Christina Pitts v. Revocable Trust of Dorothy Knueppel
Annotate this Case
Download PDF
2005 WI 95 SUPREME COURT CASE NO.: COMPLETE TITLE: OF WISCONSIN 2002AP3394 Christina Pitts and Clifford Pitts, Sr., Plaintiffs-Petitioners-Appellants, Wisconsin Physicians Service Insurance Corporation, a Wisconsin insurance corporation and Sentry Insurance, a mutual company, Involuntary-Plaintiffs-Respondents, v. Revocable Trust of Dorothy Knueppel, Defendant. ON CERTIFICATION FROM THE COURT OF APPEALS OPINION FILED: SUBMITTED ON BRIEFS: ORAL ARGUMENT: October 26, 2004 SOURCE OF APPEAL: COURT: COUNTY: JUDGE: Circuit Milwaukee Thomas P. Donegan JUSTICES: CONCURRED: DISSENTED: NOT PARTICIPATING: WILCOX, J., did not participate. June 29, 2005 ATTORNEYS: For the plaintiffs-petitioners-appellants there were briefs by Mark L. Thomsen, Charles David Schmidt and Cannon & Dunphy, S.C., Brookfield, and oral argument by Mark L. Thomsen. For the involuntary-plaintiffs-respondents, Sentry Insurance, a mutual company, there was a brief by Robert F. Johnson, Philip C. Reid, Colleen M. Fleming and Cook & Franke, S.C., Milwaukee, and oral argument by Philip C. Reid. 2005 WI 95 NOTICE This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports. No. 2002AP3394 (L.C. No. 99 CV 5436) STATE OF WISCONSIN : IN SUPREME COURT Christina Pitts and Clifford Pitts, Sr., Plaintiffs-PetitionersAppellants, Wisconsin Physicians Service Insurance Corporation, a Wisconsin insurance corporation and Sentry Insurance, a mutual company, Involuntary-PlaintiffsRespondents, FILED JUN 29, 2005 Cornelia G. Clark Clerk of Supreme Court v. Revocable Trust of Dorothy Knueppel, Defendant. APPEAL from an Order of the Circuit Court for Milwaukee County, Thomas P. Donegan, Judge. ¶1 on DAVID T. PROSSER, J. certification by the Reversed and cause remanded. This case is before the court court of Wis. Stat. § (Rule) 809.61 (2001-02).1 1 appeals, pursuant to The issue presented is All subsequent references to the Wisconsin Statutes are to the 2001-02 edition unless otherwise noted. No. 2002AP3394 whether an underinsured motorist (UIM) insurer has an obligation to consent to, or substitute its own funds for, a proposed settlement between its insured and the tortfeasor, where the tortfeasor's insurer has already settled for its policy limit and the tortfeasor is offering an additional settlement payment in exchange for a full release. ¶2 This court has already held that a UIM insurer has an obligation grounded in equity to consent to a settlement or substitute when the settlement offer to its insured emanates from the tortfeasor's insurance company and fully releases both the tortfeasor and the tortfeasor's insurer. 129 Wis. 2d 3, 383 N.W.2d 876 (1986). insurer (also referred to as the Vogt v. Schroeder, In this case the UIM "underinsurer") faces an additional level of risk, considering both the uncertainty of the insured's ultimate damages tortfeasor's non-insurance and assets. the uncertainty Nevertheless, we of the conclude that most of the factors that led to our determination in Vogt are also present here. "consent-or-substitute" Consequently, we hold that the Vogt regimen applies where the insured is willing to accept the tortfeasor's settlement offer. I. FACTS AND PROCEDURAL HISTORY ¶3 Clifford The basic Pitts facts (Pittses) are undisputed. purchased an Christina automobile and insurance policy from Sentry Insurance (Sentry) effective September 29, 1996. The policy provided for $250,000 per person in underinsured motorist (UIM) coverage, with a standard reducing clause. 2 No. 2002AP3394 ¶4 On December 30, 1996, Christina Pitts (Pitts) was injured in an automobile accident allegedly caused by Dorothy Knueppel (Knueppel). Knueppel had purchased an automobile insurance policy from American Family Mutual Insurance Company (American Family), with $100,000 in liability coverage. ¶5 against On July Knueppel 7, and 1999, her the Pittses liability commenced insurer, a lawsuit American Family, claiming damages from the automobile accident. The complaint did it not allege a specific amount of damages; asked for compensatory damages and costs to be determined by a jury. ¶6 On September 26, 2000, Knueppel died. The Revocable Trust of Dorothy Knueppel (Trust) was substituted for Knueppel in the lawsuit. ¶7 On January 3, 2001, shortly before a scheduled trial, American Family Pittses; and tendered the its Pittses' $100,000 attorney, policy Mark limits Thomsen, Sentry of American Family's tender that same day. to the notified Thereafter, to preserve its subrogation rights, Sentry substituted $100,000 of its own funds in place of American Family's tender. 3 On May No. 2002AP3394 30, 2001, American Family deposited $100,000 into the circuit court and was dismissed from the case.2 ¶8 Also on May 30, Sentry intervened in the case as a defendant against the Pittses. Later, on November 12, 2001, it moved for a declaratory judgment, asserting that the Pittses had made a claim under the UIM provision of the Sentry Policy and that this claim should be adjudicated to determine how much, if any, UIM coverage Sentry would owe. The Pittses opposed Sentry's motion, and Sentry was dismissed from the case without prejudice. 2 In this case, American Family's tender of policy limits was purportedly exchanged for a "full release of American Family and its insured." If it actually was a full release, the Pittses could not have proceeded further against the Trust. Yet it is clear that the parties treated the release as a full release of American Family, but only a partial release of its insured, Knueppel, to the extent of the policy limits. Several factors compel us to this conclusion. The same attorney, Janet Cain, represented both American Family and Knueppel. After the tender of policy limits, Attorney Cain moved the court to dismiss the case only as to American Family, with Knueppel remaining in the case. American Family went to some lengths to illustrate that it had no further duty to defend Knueppel after tendering its policy limit. In her brief supporting the motion for dismissal, Attorney Cain cited Novak v. American Family Mutual Insurance Co., 183 Wis. 2d 133, 515 N.W.2d 504 (Ct. App. 1994). In Novak, American Family tendered its policy limits in exchange for its own dismissal and a partial release of the tortfeasor, Novak. 