Shane T. Drinkwater v. American Family Mutual Insurance Company
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2006 WI 56 SUPREME COURT CASE NO.: OF WISCONSIN 2004AP1793 COMPLETE TITLE: Shane T. Drinkwater, Plaintiff-Respondent, v. American Family Mutual Insurance Company, Jason R. Honshel and Additional Fictional Party #1 and Additional Fictional Party #2, Defendants, Medical Associates Health Plans, Subrogated Defendant-Appellant. ON CERTIFICATION FROM THE COURT OF APPEALS OPINION FILED: SUBMITTED ON BRIEFS: ORAL ARGUMENT: March 14, 2006 SOURCE OF APPEAL: COURT: COUNTY: JUDGE: Circuit Grant Robert P. VanDeHey JUSTICES: CONCURRED: DISSENTED: NOT PARTICIPATING: June 1, 2006 PROSSER, J., dissents (opinion filed). ATTORNEYS: For the subrogated defendant-appellant, there were briefs (in the court of appeals) by Stephen C. Krumpe and O Connor & Thomas, P.C., Dubuque, IA, and oral argument by Stephen C. Krumpe. For court of McNamara Hoskins, the plaintiff-respondent, there was a brief (in the appeals) by Mark H. Hoskins, Jr., and Hoskins, Kalnins, & Vogelsberg, Lancaster, and oral argument by Mark H. Jr. An amicus curiae brief was filed (in the court of appeals) by William C. Gleisner, III and Law Offices of William C. Gleisner, III, Milwaukee; Rhonda L. Lanford and Habush Habush & Rottier, S.C., Madison, on behalf of the Wisconsin Academy of Trial Lawyers. 2006 WI 56 NOTICE This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports. No. 2004AP1793 (L.C. No. 2003CV33) STATE OF WISCONSIN : IN SUPREME COURT Shane T. Drinkwater, Plaintiff-Respondent, v. FILED American Family Mutual Insurance Company, Jason R. Honshel and Additional Fictional Party #1 and Additional Fictional Party #2, Defendants, JUN 1, 2006 Cornelia G. Clark Clerk of Supreme Court Medical Associates Health Plans, Subrogated Defendant-Appellant. APPEAL from a judgment of the County, Robert P. Van De Hey, Judge. ¶1 on ANN WALSH BRADLEY, J. certification by the Wis. Stat. § 809.61 (2003-04). Circuit Court for Grant Affirmed. This case is before the court court of appeals pursuant to Medical Associates Health Plan, Inc. ("the Plan"), an Iowa corporation, appeals a circuit court judgment that applied Wisconsin law and determined that Shane No. 2004AP1793 Drinkwater must be made whole before the Plan was entitled to subrogation against his recovery for personal injuries. Drinkwater, a Wisconsin resident, was injured in a motor vehicle accident in Wisconsin, and the Plan paid medical expenses on his behalf through his employer's health insurance plan. ¶2 The issue is whether Iowa law or Wisconsin law applies to the Plan's subrogation claim against Drinkwater. choice-of-law principles, we determine applies. Accordingly, Drinkwater must Wisconsin law the may that before Plan Drinkwater's medical expenses. be Applying Wisconsin made recover whole for law under any of We conclude that the Plan is not entitled to subrogation against Drinkwater's recovery because he was not made whole under Wisconsin law. Therefore, we affirm the circuit court judgment. I ¶3 The undisputed. background facts to leg fracture when other vehicle was also under an ¶4 appeal are He sustained injuries that included a another motor motorcycle in September 2002 in Wisconsin. company. this Drinkwater is a Wisconsin resident who works at a company located in Iowa. severe relevant insurance a policy Wisconsin issued vehicle a his The driver of the resident by struck who was Wisconsin covered insurance Both vehicles were registered in Wisconsin. The Plan paid health care expenses on Drinkwater's behalf pursuant to a group health insurance contract it issued 2 No. to employer.1 Drinkwater's The Plan is an Iowa 2004AP1793 non-profit corporation and its principal offices and place of business are located in Iowa, although it has clinics in Iowa, Illinois, and Wisconsin. The contract was issued to Drinkwater's employer in Iowa. ¶5 Drinkwater commenced an action for personal injuries, naming the other driver and the driver's insurer as defendants, and naming the Plan as a potentially subrogated party. The Plan counterclaimed and cross-claimed, alleging a subrogated interest in the damages Drinkwater sought. ¶6 More specifically, the Plan alleged that pursuant to Iowa law, it was entitled to "first dollar" reimbursement and payment in full for deduction or offset. all of its subrogated expenses without It alleged that its subrogation interest was not subject to the Wisconsin "made-whole" doctrine of Rimes v. State Farm Mutual Automobile Insurance Co., 106 Wis. 2d 263, 316 N.W.2d 348 (1982), but rather that it was entitled to full reimbursement from any of Drinkwater's recovery based upon the terms of the Plan contract and Iowa law. ¶7 The Plan contract contained a clause providing that the contract "shall be governed by and interpreted in accordance with the laws of the State of Iowa." It also contained a subrogation clause, which provided as follows: 1 There are actually two plan contracts for two different years involved in this case, but the terms of the contracts as relevant here are the same. We refer to the contracts in the singular throughout this opinion. 