submitted on behalf of
the Complex Insurance Claims Litigation Association
(“CICLA”). Petitioner Employers Insurance Company of
Wausau and Respondents The Travelers Indemnity Com-
pany and Transamerica Premier Insurance Company have
consented to CICLA’s submission of this brief. Respondent
Johnson Controls, Inc. has withheld consent. A motion for
leave to file an amicus curiae brief pursuant to Supreme
Court Rule 37.2(b) is included with this brief. The letters
from counsel for the parties that consented to the filing of
this amicus curiae brief have been filed in the office of the
Clerk.

INTEREST OF AMICUS CURIAE’

The Complex Insurance Claims Litigation Association
(“CICLA”) is a trade association of major property and
casualty insurance carriers.’ Since its formation in 1986,

3 This brief was not authored, in whole or in part, by any counsel
for any party. No person or entity, other than the amicus curiae, its
members, or its counsel, has made a monetary contribution to the
preparation or submission of this brief.

‘ This brief is submitted on behalf of CICLA member companies
Farmers Insurance Group, Royal & SunAlliance, St. Paul Fire &
Marine Insurance Company, and Selective Insurance Company of
America. CICLA does not appear on behalf of the following members
who are or were parties to this case or whose affiliates are or were
parties in this case: ACE Group of Insurance and Reinsurance Compa-
nies, American International Group Insurance Companies, Chubb &
Son — a Division of Federal Insurance Company, Hartford Insurance
Group, Liberty Mutual Insurance Company, The Travelers Indemnity
Company, and Zurich American Insurance Company.

2

CICLA (formerly known as the Insurance Environmental
Litigation Association) has filed more than 600 amicus
curiae briefs in complex insurance cases. CICLA is vitally
interested in this case because its members have under-
written and continue to underwrite a substantial portion
of the liability insurance contracts in the State of Wiscon-
sin and nationwide, and because many of its members’
liability insurance contracts contain a “suit” provision
similar or identical to the one at issue herein.

As an association of insurers, CICLA brings special
expertise in, and knowledge of, disputes concerning the
meaning of the term “suit” in liability insurance contracts
and how judicial interpretations of the term affect insur-
ers. Further, as a result of its extensive experience as an
advocate for insurers in courts nationwide, CICLA is
uniquely qualified to offer a broader perspective than the
parties on the ramifications of the Wisconsin Supreme
Court decision in this case, a decision in which the court
(1) reached an issue that was not presented by the policy-
holder’s appeal; (2) abandoned its own nearly ten-year-old
precedent on the meaning of the term “suit”; (3) failed to
afford petitioner Employers Insurance of Wausau (“Wau-
sau”) notice that the court would decide the “suit” issue;
and (4) failed to give Wausau any opportunity to be heard
on the “suit” issue. As CICLA demonstrates, the Wisconsin
Supreme Court violated Wausau’s right to due process by
failing to afford Wausau notice and an opportunity to be
heard on the “suit” issue. Moreover, the Wisconsin Su-
preme Court’s conspicuous refusal to hear Wausau’s
arguments on the “suit” issue resulted in a decision which
is extremely prejudicial to Wausau and to all others that
insure risks in Wisconsin.

Ne

cae

3

SUMMARY OF ARGUMENT

This Court should grant certiorari and agree to review
the ruling below in order to protect fundamental due
process interests and correct a serious prejudice to insur-
ers. This case is not simply a dispute over the meaning of
insurance contract terms under state law. To the contrary,
it presents fundamental questions of judicial fairness and
threatens unjustly to alter insurer rights and expecta-
tions.

In its decision giving rise to the instant petition, the
Supreme Court of Wisconsin asked and answered two
questions involving the interpretation of two separate and
distinct terms in a comprehensive general liability insur-
ance policy: (A) “Are CERCLA Response Costs Damages?”
(the “damages” question); and (B) “Do PRP Letters Trigger
The Insurer’s Duty to Defend?” (the “suit” question).
Johnson Controls, Inc. v. Zmployers Ins. of Wausau, 665
N.W.2d 257, 270, 281 (Wis. 2003). On both questions the
Wisconsin Supreme Court overturned its prior rulings in
City of Edgerton v. General Casualty Company, 517
N.W.2d 463 (Wis. 1994).

