Cieslewicz v. Mutual Service Cas. Ins. Co.

• Decision Date: 30 June 1978
• Docket Number: No. 76-050,76-050
• Citation: 84 Wis.2d 91,267 N.W.2d 595
• Parties: Lynn M. CIESLEWICZ, a minor, by John D. Finerty, her guardian ad litem, and Martin J. Cieslewicz, Plaintiffs-Respondents, v. MUTUAL SERVICE CASUALTY INSURANCE COMPANY, a Foreign Corporation, Robert A. Fakler and Richard T. Fakler, Defendants-Appellants.
• Court: Wisconsin Supreme Court

Page 595

267 N.W.2d 595

84 Wis.2d 91

Lynn M. CIESLEWICZ, a minor, by John D. Finerty, her guardian ad litem, and Martin J. Cieslewicz Plaintiffs-Respondents, v. MUTUAL SERVICE CASUALTY INSURANCE COMPANY, a Foreign Corporation, Robert A. Fakler and Richard T Fakler, Defendants-Appellants.

No. 76-050.

Supreme Court of Wisconsin.

Argued June 6, 1978.

Decided June 30, 1978.

Tom E. Hayes, Milwaukee, for defendants-appellants; Edward A. Hannan and Hayes & Hayes, Milwaukee, on briefs.

Charles D. Clausen, Milwaukee, for plaintiffs-respondents; John D. Finerty and Friebert & Finerty, Milwaukee, on brief.

William L. McCusker, Madison, Theodore B. Hertel, Jr., Irving D. Gaines, and David A. Saichek, Milwaukee, filed brief amicus curiae for Wisconsin Academy of Trial Lawyers.

HEFFERNAN, Justice.

This case presents the question whether a homeowner's liability insurance policy which covers "all sums which the Insured shall become legally obligated to pay as damages because of bodily injury" obligates the insurer to pay treble damages imposed upon the insured pursuant to statute.

On August 30, 1974, nine-year-old Lynn J. Cieslewicz was bitten by a German Shepherd dog owned and cared for by Richard T. Fakler and his father, Robert A. Fakler, respectively. For purposes of this appeal, it is unnecessary to recount the details of the incident. It is sufficient to state that Lynn Cieslewicz was bitten several times, that 41 sutures were required to close her wounds, that the dog had previously bitten another young girl without apparent provocation, and that the Faklers had knowledge of the previous incident.

This action was commenced on January 16, 1975, to recover damages for the injuries sustained. The case was tried before a jury, which returned a verdict in favor of plaintiff Lynn Cieslewicz in the amounts of $2,500 for past personal injury and $6,500 for future disability. The jury awarded plaintiff Martin J. Cieslewicz, Lynn's father, $265.76 for past medical expenses and $1,500, subsequently reduced by the trial court to $800, for future medical expenses. The total compensatory damages awarded were $10,065.76. Pursuant to sec. 174.04 Stats., ¹ these damages were treble by the trial court.

Judgment was entered against the defendants, Robert Fakler and Richard Fakler, in the amount of $30,827.94, including interest, costs, and disbursements, and against the defendant, Mutual Service Casualty Insurance Company, in the amount of $25,000, the limit of personal liability coverage under its homeowner's insurance policy issued to Robert Fakler, plus costs and disbursements of the action.

The compensatory damages awarded by the trial court are not challenged on this appeal, nor is the applicability of sec. 174.04, Stats., contested. However, the insurer appeals from that portion of the judgment which awarded multiple damages against it. It is the position of the insurer that the terms of its policy provide coverage for compensatory damages only and that indemnification against statutory treble damages is contrary to public policy.

The initial issue is whether the terms of the policy extend coverage for statutory treble damages. The policy provides:

"This Company agrees to pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of bodily injury or property damage, to which this insurance applies, caused by an occurrence. The Company shall have the right and duty, at its own expense, to defend any suit against the Insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, but may make such investigation and settlement of any claim or suit as it deems expedient. This Company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of this Company's liability has been exhausted by the payment of judgments or settlements."

By this provision, the insurer promises to pay all sums which the insured becomes legally obligated to pay as damages because of bodily injury. There can be no serious dispute that the treble damage award was a sum which the insured was legally obligated to pay as damages. The only real question is whether the insured was obligated to pay the damages "because of bodily injury."

