Allstate Ins. Co. v. Charneski

• Decision Date: 03 April 1962
• Citation: 114 N.W.2d 489,16 Wis.2d 325
• Parties: ALLSTATE INSURANCE CO., an Illinois corporation, Appellant, v. Leonard CHARNESKI et al., Respondents.
• Court: Wisconsin Supreme Court

Page 489

114 N.W.2d 489

16 Wis.2d 325

ALLSTATE INSURANCE CO., an Illinois corporation, Appellant, v. Leonard CHARNESKI et al., Respondents.

Supreme Court of Wisconsin.

April 3, 1962.

The appeal involves a determination that a dismissal of a suit between the parties for declaratory relief in the federal court was res adjudicata and under the law of this state an automobile liability insurer cannot have declaratory relief to litigate what would normally be a policy defense.

The facts are quite simple. The complaint alleges that on June 21, 1959, the defendant Leonard Charneski, the owner and driver of a 1950 Ford, collided with an automobile driven by defendant Laverne Gehrt and owned by her father, defendant Arthur Mech, and in which he and his wife Bertha Mech were passengers. The defendant Heritage Mutual Insurance Company insured Arthur Mech and included in its policy 'uninsured motorist' coverage agreeing to pay certain damages which the insured would be legally entitled to recover from the owner or operator of an uninsured automobile causing the injury, providing the right to recover and the amount thereof was determined by agreement, and if the insurer and the insured failed to so agree, then by arbitration. The complaint also alleges Leonard Charneski was the owner of another car, a 1951 Ford, not involved in the accident, which the appellant insured under its policy, that Leonard Charneski claimed he was not the owner of the 1950 Ford involved in the accident as he had sold it to his brother, the defendant Edwin Charneski, a few days before the accident and, therefore, the appellant's policy covering the 1951 Ford insured him under 'drive another car' coverage while driving the 1950 Ford, and demanded that the appellant defend the threatening suits against him, file proof of insurance with the state motor vehicle department and pay any judgment recovered against him as a result of the accident.

To determine its rights and liabilities under the coverage provisions of its policy, which depended solely on the narrow issue of ownership of the 1950 Ford at the time of the accident, the appellant commenced suit for declaratory relief in the federal district court for the western district of Wisconsin against Leonard Charneski, his brother and the other defendants who are involved in this suit. The jury in the federal suit found Leonard Charneski, not his brother, was the owner of the 1950 Ford and a declaratory judgment was entered declaring the appellant's policy did not cover Leonard Charneski at the time of the accident. On appeal, the United States court of appeals for the seventh circuit reversed, holding the district court erred in not denying the defendant's motion to dismiss the complaint; thus the appellate court did not reach the question of ownership of the car. This action for declaratory relief on the same facts and against the same parties was then commenced in the state court. Upon motions for summary judgment and a demurrer of the defendants, a judgment was entered dismissing the complaint, and the plaintiff appealed.

Peickert, Anderson & Fisher, Stevens Point, John E. Shannon, Jr., Gerald M. O'Brien, Stevens Point, of counsel, for appellant.

Smith, Puchner, Tinkham & Smith, Wausau, C. Duane Patterson, Wausau, of counsel, for respondent.

HALLOWS, Justice.

Apparently deterred by the holding in New Amsterdam Casualty Company v. Simpson (1941), 238 Wis. 550, 300 N.W. 2367, that an automobile liability insurer cannot have declaratory judgment to determine insurance coverage involving an automobile accident in advance of the determination of the alleged insured's liability on the negligence issue, the appellant, being a foreign corporation, sought such relief under the federal Declaratory Judgments Act (28 U.S.C.A. § 2201) on the jurisdictional ground of diversity of citizenship. Such choice of forums was not without merit and encouragement since precedents existed for such relief in the federal court which involved the plaintiff. Allstate Ins. Co. v. Moldenhauer (1952, C.A. 7th), 193 F.2d 663; Chase Nat. Bank of City of New York v. Citizens Gas Co. (1940, C.A. 7th), 113 F.2d 217. While the federal trial court was sympathetic to the appellant's position, the court of appeals was not, and thus the first question upon this appeal is raised, namely, is the federal suit res adjudicata of this action?

The appellant claims the only matter decided was a point of federal procedure under the federal statutes and the decision represents only an application of the 'abstention doctrine.' Strictly speaking, the court of appeals for the seventh circuit held the federal district court should not have entertained the appellant's motion for declaratory relief under the federal Declaratory Judgments Act ¹ because to do so would be contrary to the public policy of Wisconsin as set forth in the Simpson Case, which denied the right of an insurance company to bring a declaratory judgment action under the Wisconsin Uniform Declaratory Judgment Act, sec. 269.56, Stats., 31 W.S.A. 688, involving an automobile liability policy because such action would be in contravention of the legislative policy in enacting the direct action statute (Sec. 260.11, Stats., 30 W.S.A. 39; sec. 204.30(4), Stats., 25 W.S.A., 1961 Cum. pocket part, page 26). Under the authority of the doctrine of Erie Railway Co. v. Tompkins (1938), 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, and finding the simple substantive-procedural classification as applied to Simpson would not be determinable of the question because while Simpson admittedly dealt with a procedural matter in one context, it was otherwise impregnated with substantive law, the court turned to the test of 'the consideration and accommodation of the basic state and federal policy goals involved.' In applying this standard, the court reasoned the Wisconsin policy of providing direct action against insurance companies and exclusively preferring such suits over declaratory relief in automobile negligence cases was substantive policy which outweighed any slight federal interest to be served by a diversity suit for discretionary declaratory relief which would, if allowed, seriously weaken the state position, and 'create discriminations against citizens of the State in favor of those [eligible] to invoke the diversity jurisdiction of the federal court.' It was that element of discrimination that Erie Railway Co. v. Tompkins, supra, was designed to eliminate. Woods v. Interstate Realty Co. (1949), 337 U.S. 535, 69 S.Ct. 1235, 93 L.Ed. 1524; Guaranty Trust Co. of New York v. York (1945), 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079; Angel v. Bullington (1947), 330 U.S. 183, 67 S.Ct. 657, 91 L.Ed. 832.

Thus the federal court refrained from exercising its...