In deciding the “damages” question, the Wisconsin
Supreme Court made an unfortunate decision in CICLA’s
view, but it did so after a full and fair airing of the issue
when the question was properly presented to it, and
petitioner is not challenging that ruling here. The Wiscon-
sin Supreme Court’s decision on the “suit” question,
however, was more than just unfortunate — it deprived
petitioner of its right to due process junder the Fourteenth
Amendment, and the violation of /petitioner’s right was
severe enough to warrant intervention by this Court.

The “damages” question had been raised on appeal by
Johnson Controls, Inc. (“JCI”); had been addressed by the

4

trial court and the Wisconsin Court of Appeals; and was
the subject of at least ten separate briefs and extensive
oral argument to the Wisconsin Supreme Court. Further,
in reversing its own prior decision on the meaning of
“damages,” the Wisconsin Supreme Court articulated in
detail its rationale for departing from stare decisis on that
point. In marked contrast, the “suit” question was not
presented by JCI’s appeal; had not been addressed by the
trial court or the Wisconsin Court of Appeals; and was not

briefed or argued to the Wisconsin Supreme Court. In- |

stead, the Wisconsin Supreme Court raised the “suit”
question sua sponte, without giving petitioner any notice
that the court would address the issue. Further, the
Wisconsin Supreme Court decided the “suit” question
without affording petitioner any opportunity to be heard
on the issue — Wausau had not briefed the issue before the
decision, and its petition for rehearing, which sought an

opportunity to be heard on the “suit” question, was denied |

without comment. Moreover, with respect to the “suit”
issue, the Wisconsin Supreme Court articulated no ration-
ale whatsoever for its departure from stare decisis.

Because it deprived Wausau of notice and an opportu-
nity to be heard on the “suit” issue, the Wisconsin Supreme
Court did not consider the substantial prejudice that its
surprise sua sponte decision would cause Wausau and other
insurers. While the decision’s retroactive effect may be
litigated further, insurers covering risks in Wisconsin can
now anticipate that policyholders will present claims for
millions of dollars incurred to respond to PRP letters over
the past ten years — claims that insurers could not have
anticipated while Edgerton governed the meaning of “suit”

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5

in Wisconsin.° In addition, the Wisconsin Supreme Court’s
decision dramatically expands the scope of a liability
insurer’s prospective defense obligations in a way that is
likely to give policyholders a windfall in the form of a
defense against environmental claims that ultimately will
prove to be beyond the scope of coverage under their
liability insurance contracts.

The Wisconsin Supreme Court’s surprise sua sponte
decision on the “suit” issue is a glaring violation of Wau-
sau’s due process rights which will cause substantial harm
to Wausau and to other insurers. This Court should grant
certiorari to correct this due process violation and reaffirm
the right of litigants to be heard on issues before they are
decided by the judiciary.

® Policyholder advocates have recommended that environmental
claims for which insurers denied coverage pursuant to Edgerton be
resubmitted. See David J. Edquist, Edgerton and Johnson Controls:
New Life for Coverage of Old Environmental Liabilities, von Briesen &
Rober, s.c. Environmental Law Bulletin (July 2003), available at http://
www.vonbriesen.com/resourcelibrary/docs/environmental/environmental_
liability_coverage.pdf (“Johnson Controls may impact insureds’ rights to
reimbursement for settlement payments and defense costs incurred in
environmental cleanup matters, where claims were previously denied
based on the Edgerton ruling.”); Pete Millard, Cleanup Ruling Supreme
For Business, The Business Journal of Milwaukee (July 21, 2003),
available at http://milwaukee.bizjournals.com/milwaukee/stories/2003/
07/21/newscolumn1.html (“Environmental lawyers are digging through
old files to revive cases for corporate clients. ...”); Cynthia E. Smith,
Wisconsin Supreme Court Releases Landmark Environmental Insurance
Decision Reversing Its 1994 Holdings In Edgerton - You May Now Have
Insurance Coverage For Environmental Claims, Michael Best &
Friedrich LLP Land & Resources Alert (July 2003), available at
http://www.mbf-law.com/pubs/client/LR_alert_7_03.cfm (“Based upon
this change in the law, you are encouraged to review your environ-
mental claims history”).