3 No. 2004AP1793 If a Member suffers an injury or condition, for which benefits are provided by [the Plan], through acts or omissions of a third party for which said third party (or any person or organization liable for such third party's conduct) is or may be legally liable, or if the Member recovers benefits from any person or organization by reason of such injury or condition, [the Plan] shall be subrogated, to the extent of the reasonable cash value of benefits, supplies, and services provided by [the Plan], to all the Member's rights of recovery against any person or organization . . . . ¶8 The other driver's negligence was conceded, as was the lack of any contributory negligence on Drinkwater's part. The insurer for the other driver paid its policy limit of $250,000. ¶9 Drinkwater and the Plan agreed to escrow $89,006.10 of the proceeds, the amount that the Plan had paid for his health care expenses. The subrogation rights, whether was it Plan moved requesting entitled to for that a the "overturn" determination circuit court Wisconsin's of its decide made-whole doctrine and whether Drinkwater was made whole. ¶10 applied. The circuit court determined that Wisconsin law It conducted a Rimes "made-whole" hearing in order to calculate Drinkwater's damages. The court found that his total damages were $424,000 as follows: Medical expenses: $132,000 Past loss of earnings: $7,000 Future loss of earning capacity: Past pain, suffering, and disability: $10,000 $125,000 Future pain, suffering, and disability: $150,000 4 No. ¶11 Accordingly, the circuit court 2004AP1793 concluded that Drinkwater would not be made whole by receipt of the $250,000 in proceeds from the tortfeasor's insurance. Applying Wisconsin's made-whole doctrine, it determined that Drinkwater was entitled to the escrowed funds. The court entered judgment in favor of Drinkwater, and the Plan appealed. II ¶12 law, The parties including agree that under Wisconsin the Plan would not Rimes, subrogation against Drinkwater. be subrogation entitled to The circuit court calculated his damages to be $424,000, which included $132,000 in medical expense, but he received only $250,000 from the tortfeasor. As the circuit court determined, Drinkwater was therefore not made whole. the He would be further short-changed for every dollar that Plan was Wisconsin's able to recover. made-whole doctrine The Plan applies, admits then that if Drinkwater prevails. ¶13 Conversely, Iowa has rejected Wisconsin's made-whole doctrine. Ludwig v. Farm Bureau Mutual Insurance Co., 393 N.W.2d 143, 146 (Iowa 1986) ("We disagree with the holding of the Rimes case."). Plan would be The parties agree that under Iowa law the entitled to invade Drinkwater's recovery of $250,000 to obtain reimbursement of medical expenses it paid on his behalf. Consequently, the question of whether Wisconsin law or Iowa law applies will determine the outcome of this case. ¶14 In order to resolve this question, we must employ a choice-of-law analysis in order to determine whether Iowa law or 5 No. Wisconsin law applies. question of law 2004AP1793 This choice-of-law determination is a subject to independent appellate review. American Family Mut. Ins. Co. v. Powell, 169 Wis. 2d 605, 609, 486 N.W.2d 537 (Ct. App. 1992). A ¶15 of the We begin with a review of the development and status made-whole doctrine in Wisconsin. The doctrine in Wisconsin has deep and firm roots. made-whole It traces back at least 75 years to Hamill v. Kuchler, 203 Wis. 414, 232 N.W. 877 (1931), and is based largely on the equitable nature of subrogation. ¶16 In Hamill, a property case involving mortgage and lien rights, the court explained that "subrogation does not arise until the debt has been fully paid." Hamill, 203 Wis. at 425. "Until that is done the right of subrogation is a mere inchoate right and cannot Works v. Gill, be 170 enforced." Wis. 477, Id. (quoting 483, 175 Defiance N.W. 940 Mach. (1920)). Subrogation "is a creation of the law whereby the substantial ends of justice relations." may be accomplished regardless of contract Id. (quoting Poluckie v. Wegenke, 137 Wis. 433, 437, 119 N.W. 188 (1909)). ¶17 These concepts from Hamill were reinforced and applied in the insurance context in Garrity v. Rural Mutual Insurance Co., 77 Wis. 2d 537, 541-46, 253 N.W.2d 512 (1977). In Garrity the court concluded that a subrogation clause in a standard fire insurance policy "did rights of the insured." not change the substantive Garrity, 77 Wis. 2d at 541. 6 common law The court No. 2004AP1793 cited "the general rule that there is no subrogation until the insured is made whole." Id. at 542. "[T]he insurer has no right as against the insured where the compensation received by the insured is less than his loss." Id. at 543 (quoting Couch on Insurance, § 61.61 (2d ed. 1968)). ¶18 the Subsequently, centrality of in Rimes, the this equitable court nature again of reinforced subrogation, concluding that "only where an injured party has received an award . . . which pays all of his elements of damages . . . is there any occasion for subrogation." This time, the court was Rimes, 106 Wis. 2d at 275. addressing whether an automobile insurer that made payments to an insured under the medical-pay provisions of its policy could enforce a subrogation agreement when the insured received damages incurred. ¶19 in settlement less than the total Id. at 264. The court in Rimes looked to Garrity as its guide, explaining that "one who claims subrogation rights, whether under the aegis of either legal or conventional [contractual] subrogation, is barred from any recovery unless the insured is made whole." Id. at 272. It said that subrogation is to prevent a double recovery. the Id. purpose of Thus, only when an insured has received full damages from the tortfeasor and has been paid for a portion of those damages by the insurer is the insurer, subrogation. Id. under principles of equity, entitled to When either the insurer or insured must to some extent go unpaid, the