Cunningham v. Metropolitan Life Ins. Co., 83-445

• Decision Date: 18 November 1983
• Docket Number: No. 83-445,83-445
• Citation: 342 N.W.2d 60,116 Wis.2d 331
• Parties: Michael A. CUNNINGHAM, Plaintiff-Appellant, v. METROPOLITAN LIFE INSURANCE COMPANY, Defendant-Respondent. *
• Court: Wisconsin Court of Appeals

Page 60

342 N.W.2d 60

116 Wis.2d 331

Michael A. CUNNINGHAM, Plaintiff-Appellant, v. METROPOLITAN LIFE INSURANCE COMPANY, Defendant-Respondent.^*

No. 83-445.

Court of Appeals of Wisconsin.

Submitted on Briefs Oct. 11, 1983.

Opinion Released Nov. 18, 1983.

Opinion Filed Nov. 18, 1983.

Van Hecke & Mank, S.C., Milwaukee, on brief, for plaintiff-appellant; F.M. Van Hecke, Milwaukee, of counsel.

Foley & Lardner, Milwaukee, on brief, for defendant-respondent; James O. Huber and Richard M. Esenberg, Milwaukee, of counsel.

Before WEDEMEYER, P.J., and DECKER and MOSER, JJ.

DECKER, Judge.

Michael Cunningham (Cunningham) appeals from a judgment that respondent Metropolitan Life Insurance Co., (Metropolitan) had a subrogated interest in the settlement proceeds of Cunningham's wrongful death action because the coverage of Metropolitan's policy constituted an indemnity policy. Cunningham contends that the policy is an investment policy and that, therefore, in the absence of an express subrogation clause, there is no subrogation by operation of law. We disagree and affirm, holding, in light of Rixmann v. Somerset Public Schools, 83 Wis.2d 571, 266 N.W.2d 326 (1978), that the policy, as used here to pay for medical expenses incurred, is one of indemnity.

The case comes here on stipulated facts. Cunningham, as an employee of American Can Company, had insurance coverage for himself and his dependents under a group policy of life, accident and health, and medical and hospital benefits issued by Metropolitan. His daughter, Helene, was involved in a car accident which ultimately resulted in her death. Under the group hospitalization and medical expense provisions of the policy, Metropolitan paid money representing medical expenses incurred by Cunningham as a result of Helene's injuries. The group policy contains no express subrogation clause.

Cunningham made and settled a claim against, among others, the liability insurer of the auto in which Helene was riding. The parties here agreed that $20,000 of the proceeds of that settlement would be held in trust pending a judicial determination of the subrogation question.

Cunningham moved for summary judgment upon the agreed statement of facts. The trial court determined the policy to be one of indemnity and denied the motion. The parties then entered into a supplementary statement of facts wherein it was agreed that Cunningham had been made whole by Metropolitan's payments and the settlement proceeds in light of the trial court's determination that the policy was one of indemnity and that Metropolitan had subrogation rights. The trial court then ordered judgment for Metropolitan. Cunningham appeals.

Both parties rely heavily upon Rixmann, supra, for their respective positions. We are persuaded that, where there is no express subrogation clause, Rixmann requires that the policy coverage be analyzed to determine if it is an investment policy or an indemnity policy. We conclude that the policy provisions employed here are of an indemnity nature and that, therefore, subrogation by operation of law is applicable. Accordingly, we affirm.

Rixmann explained the operation of subrogation in Wisconsin and clarified any confusion which might have arisen from certain language in Heifetz v. Johnson, 61 Wis.2d 111, 211 N.W.2d 834 (1973). Rixmann, supra 83 Wis.2d at 576, 266 N.W.2d at 329. Heifetz could have been read to suggest that "in any case in which the injured party has been compensated for his loss by his insurer, subrogation in favor of the insurer occurs." Rixmann, supra at 577, 266 N.W.2d at 329. The supreme court in Rixmann explained that the Heifetz language was dependent upon Patitucci v. Gerhardt, 206 Wis. 358, 240 N.W. 385 (1932), which itself made it clear that indemnity policies are subject to subrogation whether or not an express subrogation clause exists therein. Id. at 360-61, 240 N.W. at 385-86. See also Rixmann, supra 83 Wis.2d at 577-78, 266 N.W.2d at 329-30.

