The Four Corners Rule Strikes Again

Duty to Defend Exists if there is a Potential for Coverage of one Allegation

The duty to defend is always broader than the duty to indemnify. In states like Wisconsin the law requires the court to consider only the allegations of the complaint and the wording of the insurance policy when making a decision to compel an insurer to defend or not defend. This rule places the issue of coverage or no coverage in the hands of the drafter of the lawsuit.

In West Bend Mutual Insurance Company v. Ixthus Medical Supply, Inc. and Karl Kunstman, Abbott Laboratories, Abbott Diabetes Care Inc. and Abbott Diabetes Care Sales Corp., No. 2017AP909, State Of Wisconsin In Supreme Court (February 28, 2019) the Supreme Court of Wisconsin applied the four corners test in reaching a decision on the need for the insurer to defend its insured.

West Bend Mutual Insurance Company asked the Supreme Court to reverse the court of appeals’ decision holding that the allegations in Abbott Laboratories’ complaint against Ixthus Medical Supply, Inc. alleged a potentially covered advertising injury, and as a result, triggered West Bend’s duty to defend under the commercial general liability policy West Bend issued to Ixthus. West Bend argued the court of appeals erred .


Ixthus is a medical supply company operating in Wisconsin. At all times relevant to this action, Ixthus was insured under a commercial general liability insurance (“CGL”) policy with West Bend, which provided coverage for “personal and advertising injury.”

Abbott is a health care company that manufactures and sells blood glucose test strips in both the domestic and international markets. Abbott’s strips are trademarked under the name “FreeStyle.” The test strips are functionally identical regardless of the intended market, but the labeling and instructional inserts as well as price and available rebates are substantially different between the domestic and international packaged boxes. For a variety of reasons, Abbott sells test strips for use in international markets at a much lower cost.

Abbott filed a lawsuit in New York federal court against Ixthus and over 100 other defendants asserting thirteen federal statutory and common law claims for relief based on its belief that the defendants were “import[ing], advertis[ing] and subsequent[ly] distribut[ing]” boxes of Abbott’s international test strips in the United States.

Upon being served, Ixthus tendered its defense to West Bend. West Bend denied Ixthus’s tender. In August 2016, West Bend filed a complaint in the circuit court seeking a declaratory judgment that West Bend had no duty to defend or indemnify Ixthus in Abbott’s lawsuit. The circuit court granted West Bend’s motion, concluding that although the allegations in Abbott’s complaint fell within the initial grant of coverage, the knowing violation exclusion applied, thereby eliminating any duty West Bend had to defend Ixthus.

Both Ixthus and Abbott appealed to the court of appeals, which reversed the circuit court’s decision.


The sole issue presented to the Supreme Court was whether West Bend has the duty to defend its insured, Ixthus, under the terms of the CGL policy—specifically the “Personal and Advertising Injury Liability” provision.

The purpose of the analysis is to determine whether the allegations in the complaint contain any claims, which if proven true, would be covered by the policy. If there are any potentially covered claims—any allegations in the complaint that “give rise to the possibility of coverage”— the insurer has a duty to defend.

The court uses a three-step process in duty-to-defend cases:

  1. “First, a reviewing court determines whether the policy language grants initial coverage for the allegations set forth in the complaint. If the allegations set forth in the complaint do not fall within an initial grant of coverage, the inquiry ends.”
  2. Second, “if the allegations fall within an initial grant of coverage, the court next considers whether any coverage exclusions in the policy apply.”
  3. Third, “[i]f any exclusion applies, the court next considers whether an exception to the exclusion applies to restore coverage.” Water Well Sols. Serv. Grp., 369 Wis. 2d 607, ¶16 (internal citations omitted).

Additionally, when an insured seeks coverage under the advertising provision of a CGL policy, the court asks three questions to determine whether the allegations in the complaint fall under the initial grant of coverage.

The three questions are:

  • Does the complaint allege a covered offense under the advertising injury provision?
  • Does the complaint allege that the insured engaged in advertising activity? and
  • Does the complaint allege a causal connection between the plaintiff’s alleged injury and the insured’s advertising activity?

Answering yes to all three questions completes the first step in the duty-to-defend analysis, the policy provides an initial grant of coverage, and the court proceeds to the second and third steps in the process.

The second part of the duty-to-defend analysis involves determining whether any of the insurance policy’s exclusions apply. Exclusions are narrowly or strictly construed against the insurer if their effect is uncertain. Only if a policy exclusion removes coverage does the court proceed to the third step of the duty-to-defend analysis, which entails consideration of whether an exception to the exclusion restores coverage.

If the policy, considered in its entirety, provides coverage for at least one of the claims in the underlying suit, the insurer has a duty to defend its insured on all the claims alleged in the entire suit.