loss should be borne by the insurer 7 No. 2004AP1793 because that is a risk that the insured has paid the insurer to assume. ¶20 Id. at 275-76 (citing Garrity, 77 Wis. 2d at 542.) This court again reaffirmed Wisconsin's commitment to the made-whole doctrine in Ruckel v. Gassner, 2002 WI 67, 253 Wis. 2d 280, 646 N.W.2d 11. In a unanimous decision, it held that under Rimes and Garrity, an insured must be made whole before an insurer may exercise subrogation rights against its insured, even when unambiguous language in an insurance contract states otherwise. ¶21 Ruckel, 253 Wis. 2d 280, ¶¶4, 40, 43. Ruckel, much like the case at bar, involved medical expenses paid under a group benefit plan. Id., ¶¶6-7. The insurance contract included a subrogation clause entitling the insurer to full repayment of the expenses. Id., ¶9. It stated that the insurer's right to repayment was "prior and superior" to the right of any other person, including the beneficiary. Id. ¶22 The court explained that the insurer's argument, that the subrogation clause in its policy was clear, "misse[d] the point." Id., ¶41. Rather, the court explained: not unclear; it is inequitable. "The clause is It is contrary to the most fundamental precepts of subrogation." Id. Subrogation under circumstances where the insured had not been made whole "turn[s] the entire doctrine of subrogation on its head." ¶23 that in Id. Thus, our case law culminating with Ruckel establishes Wisconsin the made-whole language in an insurance contract: doctrine can trump express "[P]ursuant to this court's holdings in Garrity and Rimes, an insurer is not entitled to 8 No. 2004AP1793 subrogation against its insured unless and until the insured is made whole, regardless of contractual language to the contrary." Id., ¶43. B ¶24 The Plan asserts that this is a contract case and that its Iowa choice-of-law clause is controlling. Furthermore, the Plan argues that even if the clause is not controlling, Iowa is the state with the most significant relationship to the question at hand. Thus, the Plan contends, Iowa law should control under a choice-of-law analysis. ¶25 Studios, We disagree. This court recognized Inc., 139 Wis. 2d 635, in 407 Bush v. National N.W.2d 883 School (1987), that there is a qualification on the freedom to contract for choice of law. and The qualification "has been recognized by commentators frequently invoked by courts." Id. at 642. Although parties may seek to promote "certainty and predictability in contractual relations," they will not be "permitted to do so at the expense of important public policies of a state whose law would be applicable if the parties choice of law provision were disregarded." Id.; see also Beilfuss v. Huffy Corp., 2004 WI App 118, ¶¶13, 16, 20, 274 Wis. 2d 500, 685 N.W.2d 373; General Med. Corp. v. Kobs, 179 Wis. 2d 422, 428, 507 N.W.2d 381 (Ct. App. 1993) ("parties cannot, by contract, override fundamental polices of the state whose law would be applicable absent the choice of law provision"). ¶26 "A sufficiently precise delineation important to of warrant 9 those policies overriding a which are contractual No. choice of law stipulation Wis. 2d at 643. is not designed exercise of Bush, to protect superior a weaker bargaining unenforceable . . . or party power that against another by the party, likely to embody an important state public policy." ¶27 139 However, "statutes or common law which make a particular . . . contract provision are possible." 2004AP1793 unfair are Id. In Bush, for example, a school portrait photographer initiated an action against the corporation for which he worked, asserting that he was terminated without cause in violation of the Wisconsin Fair Dealership law. Id. at 637-38. This court concluded that it would not honor the parties' choice-of-law clause specifying Minnesota law in light of the strong public policy represented by Wisconsin's fair dealership laws. Id. at 639, 644-45. ¶28 to Another example of this qualification on the freedom contract for choice-of-law is Beilfuss. There, a sales manager sought to have covenants not to compete with his former employer ¶¶2-3. not declared unenforceable. Beilfuss, 274 Wis. 2d 500, The court of appeals determined that the covenants were enforceable under Wisconsin's long-standing public policy controlling covenants not to compete, despite a choice-of-law provision in the contract specifying that Ohio law applied. Id., ¶¶3, 7, 20. ¶29 for A Bush-type qualification on the freedom to contract choice of law is jurisprudence culminating Wisconsin made-whole the apt here. in Ruckel doctrine 10 First, this establishes trumps an express court's that in contract No. provision to the contrary. in this case occurred 2004AP1793 Second, the contractual bargaining between the Plan and employer, not between the Plan and Drinkwater. Drinkwater's He had no choice or opportunity to bargain as to the terms of the Plan contract. If a party who actually bargained for a choice-of-law clause may seek to set it aside based on an overriding state public policy, as in Bush and Beilfuss, certainly a party who had no choice or opportunity to bargain for such a clause may do likewise, at least when it dictates his or her right to recover damages. ¶30 Moreover, the issue before us is not simply one of contract, as the Plan asserts. To treat it as such, without recognizing the tort aspects that this issue implicates, is to ignore the true nature of the question before the court. To rest the analysis of this case only on contract contravenes this court's analysis in Ruckel, which applied equity, not contract, to a tort recovery. entitled to In Ruckel we held that an insurer is not subrogation until the insured is made "regardless of contractual language to the contrary." whole Ruckel, 253 Wis. 2d 280, ¶43. ¶31 express all of choice-of-law contract right For does against not these reasons, provision necessarily Drinkwater's for we Iowa control recovery the for determine law in Plan's personal that the the Plan subrogation injuries. Rather, we must apply a choice-of-law analysis to determine if, absent the clause, Wisconsin law would apply. Wis. 2d at 642; Kobs, 179 Wis. 2d at 428. 