6

ARGUMENT

I. WAUSAU WAS DEPRIVED OF NOTICE AND AN
OPPORTUNITY TO BE HEARD ON THE “SUIT”
ISSUE AND THUS WAS DENIED DUE PROCESS.

A. The Wisconsin Supreme Court’s Ruling In
JCI’s Favor On An Issue JCI Did Not Raise
Undermines Confidence In A Fair And

Impartial Judiciary.

As set forth in detail in Wausau’s petition, JCI asked
the Wisconsin Supreme Court only to overrule Edgerton on
the meaning of the term “damages” and to hold that
environmental response costs incurred pursuant to CER-
CLA qualify as “damages” under a comprehensive general
liability insurance policy. JCI did not ask the Wisconsin
Supreme Court to address the separate holding in Edger-
ton that only an actual lawsuit — and not a PRP letter —
qualifies as a “suit” triggering a liability insurer’s duty to
defend. Because JCI did not ask that Edgerton’s “suit” rule
be overturned, Wausau had no warning that it might be
necessary to defend Edgerton’s rule on that issue. In
deciding nonetheless to rule on the “suit” issue and to
resolve it in JCI’s favor, the Wisconsin Supreme Court
departed from due process requirements.

In this case, like any other litigant in this country,
Wausau had a fundamental right to expect that the
Wisconsin Supreme Court would provide it a full and fair
opportunity to be heard on all issues, but instead the court
acted precipitously on the “suit” issue. When courts act in
this fashion, they undermine what one commentator has
identified as “the primary social purpose” of the adversar-
ial judicial process, that is “deciding disputes in a manner
that will, upon reflection, permit the loser as well as the
winner to feel that he has been fairly treated.” George C.

—" =

Christie, Objectivity in the Law, 78 Yale L.J. 1311, 1329
(1969).

Simply stated, the “suit” issue need not and should
not have been reached by the Wisconsin Supreme Court in
this case. By reaching out to decide the issue despite JCI’s
failure to raise it on its own behalf, the Wisconsin Su-
preme Court erred.

B. There Can Be No Justification For The Wis-
consin Supreme Court’s Failure To Afford
Wausau Notice And An Opportunity To Be
Heard On The “Suit” Issue.

As set forth above, the Supreme Court of Wisconsin
erred when it reached out to consider an issue never
raised by JCI on appeal. The Wisconsin Supreme Court
compounded its error by failing to afford Wausau notice or
any opportunity to be heard on the “suit” issue. The
Wisconsin Supreme Court could have mitigated the
injustice done to Wausau: having decided sua sponte to
address the “suit” issue in addition to the “damages” issue
raised by JCI, the Wisconsin Supreme Court could have
advised the parties of that decision, thereby giving Wau-
sau the opportunity to place before the court its very
substantial arguments on the “suit” issue by addressing
them in its briefs and at oral argument. However, the
Wisconsin Supreme Court did not request briefing on the
“suit” issue, nor did any member of the court question the
parties on the issue during oral argument. Wausau liter-
ally learned of the Wisconsin Supreme Court’s decision to
revisit Edgerton’s “suit” rule only by reading the Wisconsin
Supreme Court’s opinion issued on July 11, 2003, without
having been afforded any opportunity to be heard on the
issue beforehand. Moreover, when Wausau filed a timely
motion for rehearing, which pointed out that Wausau had

8

been deprived of notice and an opportunity to be heard on
the “suit” issue, the Wisconsin Supreme Court denied
Wausau’s motion without explanation. Thus, having
deprived Wausau of notice and an opportunity to be heard
on the “suit” issue, the Wisconsin Supreme Court also
refused the chance to rectify its error.

