## Facts

- Dawn L. Maxwell worked as an administrative employee for Hartford Union High School District and entered a contract covering July 1, 2006, through June 30, 2008.
- In 2007, the District informed Maxwell her position would be eliminated; after negotiations and an interim settlement, the District set her employment end date as August 31, 2007.
- Maxwell sued the District alleging breach of the employment contract, breach of the interim agreement, violation of Wisconsin constitutional due process, and violation of Wis. Stat. § 118.24, seeking damages and reinstatement.
- The District had a public entity liability policy with Community Insurance Corporation (CIC) providing a duty to defend certain suits seeking damages for “errors or omissions.”
- The policy excluded coverage for “amounts due under any payment or performance contract” and for awards or settlements deemed compensation for lost salary or fringe benefits.
- CIC defended the District in Maxwell’s suit but never issued a reservation-of-rights letter.
- After coverage was disputed, the District filed a third-party claim seeking a declaration that CIC was estopped from denying coverage due to its defense without reserving rights and the District’s claimed detrimental reliance.

## Issues

1. Whether an insurer that defends without issuing a reservation-of-rights letter can be barred by waiver or estoppel from invoking policy coverage limitations and exclusions, thereby creating coverage that otherwise does not exist.

## Decision

- The Wisconsin Supreme Court reversed the court of appeals and reinstated summary judgment for CIC.
- The court held that failure to issue a reservation-of-rights letter cannot, by waiver or estoppel, defeat a policy coverage clause or exclusion and cannot create coverage absent from the contract.
- Because the policy exclusions unambiguously removed contract-based payment obligations and lost-salary-type awards from coverage, Maxwell’s monetary claims were not covered.

## Legal Principles

- Waiver and estoppel cannot enlarge insurance coverage or rewrite a policy to cover risks the insurer did not assume.
- Wisconsin law distinguishes “coverage” defenses (scope of coverage and exclusions) from “forfeiture” defenses (loss of coverage based on failure to satisfy policy conditions); waiver or estoppel may apply to forfeiture defenses but not to create coverage.
- An insurer’s failure to reserve rights while defending may have consequences in contexts consistent with governing law (including possible remedies tied to a duty-to-defend breach), but it does not nullify unambiguous coverage exclusions.

## Conclusion

The court held that an insurer’s defense of its insured without a reservation-of-rights letter does not estop the insurer from relying on policy exclusions to deny coverage, because waiver and estoppel cannot create coverage that the policy’s terms expressly withhold.


Maxwell v. Hartford Union High Sch. Dist., 341 Wis. 2d 238, 814 N.W.2d 484 (Wis. 2012)