11 See Bush, 139 No. 2004AP1793 C ¶32 Wisconsin's choice-of-law jurisprudence, at least up until recently, has had something of a checkered past. likely be impossible Wisconsin to jurisprudence fully reconcile immediately the following It would 30 years this of court's decision in Wilcox v. Wilcox, 26 Wis. 2d 617, 133 N.W.2d 408 (1965). In Wilcox, the court joined the "choice of law revolution" of the 1960s by rejecting traditional choice-of-law analysis that inflexibly looked to the law of the place of a wrong, "lex loci delicti." See Shirley A. Wiegand, Officious Intermeddling, Interloping Chauvinism, Restatement (Second), and Leflar: Wisconsin's Choice of Law Melting Pot, 81 Marq. L. Rev. 762, 772 (1998); see also Wilcox, 26 Wis. 2d at 620-21. ¶33 Professor Wiegand, in the article cited, maintained that "choice-of-law decisions in this state have traveled a very bumpy road" beginning with Wilcox. 796. Wiegand, 81 Marq. L. Rev. at She explained that although this court had "hoped for a 'practical and workable' approach which would serve as 'a guide to the future to provide a uniform common law of conflicts,' lower court decisions demonstrate that vision has not yet been achieved." Id. at 803 (quoting Wilcox, 26 Wis. 2d at 621, 635) (footnotes omitted). ¶34 which before We need not attempt to reconcile all of the cases to Professor Wiegand us, which referred in involves the 1998. made-whole The question doctrine, is now not clearly controlled by any of our previous choice-of-law cases. 12 No. 2004AP1793 We apply instead our more recent choice-of-law jurisprudence to determine whether Iowa law or Wisconsin law applies. ¶35 court Since Gillette, time that State decided the Farm Mutual 2002 WI 31, 251 Professor Wiegand Automobile Wis. 2d 561, wrote, Insurance 641 this Co. N.W.2d 662, v. and Beloit Liquidating Trust v. Grade, 2004 WI 39, 270 Wis. 2d 356, 677 N.W.2d 298. Both cases, Gillette in particular, supply the choice-of-law framework for our analysis here. ¶36 Gillette establishes perhaps contrary to some of the cases criticized in the Wiegand article that insurance-related issues which arise as part of a personal injury lawsuit are not always readily categorized as sounding in tort or contract. In Gillette, an this court explained that when an insured sues insurance company for underinsured motorist coverage, "contract law and tort law converge." Gillette, 251 Wis. 2d 561, ¶31. "Contract law applies to interpret the insurance policy, but an insured's right to underinsured motorist benefits hinges on the existence of a tort cause of action against the underinsured motorist." ¶37 Id. Similarly here, where the Plan seeks subrogation against Drinkwater's recovery from the tortfeasor, contract law and tort law converge. interpretation Drinkwater's of Although contract law applies to the the employer, his Plan's right insurance to recover contract hinges with on the existence of his tort cause of action against the tortfeasor. ¶38 The issue before us cannot be characterized purely as one of contract. At oral argument, the Plan's counsel asserted 13 No. 2004AP1793 that its claim was only a contract claim and that "but for" the Plan contract, it would have no claim. It can just as easily be said, however, that the Plan would have no claim but for the tort that set this case in motion. The Plan concedes, as it must, the that action." "the contract involves proceeds of a tort Indeed, the Plan's counterclaim and cross-claim as a potentially subrogated party incorporate all of Drinkwater's allegations "that are essential to state a negligence cause of action for personal injuries."2 ¶39 Regardless of how the issue in this case is characterized, Drinkwater's right to recover is diminished on a dollar-for-dollar basis to the extent that the Plan is entitled to subrogation. tightly bound Drinkwater's right to recover in tort is thus to the Plan's subrogation right, just as the Gillette plaintiff's right to recover was tightly bound to his insurance company's asserted rights under the insurance contract in that case. We therefore follow Gillette, applying its choice-of-law framework to determine whether Wisconsin law or 2 The Plan is incorrect in asserting that "Schlosser [v. Allis-Chalmers Corp., 86 Wis. 2d 226, 271 N.W.2d 879 (1978)]'s rationale, if not holding, is directly on point." That case, which involved a group life insurance plan, might be distinguished in a number of ways. For our purposes here, it is sufficient to note that the controversy in Schlosser sounded only in contract, and the court applied a different choice-oflaw framework from that in State Farm Mutual Automobile Insurance Co. v. Gillette, 2002 WI 31, 251 Wis. 2d 561, 641 N.W.2d 662. 