This Court’s precedents make clear that the Wisconsin
Supreme Court’s failure to provide Wausau with an
opportunity to be heard on the “suit” issue deprived
Wausau of its Constitutional right to due process. More
than seventy years ago this Court considered a case
similar to the case at bar in Brinkerhoff-Faris Trust &
Savings Co. v. Hill, 281 U.S. 673 (1930). In Brinkerhoff-
Faris, a bank had filed a bill in equity to challenge a tax
assessment, which was dismissed by a Missouri state trial
court. On appeal, the Missouri Supreme Court disagreed
with the trial court’s grounds for dismissing the bank’s bill
in equity. However, the Missouri Supreme Court then
proceeded, sua sponte and without affording the bank
notice or an opportunity to be heard, to (a) consider
whether the bank should have filed a complaint with the
state tax commission; (b) overrule its own six-year-old
precedent holding that the state tax commission had no
authority to consider such a complaint; and (c) hold that
the bank’s claim was barred by its failure to make such a
complaint to the state tax commission. On certiorari, this
Court overturned the Missouri Supreme Court’s decision
on due process grounds. Writing for a unanimous court,
Mr. Justice Brandeis stated as follows:

We are not now concerned with the rights of the
plaintiff on the merits . . . or with the accuracy of
the state court’s construction of the statute in ei-
ther the Laclede Case or in the case at bar. Our
present concern is solely with the question
whether the plaintiff has been accorded due

9

process in the primary sense - whether it has
had an opportunity te present its case and
be heard in its support. Undoubtedly, the state
court had the power to construe the statute deal-
ing with the state tax commission; and to re-
examine and overrule the Laclede Case. Neither
of these matters raises a federal question; nei-
ther is subject to our review. But, while it is for
the state courts to determine the adjective as
well as the substantive law of the state, they
must, in so doing, accord the parties due
process of law.

281 U.S. at 681-82 (emphasis added). The Brinkerhoff-
Faris Court concluded that “the Supreme Court of Mis-
souri must be reversed because it has denied to the plain-
tiff ‘due process of law’ — using that term in its primary
sense of an opportunity to be heard and to defend its
substantive right.” Id. at 678.

The rule articulated in Brinkerhoff-Faris — that a
state court may not deprive a litigant of “an opportunity to
present its case and be heard in its support” — repeatedly
has been reaffirmed by this Court. See, e.g., Richards v.
Jefferson County, £17 U.S. 793 (1996) (citing Brinkerhoff-
Faris and holding that the Alabama Supreme Court
violated due process when it deprived taxpayers of oppor-
tunity to be heard on constitutional challenge to state
statute); Bouie v. City of Columbia, 378 U.S. 347, 354-55
(1964) (citing Brinkerhoff-Faris and holding that the
South Carolina Supreme Court violated due process by
applying its 1961 construction of a criminal statute to
conduct that occurred in 1960 such that defendants lacked
notice that conduct would be considered a criminal of-
fense).

In this case Wausau clearly was denied “an opportu-
nity to present its case and be heard in its support” with

10

regard to the “suit” issue. For this reason, the Wisconsin
Supreme Court’s decision on the “suit” issue cannot stand.

C. The Wisconsin Supreme Court Failed To Ar-
ticulate Any Basis For Departing From
Stare Decisis As To The “Suit” Issue.

The Wisconsin Supreme Court explicitly acknowl-
edged that, under its own jurisprudence, its disagreement
with Edgerton was not sufficient reason to overrule it, and
that “[o]verruling Edgerton requires a compelling justifica-
tion.” 665 N.W.2d at 285 (citations omitted). The court
further stated that a decision to depart from precedent
“must be explained carefully and fully to insure that the
court is not acting in an arbitrary or capricious manner.”
Td. at 285 (citation omitted). Nevertheless, the Wisconsin
Supreme Court provided no explanation whatsoever of its
decision to overrule Edgerton on the “suit” issue. )

’ The Wisconsin Supreme Court concluded that it was
“justified in overruling Edgerton because it believed that
Edgerton was fundamentally irreconcilable with its
subsequent decision in General Casualty Co. v. Hills, 561
N.W2d 718 (Wis. 1997), such that the efforts of lower
courts in Wisconsin to adhere to both Edgerton and Hilis
resulted in “arbitrary and illogical distinctions.” 665
N.W2d at 289. Importantly, however, the issue on which
Hills diverged from Edgerton — and created what the
Wisconsin Supreme Court in this case viewed as an
irreconcilable conflict — was the issue of whether environ-
mental response costs under CERCLA can ever qualify as
“damages.” Hills did not address the separate issue of
whether a PRP letter — as distinguished from a lawsuit -
implicates a liability insurer’s duty to defend. Instead,
Hills left completely intact and unqualified the bright-line
rule of Edgerton that a liability insurer’s duty to defend

i, a a ase.

