The federal District Court for the Eastern District of Wisconsin recently addressed the issue of whether an insurer may be subject to a “mere volunteer” defense if it pays a claim when coverage is in dispute. The City of Green Bay hired a contractor to complete a major reconstruction of Lambeau Field, home of the NFL’s Green Bay Packers. A subcontractor, Spirtas Wrecking, accidentally damaged the stadium during the project.
At the time of the loss, the City was insured under multiple policies. Westchester Insurance underwrote a builder’s risk policy, in which both the City and Spirtas were named insureds. The City also maintained a policy through The Local Government Property Insurance Fund (“the Fund”). Eventually, Westchester paid the City $400,000 in exchange for a release agreement. As part of the agreement, the City assigned to Westchester its rights to collect under the Fund’s policy.
The Fund’s policy included an “other insurance” provision:
“If there is other insurance cover loss to the property…the Fund will not be liable under this policy until such other insurance has been exhausted…”
However, Westchester disputed the applicability of this provision. To resolve the coverage dispute, the Fund reimbursed Westchester $200,000 on the City’s behalf, in return for a commensurate assignment of Westchester’s subrogation rights.
In the Fund’s ensuing subrogation suit, Defendant Spirtas Wrecking moved for summary judgment, asserting that the Fund was not entitled to proceed in subrogation because it paid the $200,000 as a “mere volunteer.” Under Wisconsin law, subrogation arises only “when a person other than a mere volunteer pays a debt which in equity and good conscience should be satisfied by another.” Spirtas argued that Westchester’s policy was the primary coverage for the loss, and that therefore the Fund voluntary paid Westchester.
The court examined the mere-volunteer defense, noting that “it is a narrow exception to the principles of subrogation,” and expressed skepticism that an entity would pay another’s debt without an obligation to do so. The court was also persuaded by outside authority:
“The payor must have acted on compulsion, and it is only in cases where the person paying the debt of another…is compelled to pay in order to protect his own interests…that equity [subrogates him to the creditor]; in other cases the debt is absolutely extinguished.”
The court concluded that “the definition of a ‘volunteer’ is necessarily limited to those rare cases where payment is truly voluntary…” and therefore, “one is not deemed a ‘mere volunteer’ even if he pays pursuant to a legal obligation that is not crystal clear.”
Spirtas’ theory would effectively require insurers to assert defenses against their insureds, thereby removing the incentive for insurers to settle claims promptly and encouraging additional litigation. Faced with a coverage dispute, the Fund elected to reimburse Westchester for half of the amount paid as a result of Spirtas’ conduct. Under these circumstances, the court held that the Fund’s payment was not truly voluntary
Citing Millers Nat’l Ins. Co. v. City of Milwaukee
, 184 Wis.2d 155, 168-69, 516 N.W.2d 376 (Wis. 1994).
 Citing Home Owners’ Loan Corp v. Crouse, 151 Pa. Super. 259, 30 A.2d, 330, 331 (Pa. 1943).
The Local Gov’t. Property Ins. Fund v. Spirtas Wrecking Co., 2009 U.S. Dist LEXIS 67212 (E.D. Wisc. 2009).