14 No. Iowa law similar. ¶40 Gillette applies. The framework in Beloit 2004AP1793 Liquidating is Thus, we look also to its principles to guide us.3 The "first rule" in the choice-of-law analysis under is "that the law of the forum should presumptively apply unless it becomes clear that nonforum contacts are of the greater significance." quotations omitted). the nonforum contacts Gillette, 251 Wis. 2d 561, ¶51 (internal Under Gillette, if it is not clear that are of greater significance, then the court applies five choice-influencing factors: (1) Predictability of results; (2) Maintenance of interstate and international order; 3 We caution that neither the law of the forum nor the law of the place of accident is the choice-of-law rule applicable to every fact situation or issue that might arise regarding a group benefit plan or a contractual subrogation clause. See Gillette, 251 Wis. 2d 561, ¶87. "A law of one jurisdiction could be invoked with respect to some issues and in some fact situations and the law of another jurisdiction invoked in respect to other issues and other fact situations." Id. Thus, the dissent paints our opinion with too broad a brush when it declares that "[t]he rule of this case is that Wisconsin law will trump Illinois or Iowa subrogation law on a Wisconsin injury to a Wisconsin resident when the case is tried in a Wisconsin court." Dissent, ¶76. In addition, we note that both parties agree that this case does not involve a self-funded insurance plan that is subject to the federal Employment Retirement Income Security Act (ERISA). Thus, we are not presented with questions such as federal preemption of state subrogation law under ERISA in this case. For further discussion of ERISA questions, see Arnold P. Anderson, 2 Wisconsin Insurance Law §§ 10.124-10.126 (5th ed. 2004); see also Ruckel v. Gassner, 2002 WI 67, ¶42 n.7, 253 Wis. 2d 280, 646 N.W.2d 11 (explaining that legislativelysanctioned subrogation, including ERISA, may override common law made-whole principles). 15 No. 2004AP1793 (3) Simplification of the judicial task; (4) Advancement of the forum's governmental interests; and (5) Application of the better rule of law. Gillette, 251 Wis. 2d 561, ¶53; see also Heath v. Zellmer, 35 Wis. 2d 578, 595-96, 151 N.W.2d 664 (1967).4 ¶41 to apply The court in Beloit Liquidating referred to two tests in a choice-of-law analysis. The first test is "whether the contacts of one state to the facts of the case are so obviously state's law Liquidating, limited and constitutes 270 minimal officious Wis. 2d 356, ¶24 that application intermeddling." (quoting American of that Beloit Standard Ins. Co. v. Cleveland, 124 Wis. 2d 258, 263, 369 N.W.2d 168 (Ct. App. 1985)). five The second test involves an examination of the choice-influencing factors. Beloit Liquidating, 270 Wis. 2d 356, ¶25.5 4 The factors were suggested by Robert A. Leflar in his article, Choice-Influencing Considerations in Conflicts Law, 31 N.Y.U. L. Rev. 267 (1966). See Beloit Liquidating Trust v. Grade, 2004 WI 39, ¶25 n.15, 270 Wis. 2d 356, 677 N.W.2d 298. This court first applied the factors in Heath v. Zellmer, 35 Wis. 2d 578, 595-96, 151 N.W.2d 664 (1967). 5 In Beloit Liquidating, the court applied the five factors even after determining that the application of the nonforum state's law would have constituted officious intermeddling. Beloit Liquidating, 270 Wis. 2d 356, ¶¶24-32, 677 N.W.2d 298; see also Finch v. Southside Lincoln-Mercury, Inc., 2004 WI App 110, ¶¶28-31, 274 Wis. 2d 719, 685 N.W.2d 154; but see American Standard Ins. Co. v. Cleveland, 124 Wis. 2d 258, 263, 369 N.W.2d 168 (Ct. App. 1985) ("[I]f no officious intermeddling would result, then we apply the choice-influencing considerations . . . ."). 16 No. ¶42 The "first rule" of Gillette and the first test of Beloit Liquidating are related. that 2004AP1793 nonforum contacts are It could not "become[] clear of the greater significance" (Gillette) if the nonforum state's contacts are "so obviously limited and minimal that application of that state's law constitutes officious intermeddling" (Beloit Liquidating). ¶43 That said, we need not address further the relationship of the "first rule" of Gillette and the first test The application of either Gillette's of Beloit Liquidating. "first rule" or Beloit Liquidating's first test to the facts here necessitates factors. that we apply the five choice-influencing It is not "clear" whether Iowa's contacts are of the "greater significance" (Gillette), yet Iowa's contacts are not "so obviously limited and minimal" that application of Iowa law would constitute officious intermeddling (Beloit Liquidating). ¶44 Specifically, the relevant contacts of Iowa and Wisconsin include the following: ¢ The accident and Drinkwater's injuries occurred in Wisconsin. ¢ Drinkwater is a Wisconsin resident who works at an Iowa company. ¢ The Plan is an Iowa corporation with its principal offices and place of business located in Iowa, although it has clinics in Iowa, Illinois, and Wisconsin. ¢ The Plan contract was issued employer. 17 in Iowa to Drinkwater's No. ¢ 2004AP1793 The tortfeasor is a resident of Wisconsin and was covered under an insurance policy issued by a Wisconsin insurance company. ¢ Both Drinkwater vehicles and registered the in other driver Wisconsin at were the operating time of the accident. ¶45 Both Wisconsin's and Iowa's contacts are significant. It is not clear that Iowa's contacts are of greater significance (Gillette). At the same time, however, Iowa's contacts are more than minimal and limited (Beloit Liquidating). We therefore turn to apply the five choice-influencing factors. ¶46 Predictability of results. This factor deals with the parties' expectations; put another way, what legal consequences comport with the predictions or expectations of the parties? Gillette, 251 Wis. 2d 561, ¶54. Whether the application of Iowa law or Wisconsin law is more likely to lead to predictable and expected results under the facts of this case depends on which party's perspective on predictability and expectations is of is considered. ¶47 On the one hand, the application Iowa law consistent with the Plan's ability to predict and expect that Iowa law will apply to all its insureds or members. On the other hand, Wisconsin citizens are entitled to some assurance that when they suffer injuries within their own state, they can generally predict and expect that Wisconsin law will dictate their rights to recovery. 