Blue Cross & Blue Shield United of Wisconsin v. Fireman's Fund Ins. Co. of Wisconsin

• Decision Date: 15 May 1987
• Docket Number: No. 84-1853,84-1853
• Parties: BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN, Plaintiff-Appellant, v. FIREMAN'S FUND INSURANCE COMPANY OF WISCONSIN, and Stanley E. Altenbern, Defendants-Respondents-Petitioners.
• Court: Wisconsin Supreme Court

Page 133

411 N.W.2d 133

140 Wis.2d 544

BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN, Plaintiff-Appellant, v. FIREMAN'S FUND INSURANCE COMPANY OF WISCONSIN, and Stanley

E. Altenbern, Defendants-Respondents-Petitioners.

No. 84-1853.

Supreme Court of Wisconsin.

Submitted on Briefs Feb. 9, 1987.

Decided May 15, 1987.

Donald H. Piper, Terry J. Booth and Fellows, Piper & Schmidt, Milwaukee, for plaintiff-appellant.

Paul R. Hoefle, Tamara A. Hayes and Frisch, Dudek and Slattery, Ltd., Milwaukee, for defendants-respondents-petitioners.

CALLOW, Justice.

This is a review of a published decision of the court of appeals, Blue Cross v. Fireman's Fund, 132 Wis.2d 62, 390 N.W.2d 79 (Ct.App.1986), reversing a judgment of the circuit court for Waukesha county, Judge Robert T. McGraw, which dismissed, for failure to state a claim upon which relief may be granted, the subrogation complaint filed by Blue Cross & Blue Shield United of Wisconsin.

The question presented in this case is whether a subrogated insurer, to state a claim for relief, must allege that an insured who has settled with the tortfeasor has been made whole. Because we conclude that an insured who has settled his or her part of the claim against the tortfeasor does not have to be made whole before a subrogated insurer may bring a subrogation claim against a tortfeasor or his or her insurer, we hold that Blue Cross & Blue Shield United of Wisconsin (Blue Cross) has stated a claim for relief. Accordingly, we affirm the decision of the court of appeals.

This case is before us on a motion to dismiss for failure to state a claim upon which relief may be granted. Thus, the only facts are those stated in the complaint, which for the purposes of this review must be taken as admitted. Kranzush v. Badger State Mutual Casualty Co., 103 Wis.2d 56, 57, 307 N.W.2d 256 (1981). The Blue Cross complaint states the following facts.

On December 30, 1980, Kyle Adams was injured while riding as a passenger in a vehicle owned by Wisconsin Coach Lines, Inc., and operated by Stanley E. Altenbern. The injuries incurred by Adams were a result of the negligent operation of the vehicle by Altenbern. At the time of the accident, the vehicle operated by Altenbern was insured by Fireman's Fund Insurance Company of Wisconsin (Fireman's).

As a result of the accident, Kyle Adams sustained injuries which required hospital services and medical care. Pursuant to a contract for hospital services between Blue Cross and Robert Adams, father of Kyle, Blue Cross paid hospital charges on behalf of Kyle Adams, as dependent of Robert Adams, in the amount of $10,202.50. Blue Cross paid these charges and, therefore, became subrogated to the extent of the payment. Thereafter, on July 20, 1981, and again on November 4, 1982, Blue Cross notified Fireman's of its subrogation rights.

On December 24, 1982, Blue Cross learned that Kyle and Robert Adams had settled their personal injury claim for $60,000--$40,000 less than Fireman's policy limits. Furthermore, despite Fireman's knowledge of the subrogation claim of Blue Cross, the Adamses' claim was settled without settling or resolving Blue Cross's subrogation claim.