11

extends only to a “suit” and not to a PRP letter. Thus, the
perceived incongruity between Edgerton and Hills, on
which the Wisconsin Supreme Court relied to justify
overruling Edgerton on the “damages” issue, simply has no
application whatsoever to the “suit” issue. Indeed, because
Edgerton adopted a bright-line rule on the “suit” issue,
there can be no suggestion that it has generated any
confusion at all on the part of the Wisconsin courts tasked
with applying it.

The Wisconsin Supreme Court recognized that the
difficulty in applying Edgerton and Hills involved the
“damages” issue alone: .

By overruling Edgerton’s conclusion on the “as
damages” language and adopting the Hills ration-
ale, we will rectify the present confusion and arbi-
trariness surrounding CERCLA cost recovery
actions in Wisconsin, while heading off some of
the troubling issues still on the horizon. The re-
sulting rule should be clear, comprehensive, and
logical: The liability imposed under CERCLA
against an insured who has contributed to the
contamination of property is covered “as damages”
if the costs to satisfy that liability are expended to
remediate, or pay for the remediation of, the dam-
aged property, provided that the costs are not ex-
cluded by some other provision of the policy.

665 N.W.2d at 292.

The Wisconsin Supreme Court may have assumed
implicitly that its abandonment of the Edgerton rule on
“damages” was reason enough to jettison Edgerton’s “suit”
rule as well. To the extent the court made such an as-
sumption, Wausau should have been given the chance to
debunk it. As Wausau demonstrates (Cert. Pet. at 16, n.
14), courts in a number of jurisdictions have held that
environmental cleanup costs qualify as “damages” but
nonetheless have recognized that a PRP letter is not a

12

“suit” triggering an insurer’s duty to defend. Indeed, the
California Supreme Court considered and explicitly
rejected the argument that if cleanup costs are “damages,”
PRP letters must be “suits.” Foster-Gardner, Inc. v. Nat'l
Union Fire Ins. Co., 959 P.2d 265, 283-284 (Cal. 1998)
(rejecting policyholder’s contention that “[t]he conclusion
that coercive administrative actions are ‘suits’ flows
naturally from this Court’s holding in Al U* that costs
incurred to comply with an injunction mandating cleanup
or to reimburse a government agency for cleanup expenses
_.. constitute ‘damages’ under a CGL policy.”)

The Wisconsin Supreme Court not only failed to offer
a “compelling justification” for overruling Edgerton on the
“syit” issue — it offered no justification at all. Moreover, as
Petitioner has amply demonstrated (see Cert. Pet. at 15-
18), there are many powerful arguments militating in
favor of adhering to stare decisis on the “suit” issue —
arguments the Wisconsin Supreme Court never considered
because it refused to hear them, in violation of Wausau’s
due process rights.

Il. THE SUPREME COURT OF WISCONSIN’S
SURPRISE SUA SPONTE 180-DEGREE TURN
ON THE “SUIT” ISSUE IS PROFOUNDLY
PREJUDICIAL TO INSURERS.

A. The Wisconsin Supreme Court Erroneously
Concluded That Overruling Edgerton Would
Not Harm Any Significant Interest Of In-

surers.

In deciding that departure from stare decisis to
overrule Edgerton was justified, the Wisconsin Supreme

® AIU Ins. Co. v. Superior Court, 799 P.2d 1253 (Cal. 1990)

Lh 0B a oe -

13

Court expressly determined that doing so would not harm
any “significant” interests of insurers. 665 N.W.2d at 294.
Because the “suit” issue had not been presented to the
Court by the policyholder’s appeal, and because the Court
had not advised the parties of its intention to consider the
“suit” issue, the Court made its determination in this
regard without the benefit of any evidence whatsoever
concerning what impact a reversal on the “suit” issue
actually could be expected to have on insurers. In the
absence of any evidence, the Court determined:

(a)

(b)

(c)

that insurers’ reliance on Edgerton could be
relevant for stare decisis purposes only if it
affected “how insurance contracts have been
drafted and bargained for”;

that insurers’ and insureds’ reliance on
Edgerton in “assess[ing] their respective ex-
pected costs and obligations [] and [] ac-
count[ing] accordingly” was mere “ancillary
reliance” that is not relevant for stare de-
cisis purposes; and

that the insurers thus had no reliance inter-
ests worthy of protection because most li-
ability insurance contracts issued since 1985
have contained absolute pollution exclusions
that would bar coverage for CERCLA-
related liabilities.