18 No. ¶48 2004AP1793 It may be true that the Plan reaps some benefit from the ability to know with complete predictability that Iowa law will apply. Yet, the application of Wisconsin law in this case does not completely undermine predictability for the Plan. A company such as the Plan is in a relatively good position to calculate the risks associated whether Iowa law will apply. reasonable Wisconsin routinely over-insure with decreased predictability In contrast, we would not expect insureds to themselves foresee for that injuries they should resulting from Wisconsin accidents on the off chance they might become subject to another state's law that effectively limits their recovery. ¶49 Thus, although the application of Iowa law might modestly increase predictability for the Plan, the application of Wisconsin law would facilitate predictability for Wisconsin citizens such as Drinkwater. The Plan, and those similarly situated, are in a better position to calculate the risk of a modest amount of unpredictability and adjust accordingly. The first the factor therefore points at least somewhat to application of Wisconsin law. ¶50 that a Maintenance of interstate order. jurisdiction which jurisdiction Wis. 2d 561, that ¶55. is is minimally substantially Under the This factor requires concerned concerned. facts of defer Gillette, this case to a 251 both jurisdictions are more than minimally concerned. ¶51 We cannot say that the application of Wisconsin law would appreciably impede state-to-state commercial intercourse as compared to the application of Iowa law. 19 Although it might No. 2004AP1793 be said that the application of Wisconsin law would discourage Iowa companies from hiring Wisconsin residents, it might just as easily be said that the application of Iowa law would discourage Wisconsin citizens from working for Iowa corporations. Thus, somewhat paradoxically, both Iowa and Wisconsin have at least some interest in the application of either jurisdiction's laws. ¶52 In addition, we note that this case does not appear to involve the risk of forum shopping. The accident occurred in Wisconsin, and both Drinkwater and the tortfeasor who caused his injuries are Wisconsin residents. Similarly, any fear that a prospective plaintiff would move to this state merely to take advantage of its made-whole doctrine is unfounded. the second factor does not appreciably favor All in all, Iowa law or Wisconsin law. Simplification of the judicial task. ¶53 stated a general simplified when foreign law. rule lawyers that and the judges judicial must This court has task apply is rarely themselves to Beloit Liquidating, 270 Wis. 2d 356, ¶28; see also Finch v. Southside Lincoln-Mercury, Inc., 2004 WI App 110, ¶30, 274 Wis. 2d 719, 685 N.W.2d 154 ("application of our own law, as opposed simplify to the our law of judicial a foreign task, except 20 jurisdiction, where will Wisconsin always law is No. complex or uncertain as compared to that of 2004AP1793 the other jurisdiction").6 ¶54 The judicial task application of Iowa law. would not be simplified by the In order to see why, we will delve a bit deeper into Iowa law. ¶55 In Wisconsin Ludwig, approach N.W.2d at 146. to the the Iowa Supreme made-whole Court rejected the doctrine. Ludwig, 393 It concluded that amounts recovered against a third party for separate elements of a claim can be identified and credited toward subrogation claims, even though other elements of the claim against the third party may not be fully satisfied. Id. implemented if The court explained that its holding could be parties included allocation of elements damages in settlement documents or special interrogatories. ¶56 of Id. The Iowa Supreme Court acknowledged that in many cases identification of specific amounts could because a lump sum settlement might be made. become difficult Id. at 146 n.2. Similarly, the court recognized, the insured and third party might be "less than solicitous" of the interests of a subrogee, and might therefore attempt to establish by agreement that the settlement included little to no reimbursement for the element 6 Cf. Gillette, 251 Wis. 2d 561, ¶59 ("A Wisconsin court can easily and simply apply Manitoba law to determine damages in the present case."). Professor Leflar explained as follows: "It has been argued that a court should apply its own local law unless there is good reason for not doing so. No one can deny the propriety of this argument so long as the 'unless' clause is adequately emphasized." Leflar, 31 N.Y.U. L. Rev. at 288 (footnote omitted). 