183 Wis. 2d at 135. The plaintiff's case against the tortfeasor continued. Id. In this case, Attorney Cain continued to represent the Trust and did not move for the Trust's dismissal. When the Pittses filed an amended complaint, Attorney Cain filed an answer on behalf of the Trust and did not raise the settlement as a defense. Neither did Sentry raise the settlement as an objection to the Pittses' continued lawsuit against the Trust; rather, it unsuccessfully attempted to intervene in that lawsuit. Accordingly, the Pittses were free to continue to pursue the litigation against Knueppel. 4 No. 2002AP3394 ¶9 Sentry's dismissal came on June 17, 2002. Two days later, on June 19, the Pittses and the Trust reached a proposed settlement agreement in which the Trust would pay the Pittses $40,000 in return for a release on the Pittses' claims against the Trust. As required by the Sentry policy and by case law, the Pittses' attorney notified Sentry of the settlement offer and requested that Sentry decide whether to consent (and thereby lose its subrogation rights) or substitute its own funds (to preserve its subrogation rights). Sentry objected, claiming that it was not required to consent or substitute under its policy or under existing case law. It contended that it had already paid the Pittses $100,000 to preserve its subrogation rights against the Trust. ¶10 Unable to reach an agreement, the Pittses brought Sentry back into the lawsuit as an involuntary plaintiff. October 9, 2002, the Pittses filed a motion for On declaratory judgment asking the court to order Sentry to consent to the settlement or substitute. The Pittses also sought the award of attorney fees pursuant to Wis. Stat. § 806.04 and interest on the settlement amount pursuant to Wis. Stat. § 628.46. ¶11 On December 12, 2002, the circuit court for Milwaukee County, Thomas P. Donegan, Judge, denied the motion, leading to this appeal. ¶12 (UIM) The issue again is whether an underinsured motorist insurer substitute its [Sentry] funds has for, an a obligation proposed to consent settlement to, between or its insured [the Pittses] and the tortfeasor [the Trust], where the 5 No. 2002AP3394 tortfeasor's insurer [American Family] has already settled for its policy limit [$100,000] and the tortfeasor is offering an additional settlement payment [$40,000] in exchange for a full release. II. THE SENTRY INSURANCE POLICY ¶13 Several provisions of the Sentry policy are important, and we set them out in detail with commentary. ¶14 First, the Declarations page shows that the Pittses purchased "Underinsured Motorist Bodily Injury" coverage of $250,000 per person and $500,000 per accident. ¶15 the Under this specific coverage, the insurer never pays full $250,000 for a single-person accident because the underinsured tortfeasor, by definition, has some insurance and the policy contains a reducing clause. insurance, the tortfeasor "underinsured." Every would dollar be If the tortfeasor had no "uninsured" obtained from rather the than tortfeasor reduces the potential liability of the UIM insurer. ¶16 Second, the policy provides a broad grant of UIM coverage: Our Promise To You We promise to pay damages, excluding punitive or exemplary damages, the owner or operator of an underinsured motor vehicle is legally obligated to pay because of bodily injury you suffer in a car accident . . . as a result of having been struck by an underinsured motor vehicle. ¶17 Third, the policy defines Vehicle": 6 "Underinsured Motor No. 2002AP3394 An underinsured motor vehicle is a motor vehicle with liability protection afforded by liability insurance policies or bodily injury liability bonds with limits the sum of which are less than the limits you have selected for underinsured motorist coverage as shown on the declarations page. An underinsured motor vehicle does not include an uninsured motor vehicle. ¶18 On the facts at hand, Knueppel was the operator of an "underinsured motor vehicle" because her vehicle had "liability protection afforded by liability insurance policies . . . with limits [$100,000] the sum of which are less than the limits [$250,000] you have selected." settlement, damages. a tortfeasor is Until there is a judgment or not "legally obligated to pay" But the insurer (or underinsurer) has an obligation to deal with the insured in good faith at all times. Auto-Owners Ins., 2001 WI 90, ¶57, 245 Danner v. Wis. 2d 49, 629 N.W.2d 159. ¶19 Fourth, the reducing clause is found under the heading "Payment of Damages." It provides: . . . The amount of damages payable under this insurance [$250,000] will be the limit of liability reduced by the amount paid by or on behalf of anyone responsible for your injury [i.e., the Trust and American Family]. ¶20 With this reducing clause in place, an insured who purchases $250,000 of underinsured motorist coverage is taking the risk that he or she will not suffer injuries of more than $250,000. If the insured suffers injuries of, say, $500,000, the only chance of being made whole is to be injured by one or more tortfeasors with liability insurance assets equaling the $500,000 in damages. 7 or other available If a tortfeasor has No. 2002AP3394 insurance coverage of $250,000 or more, the insured's UIM policy will pay nothing. ¶21 Fifth, also under the heading "Payment of Damages" is a provision partly responding to the Vogt decision: No damages will be payable under this insurance, as a result of a car accident with an underinsured motor vehicle until: a. The sum of the limits of liability of available liability insurance policies or bodily injury liability bonds applicable to the underinsured motor vehicle have been exhausted by payment of judgments or settlements; or b. A tentative settlement has been made between you and the insurer of the underinsured motor vehicle which would exhaust the limits of liability under any applicable bodily injury liability bonds or policies and we have prompt written notice of such tentative settlement and advance payment to you in an amount equal to the tentative settlement within 30 days after receipt of notification. Paragraph (a) operates in tandem with the reducing clause. No damages will be paid to the insured under UIM coverage until the tortfeasor's limits of liability insurance have been exhausted. Paragraph (b) contemplates the substitution feature of the Vogt decision, in which the insured reaches a settlement with the tortfeasor's insurer. It requires the insured to provide prompt written notice to the underinsurer and a substitution decision from the underinsurer within 30 days. Paragraph (b) does not address the specific situation here in which the insured reaches a settlement with the tortfeasor. ¶22 Sixth, the policy contains a "Trust Agreement" which provides: 8 No. 2002AP3394 When we pay damages under this insurance, you or your legal representative must agree in writing to repay us out of any damages recovered from anyone responsible for your injuries. You or your legal representative must also agree in writing to hold in trust and preserve for us all rights of recovery. At our request, you or your legal representative must take any necessary action to recover the payments we've made under this insurance through a representative we select. Expenses of recovery will be repaid to us out of any damages recovered. The "Trust Agreement" firms up the insurer's subrogation rights. ¶23 Seventh, the policy contains provisions addressing "notice" and "consent": Bodily Injury Not Covered By This Insurance This insurance doesn't cover bodily injury if, without our written consent, settlement is made or judgment is taken against anyone responsible for your injury. . . . . Additional Duties Any person seeking underinsured motorist coverage must also promptly notify us in writing of a tentative settlement between you and the insurer of the underinsured motor vehicle and allow us 30 days to advance payment to you in an amount equal to the tentative settlement to preserve our rights against the insurer, owner or operator of such underinsured motor vehicle. ¶24 These provisions require the insured [Pittses] to give the insurer [Sentry] notice of any proposed settlements and to obtain the insurer's [Sentry's] consent prior to accepting settlement offers. ¶25 Eighth, the policy contains a subrogation clause: Our Right To Recover From Others 9 No. 2002AP3394 After we have made payment under the Liability, Medical Expense, Uninsured Motorist, Comprehensive, Collision, Road Service or Rental Reimbursement insurance of this policy, we have the right to recover the payment from anyone who may be held responsible. You and anyone we protect must do whatever is necessary to enable us to exercise our right. You and anyone we protect will do nothing to prejudice our rights. . . . . Our rights do not apply with respect to Underinsured Motorist Coverage if we have been given prompt written notice of a tentative settlement between you and the insurer of an underinsured motor vehicle and we fail to advance payment to you in an amount equal to the tentative settlement within 30 days after receipt of notification. If we advance payment to you in an amount equal to the tentative settlement within 30 days after receipt of notification that payment will be separate from any amount you are entitled to recover under the provisions of Underinsured Motorist Coverage and we also have the right to recover the advance payment. These provisions also reflect the Vogt decision, particularly the insurer's consent feature. ¶26 medical Ninth, the examinations policy and requires release the insured medical to records undergo at insurer's request: If you're injured, we may ask that you be examined by a doctor we select. You must be examined when and as often as we may reasonably require. We may need authorization to obtain medical records and copies of other records. You must give us authorization upon each request. . . . . You must cooperate with us in our effort to investigate the accident or loss, settle any claims against you and defend you. . . . If you fail to 10 the No. 2002AP3394 cooperate . . . we may have the right to refuse you any further protection for the accident or loss. III. ANALYSIS A. Standard of Review ¶27 We must determine the respective rights of an insured and insurer under a UIM provision in an automobile insurance contract when the insured has reached tortfeasor on a proposed settlement. agreement with a This is a question of law that we determine without deference to the circuit court. Hull v. Heritage Mut. Ins. Co., 203 Wis. 2d 547, 551, 553 N.W.2d 295 (Ct. App. 1996) (citing Schulte v. Frazin, 176 Wis. 2d 622, 628, 500 N.W.2d 305 (1993)). B. Overview of UIM Coverage ¶28 Underinsured motorist coverage is intended to protect motorists against inadequately insured tortfeasors. 3 Widiss, Uninsured and Underinsured Motorist Insurance, § 31.4, at 5 (2d ed. 2001) Motorist (hereinafter Insurance). tortfeasor's insured's policy UIM Widiss, Uninsured Typically, has coverage. lower it liability Anderson, and Underinsured applies when the than the Insurance Law, limits Wisconsin § 4.1, at 4-4 (4th ed. 1998) (hereinafter Anderson, Wisconsin Insurance Law).3 mandatory. In Wisconsin, UIM coverage is optional, not Id. 3 In theory, underinsured motorist coverage could consist of coverage in a set amount "above and beyond the liability limits of the at-fault driver." Taylor v. Greatway Ins. Co., 2001 WI 93, ¶35, 245 Wis. 2d 134, 628 N.W.2d 916 (Bradley, J., dissenting). Policies embodying this type of coverage appear to be atypical. 11 No. 2002AP3394 ¶29 Under most UIM policies, "UIM coverage is designed 'to put the insured in the same position as he or she would have occupied had the tortfeasor's liability limits been the same as the underinsured motorist limits purchased by the insured.'" State Farm Mut. Auto. Ins. Co. v. Langridge, 2004 WI 113, ¶17, 275 Wis. 2d 35, 683 N.W.2d 75 (quoting Badger Mut. Ins. Co. v. Schmitz, 2002 WI 98, ¶17, 255 Wis. 2d 61, 647 N.W.2d 223). type of policy has been authorized by the This legislature, Wis. Stat. § 632.32(5)(i), and upheld by this court. Dowhower v. W. Bend Mut. Ins. Co., 2000 WI 73, ¶33, 236 Wis. 2d 113, 613 N.W.2d 557; Taylor v. Greatway Ins. Co., 2001 WI 93, ¶24, 245 Wis. 2d 134, 628 N.W.2d 916. ¶30 The Sentry policy clearly incorporates this approach. Therefore, in this case the Pittses could recover a maximum of $150,000 from Sentry because the Sentry under the UIM policy's provisions $250,000 limit of is the policy reduced by Knueppel's American Family policy limit of $100,000. ¶31 the Sentry has never maintained that