665 N.W.2d at 294. In the Wisconsin Supreme Court’s

words:

Because the meaning of insurance contract terms
should remain settled whenever possible, we are
generally disinclined to reverse prior interpreta-
tions of these terms.

However, the CGL’s treatment of CERCLA
claims presents unusual, if not unique, policy
construction problems, which justify this court’s
deviation from general principle. Most, if not all,

own

14

CGL policies executed today will not be governed
by either this decision or by Edgerton. The CGL
policy language at issue in this case was drafted
long ago and has since been rendered largely in-
applicable in the context of CERCLA actions. Be-
ginning in 1985, insurance companies revised
their standardized CGL policies to include abso-
lute pollution exclusions from coverage. [] The
CGL policies given effect in this case are no
longer being marketed, nor were they at any time
after Edgerton. Therefore, the insurers cannot
credibly argue that Edgerton established signifi-
cant reliance interests, in terms of how insurance
contracts have been drafted and bargained for,
that will be harmed by its reversal.

665 N.W.2d at 293-294 (emphasis in original). By casting
the reliance issue in these terms, the Court overlooked (1)
the very real extent to which current environmental
cleanup litigation arises from conduct many years or even
decades ago and thus still potentially implicates pre-1985
liability insurance contracts that lack absolute pollution
exclusions; (2) the substantial magnitude of costs that may
be claimed for responding to environmental cleanup
demands, which policyholders in the absence of Edgerton
now will characterize as costs of defending a “suit”; (3) the
fact that most liability insurance contracts do not have a
limit of liability applicable to defense costs, such that
expanding the definition of “suit” to include PRP letters
will increase a liability insurer’s potential defense cost
liability exponentially; and (4) the fact that creating
insurance coverage where none existed under Edgerton
will require higher premiums from Wisconsin policyhold-
ers so that insurers will have funds to pay for the unfore-
seen liabilities.

Simply stated, the Wisconsin Supreme Court was
wrong to conclude that because post-1985 policies have

btn ie Sas ta

15

absolute pollution exclusions, reversing Edgerton’s “suit”
rule could inflict no significant harm on insurers. The
Wisconsin Supreme Court’s erroneous conclusion was the
direct result of its reaching out to decide an issue not

- presented on appeal, failing to give notice of its intention

to address the “suit” issue, and failing to afford petitioner
any opportunity to be heard on the issue.

B. The Wisconsin Supreme Court Made Un-
_ supported Determinations Concerning Pur-
ported “Practical Difficulties” Posed By
Edgerton’s “Suit” Rule And Ignored Real
Practical Difficulties Overruling Edgerton
Will Cause For Insurers.

The Wisconsin Supreme Court opined that “[a] literal
definition of the term ‘suit’ in the CGL policy presents
some practical difficulties in understanding and reconcil-
ing the obligations of the parties in the presence of a
CERCLA claim.” 665 N.W.2d at 282. As there was no
evidentiary record concerning the “practical” implications
of the “suit” rule established by Edgerton, the “practical
difficulties” identified by the Wisconsin Supreme Court
were devoid of factual support and highly dubious. More-
over, because it failed to afford Wausau any opportunity to
be heard on the “suit” issue, the Wisconsin Supreme Court
overlooked the very real — and very costly — practical
difficulties insurers face when the duty to defend is ex-
panded to encompass not only “suits” but PRP letters as
well.