21 No. of damages in which the subrogee is interested. Id. 2004AP1793 Thus, the court reasoned, a mini-trial such as that in Rimes might be required. Id.; see also Iowa American Ins. Co. v. Pipho, 456 N.W.2d 228, 230 (Iowa Ct. App. 1990) (remanding for a "minitrial" because a settlement did not state what share of the plaintiff's medical bills was attributed to a settlement agreement). ¶57 Iowa law Accordingly, it cannot be said that the application of would simplify the judicial task. Iowa case law suggests that a Rimes-type hearing may often be required under Iowa law. Thus, the application of Iowa law would be no simpler than the application of Wisconsin law. Moreover, the Ludwig court's discussion causes us concern that the application of Iowa law might inject additional opportunities for litigants to game the system, thereby increasing the potential complexity of the judicial task. This factor points to the application of Wisconsin law. ¶58 Advancement of the forum's governmental interests. "The question in private litigation, such as in an automobileaccident case, is whether the proposed nonforum rule comports with the standards of fairness and justice that are embodied in the policies of the forum law." Gillette, 251 Wis. 2d 561, ¶62 (quoting Heath, 35 Wis. 2d at 598 (1967)). the application of forum law will "If it appears that advance the governmental interest of the forum state, this fact becomes a major, though not in itself a determining, factor in the ultimate choice of 22 No. law." Gillette, 251 Wis. 2d 561, ¶62; 2004AP1793 accord Beloit Liquidating, 270 Wis. 2d 356, ¶30. ¶59 Wisconsin has a strong interest in compensating its residents who are victims of torts. ¶61; Conklin v. Horner, 38 Gillette, 251 Wis. 2d 561, Wis. 2d 468, 481, 157 N.W.2d 579 (1968) ("The policy of our tort law is to compensate those who are injured by negligent acts.").7 ¶60 Our state's made-whole doctrine, with its deep and firm roots, is a central means by which Wisconsin's interest in compensating its resident tort victims is effectuated. The court has repeatedly reaffirmed the strength and reach of the doctrine. As already explained, this occurred most recently in Ruckel in which the court held that under Rimes and Garrity an insured must be made whole before an insurer may exercise subrogation rights against its insured, even when an unambiguous subrogation clause in an insurance contract states otherwise. Ruckel, 253 Wis. 2d 280, ¶¶4, 40, 43. ¶61 In order for this factor to weigh in favor of the application of Wisconsin law, we need not determine that Iowa's law is a "bad law" or that it "serves no legitimate purpose." Gillette, 251 Wis. 2d 561, ¶65. 7 We can, and do, however, This court has also recognized "admonitory" and deterrent aspects of our tort law. Gillette, 251 Wis. 2d 561, ¶64; Conklin v. Horner, 38 Wis. 2d 468, 482, 157 N.W.2d 579 (1968). Similarly, the court has said: "It is in the interest of this state and of its citizens to retain where possible those laws which require motorists to refrain from acts of ordinary negligence." Conklin, 38 Wis. 2d at 483. 23 No. 2004AP1793 determine that limiting Drinkwater's net recovery to less than the damages Wisconsin's he would recover significant under interest citizens who are tort victims. Wisconsin in fully law undermines compensating its This factor points strongly to the application of Wisconsin law. Application of the better rule of law. ¶62 As previously suggested, we need not and do not necessarily conclude that Iowa law is bad law or serves no legitimate purpose. Yet, this court's repeated affirmations of Wisconsin's made-whole doctrine must to some extent be taken as an indication of Wisconsin's view that our made-whole doctrine constitutes the better rule. This court has rejected the Iowa approach. ¶63 We cannot help but observe that the application of Iowa law would seem to work inequitable results, at least from the viewpoint of a tort system such as that in Wisconsin. At oral if argument, counsel for the Plan conceded that Drinkwater's medical expenses had been $251,000, a sum that is $1,000 more than the limits of the tortfeasor's liability insurance, under Iowa law the Plan would have been subrogated to all of Drinkwater's recovery. In other words, according to the Plan's counsel, the most severe cases of injury are those in which the injured party would be most likely to end up with a net recovery of zero. This is the type of result that, as we declared in Ruckel, "turn[s] the entire doctrine of subrogation on its head." Ruckel, 253 Wis. 2d 280, ¶41. thus points to the application of Wisconsin law. 24 The final factor No. ¶64 Considering the five 2004AP1793 choice-influencing together, we conclude that Wisconsin law should apply. factors All of the factors either point to the application of Wisconsin law or are neutral. The parties agree, as do we, that under Wisconsin's made-whole doctrine, the Plan is not entitled to any subrogation against Drinkwater's recovery. Accordingly, we need go no further to conclude that the circuit court judgment must be affirmed. III ¶65 In sum, we conclude that Wisconsin law applies to require that Drinkwater must be made whole before the Plan is entitled to subrogation against Drinkwater's recovery for his personal injuries. because Drinkwater The was Plan not is made not entitled whole under to subrogation Wisconsin law. Accordingly, we affirm the circuit court judgment. By the Court. The judgment Court is affirmed. 