A similar issue arises when a jury awards common law punitive damages (as opposed to the statutory multiple damages involved in this case). The issue then presented is whether the insurance policy extends coverage to common law punitive damages and whether these damages are awarded "because of bodily injury." Courts in other jurisdictions have divided on this question, but the greater weight of authority holds that language similar to that involved in this case extends coverage to punitive damages. See generally, Annot., 20 A.L.R.3d 343, sec. 2 (1968). We are persuaded that the cases holding that the policy covers punitive damages are the better reasoned opinions.

In Carroway v. Johnson, 245 S.C. 200, 204-05, 139 S.E.2d 908, 910 (1965), the Supreme Court of South Carolina said:

"The policy here is a voluntary policy and defendant agreed to pay 'all sums' which the insured 'shall become legally obligated to pay as damages' because of bodily injury. The punitive damage award is a sum which the insured is legally obligated to pay as damages. However, the question remains: Are punitive damages, 'damages because of bodily injury? ' . . .

". . .pay "The policy under consideration did not limit recovery to actual or compensatory damages. The language of the policy here is sufficiently broad enough to cover liability for punitive damages as such damages are included in the 'sums' which the insured is legally obligated to pay as damages because of bodily injury within the meaning of the policy."

A similar view was taken by the Supreme Court of Idaho in Abbie Uriguen Oldsmobile Buick, Inc., v. United States Fire Insurance Co., 95 Idaho 501, 511 P.2d 783, 789 (1973):

"We point out that the policy provisions herein make no distinction as between actual and punitive damages. Punitive damages are not specifically excluded from the policy language. Under the provision of the policy the company promises to pay on behalf of the insured all sums which the insured shall be legally obligated to pay as damages caused by the use of any automobile. The law is clear in Idaho that insurance policies are to be construed most liberally in favor of recovery. . . . Since policies are written by companies without any arms length bargaining between the parties all ambiguities are resolved in favor of the insured. . . . Clearly absent any public policy to the contrary, this controversy must be resolved in favor of the insured."

It is the infliction of bodily injury which gives rise to the cause of action. Once the cause of action arises, punitive or multiple damages are awarded in connection with, or because of, the injuries incurred. Ohio Casualty Insurance Co. v. Welfare Finance Co., 75 F.2d 58, 59 (8th Cir. 1934), cert. denied, 295 U.S. 734, 55 S.Ct. 615, 79 L.Ed. 1682.

The rationale of these cases is in accord with the holdings of this court which have construed coverage claims in insurance policies. On its face, the policy provision is broad enough to cover multiple damages. What was said in Insurance Co. of North America v. Universal Mortgage Corp. of Wis., 82 Wis.2d 170, 178, 262 N.W.2d 92, 96 (1978), is applicable here:

"We have frequently stated that no insurance policy should be rewritten by a court to bind an insurer to a risk which it did not contemplate and for which it has not been paid. Wisconsin Builders, Inc. v. General Insurance Co., 65 Wis.2d 91, 103, 221 N.W.2d 832 (1974). In the instant case, however, it appears to us that the plaintiff, Insurance Company, would have us rewrite the policy to exonerate it from a risk which it contemplated and for which it has been paid. The most that can be said in favor of the insurance company's position is that the language upon which it relies is ambiguous or obscure. As Wisconsin Builders, supra, stated, however, any ambiguity or obscurity in the language must be construed against the insurance company which drafted the policy and any provision tending to limit the liability of the insurance company should be construed most strongly against the insurance company."

We have also held that an insurance policy should be construed as it would be understood by a reasonable person in the position of the insured. Garriguenc v. Love, 67 Wis.2d 130, 226 N.W.2d 414 (1975). The language of the policy is to be given the common and ordinary meaning it would have in the mind of a lay person. Lawver v. Boling, 71 Wis.2d 408, 238 N.W.2d 514 (1976). A reasonable person in the position of the insured would believe that the language of the policy provides coverage against all civil liability arising out of an occurrence resulting in bodily injury. Harrell v. Travelers Indemnity Co., 279 Or. 199, 567 P.2d 1013, 1015 (1977); Lazenby v. Universal Underwriters Insurance Co., 214 Tenn. 639, 648, 383 S.W.2d 1 (1964).

Essentially, what the insurer has done in this case is to "sandbag" its own insured by using a provision which is phrased in very broad terms and which gives the insured the reasonable impression that protection is afforded. Upon presentation of the claim, however, the insurer has attempted to avoid responsibility for part of the damages, on the theory that multiple damages are not within the terms of the policy. In accordance with the principles adopted by this court in construing a policy of insurance, we hold that the multiple damages are included in the coverage clause of the policy.

An insurer is, however, not required to offer a policy that reasonably can be construed to provide coverage for multiple damages. An insurance company is free to insert an exclusion clause which expressly and...