Alt v. American Family Mut. Ins. Co.

Decision Date03 February 1976
Docket NumberNo. 108,108
Citation237 N.W.2d 706,71 Wis.2d 340
PartiesLeslie S. K. ALT, a minor, by Arlo McKinnon, his guardian ad litem, and Leslie L. Alt, Appellants, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin Insurance Corporation, Respondent. (1974).
CourtWisconsin Supreme Court

Briefs by: Kersten & McKinnon, Milwaukee, Kenan J. Kersten and Kevin M. O'Donnell, Milwaukee, of counsel; argued by: Kenan J. Kersten, Milwaukee, for appellants.

Brief by: Aberg, Bell, Blake & Metzner, S.C., Madison, argued by: Carroll E. Metzner, Madison, for respondent.


This is an appeal from a summary judgment dismissing the plaintiffs' complaint. This case arises out of an automobile-pedestrian accident which occurred on November 10, 1969. The injured person in that accident was Leslie S. K. Alt, age six at the time of the accident. The driver of the vehicle was Rowena R. Jorgensen. Rowena R. Jorgensen's automobile liability insurance company, American Family, afforded coverage only in the amount of $50,000. After trial, the jury brought in a verdict of $329,478.30 or $279,478.30 in excess of coverage. Judgment for the excess was taken against Rowena Jorgensen. Rowena Jorgensen has assigned her cause of action against American Family to the injured minor and to his father.

The Alts commenced the instant action on the assigned claim against American Family for its failure to exercise good faith in the settlement of the Alts' case against Rowena Jorgensen.

The only question posed on this appeal is whether, in a claim against an insurance company for liability for failure to settle a claim, there must be evidence of an unequivocal and legally binding offer before a jury issue can be raised in respect to an insurer's lack of good faith.

The trial court, although recognizing that the affidavits submitted by the parties on summary judgment raise substantial factual disputes, concluded that the resolution of the legal issue stated above constituted an overriding proposition that rendered a jury resolution of the disputed factual issues unnecessary.

We conclude that the trial court erred in holding that a legally binding offer by the claimant is a prerequisite to maintaining an action for bad faith where an insured has been exposed to excess liability. We reverse.

The plaintiffs herein alleged that the insurance company failed to make a timely and diligent investigation to discover the severity of the injuries suffered by the minor and the probable liability on the part of its insured, Jorgensen; that Jorgensen was not informed that the recovery on the claims would probably exceed the policy limits; that the insurance company failed to inform its insured, Jorgensen, of offers of settlement received from time to time from the plaintiffs in the original action; that it failed to make a timely evaluation of the claim; and that it failed to settle the claims within the policy limits when it had an opportunity to do so.

On this appeal the respondent insurance company does not dispute the trial judge's view that factual issues were raised by the summary judgment affidavits. The insurance company reasons, as did the trial judge, that, because the offers for settlement were not binding, they triggered no duty on the part of the insurance company to attempt settlement within the policy limits. It is thus evident that this case reaches us in the posture requiring that only the legal question posed be decided.

The record shows that on the very day the accident occurred, the American Family Mutual Insurance Company was notified by one of its agents that its insured had struck the Alt child with her automobile and that the child had sustained a severe injury. It is implicit in the record that, from the very outset of the claim, it should have been apparent to a reasonable lawyer or claims investigator that the case was one of probable liability and that the damages might well be in excess of the policy limits. We refrain, however, from comment or conclusion in respect to the duty of the insurance company at the inception of the claim procedure to have attempted settlement. These are issues which must be reserved for the jury.

There were three alleged settlement offers made by Alts' counsel, Attorney Stephen R. Miller, prior to trial. Even the fact that all of these offers were made is disputed and that factual dispute must be resolved by the jury. The judge at the summary judgment proceedings concluded, however, that, were those offers made, they were legally irrelevant because they were not binding.

The first offer, according to Attorney Miller, was made on April 15, 1970, prior to the commencement of the action. Miller claims that he telephoned James R. Lund, American Family's district claims manager, and offered to settle the claims of the child and of his father for the policy limits of $50,000. Miller claims that Lund stated he would get back to Miller on this proposition, but he never did so. Lund denies that this conversation ever took place, and there is no evidence that the offer, if made, was communicated to Rowena Jorgensen.