Pitts contributed to cause Knueppel's of the accident. negligence, but The it Trust continues did offer $40,000 $100,000 from American Family to settle the case. to deny above the If Sentry had consented to the settlement between the Pittses and the Trust, it would have reduced its potential liability under the policy to $110,000. Sentry did not consent to the proposed settlement. Instead, it attempted to intervene as a defendant in the action between the Pittses and the Trust, seeking a "once-and-for-all" adjudication of the Pittses' damages that would be binding on 12 No. 2002AP3394 the Pittses, Sentry, and the Trust. determination, believing that The Pittses opposed such a Vogt gives Sentry, the UIM insurer, only two options: to consent to the settlement or to substitute its own funds. We must now determine which of these competing interpretations is correct. C. Vogt v. Schroeder ¶32 decision The starting point for any such analysis must be our in Vogt. In Vogt, the injured party had been a passenger in a vehicle driven by his son during a collision with the defendant Schroeder's vehicle. Vogt, 129 Wis. 2d at 7. The court noted that the parties implicitly concluded that Schroeder was "primarily, perhaps wholly, liable, because it is conceded, for this appeal at least, that his vehicle invaded the lane of the Vogt vehicle when the collision occurred." the same assumption is made here. Id. In effect, Although it has not been determined that Knueppel's negligence caused the accident, we assume for the purposes of this appeal that the Pittses have the right to attempt to draw on the Sentry UIM coverage to make up the difference between the damages available from the tortfeasor and the Sentry policy limits.4 ¶33 In Vogt, Schroeder's insurance policy had a limit of only $15,000, and, although nothing in the record explicitly showed that Vogt's damages exceeded that amount, the parties 4 The Sentry policy provides that the UIM provisions cover only damages "the owner or operator of an underinsured motor vehicle is legally obligated to pay because of bodily injury you suffer . . . as a result of having been struck by an underinsured motor vehicle." See ¶16, supra. 13 No. 2002AP3394 conceded for purposes of the appeal that the damages did exceed $15,000. Id. Schroeder's insurer offered to pay its policy limit in exchange for a release of its insured. Id. at 8. Vogt wanted to accept the proffered $15,000 and then pursue a UIM claim under his own auto insurance policy with Wisconsin Employers Casualty Company (WECC), which contained $50,000 in underinsured motorist coverage. Id. WECC hesitated to consent to the settlement because it felt that its right to subrogation against the tortfeasor could be impaired by such consent.5 Id. At its core, the Vogt decision was about subrogation rights. ¶34 "[S]ubrogation is an equitable doctrine and depends upon a just resolution of a dispute under a particular set of facts." Practice, Id. at § 4051 12 at (citing 6A 110). Appleman, Generally, Insurance the Law and doctrine of subrogation "rests upon the equitable principle that one, other 5 The WECC policy at issue in Vogt v. Schroeder contained the following settlement provision: In the event of any payment under this policy, we are entitled to all the rights of recovery of the person to whom payment was made against another. That person must sign and deliver to us any legal papers relating to that recovery, do whatever else is necessary to help us exercise those rights and do nothing after loss to prejudice our rights. When a person has been paid damages by us under this policy and also recovers from another, the amount recovered from the other shall be held by that person in trust for us and reimbursed to us to the extent of our payment. Vogt v. Schroeder, 129 Wis. 2d 3, 9, 383 N.W.2d 876 (1986). 14 No. 2002AP3394 than a volunteer, who pays for the wrong of another should be permitted to look to the wrongdoer to the extent he has paid and be subject to the defenses of the wrongdoer." Garrity v. Rural Mut. Ins. Co., 77 Wis. 2d 537, 541, 253 N.W.2d 512 (1977). The doctrine is often invoked after an insurer has compensated its own insured for an accident its insured did not cause. See, e.g., Rimes v. State Farm Mut. Auto. Ins. Co., 106 Wis. 2d 263, 271-72, 316 N.W.2d steps circumstances, 348 into (1982). the The shoes of insurer, its in insured some and may prosecute the tortfeasor to recoup the benefits it paid to its insured. Patients Wis. 2d 439, 451, Comp. 588 Fund N.W.2d 35 v. Lutheran (1999) Hosp., (citing 223 Anderson, Wisconsin Insurance Law, § 12.3, at 12-18). ¶35 In the Vogt case, Schroeder's insurer argued that a UIM insurer or underinsurer never has a right to subrogation. Vogt, 129 Wis. 2d at 11. The Vogt court answered this open question by confirming that an underinsurer does have a right to subrogation as long as it substitutes proferred by the tortfeasor's insurer. its funds Id. at 17-19. for those However, if the underinsurer chooses simply to consent to the settlement, it forfeits its right to subrogation. ¶36 Id. at 20-21. The Vogt court cited two major factors it believed supported this outcome. First, in the underinsurance context, "the balancing of equities is not between the insurer and its own insured but between the underinsurer and the tortfeasor." Id. at 17. This balance weighs in favor of the underinsurer's subrogation right. 