Maxwell v. Hartford Union High School District

814 N.W.2d 484 (2012)

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Nature of the Case

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Facts

P began her employment with D in 2000, always serving in administrative capacities. She entered into a new employment contract with D in 2006. It covered the time period from July 1, 2006, to June 30, 2008. In January 2007 P was informed that her position would be eliminated at the end of the 2006-2007 school year. After a series of back-and-forth negotiations and events, including an interim settlement agreement, P was told that her employment would end on August 31, 2007. P sued D. CIC, D's insurer, was not named as a party to this suit. P sought injunctive relief for immediate reinstatement of her position, monetary damages, and declaratory relief interpreting the contract. P's suit was based on breach of contract, breach of an interim agreement, violation of her due process rights under the Wisconsin Constitution, and violation of Wis. Stat. § 118.24. D had a $10,000,000 Public Entity Liability Insurance Policy from CIC. The policy specifically excluded liability for any payment or performance contract or agreement, or for that part of any award or settlement which is, or reasonably could be deemed to be, compensation for loss of salary or fringe benefits of your employee(s). CIC assigned Attorney Levy to represent D. Attorney Levy entered a formal appearance on September 21. Attorney Levy remained an attorney of record for D until August 2009. During this time, Attorney Levy did not represent CIC. CIC never sent a reservation of rights letter to D. On June 11, 2008, the circuit court granted partial summary judgment to P on her claim for breach of contract. It awarded compensatory damages of $103,824.22 at a hearing on September 8. D then took the position that because CIC had furnished a defense to D without issuing a reservation of rights letter, CIC could not deny coverage for any compensatory damages that might be awarded. CIC took the position it was not liable for any judgment for damages due under P's performance contract or any settlement for lost wages or lost benefits. D filed a third-party complaint against CIC because CIC had denied coverage for the monetary damages in the lawsuit. CIC moved to dismiss the complaint for failure to state a claim upon which relief can be granted. D filed a motion for summary judgment because CIC never issued a reservation of rights letter to D nor ever advised D that there were coverage issues under their policy of insurance until after D lost a Motion for Summary Judgment liability to P. D claimed prejudice from the delay of notice. The court denied CIC's motion to dismiss and D's motion for summary judgment. It granted summary judgment to CIC holding that the policy terms controlled regardless of a letter of reservation. The court of appeals reversed. It held that an application of waiver or estoppel would preclude CIC from asserting the policy defense of noncoverage if it did not reserve its rights. 'CIC is estopped from denying coverage because D relied on CIC's defense to its detriment and was prejudiced thereby.' CIC appealed.