In Klatt v. Penske Truck Leasing Co. (2017AP2064), the Court of Appeals District III held that, although it acknowledged Great West Casualty Co. breached its duty to defend Penske Truck Leasing Co., Penske forfeited its right to recover defense costs because it failed to raise that argument in a previous appeal.

The underlying liability proceedings in this case arose from an accident that occurred on a Penske parking lot. Plaintiff James Klatt worked for a transport company that rented trucks from Penske and was injured upon returning a truck to a Penske lot. Klatt sued Penske for his injuries resulting from “large accumulations of ice” in the lot.

Great West insured Klatt’s employer transport company, and Penske was an additional insured under the plan. Great West rejected Penske’s tender of defense of the complaint because it argued the policy was for auto liability only, and the accident may not have occurred in relation to a vehicle.

As is proper procedure in a coverage dispute, the circuit court stayed the liability dispute between Klatt and Penske while the third-party coverage dispute between Great West and Penske was settled.

The circuit court eventually granted Great West summary judgment because additional evidence had clarified that Klatt’s injury was unrelated to use of a covered vehicle.  Penske appealed, and the appeals court reversed and remanded, agreeing with Penske’s argument that Great West had a duty to defend under the four corners of Klatt’s complaint, which, without additional evidence, showed there was possible need for coverage.

In the meantime, Penske had settled with Klatt. With the case back in circuit court, Penske moved for reimbursement of its defense costs and settlement payment, arguing Great West breached its duty to defend. Great West argued it did not yet have a duty to defend because the liability proceedings had been stayed. The parties disagreed on whether a scheduling conference that had occurred after the stay was in place had effectively lifted the stay. The circuit court ruled that the stay had not been lifted at the scheduling conference, and thus Great West had not breached its duty to defend.

In the instant decision, the appeals court determined that the stay had been effectively lifted by the scheduling conference, even though the circuit court never provided formal notice that it was modifying the stay order. Thus, Great West did breach its duty to defend by not covering Penske’s defense and settlement costs. However, since Penske did not raise an argument regarding Great West’s duty to defend in its prior appeal, Penske forfeited its right to that claim here. In its per curiam decision, the court noted that this case is unusual because the parties did not follow the proper procedure of staying an underlying liability dispute while third parties are settling a coverage dispute.