25 of the Grant County Circuit No. ¶66 DAVID T. PROSSER, J. 2004AP1793.dtp The made-whole (dissenting). doctrine is a well-established feature of Wisconsin tort and insurance law. in all I support this doctrine and wish it were the law jurisdictions. Unfortunately, it is not. We must recognize that fact in considering this case. ¶67 Shane Drinkwater was very underinsured Wisconsin motorist. If Mr. Drinkwater were badly injured by an He has not been made whole. employed by a Wisconsin employer and insured by a Wisconsin insurer, there would be no dispute that the made whole doctrine would apply to his case. are otherwise. But the facts At the time of the accident, Mr. Drinkwater worked for an Iowa employer and was insured by an Iowa health plan. In the insurance contract, the Iowa insurer explicitly reserved its subrogation rights, as permitted under Iowa law, and it unambiguously provided that Iowa law would govern the contract. ¶68 Mr. Drinkwater's employer, Laboratories, is located in Dubuque. United Clinical The company has more than 100 employees. ¶69 The Dubuque metropolitan area includes the states of Illinois, Iowa, and Wisconsin. and Grant Mississippi County River in from Jo Daviess County in Illinois Wisconsin Dubuque. are directly Because of across this the geography, there is a good possibility that Shane Drinkwater was not the only Wisconsin resident who worked 1 for United Clinical No. Laboratories. There is a good possibility 2004AP1793.dtp that Illinois residents work there as well. ¶70 live in All the employees of United Clinical Laboratories who Iowa Laboratories and who all live the in employees Illinois of are United governed Clinical by the subrogation clause in the Medical Associates Health Plan. The Illinois residents are governed by the clause because Illinois,1 like Iowa,2 does not recognize the made whole doctrine. ¶71 United Clinical Laboratories is one of numerous employers in the border states of Illinois and Iowa who employ Wisconsin employees residents. health Many care of these plans that employers afford contractually their reserve subrogation rights and do not recognize the made whole doctrine. Some of these employers may be much smaller than United Clinical Laboratories. Conversely, Shane Drinkwater is one of the thousands of Wisconsin residents who drive across this state's border to take advantage of an employment opportunity and health insurance in one of these neighboring states.3 ¶72 These Wisconsin residents will receive enhanced protection because of this court's decision if they are involved 1 Eddy v. Sybert, 783 N.E.2d 106, 110 (Ill. App. Ct. 2003). 2 Ludwig v. Farm Bureau Mut. Ins. Co., 393 Wis. 2d 143 (Iowa 1986). 3 The Wisconsin Department of Revenue estimates that in 2004 more than 53,000 Wisconsin residents were employed at jobs in Illinois. See Letter dated December 28, 2005, from Michael L. Morgan, State of Wisconsin Secretary of Revenue, to Brian Hamer, Director, Illinois Department of Revenue (on file with the State of Wisconsin Department of Revenue, Madison, Wisconsin). 2 No. in an accident in Wisconsin. 2004AP1793.dtp They will receive more protection than their co-workers and consequently may become more expensive to insure than their co-workers who live in Illinois or Iowa. This may have employers. It an effect on health care have an effect on may costs for Wisconsin their resident employment. ¶73 In resolving the choice of law issue presented here, the court skillfully marshals the facts and policy in a manner that supports its decision. weight. But some of the facts carry no For instance, the fact that "[t]he tortfeasor is a resident of Wisconsin and was covered under an insurance policy issued by a Wisconsin insurance company," majority op., ¶44, is really not relevant. The law would not be different if the tortfeasor lived in Illinois and was covered issued by an Illinois insurance company. under a policy What is important is that the tortfeasor's insurer provided liability coverage. ¶74 The fact that "[b]oth Drinkwater and the other driver were operating vehicles registered in Wisconsin at the time of the accident," supplements the id., fact also that is not the two significant. drivers were It merely Wisconsin residents. ¶75 There are three important Wisconsin-related facts: (1) Mr. Drinkwater was and is a Wisconsin resident; (2) his accident occurred in Wisconsin; and (3) his suit was filed in Wisconsin. ¶76 The rule of this case is that Wisconsin law will trump Illinois or Iowa subrogation law on a Wisconsin injury to a Wisconsin resident when the case is tried in a Wisconsin court. 3 No. ¶77 2004AP1793.dtp What is not clear is what the result would be if there were a Wisconsin injury to an Illinois or Iowa resident and the case were tried in a Wisconsin court against the insured's home state insurer (like subrogation rights. Medical Associates Health Plan) claiming Because Wisconsin is visited by hundreds of thousands of out-of-state tourists, this sort of scenario must be anticipated. ¶78 We also do not know what the result would be if a Wisconsin resident like Mr. Drinkwater were to be injured in an Illinois or Iowa accident but able to sue in Wisconsin and bring in the out-of-state insurer claiming subrogation. ¶79 results. This uncertainty undermines the predictability of As this court stated: Predictability is one of the choice-influencing considerations that deserves special emphasis in consensual arrangements. . . . [S]ince a legal relationship is entered into by pre-arrangement, it is imperative that the parties know their rights will be the same, irrespective of the forum, and that their agreement will have the same consequences, irrespective of where the contract is performed or where a dispute in regard to it is resolved. Heath v. Zellmer, 35 Wis. 2d 578, 596, 151 N.W.2d 664 (1967). ¶80 The Drinkwater. result in this case is certainly fair to Mr. The nagging concern is whether our decision will have collateral consequences to other people or the law. 4 No. 1 2004AP1793.dtp
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