Central to the Wisconsin Supreme Court’s conclusion
that insurers should be required to defend against PRP
letters as well as “suits” was its determination — based on
no evidence whatsoever — that PRP letters are “more
analogous to a civil complaint than a traditional demand

16

letter.” 665 N.W.2d at 284. In reality, however, a PRP
letter differs vastly from a complaint in terms of providing
the information an insurance carrier needs in order to
determine whether it has any duty to defend. In Wiscon-
sin, as in most states, the existence of a duty to defend is
determined by comparing the terms of the insurance
contract to the allegations of the complaint. See, e.g., Grieb
v. Citizens Cas. Co., 148 N.W.2d 103, 106 (Wis. 1967) (“the
insurer is under an obligation to defend only if it could be
held bound to indemnify the insured, assuming that the
injured person proved the allegations of the complaint”
(quoting 29A Am. Jur. Insurance § 1452, at 562)). Unlike
complaints, however, PRP letters generally do not include
the sort of details that would permit an insurer to deter-
mine whether coverage under its liability insurance
contract potentially is implicated, e.g., how and when the
environmental contamination occurred. Indeed, the
Illinois Supreme Court, in concluding that only “an action
in a court of law” qualifies as a “suit,” relied explicitly on
the fact that an insurer must analyze the allegations of a
“complaint” to determine whether it has any defense
obligation:
The definition of the word “suit” as requiring an
action in a court of law is further supported by
analyzing the connection between the filing of a
complaint and the duty to defend. Whether an
insurer’s duty to defend has arisen is deter-
mined by looking to the allegations in the un-
derlying complaint and comparing these
allegations to the policy provisions. If the facts
alleged in the underlying complaint fall within
or even potentially within policy coverage, the
insurer has a duty to defend its insured against
the complaint. Thus, the duty to defend extends
only to suits and not to allegations, accusations
or claims which have not been embodied within

17 ¥

the context of a complaint. In the instant case
[where the policyholder had received a PRP let-
ter], a complaint alleging liability for property
damage has never been filed against Lapham-
Hickey. Without a complaint, there is no “suit.”
And without a “suit,” Protection’s duty to defend
Lapham-Hickey is not triggered.

Lapham-Hickey Steel Corp. v. Prot. Mut. Ins. Co., 655
N.E.2d 842, 846 (Ill. 1995) (citing United States Fid. &
Guar. Co. v. Wilkin Insulation Co., 578 N.E.2d 926, 930
(Ill. 1991).

The lack of specific details in a PRP letter leaves the
insurer in a quandary if a PRP letter is deemed to be a
“suit,” or the “functional equivalent” thereof, giving rise to
a duty to defend. As the Wisconsin Supreme Court ob-
served in this case, when an insurer is assessing the
existence of a defense obligation, “[i]f there is any doubt
about the duty to defend, it must be resolvéd in favor of
the insured.” 665 N.W.2d at 283 (quoting Towne Realty,
Inc. v. Zurich Ins. Co., 548 N.W.2d 64, 67 (Wis. 1996)). If a
PRP letter qualifies as a “suit,” and the letter is silent as
to how contamination occurred, or whether any “property
damage” took place within the policy period of the in-
surer’s policy, the policyholder can be expected to argue
that the PRP letter leaves doubt which must be resolved in
favor of a duty to defend. If Wisconsin courts accept this
policyholder argument, a liability insurer’s defense obliga-
tion often will extend to environmental claims which, once
the relevant facts became available, will prove never to
have presented any potential for coverage under the
insurer’s policy.

The risk that equating a PRP letter with a “suit” will
give policyholders a windfall in the form of a defense
against claims not potentially covered under their policies
is particularly acute in Wisconsin. As noted in Wausau’s

a ee ee

18

petition, under Wisconsin law an insurer from whom a
defense is requested risks being estopped to raise coverage
defenses unless it either provides the requested defense or
intervenes in the underlying action to seek a stay pending
a declaratory judgment on the existence of coverage.
Wausau Cert. Pet. at 17-18 (citing Newhouse v. Citizens
Sec. Mut. Ins. Co., 501 N.W.2d 1 (Wis. 1993) and Mowry v.
Badger State Mut. Cas. Co., 385 N.W.2d 171 (Wis. 1986)).
Unlike an underlying lawsuit, however, a PRP letter is not
something in which an insurer can intervene to seek a
stay.

