Maxwell v. Hartford Union High School District

Dawn Maxwell (plaintiff) worked for the Hartford Union High School District (defendant) for seven years in an administrative role. Maxwell’s final employment contract with the district covered the period from July 1, 2006, to June 30, 2008. However, the district eliminated Maxwell’s position at the end of the 2006-2007 school year, and her final day was August 31, 2007. The day before her last day, Maxwell sued the district in a state circuit court for breach of contract, among other causes, seeking reinstatement of her job, monetary damages, and a declaratory judgment interpreting her employment contract. At the time, the district had a $10 million public entity liability insurance policy that was issued by Community Insurance Corporation (CIC). The district’s policy provided that CIC had a duty to defend any suit including those seeking damages resulting from errors and omissions. However, the policy specifically excluded coverage for amounts due under any payment or performance contracts and for awards or settlements that could be reasonably deemed compensation for loss of salary or fringe benefits. In accordance with the policy’s terms, CIC assumed full responsibility of the district’s defense to Maxwell’s suit; however, it did not issue the district a letter reserving its right to deny coverage of Maxwell’s claim at any time before or during the defense. The circuit court easily concluded that the CIC policy excluded Maxwell’s claim for monetary damages. CIC continued to defend the district unsuccessfully, and the district filed a third-party claim for a declaratory judgment that CIC was estopped from invoking a noncoverage defense, because CIC failed to issue the district a reservation-of-rights letter and the district had relied on CIC’s defense to its detriment. The trial court granted summary judgment in favor of CIC on the third-party claim. However, a court of appeals reversed, holding that CIC was estopped from denying coverage. CIC appealed the appellate court’s judgment on the third-party claim to the Wisconsin Supreme Court.