The lawsuit in the original case was commenced on May 5, 1970, and on May 27, 1970, Arlo McKinnon was formally appointed as guardian ad litem for the minor plaintiff.

A second offer allegedly was made at a pretrial conference held on April 1, 1971, before Judge Harvey L. Neelen. At this conference, Attorney Miller gave the court and counsel for Rowena Jorgensen and her insurance company medical records that showed the Alt child had incurred medical bills in excess of $16,000 and reports showing that he had suffered severe brain damage, the loss of vision of the left eye, and severe and permanent motor disability. Miller states that he offered to settle all the claims for the policy limit of $50,000. That this offer was made was denied by American Family's attorney, Edward J. Simarski, and Attorney Emmett E. O'Connell, who was the personal attorney for Rowena Jorgensen. The guardian ad litem, Arlo McKinnon, was not present at the pretrial conference.

According to Attorney Miller, Judge Neelen recommended to Simarski at the conference that American Family pay its policy limit of $50,000 in settlement. While it is denied by Simarski that an offer was made, only five days later, Attorney Simarski reported to his client, American Family, on the pretrial conference held before Judge Neelen. He told his client that:

'Judge Neelen says that in view of the injuries involved he didn't feel that a jury was going to let our driver out of the case without finding some negligence. He recommended that we throw in our $50,000.00 policy.'

Although Attorney Simarski did not recommend settlement at that time, he advised his client that the plaintiff was six years old and could not be held contributorily negligent and that 'we have a very serious damage exposure here.'

The record fails to show that Miller's offer, if it was made, was communicated to Rowena Jorgensen and it is also clear that the affidavits do not agree that Judge Neelen had recommended settlement in the amount of $50,000, although the letter of Simarski to American Family would tend to confirm the Miller affidavit that he indeed had done so.

A third offer allegedly was made as a result of negotiations triggered by a letter of Mr. Alt to Attorney Miller on October 5, 1971. On that date, Alt told Miller that if American Family made an unequivocal offer to pay its policy limits, he would follow Miller's recommendation and send a written authorization to accept that offer and to release Rowena Jorgensen and her insurance company. Mr. Alt placed an October 15, 1971, deadline on his willingness to accept such an offer if made. On October 7, 1971, Attorney Miller wrote Attorney Simarski, stating:

'I wonder if your company would be interested in paying in its limits in order to get itself and insured out of the case. I would be inclined to recommend this to the client, if this could be arranged before the 15th of October, 1971. After that time, I have to bear down on trial preparation, and we have to advance substantial costs for expert witnesses.'

No response was received from American Family prior to the deadline. Although the letter was understood by American Family's Milwaukee area branch counsel as a settlement demand in the sum of $50,000, there is nothing in the record to show that either Rowena Jorgensen or her attorney, Emmett O'Connell, were informed of Miller's October 7th offer until October 25, 1971. On that date Simarski, on behalf of American Family, by letter, offered to pay the policy limits of $50,000. On October 26, 1971, Alt, by letter, advised Attorney Miller:

'You have informed me that the American Family Insurance Company has not responded to our offer to settle this case within the limits of the policy in question. Therefore, we have no choice but to be resolute and proceed to verdict.'

On October 28, 1971, apparently in response to the Simarski letter of October 25th, Miller wrote Simarski, telling him that he no longer had authority from his client to settle for $50,000. A formal offer of judgment was rejected by Miller on November 2, 1971, and the case went to trial on November 16, 1971.

Whether the first two offers were made at all is disputed. If that dispute is material, the facts must be decided by the jury. However, American Family contended, at the time of the motion for summary judgment, that even were the offers made, they had no legal effect, because there was no participation in the proceedings by the minor's guardian ad litem, Arlo McKinnon.

It was the trial judge's theory also that, unless the offers were participated in by the guardian ad litem, any attempt by American Family to accept Attorney Miller's proposal would be a nullity. The trial judge also concluded that there was no bad faith in respect to Rowena Jorgensen, because neither she nor...

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