15 No. 2002AP3394 ¶37 Second, the court recognized that a motorist who carries UIM coverage should not be left in a worse position when she is injured by an underinsured motorist than if she has been injured by a fully insured motorist. Id. at 17-18. The court noted: Such motorist ought to be able to "settle" with the tortfeasor's insurance company to the extent of that tortfeasor's coverage. The motorist should not be required to sue for what is being offered and thus incur larger fees and expenses just to accommodate the underinsurance company's desire to protect its subrogation rights. At least the motorist should not be obligated to do so if it is possible, under the terms of the contract and in justice, for the injured party to receive the settlement proceeds, or its equivalent, and the underinsurer is still able to protect its subrogation rights. Id. at 18. ¶38 Having determined that the underinsurer potentially had subrogation rights, the Vogt court had to emplace a method to allow process. the It underinsurer adopted in a Schmidt to intervene procedure Supreme Court v. 1983). Vogt, 129 Wis. 2d at 20-21. approved Clothier, 338 in by the the settlement Minnesota N.W.2d 256 (Minn. In Schmidt, the Minnesota court held that the underinsurer was entitled to notice of a potential settlement and a period of time in which to assess the case. 263). Vogt, 129 Wis. 2d at 20 (citing Schmidt, 338 N.W.2d at The Minnesota court explained its holding: In that time [the underinsurer] could evaluate relevant factors, such as the amount of the settlement, the amount of liability insurance remaining, if any, the amount of assets held by the tortfeasor and the likelihood of their recovery via 16 No. 2002AP3394 subrogation, the total amount of the insured's damages, and the expenses and risks of litigating the insured's cause of action. If the underinsurer were to determine after assessment that recovery of underinsurance benefits it paid was unlikely (e.g., where the liability limits are exhausted or nearly so and the tortfeasor is judgment-proof), it could simply let the "grace period" expire and permit the settlement and release. It must, of course, thereafter process the underinsurance claim but would not be able to recover those payments through subrogation. If, on the other hand, damages were substantially more than the liability limits and the tortfeasor had substantial assets, the underinsurer could substitute its payment to the insured in an amount equal to the tentative settlement. In this situation, the underinsurer's payment would protect its subrogation rights to the extent of the payment, and the insured would receive the amount of the settlement offer in cash. The underinsurer would then have to arbitrate the underinsured claim and could, thereafter, attempt to negotiate a better settlement or could proceed to trial in the insured's name. Id. at 20-21 (quoting Schmidt, 338 N.W.2d at 263) (internal citation omitted). ¶39 The quoted passage notes that the underinsurer might consider whether the tortfeasor is judgment-proof. This implies at a minimum that if the underinsurer substitutes its own funds, it has the right to sue all parties released by the proposed settlement. In Vogt, this was both the tortfeasor and the tortfeasor's insurer. ¶40 The Vogt court reasoned that the underinsurer could protect its right to subrogation, but it could not "thwart the right of its own insured to receive some payment, either the amount of the insured's underinsurance 17 claim or the amount No. 2002AP3394 offered in settlement." Id. at 21. The court thus struck an equitable balance between the right of the insurance company to protect its subrogation interest and the right of the insured to be timely compensated. D. The Risks of Underinsurance ¶41 An underinsurer is placed in a somewhat awkward position upon receiving notice of a settlement like the Pittses' or Vogt's. As we recently recognized, an underinsurer owes a duty of "good faith and fair dealing" to its insured. 245 Wis. 2d 49, ¶57. incentive to Danner, At the same time, the underinsurer has an minimize its insured's damages while it is negotiating with its insured, thus minimizing its own liability under the policy. However, should it decide to substitute its own funds for those proferred by a tortfeasor's insurer, it must execute a 180-degree turn in the follow-up action against the tortfeasor, attempting to maximize its insured's damages to obtain the largest possible settlement or judgment. ¶42 This stylized dance between the underinsurer and its insured necessarily involves some degree of uncertainty because much of the dance occurs before the insured formally makes a UIM claim under the policy. The underinsurer must calculate the value believes of the damages it its insured has suffered. Having arrived at this estimate, if the underinsurer believes the proposed settlement with the tortfeasor is too low, it should substitute its own funds and pursue the tortfeasor and the tortfeasor's insurer in a subrogation action, assuming the tortfeasor has additional assets. 18 On the other hand, if the No. 2002AP3394 underinsurer believes the settlement is adequate to cover the insured's damages, confidence that it the insured to consent consent to will not a subsequent UIM should not additional damages in whether should turn the be settlement able claim. on the to The source with recover decision of the settlement funds, but rather on the adequacy of the funds. ¶43 In this case, court documents show that the Pittses alleged that Christina Pitts had suffered "permanent injuries, disability, and specials totaling $403,904.70" in damages. Sentry characterizes claims of this magnitude as "questionable." It notes that Pitts had an extensive medical history including involvement in five prior automobile accidents of varying severity. ¶44 Under the policy, the Pittses have a contractual duty to cooperate with Sentry during the claim investigation process.6 6 The policy provides: If you're injured, we may ask that you be examined by a doctor we select. You must be examined when and as often as we may reasonably require. We may need authorization to obtain medical records and copies of other records. You must give us authorization upon each request. . . . . You must cooperate with us in our effort to investigate the accident or loss, settle any claims against you and defend you. . . . If you fail to cooperate . . . we may have the right to refuse you any further protection for the accident or loss. See supra, ¶26. 19 No. 2002AP3394 In satisfaction of that duty, the Pittses claimed that they sent Sentry "over injuries. 