This problem disappears if a PRP letter is treated as a
“claim” rather than as a “suit,” because the CGL policy
language at issue here draws a clear distinction between
the two: the insurer “shall have the right and duty to
defend any suit,” whereas the insurer “may make such
investigation and settlement of any claim or suit as it
deems expedient.” When a PRP letter received by a policy-
holder alleges liability for environmental cleanup costs
that qualify as “damages” under governing law, an insurer
has every incentive to investigate the “claim” asserted in
the PRP letter, and to involve itself in the defense and
possible settlement of that “claim” if its investigation
discloses that the claim is potentially covered under its
insurance policy. See Foster-Gardner, 959 P.2d at 283
(noting that where insurers ultimately will have indem-
nity obligations arising from administrative proceedings,
“insurers have an inherent incentive to participate in
those proceedings where the costs are ascertained.”)
Stated another way, where a PRP letter is treated as a
“claim” seeking “damages,” it is likely that the insurer will
choose to assist in the defense of the claim if it is poten-
tially covered. If, however, a PRP letter is treated as a
“suit,” it is extremely likely that the insurer will have no
choice but to defend whether or not the claim is potentially

5 ot

19

covered. Under the latter scenario — i.e., the scenario
created by the Wisconsin Supreme Court decision at issue
here — the insurer will either (a) bear the cost of defending
non-covered claims for which it never collected any pre-
mium; or (b) to the extent permitted by Wisconsin law,
initiate litigation against the policyholder seeking to
recoup defense costs paid for environmental claims which
ultimately prove never to have been potentially covered
under its policies. See, e.g., Buss v. Superior Court, 939
P.2d 766 (Cal. 1997). Neither is an efficient result.

Equating a PRP letter with a “suit” triggering the
duty to defend creates other practical difficulties for
insurers as well. As pointed out by Wausau (Cert. Pet. at
18), requiring insurers to defend against PRP letters will
increase disputes and litigation between insurers and
policyholders over the characterization of remedial inves-
tigation costs. Once policyholders have succeeded in
expanding the definition of “suit” to include a PRP letter,
their next objective will be expanding the definition of
“defense costs” to include amvunts spent on remedial
investigation, so that their ability to recover such amounts
~ from insurers will be unconstrained by any applicable
policy limit. Moreover, because there are so many types of
PRP letters, with some being “coercive” and others much
less so, the Wisconsin Supreme Court’s ruling in this case
may not be the last word on whether every PRP letter
rises to the level of a “suit.” Courts in some jurisdictions
have adopted a “hybrid” approach and ruled that whether
a particular PRP letter constitutes a “suit” depends on the
degree of “coerciveness,” such that a state environmental
agency’s mere “invitation to voluntary action” would not be
a “suit.” See, e.g., Ryan v. Royal Ins. Co., 916 F.2d 731, 741-
742 (1st Cir. 1990).

The Wisconsin Supreme Court’s decision here, which
abandons the bright-line “suit” rule of Edgerton, will

20

increase litigation and generate exactly the sort of uncer-
tainty and confusion among lower courts in Wisconsin that
the court sought to avoid by overruling Edgerton’s “dam-
ages” rule. See Foster-Gardner, 959 P.2d at 286 (concluding
that equating PRP letters with “suits” would “open the
flood gates of litigation by inviting, and requiring, a case-
by-case determination whether each new and different
letter presenting the claim of an administrative agency is
to be deemed the ‘functional equivalent of a suit brought
in a court of law.’”) (internal quotation omitted).

For all of these reasons, the Wisconsin Supreme
Court’s decision causes severe prejudice to insurers, in
ways the court almost certainly never contemplated. The
court’s failure to foresee the prejudice caused by its ruling
is the direct result of its failure to afford Wausau notice
and an opportunity to be heard on the “suit” issue, which
deprived Wausau of due process.

CONCLUSION

The Wisconsin Supreme Court's surprise sua sponte
decision on the “suit” issue clearly violated Wausau’s due
process rights, and that decision is highly prejudicial to
Wausau and to insurers generally. The petition for certio-
rari should be granted.

Respectfully submitted,

LAURA A. FOGGAN

(Counsel of Record)
ELIZABETH A. EASTWOOD
WILEY REIN & FIELDING LLP
1776 K Street, N.W.
Washington, D.C. 20006
(202) 719-7000

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386001_1125%3A4. Public record. Not legal advice.