West Bend asserts the complaint lacks any allegations suggesting a causal connection between Abbott’s injury and Ixthus’s actions. Specifically, West Bend argues the complaint does not allege any advertising activity by Ixthus that caused injury to Abbott. Instead, West Bend insists that the allegations in the complaint against Ixthus focused on importation and distribution, not advertising. The test for whether a causal connection has been sufficiently alleged focuses not on whether the injury could have taken place without the advertising, but whether the allegations sufficiently assert that the advertising did in fact contribute materially to the injury.

The underlying suit alleged  unauthorized importation, advertisement and subsequent distribution that caused or could cause consumer confusion, mistake, and deception to the detriment of Abbott.

The Supreme Court concluded that the allegations in Abbott’s complaint very plainly allege that Ixthus, as a “Defendant,” engaged in advertising that caused substantial injury to Abbott. Fleshing out the factual allegations at trial may affect indemnification under the policy, but at the duty-to-defend stage, the court liberally construes the allegations in the complaint, and make all reasonable inferences from the allegations.

Knowing Violation

Applying the rule that even one covered offense is alleged in the underlying complaint, the insurance company has a duty to defend the court of appeals held the exclusion did not preclude coverage. The knowing violation exclusion will preclude coverage at the duty-to-defend stage only when every claim alleged in the complaint requires the plaintiff to prove the insured acted with knowledge that its actions would violate the rights of another and would inflict personal and advertising injury. If the complaint alleges any claims that can be proven without such a showing, the insurer will be required to provide a defense.

Even though the complaint generally asserts Ixthus acted wrongfully and with knowledge that it was defrauding Abbott, West Bend is not relieved of its duty to defend because this complaint alleges at least one potentially covered advertising-injury claim, which does not depend on whether Ixthus acted with knowledge that it was violating Abbott’s rights or with knowledge that it was inflicting advertising injury. Because Abbott could prevail on several covered advertising injury claims without establishing that Ixthus knowingly violated Abbott’s rights, it is possible coverage that triggers West Bend’s duty to defend.

While a finder of fact could determine Ixthus acted knowingly, thereby relieving West Bend of its indemnification obligation under the knowing violation exclusion, the duty to defend is broader than the duty to indemnify because the duty to defend is triggered by arguable, as opposed to actual, coverage.


The Supreme Court, therefore, concluded that the allegations in Abbott’s complaint fall within the initial grant of coverage under the personal and advertising injury liability provision of the commercial general liability insurance policy West Bend issued to Ixthus. The claims in the complaint are sufficient to allege a causal connection between Ixthus’s advertising activity and Abbott’s injuries.

West Bend was required to defend.


Because the court was limited to a reading of the complaint and compelled to ignore the actual, or extrinsic, facts it had no choice but to find coverage for a defense because of the possibility of proof of a claim where all exclusions did not apply. I have opined often that the four corners rule is unfair since any competent drafter can allege a suit that requires an insurer to defend, as did the allegations in the complaint, or refuse defense if the drafter wishes to punish the defendant. As a result, an insured who intentionally violated the rights of Abbot Labs must be defended because of the potential for coverage and deprived the insurer of the right to allege extrinsic evidence that established no coverage.

© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101




About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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4 Responses to The Four Corners Rule Strikes Again

  1. Tony Verreos says:

    Barry – Thanks for continuing to teach us more important lessons with each of your articles.

    Would you not agree that the law is less than black and white when it is open to interpretation yielding potentially different decisions by different courts? And if so, the point of the law is not fairness, it is justice as defined by a procedural correct application of the law. In other words, the right decision is not always reached, and the guilty party is not always punished, and the punishment does not always fit the crime.

    Would you not agree that most courts view insurers as highly sophisticated business entities capable of hiring the best attorneys to write their policies in a manner which clearly expresses their wishes of what coverage to provide under what terms, conditions, limitations, and exclusions? And if so, why feel sorry for any insurer who fails to avail themselves of the appropriate legal talents to achieve their desired end goals?

    • Barry Zalma says:

      If the courts do so they are sorely confused. Insurers are just like everyone else and although they have good lawyers they are no smarter than the average bear. Surprisingly, most insurers do not hire lawyers to write policies. I have written a few and it is terribly difficult, especially, withe the requirement for easy to read language.

      • Well – I’m not sure the courts/judges would admit to being confused, but they certainly have most of us confused.

        I would have thought that all the ISO forms were written by attorneys owing to there number of words and lack of clarity.
        It is surprising to learn from you that “most insurers do not hire lawyers to write policies.” Hard as it is to do, I would think that getting their products right would be a very high priority. They never seem to have any shortage of money for top executive compensation or advertising.

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