On March 2, 1983, Blue Cross initiated this action against Fireman's and Altenbern to recover the $10,202.50 which it paid on behalf of Adams. The trial court dismissed Blue Cross's complaint for failure to state a claim upon which relief could be granted because Blue Cross failed to allege that Adams had been made "whole" by the settlement with Fireman's. According to the trial court, under Rimes v. State Farm Mutual Automobile Insurance Co., 106 Wis.2d 263, 316 N.W.2d 348 (1982), and Garrity v. Rural Mutual Insurance Co., 77 Wis.2d 537, 253 N.W.2d 512 (1977), an insured must be made whole before the insurer may recover its subrogated interest.

The court of appeals, in reversing the trial court, concluded that under this court's decision in Vogt v. Schroeder, 129 Wis.2d 3, 383 N.W.2d 876 (1986), an allegation that the insured has been made whole is not essential to the subrogation claim of Blue Cross. Blue Cross, 132 Wis.2d at 66, 390 N.W.2d 79. The court of appeals interpreted Vogt to hold that the rule of Garrity and Rimes (that the subrogee cannot recover until the subrogor is made whole) is not an absolute rule which applies in every case. According to the court of appeals, its application depends upon the application of equitable principles to the facts of the case. Thus, because the present case did not involve the same compelling equitable factor which defeated the subrogation right asserted in both Rimes and Garrity (the prospect of an insurer seeking funds from its own insured who had not been made whole), the court of appeals concluded that Blue Cross had stated a claim upon which relief could be granted. Blue Cross, 132 Wis.2d at 65-66, 390 N.W.2d 79. On September 9, 1986, we granted Fireman's petition for review of the decision of the court of appeals.

As we noted earlier, this case is before us on a motion to dismiss for failure to state a claim for relief. Whether a complaint states a claim upon which relief may be granted is a question of law, and we need not defer to the decisions of the lower courts.

It is clear from our past cases that a subrogated insurer has a cause of action to enforce its subrogation rights against the tortfeasor's insurer despite the existence of a settlement between the injured party (subrogated insurer's insured) and the tortfeasor's insurer. See Associated Hospital Service v. Milwaukee Automobile Mutual Insurance Co., 33 Wis.2d 170, 147 N.W.2d 225 (1967). In such a situation, we have characterized the interests of the insurer and the insured as each owning separately a part of the claim against the tortfeasor. Heifetz v. Johnson, 61 Wis.2d 111, 120, 211 N.W.2d 834 (1973); Wilmot v. Racine County, 136 Wis.2d 57, 63-64, 400 N.W.2d 917 (1987).

Our characterization of the interest of a subrogated insurer and its insured as each owning a separate part of the claim against the tortfeasor is consistent with our earlier conclusion that a subrogated insurer retains a cause of action against the tortfeasor despite the existence of a settlement between the insured and the tortfeasor. Because an insured and a subrogated insurer each own separately part of the claim against the tortfeasor, a settlement or recovery by the insured operates only to satisfy the part of the claim owned by the insured. Because only the part of the claim owned by the insured is satisfied, the part of the claim owned by the subrogated insurer remains unsettled and may be sued upon by the subrogated insurer.

In the present case, Blue Cross acquired a subrogated interest in the Adamses' claim against the tortfeasor when it paid $10,202.50 on behalf of Kyle Adams for medical expenses incurred as a result of the accident. As the holder of a subrogated interest, Blue Cross owns a part of the claim against the tortfeasor. Because Blue Cross owns a part of the claim which is separate from that owned by the Adamses, the settlement between the Adamses and Fireman's ¹ operated only to extinguish the part of the claim owned by the Adamses. Absent some indication that the Adamses had the authority to settle the part of the claim owned by Blue Cross, the Adamses' agreement with Fireman's could not and did not impair Blue Cross's right to enforce its part of the claim. Because there is nothing to indicate that Blue Cross agreed to the settlement, Blue Cross has a cause of action to recover its subrogated interest from the tortfeasor and its insurer.

Fireman's contends, however, that under our rulings in Garrity, supra, and Rimes, supra, the subrogated insurer may not recover until it is demonstrated that the insured has been made whole. Although...