1000 The pages" record of documentation includes a regarding summary Pitts's transmittal form listing several medical reports the Pittses sent, but does not contain the actual "endeavor[s] to reports. discovery do Sentry into claims the that claimed Pittses] never complied with the requests." despite its damages[, the The record reveals that on August 20, 2001, while still a defendant, Sentry sent the Pittses an extensive set of interrogatories. Sentry also included a request for production of documents containing over 20 separate requests for Pitts to release access to her medical records held by various health care providers. The record does not reflect how the Pittses responded, but in a motion filed February 28, 2002, Sentry's counsel asserted: Plaintiff would have the court believe that she has provided Sentry with all documents that Sentry needs to fully evaluate the case. That is not true. Plaintiff did not provide Sentry with two examiner reports . . . These reports make it abundantly clear that plaintiff's alleged damage claim is not what she says it is. ¶45 The contractual issue of whether duty to cooperate the with Pittses Sentry is breached not their before us. However, it must be emphasized that the insured is bound by the terms of the insurance contract. the insured must provide the If contractually obligated, documentation required by the contract to allow the underinsurer to make an informed decision on whether to consent or substitute. 20 No. 2002AP3394 ¶46 Effectively, the underinsurer must answer the same question of ultimate damages, whether a settlement offer comes from the tortfeasor's tortfeasor herself. insurer In or both whether cases, it the evaluate the tortfeasor's personal assets. comes from underinsurer the must If the settlement offer fully releases both the tortfeasor and the tortfeasor's insurer but the settlement funds emanate solely from the tortfeasor's insurer, the underinsurer's substitution of its own funds allows it to sue not only the tortfeasor's insurer but also the tortfeasor. What underinsurer tortfeasor's underinsurer insurer? Any other result would not make sense. would insurer's could substitute tendered proceed its funds against policy against only limits the if a the tortfeasor's There would be no point to such an action, because the maximum the underinsurer could recover would be the same amount that was already tendered. The underinsurer's recovery would be further reduced by its costs in prosecuting the action. What makes substitution an attractive option is the possibility that the tortfeasor has substantial wealth or assets, and that the underinsurer will be able to negotiate a better settlement than its insured because of the greater resources at its disposal. In that scenario, both benefited. the insured and the underinsurer are The insured receives a prompt settlement payment and the underinsurer may secure more from the tortfeasor, thereby eliminating or reducing its liability. ¶47 In this case, Sentry attempted to remove all uncertainty by intervening in the case between the Pittses and 21 No. 2002AP3394 the Trust. Sentry asked the circuit court to adjudicate the Pittses' damages so that all three parties Sentry, the Pittses, and the Trust would negotiate. some have a rock-solid number from which to This position is defensible because it would, to degree, eliminate duplicitous litigation. Once their damages had been determined, the Pittses would be free to settle with the Trust. At that point, it would be obvious to Sentry whether a settlement was adequate, and the decision whether to consent to a settlement would also be relatively simple. Further, any future litigation between the Pittses and Sentry would be simplified. Sentry could start with the arrived-upon damage amount, subtract the amount recovered from the Trust and American Family, and pay the remaining amount to the Pittses (assuming that amount came within the policy limits). ¶48 Vogt. This court It did not. could have adopted such an approach in Even Sentry's trial counsel admitted that its request and accompanying approach was "novel," but felt that it had "no choice but to ask [the circuit] court to order that the plaintiff continue with her UIM claim against Sentry so the matter can be litigated and eventually 7 resolved."7 While Under some circumstances, this court has recognized that an insurer does have the right to force litigation against its own insured. See, e.g., Reid v. Benz, 2001 WI 106, ¶16, 245 Wis. 2d 658, 629 N.W.2d 262 (citing Elliott v. Donahue, 169 Wis. 2d 310, 317-18, 485 N.W.2d 403 (1992)). But in those cases, the question was whether the insured has coverage, not the amount of coverage implicated. Id. In this case, the circuit court dismissed Sentry as a defendant because at the time, Pitts had asserted no claim against Sentry, nor was Sentry obligated to defend Pitts in any claim. 22 No. 2002AP3394 Sentry's approach is understandably preferable to Sentry, it is not preferable to the Pittses. Sentry's approach might eliminate future litigation between the Pittses and Sentry, but it would also have the effect of creating unnecessary litigation between the Pittses and the Trust. Those two parties have already reached what they believe to be an equitable settlement. If Sentry possible were that litigation. to accept the entire Instead of that proposed matter could adopting Sentry's settlement, be it is settled without admittedly "novel" approach, we choose to continue to rely on the principles in Vogt. E. Applicability of Vogt v. Schroeder ¶49 We believe that the factors relied on in Schmidt and Vogt are equally applicable to the situation here, where the settlement is not with the tortfeasor's insurer, but rather with the tortfeasor herself. the same effect as the The dual settlements in this case had single settlement in Vogt the full release of both the tortfeasor and the tortfeasor's insurer.8 ¶50 The balance of equities between the underinsurer and the tortfeasor is the same. It is important to preserve the underinsurer's subrogation right, and under this extension of 8 See supra n.2 for the circumstances surrounding the release. In Vogt, the settlement agreement fully released both the tortfeasor and his insurer. That is why the second proposed settlement in this case, fully releasing the Trust, moves this case onto the same footing as Vogt, with both the tortfeasor and the insured fully released by settlement. 23 No. 2002AP3394 Vogt the underinsurer retains the right of subrogation against the tortfeasor. ¶51 The second rationale articulated by the Vogt court is controlling. As the court noted, an insured motorist has a right to a settlement and should not be required to sue for what is being freely offered, thus incurring substantial legal fees. Vogt, 129 Wis. 2d at 18. The right to a prompt settlement does not the depend on whether motorist has tortfeasor or the tortfeasor's insurer. settled with the Rather, "Wisconsin has Schulte, 176 a long-standing policy in favor of settlements." Wis. 2d at 634 (citing Collins v. Am. Family Mut. Ins. Co., 153 Wis. 2d 477, 490, omitted)). Prompt interest. 