We read Rixmann to hold that, in Wisconsin, indemnity policies are subject to subrogation regardless of express clauses. Relying upon the definitions for investment and indemnity policies found in Rixmann and older Wisconsin cases cited therein, we conclude that the policy provisions in question before us are indemnity, rather than investment, provisions. Accordingly, we affirm the judgment of the trial court.

The hallmarks of an indemnity contract are that the insurer's position is "analogous to that of a surety," Patitucci, supra 206 Wis. at 361, 240 N.W. at 386, and that its purpose is to indemnify the assured "against such loss as he may have sustained by reason of a specified hazard." Id. [Emphasis added.]

An investment contract, on the other hand, is "a stipulation to pay a sum certain upon the happening of a specified contingency." Gatzweiler v. Milwaukee Electric Railway & Light Co., 136 Wis. 34, 37, 116 N.W. 633, 634 (1908). [Emphasis added.] "The money value of the thing covered by the insurance does not enter into the transaction at all." Id.

The investment-indemnity distinction, then, rests upon the measurement of liability. In an investment contract, the remuneration for the triggering event is measured and fixed by the contract itself and before the event occurs, e.g., a life insurance policy which pays a fixed amount upon the death of a person. See id. In an indemnity contract, on the other hand, the remuneration for the triggering event is dependent upon and measured by the extent of the insured's loss, e.g., a fire insurance policy which pays for whatever damage was occasioned by a fire. See id.; see also 1 G. Couch, Couch on Insurance § 1:16 (2nd ed. 1959).

We look at the insurance policy in question to determine into which category it falls. We begin by noting that the construction of an insurance policy is a question of law to be redetermined independently on appeal. ¹ Paper Machinery Corp. v. Nelson Foundry Co., 108 Wis.2d 614, 619, 323 N.W.2d 160, 163 (Ct.App.1982).

It is undisputed on appeal that the benefits in question were paid out under the "Group Hospitalization and Physicians' Services Benefits Insurance Rider" and the "Group Medical Expense Insurance-Extended Coverage" provision of the policy. ² Our review of these provisions makes it abundantly clear that the coverage is for the actual medical expenses incurred, within the limits of the policy. As such, there can be little question that the coverage is indemnity coverage in that it indemnifies the insured from whatever loss he sustained from a specified hazard rather than, as in an investment contract, pays a fixed sum upon the occurrence of a specified event. We therefore agree with the trial court's conclusion that an indemnity provision was involved here.

Finally, we address Cunningham's contention that, in Rixmann, the supreme court determined there to be no subrogation by operation of law for medical expenses incurred. While in Rixmann the supreme court did make a determination of no subrogation by operation of law, Rixmann, supra 83 Wis.2d at 582, 266 N.W.2d at 332, it did so on three bases, none of which is applicable here.

First, in Rixmann, the insurance contract in question was never made a part of the record. Id. Here, however, it was; and its pertinent parts demonstrate that they are indemnity, rather than investment, provisions.

Second, in Rixmann, because the policy was not part of the record, the supreme court at least implied that there was a failure by the one seeking to prove subrogation to introduce evidence to that effect. Id. Again, here, such is not the case.

Third, in Rixmann, the supreme court applied what it called the "traditional, pre-Heifetz, collateral source rule: 'An accident insurance policy, in the absence of any express provision in the policy to the contrary, is held to be an investment contract ... [under which] the insurance company is not subrogated to the rights of the insured [upon payment].' Patitucci v. Gerhardt, supra [206 Wis.] at 361 ." Id. Here, however, it is clear that the policy provisions in question do not constitute accident insurance provisions. The medical provisions...