451 N.W.2d 429 settlement (1990) of (internal claims is in citations the public See id. (citing Loy v. Bunderson, 107 Wis. 2d 400, 425, 320 N.W.2d 175 (1982)). ¶52 Sentry asserts that "until a determination was made as to the value of the Pittses' UIM claim, Sentry would not be in a position to know the amount it would seek in subrogation." The passive construction of that sentence disguises the fundamental question of who must make the critical valuation of the insured's damages. Sentry prefers it to be the circuit court. Under must Vogt, underpinning suited Sentry the Vogt do so on its procedure is that an insurer substitution is in to determine whether own. The its rationale is best own best interests. ¶53 The assessment of risk and uncertainty is at the very heart of the insurer's business. 24 It is the keystone of the No. 2002AP3394 insurance enterprise. that "the critical This court has previously pointed out element in [the parties' competing definitions of insurance] is a contractual shifting of risk in exchange for premiums." 81, 499 N.W.2d 652 Hillegass v. Landwehr, 176 Wis. 2d 76, (1993) (emphasis added); see also Nat'l Motorists Ass'n v. Office of the Comm'r of Ins., 2002 WI App 308, ¶¶31-32, 259 Wis. 2d 240, 655 N.W.2d 179. Indeed, the transfer of risk is the only reason that insureds pay premiums See Black's Law Dictionary 802 (7th ed. 1999) to insurers. ("Insurance" is defined as "an agreement by which one party assumes a risk faced by another party in return for a premium payment."). Sentry, and all insurers, evaluate damages and make determinations about benefits on a daily basis. These determinations inevitably involve a degree of risk, for which insurers are compensated by insureds in the form of premiums.9 ¶54 In Vogt, the circuit court stated the issue as follows: "Can the insured [of an underinsured motorist's policy] settle with the tort feasor, and receive additional payments from the under-insured underinsured motorist's motorist's carrier carrier prevent the exercising subrogation rights of reimbursement against the tort feasor?" Vogt, 129 9 from and In a similar vein, this court has held that "where either the insurer or the insured must to some extent go unpaid, the loss should be borne by the insurer for that is a risk the insured has paid it to assume." Garrity v. Rural Mut. Ins. Co., 77 Wis. 2d 537, 542, 253 N.W.2d 512 (1977) (citing St. Paul Fire & Marine Ins. Co. v. W.P. Rose Supply Co., 198 S.E.2d 482, 484 (N.C. Ct. App. 1973)). 25 No. 2002AP3394 Wis. 2d at 10 (emphasis added). This court did not disturb that statement of the issue, the plain language of which contemplates settlement with the tortfeasor. underinsurer "has the The court concluded that the right of subrogation against the tortfeasor and his insurer to the extent that the underinsurer has paid benefits to its own insured." Vogt, 129 Wis. 2d at 17 (emphasis added). ¶55 After holding that the underinsurer had the right to subrogation as long as it substituted its own funds, the court listed several deciding factors whether to the consent underinsurer or might substitute. consider These in factors include "the amount of the settlement, the amount of liability insurance remaining, if any, the amount of assets held by the tortfeasor and the likelihood of their recovery via subrogation, the total amount of the insured's damages, and the expenses and risks of litigating the insured's cause of action." Vogt, 129 Wis. 2d at 20 (quoting (emphasis added). As already Schmidt, 338 discussed, N.W.2d at the 263) substitution of the underinsurer's funds gives it the right to proceed against both the tortfeasor and her insurer; this indicates that underinsurers are already making judgments about the risks posed by suing a tortfeasor with uncertain assets. ¶56 The "reasonable period" between notice of the proposed settlement and the required decision to consent or substitute gives the underinsurer tortfeasor's expressly assets. delineated time to Indeed, in the attempt that Schmidt 26 is to one decision, determine of as the the factors adopted in No. 2002AP3394 Vogt. Vogt, 129 Wis. 2d at 20. In this case, attempt to determine the assets in the Trust. Sentry did See Letter from Tina Zblewski, Sentry Claims Representative, to Attorney Thomas Foy (Feb. 12, 2001) (announcing Sentry's intent to substitute its funds for American Family's tendered policy limits, thus maintaining "provide trust"). its us subrogation with an right, affidavit and requesting indicating the counsel assets in to the It is unclear whether Sentry ever received a response to this inquiry, but Sentry had already set in motion the types of inquiries that are necessary to determine whether to consent or substitute when a settlement offer is made by the tortfeasor.10 ¶57 policy We note that one insurance treatise reviewed standard forms incorporated from the 35 states, Schmidt and approach in found that some form. 30 of them Schermer, Automobile Liability Insurance 3d § 59.10, at 59-34 n.7 (3d ed. 1995). Most jurisdictions following the Schmidt approach apply it settlements to with either 10 tortfeasors or tortfeasors' In its brief, Sentry asserted that the Trust "appeared to have substantial assets." At the circuit court's hearing on May 17, 2002, counsel for Wisconsin Physicians Service Insurance Corporation, another involuntary plaintiff, stated "[T]he tortfeasor was a millionaire, which there is no question about. The plaintiff would never have any reason to even talk to Sentry because they are going to collect everything they need from the tortfeasor." There is no factual support for this assertion in the record, but it illustrates the point that the assets of the tortfeasor are often determinable, thus informing the underinsurer's decision about the risks of substituting its own funds and proceeding directly against the tortfeasor. 27 No. 2002AP3394 insurers.11 in accord: The most exhaustive treatise on the subject is also "An [under]insurer may lose the right to be subrogated to an insured's claim by refusing to consent to a settlement with a tortfeasor or a tortfeasor's insurer." 3 Widiss, Uninsured and Underinsured Motorist Insurance § 43.6, at 519 (emphasis added); see also Anderson, Wisconsin Insurance Law § 4.7, at 4-37 ("A UIM insurer is entitled to notice from the insured of settlement with a tortfeasor and an opportunity to pursue its right of subrogation") (emphasis added); J. Sue Myatt, Settlement Procedures in Underinsured Motorist Cases: The Underinsurer's Dilemma Between Preserving the Insurer's Subrogation Right and Protecting the Insured's Settlement Right, 11 See, e.g., 215 Ill. Comp. Stat. 5/143a-2(6) (2004) (Consent or substitute procedure applies "where the insurer has been provided with written notice in advance of a settlement between its insured and the underinsured motorist") (emphasis added); Lambert v. State Farm Mut. Auto. Ins. Co., 576 So. 2d 160, 167-68 (Ala. 1991) ("If the underinsured motorist insurance carrier wants to protect its subrogation rights, it must, within a reasonable time . . . advance to its insured an amount equal to the tort-feasor's settlement offer") (emphasis added); Grinnell Mut. Reinsurance Co. v. Recker, 561 N.W.2d 63, 70 (Iowa 1997) (After insured notified underinsurer of settlement offer, underinsurer "could then have protected its contingent subrogation rights by tendering an amount equal to the tortfeasors' settlement offer and substituting its payment for that of the offer") (emphasis added); Coots v. Allstate Ins. Co., 853 S.W.2d 895, 900 (Ky. 1993) ("We conclude that it does not abrogate UIM coverage to settle with the tortfeasor and his carrier . . . so long as the UIM insured notifies his UIM carrier of his intent to do so") (emphasis added); McDonald v. Republic-Franklin Ins. Co., 543 N.E.2d 456, 460-61 (Ohio 1989) (disapproved of on other grounds by Ferrando v. Auto-Owners Mut. Ins. Co., 781 N.E.2d 927 (Ohio 2002)); Hamilton v. Farmers Ins. Co. of Washington, 733 P.2d 213, 220 (Wash. 1987). 28 No. 2002AP3394 14 J. Corp. L. 175, prescribed settlement notice the 185 to underinsurance tortfeasor") (1988) procedure underinsured claim and (emphasis ("Common include: motorist tentative added) components (1) The carrier offer Myatt, Procedures in Underinsured Motorist Cases). the insured's regarding settlement (hereinafter of from the the Settlement Members of this court have touched on the subject in passing: "Under Vogt, a plaintiff can take advantage of the defendant's settlement offer and an underinsurer can protect its right to subrogation Ives v. Coopertools, 208 Wis. 2d 55, 71, 559 reimbursement." N.W.2d 571 (1997) (Geske, J., concurring) (emphasis added).12 ¶58 In summary, we believe that the procedure prescribed in Vogt to govern allocation of risk has equal applicability here. When the subrogated underinsurer substitutes its own funds for the settlement funds, it gains the right to proceed against the party or parties that would have been fully released by the settlement agreement. ¶59 Our procedure settlement will continued afford process in endorsement a higher of degree underinsurance 12 the of prescribed certainty claims. See Vogt to the Myatt, In Ives, the six participating justices of this court unanimously agreed that the decision of the court of appeals should be reversed, but evenly split on the proper rationale for the reversal. Ives v. Coopertools, 208 Wis. 2d 55, 57, 559 N.W.2d 571 (1997). Therefore, Justice Geske's concurring opinion has no precedential value because it is not the opinion of a majority of the court, and simply serves here to illustrate another reference to the broader application of Vogt to settlements with "the defendant" as well as the defendant's insurer. 29 No. 2002AP3394 Settlement Procedures in Underinsured Motorist Cases at 197-98. Therefore, we hold that an UIM insurer has an obligation to consent to, or substitute its own funds for, a proposed settlement between its insured and the tortfeasor, where the tortfeasor's insurer has already settled for its policy limit and the tortfeasor is offering an additional settlement payment. This obligation is not triggered, however, if the insured has failed to satisfy its contractual obligation to provide information to the underinsurer to assist the underinsurer in determining damages. ¶60 Sentry argues that its policy forecloses this result because it expressly adopts the Vogt procedure only when its insured settles with the tortfeasor's insurer.13 silent on settlements with the tortfeasor The policy is herself. Sentry implicitly relies on the maxim, expressio unius est exclusio alterius ("The expression of one thing is the exclusion another."). Black's Law Dictionary 1635 (7th ed. 1999). if to we were assume that the silence in the policy of Even had significance, the silence in the Sentry policy, like the silence in the WECC policy at issue in Vogt, cannot trump public policy. The WECC policy also contained express settlement procedures that did not contemplate the procedure eventually adopted by the Vogt court. Vogt, 129 Wis. 2d at 9. 13 The court was nonetheless The policy provides: "No damages will be payable under this insurance, as a result of a car accident with an underinsured motor vehicle until . . . [a] tentative settlement has been made between you and the insurer of the underinsured motor vehicle." See supra, ¶21. 30 No. 2002AP3394 persuaded by the public policy favoring an injured insured's right to prompt settlement. that the insurance Id. at 17-18. contract Despite the fact specifically addresses only settlement with a tortfeasor's insurance company, the motorist should not be required to sue for what is being offered by the tortfeasor. IV. CONCLUSION ¶61 Because the circuit court held that the Vogt procedure did not apply here, it never reached the other issues in this case: whether Pitts fully cooperated with Sentry pursuant to the policy, and whether Sentry settlement offer pursuant owes the to Pittses interest Wis. Stat. § 628.46 fees and costs pursuant to Wis. Stat. § 806.04. or on the attorney We express no opinion on those issues, and remand this case to the circuit court to allow it to address them. By the Court. The order of the circuit court is reversed and the cause is remanded. ¶62 JON P. WILCOX, J., did not participate. 31 No. 2002AP3394 1
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
